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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO CURRENT REPORT ON
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 18, 2000
Chiron Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-12798 94-2754624
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4560 Horton Street, Emeryville, CA 94608
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 655-8730
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N/A
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 18, 2000, Picard Acquisition Corporation ("Picard"), a
Delaware corporation and a wholly-owned subsidiary of Chiron Corporation
("Chiron" or "Registrant"), acquired 15,838,508 shares, or approximately 96% of
the outstanding shares, of common stock par value $0.001 per share (the "Common
Stock"), together with the associated rights to purchase Series A Junior
Preferred Stock, of PathoGenesis Corporation ("PathoGenesis"), a Delaware
corporation, through a cash tender offer (the "Tender Offer") at $38.50 per
share. The Tender Offer was effected pursuant to an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of August 13, 2000, among Chiron, Picard and
PathoGenesis.
Following the Tender Offer, on September 21, 2000, Picard merged with
and into PathoGenesis under Section 253 of the General Corporation Law of the
State of Delaware (the "Merger"), and PathoGenesis became a wholly-owned
subsidiary of Registrant, with each remaining outstanding share of PathoGenesis
Common Stock converted into the right to receive $38.50 per share pursuant to
the Merger Agreement. Subsequent to September 21, 2000, Chiron acquired the
remaining outstanding shares of PathoGenesis Common Stock.
Chiron's total cost to acquire PathoGenesis (the "Purchase Price") was
$732.9 million. Of the total Purchase Price, Chiron has paid $707.4 million, and
expects to pay substantially all of the remaining Purchase Price, from its
available cash and cash equivalents and through liquidation of certain of its
investments in marketable debt securities.
Seattle-based PathoGenesis develops and commercializes drugs to treat
chronic infectious diseases - particularly serious lung infections, including
those common in cystic fibrosis, bronchiectasis and ventilator patients.
PathoGenesis' first drug, TOBI(R) (tobramycin solution for inhalation), is
approved for the management of cystic fibrosis patients with pseudomonas
aeruginosa lung infections. PathoGenesis Common Stock, previously traded on the
Nasdaq National Market System under the symbol "PGNS," was deregistered
following the Merger.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
The audited consolidated financial statements of PathoGenesis
Corporation and subsidiaries as of December 31, 1999 and 1998
and for the three years ended December 31, 1999, together with
the report thereon by KPMG LLP, independent certified public
accountants for PathoGenesis Corporation and subsidiaries, are
included in Exhibit 13.1 and incorporated herein by reference.
Pursuant to Rule 3-05(b)(2)(ii) of Regulation S-X, audited
financial statements of PathoGenesis Corporation and
subsidiaries are required only for the most recent fiscal
year.
The unaudited consolidated financial statements of
PathoGenesis Corporation and subsidiaries as of June 30, 2000
and for the three and six months ended June 30, 2000 and 1999
are included in Exhibit 13.2 and incorporated herein by
reference.
(b) Pro forma financial information.
Unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 2000.
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1999.
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Six Months Ended June 30, 2000.
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
CHIRON CORPORATION AND PATHOGENESIS CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements are presented for illustrative purposes only. These statements are
not necessarily indicative of Chiron's financial position or results of
operations for future periods or the results that actually would have been
realized had the acquisition and certain transactions (as defined below)
occurred. The unaudited pro forma condensed combined financial statements,
including the accompanying notes, are based on and qualified in their entirety
by reference to, and should be read in conjunction with, the reported audited
consolidated financial statements and the accompanying notes of Chiron and
PathoGenesis.
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The unaudited pro forma condensed combined financial statements give
effect to Chiron's acquisition of PathoGenesis for approximately $732.9 million.
The pro forma adjustments are based on the agreement with PathoGenesis,
independent appraisals and estimates which are derived from available
information and certain assumptions as described in the notes to the unaudited
pro forma condensed combined financial statements. Chiron's management believes
that the pro forma assumptions are reasonable under the current circumstances.
