<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 11, 1994
--------------
CENTOCOR, INC.
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-11103 23-2117202
- ---------------------------------------------------------------------
(State or other juris- (Commission file (IRS Employer
diction of incorporation) number) Identification No.)
200 Great Valley Parkway, Malvern, Pennsylvania 19355
- ---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 651-6000
--------------
Not applicable
- --------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition of Assets.
---------------------
Pursuant to an exchange offer by the Registrant, as described in the
Schedule 14D-1 filed by the Registrant dated March 4, 1994, as amended on March
7, 1994 and March 18, 1994, the Registrant offered to purchase all of the
2,250,000 outstanding Units, each Unit consisting of one share of Callable
Common Stock, par value $1.00 per share, of Tocor II, Inc., a British Virgin
Islands corporation ("Tocor II"), one Series T Warrant to purchase one share of
the Registrant's Common Stock, par value $.01 per share, and one Callable
Warrant to purchase one share of the Registrant's Common Stock, $.01 per share,
for $40 per Unit, subject to certain adjustments as described in the exchange
offer, payable in shares of the Registrant's Common Stock, par value $.01 per
share.
As set forth in Amendment No. 2 to the Schedule 14D-1 filed by the
Registrant on March 18, 1994: (i) the Registrant publicly announced on March 14,
1994, that the exchange offer expired, pursuant to its terms, at 5:00 P.M., New
York City time, on March 11, 1994 and that a preliminary report from the
Registrant's transfer agent in connection with the exchange offer indicated that
more than 90 percent of the outstanding Units were tendered in connection with
the exchange offer and (ii) 2,122,955 of the outstanding Units (94.4%) were
tendered and not withdrawn prior to the expiration of the exchange offer and the
Registrant has accepted those tendered Units. Based on the exchange formula set
forth in the exchange offer, the Registrant has issued 3.2 shares of its
Common Stock, par value $.01 per share, for each Unit tendered, or, an
aggregate of 6,793,456 shares of its Common Stock, par value $.01 per share,
in connection with the exchange offer.
Therefore, as a result of the exchange offer, as of March 11, 1994, the
Registrant, by acquiring approximately 94.4% of the outstanding shares of Common
Stock, par value $1.00 per share, of Tocor II, which are included in the Units
tendered to the Registrant, has acquired control of Tocor II and, has indirectly
acquired the assets of Tocor II.
The assets of Tocor II consist principally of cash and certain peptide
technology developed through contract research and development conducted by the
Registrant pursuant to a certain Research and Development Agreement between the
Registrant and Tocor II dated January 21, 1992.
<PAGE>
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements
--------------------
The financial statements of Tocor II to be provided in this Section (a) are
incorporated herein by reference to pages F-1 through F-17 of the Prospectus
dated February 2, 1994 used in connection with the Registration Statement on
Form S-4, Registration No. 33-51421, filed by the Registrant on December 13,
1993, and copies of such pages are attached hereto as Exhibit 99(i).
(b) Pro forma Financial Information.
-------------------------------
The pro forma financial information to be provided in this Section (b) is
incorporated herein by reference to pages 34 through 37 of the Prospectus dated
February 2, 1994 used in connection with the Registration Statement on Form S-4,
Registration No. 33-51421, filed by the Registrant on December 13, 1993, and
copies of such pages are attached hereto as Exhibit 99(ii).
(c) Exhibits:
--------
10(i) Research and Development Agreement between Centocor,
Inc. and Tocor II, Inc., dated January 21, 1992
(incorporated by reference to Exhibit 10.2 to Amendment
No. 2 to Form S-1/S-3 Registration Statement of
Centocor, Inc. and Tocor II, Inc., Registration No.
33-44072)
99(i) Financial Statements of Tocor II, Inc. (incorporated by
reference to pages F-1 through F-17 of the Prospectus
dated February 2, 1994 used in connection with the
Registration Statement on Form S-4, Registration No.
33-51421, filed by Centocor, Inc. on December 13, 1993)
99(ii) Pro Forma Condensed Combined Balance Sheet and
Statements of Operations Data of Tocor II, Inc. and
Centocor, Inc. (incorporated by reference to pages 34
through 37 of the Prospectus dated February 2, 1994
used in connection with the Registration Statement on
Form S-4, Registration No. 33-51421, filed by Centocor,
Inc. on December 13, 1993)
<PAGE>
99(iii) Schedule 14D-1 filed by Centocor, Inc., dated March 4,
1994 (incorporated by reference to Schedule 14D-1 filed
by Centocor, Inc., dated March 4, 1994)
99(iv) Amendment No.2 to Schedule 14D-1 filed by Centocor,
Inc., dated March 18, 1994 (incorporated by reference
to Amendment No. 2 to Schedule 14D-1 filed by Centocor,
Inc., dated March 18, 1994)
<PAGE>
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.
CENTOCOR, INC.
Registrant
Dated: March 24, 1994 By: /s/ George D. Hobbs
-------------------
George D. Hobbs,
Corporate Counsel
and Secretary
<PAGE>
INDEX TO TOCOR II FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Tocor II, Inc. Balance Sheet as of December 31, 1992...................... F-3
Tocor II, Inc. Statement of Operations for the period January 21, 1992
through December 31, 1992................................................ F-4
Tocor II, Inc. Statement of Cash Flows for the period January 21, 1992
through December 31, 1992................................................ F-5
Tocor II, Inc. Statement of Shareholders' Equity for the period January
21, 1992 through December 31, 1992....................................... F-6
Tocor II, Inc. Notes to Financial Statements.............................. F-7
Tocor II, Inc. Balance Sheet (Unaudited) as of September 30, 1993......... F-11
Tocor, II Inc. Statements of Operations (Unaudited) for the nine months
ended September 30, 1993 and for the period January 21, 1992 through
September 30, 1992....................................................... F-12
Tocor II, Inc. Statements of Operations (Unaudited) for the three months
ended September 30, 1993 and for the three months ended September 30,
1992..................................................................... F-13
Tocor II, Inc. Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 1993 and for the period January 21, 1992 through
September 30, 1992....................................................... F-14
Tocor II, Inc. Notes to Financial Statements.............................. F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Tocor II, Inc.:
We have audited the accompanying balance sheet of Tocor II, Inc. as of
December 31, 1992 and the related statements of operations, shareholders'
equity, and cash flows for the period from January 21, 1992 through December
31, 1992. In connection with our audit of the financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These financial statements and financial statement schedule are the
responsibility of Tocor II's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tocor II, Inc. as of December
31, 1992 and the results of its operations and its cash flows for the period
from January 21, 1992 through December 31, 1992 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick
Tortola, British Virgin Islands
March 24, 1993
F-2
<PAGE>
TOCOR II, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 3)......................... $ 723,474
Short-term investments (Note 3)............................ 63,544,062
Interest receivable........................................ 624,299
Prepaid research and development expenses.................. 1,770,000
------------
66,661,835
Organizational costs, net of amortization of $211,452........ 941,910
------------
Total assets................................................. $ 67,603,745
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 20,055
Due to Centocor, Inc. (Note 6)............................. 152,773
Accrued litigation settlement (Note 7)..................... 3,000,000
------------
3,172,828
Note payable to Centocor, Inc. (Note 4)...................... 100,000
Shareholders' Equity (Note 5)
Callable Common Stock ($1.00 par value, 3,000,000 shares
authorized, 2,250,000 issued and outstanding)............. 2,250,000
Additional paid-in capital................................. 81,675,000
Deficit.................................................... (19,594,083)
------------
64,330,917
------------
Total liabilities and shareholders' equity................... $ 67,603,745
============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TOCOR II, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 21, 1992
THROUGH
DECEMBER 31, 1992
-----------------
<S> <C>
Investment income:
Interest.................................................... $ 2,833,415
Gain on sale of securities.................................. 79,598
------------
2,913,013
Costs and Expenses:
Research and development (Note 6)........................... 19,048,000
General and administrative.................................. 106,166
Amortization of organizational costs........................ 211,452
Interest expense............................................ 6,478
Litigation settlement (Note 7).............................. 3,135,000
------------
22,507,096
Loss.......................................................... $(19,594,083)
============
Loss per share................................................ ($8.71)
======
Weighted average shares outstanding........................... 2,250,000
============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TOCOR II, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDING
JANUARY 21, 1992
THROUGH
DECEMBER 31, 1992
---------------------
<S> <C>
Cash flow from (used for) operating activities:
Loss.................................................. $ (19,594,083)
Adjustments to reconcile loss to net cash used for oper-
ating activities:
Amortization of organizational costs.................. 211,452
Amortization of premium on investments................ 285,805
Change in assets and liabilities:
Increase in interest receivable..................... (624,299)
Increase in prepaid research and development
expenses........................................... (1,770,000)
Increase in organizational costs.................... (1,153,362)
Increase in accounts payable........................ 20,055
Increase in accrued litigation settlement........... 3,000,000
Increase in amounts due to Centocor, Inc............ 152,773
-------------
122,424
Net cash used for operating activities................ (19,471,659)
Cash flow from financing activities:
Net proceeds from issuance of Callable Common Stock... 83,925,000
Proceeds of loan from Centocor, Inc................... 100,000
-------------
Net cash from financing activities...................... 84,025,000
Cash flow from (used for) investing activities:
Purchases of investments.............................. (116,263,021)
Maturities of investments............................. 52,433,154
-------------
Net cash used for investing activities.................. (63,829,867)
Net increase in cash and cash equivalents............... 723,474
Beginning cash and cash equivalents..................... --
Ending cash and cash equivalents........................ $ 723,474
=============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TOCOR II, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 21, 1992 THROUGH DECEMBER 31, 1992
<TABLE>
<CAPTION>
CALLABLE ADDITIONAL TOTAL
COMMON PAID-IN SHAREHOLDERS'
DESCRIPTION STOCK CAPITAL DEFICIT EQUITY
----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Issued upon sale of
Callable Common Stock..... $2,250,000 $87,750,000 $ -- $ 90,000,000
Less stock issuance costs.. -- (6,075,000) -- (6,075,000)
Loss....................... -- -- (19,594,083) (19,594,083)
---------- ----------- ------------ ------------
Balance at December 31,
1992...................... $2,250,000 $81,675,000 $(19,594,083) $ 64,330,917
========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
TOCOR II, INC
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business Operations
Tocor II, Inc. (the "Company") was incorporated on November 6, 1991 in the
British Virgin Islands (the "BVI") and the Company commenced operations on
January 21, 1992. Therefore, no comparative financial statements are provided
herein. Virtually all of the Company's activities are conducted pursuant to
contracts with Centocor, Inc. ("Centocor"). The Company does not maintain staff
or occupy any facilities, other than office facilities, and as such, is heavily
dependent upon Centocor.