The unaudited pro forma condensed combined financial statements give
effect to the acquisition under purchase accounting. The Purchase Price consists
of a cash payment of $707.4 million, estimated direct transaction costs of $22.1
million and the conversion of certain outstanding options on PathoGenesis Common
Stock into options on Chiron common stock of $3.4 million. The amount related to
the conversion of options on PathoGenesis Common Stock represents the difference
between the fair value of the converted options and the intrinsic value
associated with the unvested portion of those options. The estimated Purchase
Price is allocated as follows: $354.5 million to identifiable intangible assets;
$222.0 million to goodwill; $171.6 million to in-process research and
development ("IPR&D"); and $15.2 million to net tangible liabilities acquired.
In accordance with generally accepted accounting principles, IPR&D will be
expensed in Chiron's fourth quarter of 2000. Although management believes that
the fair values and allocation of the estimated Purchase Price are reasonable
estimates, final purchase accounting adjustments may be made on the basis of
ongoing evaluations. As a result, the final allocation of the Purchase Price may
differ significantly from that presented.
The unaudited pro forma condensed combined financial statements do not
reflect any incremental direct costs, including any restructuring charges to be
recorded in connection with the acquisition, or potential cost savings which may
result from the consolidation of certain operations of Chiron and PathoGenesis.
Accordingly, the unaudited pro forma condensed combined financial statements are
not necessarily indicative of the results of operations or financial position of
the combined company that would have occurred had the acquisition occurred at
the beginning of each period presented or on the date indicated, nor are they
necessarily indicative of future operating results or financial position.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(in thousands)
<TABLE>
<CAPTION>
PRO
HISTORICAL HISTORICAL FORMA
CHIRON PATHOGENESIS ADJUSTMENTS COMBINED
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 474,450 $ 4,606 $(474,450) (a) $ 4,606
Short-term investments in marketable debt
securities 657,722 34,654 (232,971) (a) 459,405
Short-term investments in marketable equity
securities 4,183 -- 4,183
Accounts receivable, net 187,319 9,274 196,593
Inventories 102,894 13,215 116,109
---------- ------- --------- -----------
Current assets 1,426,568 61,749 (707,421) (a) 780,896
Noncurrent investments in marketable debt
securities 290,308 -- 290,308
Property, plant, equipment, leasehold
improvements and construction-in-progress, net 296,094 17,572 313,666
Investments in equity securities and
affiliated companies 120,287 -- 120,287
Other assets 295,177 18,509 354,500 (b) 875,629
---------- ------- ----------
222,006 (c)
(14,563) (d)
---------
$2,428,434 $97,830 $(145,478) $2,380,786
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 85,396 $ 8,310 $ 93,706
Short-term borrowings 2,135 -- 2,135
Current portion of long-term debt 252,077 100 252,177
Current portion of unearned revenue 36,490 -- 36,490
Taxes payable 33,566 -- 33,566
Other current liabilities 127,766 -- 127,766
----------- ------- -------
Current liabilities 537,430 8,410 545,840
Long-term debt 695 2,557 3,252
Other liabilities 48,267 -- $ 87,489 (e) 157,881
22,125 (f)
Minority interest 2,742 -- 2,742
---------- ------- --------- -----------
Total liabilities 589,134 10,967 109,614 709,715
---------- ------- --------- -----------
Common stock 1,828 17 (17) (g) 1,828
Additional paid-in capital 2,115,177 196,225 (196,225) (g) 2,118,548
3,371 (h)
Deferred compensation -- (299) 299 (g) --
Accumulated deficit (316,198) (108,246) (171,600) (i) (487,798)
108,246 (g)
Accumulated other comprehensive income 51,266 (834) 834 (g) 51,266
Treasury stock (12,773) -- (12,773)
---------- ------- --------- -----------
Total stockholders' equity 1,839,300 86,863 (255,092) 1,671,071
---------- ------- --------- -----------
$2,428,434 $97,830 $(145,478) $2,380,786
========== ======= ========= ==========
</TABLE>
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO
HISTORICAL HISTORICAL FORMA
CHIRON PATHOGENESIS ADJUSTMENTS COMBINED
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Net revenues $762,646 $60,844 $823,490