In January, 1992, the Company and Centocor completed the sale to the public
of 2,250,000 Units, each Unit consisting of one share of the Company's Callable
Common Stock, one Series T warrant to purchase one share of Centocor Common
Stock, and one Callable warrant to purchase one share of Centocor Common Stock.
The Callable Common Stock and the warrants will trade only as Units through
December 31, 1993. Following such date, the Series T warrants will separate and
the Callable Common Stock will continue to trade only as Units with the
Callable warrants through December 31, 1995. The separation of the components
of the Units will accelerate in the event Centocor exercises its option to
purchase the Callable Common Stock (see Note 5). The Company is contractually
obligated to use substantially all of the net proceeds of the offering,
approximately $83,925,000, to engage Centocor to conduct research, development,
and preliminary clinical studies with respect to small peptide molecule-based
pharmaceutical products (the "Products") for the treatment of human diseases
(see Note 6).
In connection with the Unit offering, Centocor was granted an option to
purchase all of the outstanding shares of the Company's Callable Common Stock.
The ability of Centocor to exercise this option is highly dependent upon the
future financial condition of Centocor. Centocor is subject to the reporting
requirements of the Securities Exchange Act of 1934. The market value of a Unit
is highly affected by the business operations of Centocor. Additionally, due to
the Centocor warrant component of the Unit, the market value of a Unit is
affected by the market value of Centocor Common Stock. The exercise price of
the series T warrant is $64.50 per share of Centocor Common stock, which at
December 31, 1992, had a market value of $16.25 per share. If the purchase
option is exercised, the Callable warrants will terminate.
2. Summary of Significant Accounting Policies
The Company prepares its financial statements in accordance with United
States generally accepted accounting principles.
Organizational costs are amortized over 60 months on a straight line basis.
The Company classifies investments with original maturities of three months
or less as cash equivalents. Investments with maturities of less than one year
are classified as short-term.
Per share data is based upon the weighted average number of outstanding
shares of Callable Common Stock.
No provision is made for income taxes as the Company is exempt from income
taxes under the laws of the BVI.
3. Cash Equivalents and Investments
Cash equivalents at December 31, 1992 consist principally of U.S. Treasury
money market funds and U.S. Treasury securities. Short-term investments at
December 31, 1992 consist of U.S. Treasury securities with market values at
December 31, 1992 of $63,786,000.
F-7
<PAGE>
TOCOR II, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. Note Payable to Centocor
The Company's note payable to Centocor bears interest at 7 percent per annum
and is due on the day after the termination of the Purchase Option Agreement
(see Note 5) and may not be prepaid.
5. Callable Common Stock
Pursuant to a Purchase Option Agreement, Centocor holds an option (the
"Purchase Option"), exercisable through December 31, 1995, to purchase all of
the outstanding shares of the Callable Common Stock of the Company. The option
exercise price is $58 per share in 1993, $76 per share in 1994, and $107 per
share in 1995.
If all funds available for payment by Tocor II to Centocor under the
Development Agreement (see Note 6) are expended, the Purchase Option will
continue only for so long as Centocor funds research and development of the
Products, but in no event later than December 31, 1995. Centocor is under no
obligation to continue to fund such research and development, but may do so at
its option. The Company currently anticipates that the net proceeds of the
January 1992 offering will be available to fund research under the Development
Agreement through December 31, 1995.
Until the termination of the Purchase Option Agreement, the Company is not
permitted to issue additional capital stock, borrow more than $1 million in the
aggregate, declare or pay dividends out of funds required to be paid to
Centocor under the Development Agreement, merge, liquidate or sell
substantially all of its assets without the approval of Centocor, as holder of
the note described in Note 4.
6. Agreements with Centocor
In January, 1992, the Company and Centocor entered into a technology license
agreement, (the "License Agreement") under which Centocor granted to the
Company a worldwide, exclusive, royalty-free, perpetual, fully paid license to
proprietary rights owned or controlled by Centocor during the term of the
Development Agreement, which are necessary or useful for the research,
development, manufacture or sale of the Products. Under the License Agreement,
Tocor II has granted to Centocor a worldwide, fully paid, exclusive, royalty
free, right and license in perpetuity to Tocor II's technology owned, acquired
or developed during the term of the Development Agreement for any uses of such
technology outside of Tocor II's field of activity. Under the terms of the
License Agreement, the Company paid a nonrefundable fee of $2,500,000 to
Centocor during the first quarter of 1992.
In January, 1992, the Company entered into an agreement (the "Development
Agreement") with Centocor under which Centocor will conduct research and
development with respect to the Products. Under this agreement, the Company is
obligated to pay to Centocor an amount consisting of (i) substantially all of
the net proceeds of the public offering (less $1 million to be retained by the
Company for working capital, a non-refundable fee of $2,500,000 paid under the
technology License Agreement and an amount retained for the Company's general
and administrative expenses), and (ii) any interest and other income earned
through temporary investment of the Company's funds. Under the Development
Agreement, Centocor was reimbursed for the research and development costs
incurred on behalf of the Company, plus a management fee equal to 10% of such
costs. The Company incurred expenses under the Development Agreement of
$16,548,000 for the period January 21, 1992 through December 31, 1992.
Subject to its obligation to use reasonable efforts under the Development
Agreement, Centocor has the sole discretion to determine the allocation of
Centocor resources that are available to Tocor II to conduct research and
development under the Development Agreement and Centocor may from time to time
choose
F-8
<PAGE>
TOCOR II, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
to limit the available resources to Tocor II, thereby delaying development of
the Products. Research and development activities conducted by Centocor for
Tocor II's small peptide molecule program are heavily integrated with
activities conducted in Centocor's monoclonal antibody program. Certain costs
of Centocor's research, development and clinical trial activities are allocated
to Tocor II pursuant to the Development Agreement as such activities have the
potential to benefit Tocor II, as well as Centocor. As a result, funding
provided by Tocor II benefits Centocor in its activities outside of Tocor II's
field of activity.
Either Tocor II or Centocor may terminate the Development Agreement (i) if
the other party breaches any material obligation under the Development
Agreement or the License Agreement, subject to a 60-day cure period or (ii) if
the other party enters into any voluntary proceeding in bankruptcy,
reorganization or an arrangement for the benefit of its creditors or 60 days
(exclusive of any period during which a stay is in effect) after any
involuntary proceeding if not dismissed during such 60-day period. The
Development Agreement will terminate automatically upon termination of the
Purchase Option Agreement or the License Agreement.
The Company has also entered into a services agreement (the "Services
Agreement") with Centocor and a wholly owned subsidiary of Centocor, whereby
Centocor or its subsidiary provides certain management and administrative
services to the Company on a fully burdened cost reimbursement basis. Centocor
is also paid a management fee by the Company equal to 10 percent of such costs
incurred.
In 1993, the Company expects to amend the Development Agreement and the
Services Agreement, in accordance with the proposed settlement of the
litigation described in Note 7, to reduce the management fee under each
agreement from 10% to 5% until the earlier of (i) the termination of the
Development Agreement and the Services Agreement or (ii) the aggregate
reduction in management fees resulting from the amendments equals $3,000,000.
Two officers of the Company are also officers of Centocor. One officer and
director of the Company is also a director of Centocor.
7. Litigation
On December 11, 1992, the United States District Court for the Eastern
District of Pennsylvania entered an order preliminarily approving a settlement
of the securities litigation and derivative actions, in which the Company is a
defendant, captioned in Re: Centocor Securities Litigation No. 92-CV-1071. The
court had previously entered an order certifying (i) the litigation to proceed
as a class action, and (ii) a class of plaintiffs consisting of all persons who
purchased Company securities during the period January 21, 1992 through April
20, 1992, and who sustained damages as a result of such purchases. Under terms
of the proposed settlement, (i) all claims against the Company and the other
defendants will be dismissed with prejudice, (ii) in settlement of the
securities claim the Company will make a cash payment of $5,000,000, and (iii)
in settlement of the derivative actions brought on behalf of the Company, the
Company will receive a cash payment of $2,000,000, and the Company and Centocor
will amend certain agreements between them to provide that Centocor will, over
time, forego $3,000,000 of contract payments. On March 18, 1993, a hearing was
held before the court for the purpose of determining whether the proposed
settlement should be finally approved. At that hearing, counsel for the members
of the plaintiffs' classes and counsel for each of the defendants recommended
to the court that the settlement be approved. The court is now considering
their recommendations. In connection with the proposed settlement, the Company
recorded a charge to earnings of $3,135,000 representing the net cost of the
proposed settlement to the Company, including legal fees.
In January 1993, certain purported security holders of the Company and/or
Centocor filed complaints in the United States District Court for the Eastern
District of Pennsylvania against the Company, Centocor
F-9
<PAGE>
TOCOR II, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
and certain present and former directors and/or officers of the Company and/or
Centocor. The plaintiffs allege that (a) defendants knowingly or recklessly
omitted certain material facts and made false and misleading statements of
material facts about Centocor in violation of Sections 10(b) and 20 of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and (b) defendants
made false and misleading statements and omissions of material facts in the
January 21, 1992 registration statement and prospectus of the Company in
violation of Sections 11, 12 and 15 of the Securities Act of 1933. The
complaints seek permission to proceed as a class action on behalf of persons
who purchased securities of the Company and/or Centocor during specified
periods from April 1992 to January 1993 and who were allegedly damaged thereby.
The complaints seek compensatory damages in unspecified amounts, rescission of
the purchase of Tocor II Units pursuant to the January 21, 1992 registration
statement and prospectus of the Company, declaratory judgment, counsel fees,
interest, costs of suit and such other relief that the court deems appropriate.
The Company believes that the allegations set forth in the complaints are
without merit and intends to vigorously defend itself. The Company does not
expect that the effect, if any, of the outcome of the litigation will be
material to the Company's financial condition.