Cost of sales 184,414 11,239 195,653
Research and development 303,399 30,397 333,796
Selling, general and administrative 192,516 29,165 28,360 (j) 261,141
------- ------- --------
11,100 (j)
-------
Total operating expenses 680,329 70,801 39,460 790,590
------- ------ ------- --------
Operating income (loss) 82,317 (9,957) (39,460) 32,900
Other income, net 74,327 1,762 (42,445)(k) 33,644
------- ------- ------- --------
Income (loss) from continuing operations before 156,644 (8,195) (81,905) 66,544
income taxes
Provision for income taxes 28,240 -- (28,832)(l) (592)
------- ------- ------- --------
Income (loss) from continuing operations $128,404 $(8,195) $(53,073) $ 67,136
======== ======== ======== ========
Per share data:
Basic income per share from continuing
operations $ 0.71 (m) $ 0.37
======== ========
Diluted income per share from continuing
operations $ 0.69 (m) $ 0.36
======== =========
Shares used in calculating basic per share 181,162 181,162
amounts ======== =========
Shares used in calculating diluted per share
amounts 187,925 207 (m) 188,132
======== =========
</TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO
HISTORICAL HISTORICAL FORMA
CHIRON PATHOGENESIS ADJUSTMENTS COMBINED
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Net revenues $457,600 $39,937 $497,537
Cost of sales 99,530 6,876 106,406
Research and development 142,168 18,038 160,206
Selling, general and administrative 107,748 17,029 $ 14,180 (j) 144,507
------- ------- --------- ---------
5,550 (j)
---------
Total operating expenses 349,446 41,943 19,730 411,119
------- ------- --------- ---------
Operating income (loss) 108,154 (2,006) (19,730) 86,418
Other income, net 33,096 896 (21,223)(k) 12,769
------- ------- --------- ---------
Income (loss) from continuing operations before
income taxes 141,250 (1,110) (40,953) 99,187
Provision for income taxes 43,754 -- (13,460)(l) 30,294
------- ------- --------- ---------
Income (loss) from continuing operations $ 97,496 $ (1,110) $ (27,493) $ 68,893
======== ======== ========= =========
Per share data:
Basic income per share from continuing
operations $0.54 (m) $0.38
======== =========
Diluted income per share from continuing
operations $0.51 (m) $0.35
======== =========
Shares used in calculating basic per share
amounts 180,779 180,779
======== =========
Shares used in calculating diluted per share
amounts 197,190 104 (m) 197,294
======== =========
</TABLE>
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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements reflect
the purchase of all outstanding shares of PathoGenesis Common Stock, including
the settlement of certain benefit plans, with cash (the "Purchase
Consideration"), as follows:
<TABLE>
<CAPTION>
<S> <C>
Total Purchase Consideration.........................................................$707,421,020 (i)
Add: Estimated direct transaction costs...................................22,125,690 (ii)
Add: Conversion of outstanding stock options...............................3,370,530 (iii)
Less: Write-off of in-process research and development....................171,600,000 (iv)
Less: PathoGenesis identifiable intangible assets.........................354,500,000 (v)
Add: PathoGenesis net tangible liabilities................................15,188,871
------------
Estimated excess of Purchase Consideration over net assets acquired..................$222,006,111 (vi)
============
</TABLE>
(i) As of September 18, 2000, there were approximately
15.8 million shares of PathoGenesis Common Stock tendered for
purchase. All such shares were accepted for purchase in
accordance with the terms of the Tender Offer. Approximately
0.9 million shares of PathoGenesis Common Stock not tendered
were converted into the right to receive $38.50 per share. As
a result, Chiron paid $641.2 million to purchase 16.7 million
total shares of PathoGenesis Common Stock at $38.50 per share.
Also, certain outstanding options on PathoGenesis Common Stock
were redeemed in cash for $66.2 million. This amount
represents the difference between the fair value of the
redeemed options and the intrinsic value associated with the
unvested portion of those options.
(ii) Estimated direct transaction costs of $22.1 million to be
incurred by Chiron relate principally to investment banking
fees, legal, consulting, accounting, printing and severance
costs associated with the acquisition.