F-10
<PAGE>
TOCOR II, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993
-------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 2)............................. $ 1,027,503
Short-term investments (Note 2)................................ 51,460,991
Interest receivable............................................ 299,875
Prepaid research and development expenses...................... 2,546,000
Other.......................................................... 2,062
------------
55,336,431
Organizational costs, net of amortization of $384,459 at
September 30, 1993 and $211,452 at December 31, 1992............ 768,903
------------
Total assets..................................................... $ 56,105,334
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 13,039
Due to Centocor, Inc........................................... 1,694
Accrued litigation settlement.................................. --
14,733
------------
Note payable to Centocor, Inc. (Note 3).......................... 100,000
Shareholders' Equity (Note 4)
Callable Common Stock ($1.00 par value, 3,000,000 shares
authorized, 2,250,000 issued and outstanding)................. 2,250,000
Additional paid-in capital..................................... 81,675,000
Deficit........................................................ (27,934,399)
------------
55,990,601
------------
Total liabilities and shareholders' equity....................... $ 56,105,334
============
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
TOCOR II, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE JANUARY 21, 1992
MONTHS ENDED THROUGH
SEPTEMBER 30, 1993 SEPTEMBER 30, 1992
------------------ ------------------
<S> <C> <C>
Investment income:
Interest................................ $ 1,749,932 $ 2,154,055
Costs and Expenses:
Research and development (Note 5)....... 9,695,000 15,602,000
General and administrative.............. 216,994 83,296
Amortization of organizational costs.... 173,007 153,783
Interest expense........................ 5,247 4,729
----------- ------------
10,090,248 15,843,808
Loss...................................... $(8,340,316) $(13,689,753)
=========== ============
Loss per share............................ ($3.71) ($6.08)
====== ======
Weighted average shares outstanding....... 2,250,000 2,250,000
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
TOCOR II, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1992
------------------ ------------------
<S> <C> <C>
Investment income:
Interest................................ $ 527,194 $ 684,662
Costs and Expenses:
Research and development (Note 5)....... 2,935,000 4,326,000
General and administrative.............. 17,850 36,784
Amortization of organizational costs.... 57,669 57,669
Interest expense........................ 1,749 1,749
----------- -----------
3,012,268 4,422,202
Loss...................................... $(2,485,074) $(3,737,540)
=========== ===========
Loss per share............................ ($1.10) ($1.66)
====== ======
Weighted average shares outstanding....... 2,250,000 2,250,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
TOCOR II, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE JANUARY 21, 1992
MONTHS ENDED THROUGH
SEPTEMBER 30, 1993 SEPTEMBER 30, 1992
------------------ ------------------
<S> <C> <C>
Cash flow used for operating activities:
Loss.................................... $ (8,340,316) $(13,689,753)
Adjustments to reconcile loss to net
cash used for operating activities:
Amortization of organizational costs.. 173,007 153,783
Amortization of premium (discount) on
investments.......................... (439,493) 318,297
Change in assets and liabilities:
(Increase) decrease in interest
receivable......................... 324,424 (832,335)
Increase in prepaid research and
development expenses............... (776,000) (419,000)
Increase in other................... (2,062) --
Increase in organizational costs.... -- (1,153,362)
Increase (decrease) in accounts
payable............................ (3,007,016) 11,304
Increase (decrease) in amounts due
to Centocor, Inc................... (151,079) 12,829
------------ ------------
(3,878,219) (1,908,484)
Net cash used for operating
activities........................... (12,218,535) (15,598,237)
Cash flow from financing activities:
Net proceeds from issuance of Callable
Common............................... -- 83,925,000
Proceeds of loan from Centocor, Inc... -- 100,000
------------ ------------
Net cash from financing activities.... -- 84,025,000
Cash flow from (used for) investing ac-
tivities:
Purchases of investments.............. (74,269,299) (85,518,561)
Maturities of investments............. 86,791,863 19,181,433
------------ ------------
Net cash from (used for) investing ac-
tivities............................... 12,522,564 (66,337,128)
Net increase in cash and cash equiva-
lents.................................. 304,029 2,089,635
Beginning cash and cash equivalents..... 723,474 --
Ending cash and cash equivalents........ $ 1,027,503 $ 2,089,635
============ ============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
TOCOR II, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Basis of Presentation
Tocor II, Inc. (the "Company" or "Tocor II") was incorporated on November 6,
1991 in the British Virgin Islands (the "BVI") and Tocor II commenced
operations on January 21, 1992. Virtually all of Tocor II's activities are
conducted pursuant to contracts with Centocor, Inc. ("Centocor"). Tocor II does
not maintain staff or occupy any facilities, other than office facilities, and
as such, is heavily dependent upon Centocor.
In January, 1992, Tocor II and Centocor completed the sale to the public of
2,250,000 Units, each Unit consisting of one share of Tocor II's Callable
Common Stock, one Series T warrant to purchase one share of Centocor Common
Stock, and one Callable warrant to purchase one share of Centocor Common Stock.
The Callable Common Stock and the warrants will trade only as Units through
December 31, 1993. Following such date, the Series T warrants will separate and
the Callable Common Stock will continue to trade only as Units with the
Callable warrants through December 31, 1995. The separation of the components
of the Units will accelerate in the event Centocor exercises its option to
purchase the Callable Common Stock (see Note 4). Tocor II is contractually
obligated to use substantially all of the net proceeds of the offering,
approximately $83,925,000, to engage Centocor to conduct research, development,
and preliminary clinical studies with respect to small peptide molecule-based
pharmaceutical products (the "Products") for the treatment of human diseases
(see Note 5).
In connection with the Unit offering, Centocor was granted an option to
purchase all of the outstanding shares of Tocor II's Callable Common Stock. The
ability of Centocor to exercise this option is highly dependent upon the future
financial condition of Centocor. Centocor is subject to the reporting
requirements of the Securities Exchange Act of 1934. The market value of a Unit
is highly affected by the business operations of Centocor. Additionally, due to
the Centocor warrant component of the Unit, the market value of a Unit is
affected by the market value of Centocor Common Stock. The exercise price of
the Series T warrant is $64.50 per share of Centocor Common Stock, which at
September 30, 1993, had a market value of $10.63 per share. If the purchase
option is exercised, the Callable warrants will terminate.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to interim periods. These
financial statements do not include all disclosures required for annual
financial statements and should be read in conjunction with the more complete
disclosures contained in Tocor II's audited financial statements in Tocor II's
Annual Report on Form 10-K for the year ended December 31, 1992.
The statements reflect in the opinion of management, all adjustments of a
normal and recurring nature necessary to present fairly Tocor II's financial
position at September 30, 1993 and December 31, 1992, and the results of
operations for the three and nine months ended September 30, 1993 and the three
months ended September 30, 1992, and from the period January 21, 1992 to
September 30, 1992, and the cash flows for the nine months ended September 30,
1993 and the period January 21, 1992 through September 30, 1992. The results of
operations and the cash flows for the nine months ended September 30, 1993 are
not necessarily indicative of the results to be expected for the entire year.
2. Cash Equivalents and Investments
Cash equivalents at September 30, 1993 and December 31, 1992 consist
principally of U.S. Treasury money market funds and U.S. Treasury securities.
Short-term investments at September 30, 1993 and December 31, 1992 consist of
U.S. Treasury securities with market values of $51,511,000 and $63,786,000,
respectively.
F-15
<PAGE>
TOCOR II, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. Note Payable to Centocor
Tocor II's note payable to Centocor bears interest at 7 percent per annum and
is due on the day after the termination of the Purchase Option Agreement (see
Note 4) and may not be prepaid.
4. Callable Common Stock
Pursuant to a Purchase Option Agreement, Centocor holds an option (the
"Purchase Option"), exercisable through December 31, 1995, to purchase all of
the outstanding shares of the Callable Common Stock of Tocor II. The option
exercise price is $58 per share in 1993, $76 per share in 1994, and $107 per
share in 1995.
If all funds available for payment by Tocor II to Centocor under the
Development Agreement (see Note 5) are expended, the Purchase Option will
continue only for so long as Centocor funds research and development of the
Products, but in no event later than December 31, 1995. Centocor is under no
obligation to continue to fund such research and development, but may do so at
its option. Tocor II currently anticipates that the net proceeds of the January
1992 offering will be available to fund research under the Development
Agreement through December 31, 1995.
Until the termination of the Purchase Option Agreement, Tocor II is not
permitted to issue additional capital stock, borrow more than $1 million in the
aggregate, declare or pay dividends out of funds required to be paid to
Centocor under the Development Agreement, merge, liquidate or sell
substantially all of its assets without the approval of Centocor, as holder of
the note described in Note 3.
5. Agreements with Centocor
In January, 1992, Centocor and Tocor II entered into a technology license
agreement, (the "License Agreement") under which Centocor granted to Tocor II a
worldwide, exclusive, royalty-free, perpetual, fully paid license to
proprietary rights owned or controlled by Centocor during the term of the
Development Agreement, which are necessary or useful for the research,
development, manufacture or sale of the Products. Under the License Agreement,
Tocor II has granted to Centocor a worldwide, fully paid, exclusive, royalty
free, right and license in perpetuity to Tocor II's technology owned, acquired
or developed during the term of the Development Agreement for any uses of such
technology outside of Tocor II's field of activity. Under the terms of the
License Agreement, Tocor II paid a nonrefundable fee of $2,500,000 to Centocor
during the first quarter of 1992.
In January, 1992, Tocor II entered into an agreement (the "Development
Agreement") with Centocor under which Centocor will conduct research and
development with respect to the Products. Under this agreement, Tocor II is
obligated to pay to Centocor an amount consisting of (i) substantially all of
the net proceeds of the public offering (less $1 million to be retained by
Tocor II for working capital, a non-refundable fee of $2,500,000 paid under the
License Agreement and an amount retained for Tocor II's general and
administrative expenses), and (ii) any interest and other income earned through
temporary investment of Tocor II's funds. Under the Development Agreement,
Centocor is entitled to be reimbursed for the research and development costs
incurred on behalf of Tocor II, plus a management fee. Tocor II incurred
expenses, under the Development Agreement of $2,935,000 and $4,326,000 for the
three months ended September 30, 1993 and 1992, respectively, and $9,695,000
and $13,102,000 for the nine months ended September 30, 1993 and the period
January 21, 1992 through September 30, 1992, respectively.