(iii) Chiron will record approximately $3.4 million to additional
paid-in capital related to the conversion of certain
outstanding options on PathoGenesis Common Stock into options
on Chiron Common Stock. This amount represents the difference
between the fair value of the converted options and the
intrinsic value associated with the unvested portion of those
options.
(iv) The portion of the Purchase Price allocated to IPR&D
represents the valuation of acquired, to-be-completed research
projects.
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(v) For purposes of preparing the unaudited pro forma condensed
combined financial statements, the identifiable intangible
assets acquired as of June 30, 2000 of $354.5 million are
being amortized over estimated useful lives of 5 to 20 years,
utilizing an estimated median useful life of 12.5 years to
calculate the straight-line amortization. On an on-going
basis, Chiron will perform periodic reviews of the
identifiable intangible assets to ensure that they are carried
at recoverable amounts in light of current business
conditions.
(vi) For purposes of preparing the unaudited pro forma condensed
combined financial statements, the estimated excess of
Purchase Consideration over net assets acquired (the
"Goodwill") as of June 30, 2000 of $222.0 million is being
amortized on a straight-line basis over 20 years. On an
on-going basis, Chiron will perform periodic reviews of the
Goodwill to ensure that it is carried at a recoverable amount
in light of current business conditions.
Certain amounts in the historical consolidated financial statements of
Chiron and PathoGenesis have been reclassified to conform to the unaudited pro
forma condensed combined financial statement presentation. No adjustments were
necessary to eliminate intercompany transactions and balances in the unaudited
pro forma condensed combined financial statements as there were no intercompany
transactions or balances.
Pro forma adjustments giving effect to the acquisition in the unaudited
pro forma condensed combined financial statements are as follows:
(a) To reflect the cash payment out of cash and cash
equivalents and the liquidation of short-term investments
in marketable debt securities to fund the Purchase
Consideration as discussed in Note (i) above.
(b) To reflect the estimated fair value of identifiable
intangible assets acquired as a result of this acquisition
as discussed in Note (v) above.
(c) To reflect the Goodwill originating in acquisition as
discussed in Note (vi) above.
(d) To reflect the difference between the net assets acquired
as of September 21, 2000 and the net assets as of June 30,
2000 used for purposes of preparing the unaudited pro
forma condensed combined financial statements.
(e) To reflect the net deferred tax liability resulting from
purchase accounting.
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(f) To reflect the estimated direct transaction costs as
discussed in Note (ii) above.
(g) To eliminate PathoGenesis' stockholders' equity.
(h) To reflect the issuance of options for Chiron common stock
to replace outstanding options for PathoGenesis Common
Stock as discussed in Note (iii) above.
(i) To reflect the estimated gross IPR&D charge, as discussed
in Note (iv) above. This charge is excluded from the
unaudited pro forma condensed combined statements of
operations due to its nonrecurring nature.
(j) To reflect the amortization of the Goodwill and
identifiable intangible assets on a straight-line basis
over 20 years and 12.5 years, respectively, as discussed
in Notes (v) and (vi) above.
(k) To reflect a reduction in interest income earned as a
result of the approximate $707.4 million cash payment,
assumed at 6% for purposes of the unaudited pro forma
condensed combined statements of operations.
(l) To reflect the tax effect of adjustments (i), (j) and (k)
above.
(m) Earnings per share calculations are based on the weighted
average number of shares of Chiron common stock and common
equivalent shares outstanding, including the options
issued for Chiron common stock to replace outstanding
options for PathoGenesis Common Stock as discussed in Note
(iii) above, for each period presented.
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(c) Exhibits.
<TABLE>
<S> <C>
13.1 Financial statements of PathoGenesis Corporation
and subsidiaries as of December 31,1999 and 1998
and for the three years ended December 31, 1999.
13.2 Financial statements of PathoGenesis Corporation
and subsidiaries as of June 30, 2000 and for the
three and six months ended June 30, 2000 and 1999.
23 Consent of KPMG LLP.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHIRON CORPORATION
Date: December 1, 2000 By:/s/ WILLIAM G. GREEN
--------------------
William G. Green
Senior Vice President,
General Counsel and Secretary
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