F-16
<PAGE>
TOCOR II, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Subject to its obligation to use reasonable efforts under the Development
Agreement, Centocor has the sole discretion to determine the allocation of
Centocor resources that are available to Tocor II to conduct research and
development under the Development Agreement and Centocor may from time to time
choose to limit the available resources to Tocor II, thereby delaying
development of the Products. Research and development activities conducted by
Centocor for Tocor II's small peptide molecule program are heavily integrated
with activities conducted in Centocor's monoclonal antibody program. Certain
costs of Centocor's research, development and clinical trial activities are
allocated to Tocor II pursuant to the Development Agreement as such activities
have the potential to benefit Tocor II, as well as Centocor. As a result,
funding provided by Tocor II benefits Centocor in its activities outside of
Tocor II's field of activity.
Either Tocor II or Centocor may terminate the Development Agreement (i) if
the other party breaches any material obligation under the Development
Agreement or the License Agreement, subject to a 60-day cure period or (ii) if
the other party enters into any voluntary proceeding in bankruptcy,
reorganization or an arrangement for the benefit of its creditors, or 60 days
(exclusive of any period during which a stay is in effect) after any
involuntary proceeding if not dismissed during such 60-day period. The
Development Agreement will terminate automatically upon termination of the
Purchase Option Agreement or the License Agreement.
Tocor II also has entered into a services agreement (the "Services
Agreement") with Centocor and a wholly owned subsidiary of Centocor, whereby
Centocor or its subsidiary provide certain management and administrative
services to Tocor II on a fully burdened cost reimbursement basis. Centocor is
also paid a management fee by Tocor II equal to 10 percent of such costs
incurred.
In 1993, Centocor and Tocor II amended the Development Agreement and the
Services Agreement, to reduce the management fee under each agreement from 10%
to 5% until the earlier of (i) the termination of the Development Agreement and
the Services Agreement or (ii) the aggregate reduction in management fees
resulting from the amendments equals $3,000,000.
Three officers of Tocor II are also officers of Centocor. One officer and
director of Tocor II is also a director of Centocor.
F-17
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
sets forth historical information of Centocor and Tocor II adjusted to give
effect to the Exchange Offer. The pro forma adjustments assume that the
Exchange Offer occurred, for purposes of the statements of operations data, as
of the first day of each period presented, and for purposes of the balance
sheet, as of the date of the balance sheet. The Exchange Offer will be
accounted for as a purchase transaction. The pro forma information does not
purport to be indicative of the results that may be obtained in the future or
that would actually have been obtained had the Exchange Offer occurred during
the periods indicated. The pro forma information should be read in conjunction
with the historical consolidated financial statements and notes thereto
contained in the Quarterly Report on Form 10-Q for the nine months ended
September 30, 1993 and the Annual Report on Form 10-K for the year ended
December 31, 1992 for Centocor and the audited and unaudited Tocor II Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
34
<PAGE>
CENTOCOR, INC. AND TOCOR II, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------- -----------------------
CENTOCOR, INC. TOCOR II, INC.
SEPTEMBER 30, 1993 SEPTEMBER 30, 1993 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- --------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash
equivalents.......... $ 34,806 $ 1,028 $ -- $ 35,834
Short-term
investments.......... 78,193 51,461 -- 129,654
Accounts and contracts
receivable........... 13,023 -- (102)(a) 12,921
Interest receivable... 342 300 -- 642
Inventory............. 17,015 -- -- 17,015
Prepaid expenses...... 1,188 2,546 (2,546)(b) 1,188
Other current assets.. 1,321 2 -- 1,323
-------- ------- -------- --------
Total Current Assets. 145,888 55,337 (2,648) 198,577
Property, plant and
equipment--net......... 90,444 -- -- 90,444
Long-term investments... 9,170 -- -- 9,170
(9,537)(c)
Intangible and other
assets................. 27,262 769 (769)(d) 17,725
-------- ------- -------- --------
Total assets............ $272,764 $56,106 $(12,954) $315,916
======== ======= ======== ========
Liabilities and
Shareholders' Equity
Current Liabilities:
Accounts payable...... $ 3,825 $ 13 $ -- $ 3,838
Accrued expenses...... 32,578 2 (2)(a) 32,578
Unearned revenues..... 3,647 -- (2,546)(b) 1,101
Note payable.......... 6,593 -- -- 6,593
Current portion of
long-term debt....... 22,644 -- -- 22,644
-------- ------- -------- --------
Total Current
Liabilities......... 69,287 15 (2,548) 66,754
Long-term debt.......... 238,121 100 (100)(a) 238,121
Other liabilities....... 2,250 -- -- 2,250
(55,991)(e)
Shareholders' Equity.... (36,894) 55,991 45,685 (f) 8,791(g)
-------- ------- -------- --------
Total liabilities and
shareholders' equity... $272,764 $56,106 $(12,954) $315,916
======== ======= ======== ========
</TABLE>
- --------
Notes to unaudited pro forma condensed combined balance sheet.
(a) To eliminate related party receivable from Tocor II by Centocor and related
liability to Centocor by Tocor II.
(b) To eliminate unearned revenue recorded by Centocor and associated prepaid
expense by Tocor II.
(c) To write off unamortized portion of deferred warrant costs recorded by
Centocor.
(d) To write off unamortized portion of organization costs recorded by Tocor
II.
(e) To eliminate shareholders' equity of Tocor II.
<TABLE>
<S> <C>
(f) To reflect issuance of 6,632 shares of Centocor Common Stock at
$13.57 per share:................................................ $ 90,000
Less: Charge for acquired research and development............... (25,009)
Amount allocated to additional paid-in capital for reaquisition
of warrants..................................................... (9,000)
The effects of items (c) and (d)................................. (10,306)
--------
$ 45,685
========
</TABLE>
(g) Shareholders' equity does not include the issuance of 2,000,000 shares of
Centocor Common Stock to Wellcome. Consistent with a letter of intent which
the parties executed on September 15, 1993, Wellcome will pay Centocor
$20,000,000 for such shares and will make a $10,000,000 non-refundable
license payment to Centocor, upon closing of the transaction. See "Risk
Factors--Regulatory Approvals--Status of Panorex."
35
<PAGE>
CENTOCOR, INC. AND TOCOR II, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(D)
------------------------------------------ ------------------------
CENTOCOR, INC. TOCOR II, INC.
YEAR FOR THE PERIOD
ENDED JANUARY 21, 1992 THROUGH
DECEMBER 31, 1992 DECEMBER 31, 1992 ADJUSTMENTS COMBINED
----------------- ------------------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales................. $ 58,394 $ -- $ -- $ 58,394
Contracts............. 67,838 -- (16,071)(a) 51,767
--------- -------- -------- ---------
126,232 -- (16,071) 110,161
Costs and expenses:
Cost of sales......... 21,764 -- 21,764
Research and
development.......... 106,633 19,048 (19,048)(a) 106,633
Marketing, general and
administrative....... 87,438 318 (211)(c) 87,545
Restructuring charges. 80,143 -- -- 80,143
--------- -------- -------- ---------
295,978 19,366 (19,259) 296,085
Other income (expenses):
Interest income....... 8,446 2,833 (6)(b) 11,273
Interest expense...... (19,798) (6) 6 (b) (19,798)
Minority interest and
other................ (13,048) (3,055) -- (16,103)
--------- -------- -------- ---------
(24,400) (228) -- (24,628)
Loss.................... $(194,146) $(19,594) $ 3,188 $(210,552)
========= ======== ======== =========
Loss per share.......... $ (4.90) $ (8.71) $ (4.55)
========= ======== =========
Weighted average shares
outstanding............ 39,623 2,250 46,255
========= ======== =========
</TABLE>
- --------
Notes to unaudited pro forma condensed combined statement of income.
(a) To eliminate related party contract revenue recorded by Centocor, net of
amortization of deferred warrant costs of $2,977 and the associated related
party expense recorded by Tocor II.
(b) To eliminate related party interest revenue recorded by Centocor and the
associated related party interest expense recorded by Tocor II.
(c) To reverse amortization of organization costs recorded by Tocor II.
(d) The pro forma adjustments do not reflect the non-recurring charges to be
recorded subsequent to consummation of the Exchange Offer representing
acquired research and development of $25,009, the writeoff of the
unamortized portion of deferred warrant costs of $9,537 and the writeoff of
the unamortized portion of organization costs of $769.
36
<PAGE>
CENTOCOR, INC. AND TOCOR II, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (D)
------------------------------------- ----------------------
CENTOCOR, INC. TOCOR II, INC.
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1993 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales................. $ 34,650 $ -- $ -- $ 34,650
Contracts............. 10,810 -- (7,950)(a) 2,860
-------- ------- ------- --------
45,460 -- (7,950) 37,510
Costs and expenses:
Cost of sales......... 11,719 -- 11,719
Research and
development.......... 51,436 9,695 (9,695)(a) 51,436
Marketing, general and
administrative....... 27,714 390 (173)(c) 27,931
Restructuring charges. 9,387 -- -- 9,387
-------- ------- ------- --------
100,256 10,085 (9,868) 100,473
Other income (expenses):
Interest income....... 3,272 1,750 (5)(b) 5,017
Interest expense...... (15,117) (5) 5 (b) (15,117)
Minority interest and
other................ (713) -- -- (713)
-------- ------- ------- --------
(12,558) 1,745 -- (10,813)
Loss.................... $(67,354) $(8,340) $ 1,918 $(73,776)
======== ======= ======= ========
Loss per share.......... $ (1.63) $ (3.71) $ (1.54)
======== ======= ========
Weighted average shares
outstanding............ 41,315 2,250 47,947
======== ======= ========
</TABLE>
- --------
Notes to unaudited pro forma condensed combined statement of income.
(a) To eliminate related party contract revenue recorded by Centocor, net of
amortization of deferred warrant costs of $1,745 and the associated related
party expense recorded by Tocor II.
(b) To eliminate related party interest revenue recorded by Centocor and the
associated related party interest expense recorded by Tocor II.
(c) To reverse amortization of organization costs recorded by Tocor II.
(d) The pro forma adjustments do not reflect the nonrecurring charges to be
recorded subsequent to consummation of the Exchange Offer representing
acquired research and development of $25,009, the writeoff of the
unamortized portion of deferred warrant costs of $9,537 and the writeoff of
the unamortized portion of organization costs of $769.
37
