<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 23, 1993
-----------------
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 5. Other Events.
------------
On December 23, 1993, a purported security holder of Tocor II, Inc.
("Tocor II") filed a complaint in the Court of Common Pleas of the Commonwealth
of Pennsylvania, in and for Chester County, against the Registrant, Tocor II and
the four directors of Tocor II, alleging, among other things, that the
defendants breached their fiduciary duties to the unitholders of Tocor II
("Unitholders") in connection with the exchange offer described in the
Registration Statement on Form S-4 bearing Registration No. 33-51421 (the
"Exchange Offer"). The complaint (a copy of which is filed as an exhibit to
this Form 8-K) seeks an order (a) certifying a class consisting of Unitholders,
(b) enjoining the Exchange Offer, (c) establishing a special committee and
financial advisor to consider the Exchange Offer, and (d) awarding damages
(including recissionary damages), costs and plaintiff's counsel fees.
Item 7. Financial Statements and Exhibits.
---------------------------------
(c) Exhibits:
--------
99 Complaint, Peter Cordaro v. Hubert J.P. Schoemaker, et al.,
-----------------------------------------------
CA 93-11719, filed December 23, 1993 (Ct of Common Pleas,
Chester County).
<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: January 7, 1994 By: George D. Hobbs
Vice President, Corporate Counsel
and Secretary
<PAGE>
CHIMICLES, BURT & JACOBSEN THIS IS NOT AN ARBITRATION
BY: NICHOLAS E. CHIMICLES, ESQUIRE CASE. ASSESSMENT OF
STEVEN A. SCHWARTZ, ESQUIRE DAMAGES HEARING IS
ATTORNEY I.D. NOS. 17928 and 50579 REQUIRED.
One Haverford Center
361 West Lancaster Avenue Attorneys for the
Haverford, PA 19041 Representative Plaintiff
(215) 642-8500 Peter Cordaro and the
Class Plaintiffs
(Names of Additional
Counsel on Back Page)
- ----------------------------------------
PETER CORDARO, :
920 Ilse Court :
North Bellmore, NY 11710, :
:
Plaintiff, :
:
v. :
:
HUBERT J.B. SCHOEMAKER : COURT OF COMMON PLEAS
c/o CENTOCOR, INC. : CHESTER COUNTY
200 Great Valley Parkway :
Malvern, PA 19355, :
:
STELIOS PAPADOPOULOS : CIVIL ACTION
c/o CENTOCOR, INC. :
200 Great Valley Parkway : NO. 93-11719
Malvern, PA 19355, : ------------
:
MARC FELDMANN :
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
DAVID GOLDEN : CLASS ACTION
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
TOCOR II, INC. :
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
Defendants. :
:
- ----------------------------------------
ENTRY OF APPEARANCE
-------------------
<PAGE>
CHIMICLES, BURT & JACOBSEN THIS IS NOT AN ARBITRATION
BY: NICHOLAS E. CHIMICLES, ESQUIRE CASE. ASSESSMENT OF
STEVEN A. SCHWARTZ, ESQUIRE DAMAGES HEARING IS
ATTORNEY I.D. NOS. 17928 and 50579 REQUIRED.
One Haverford Center
361 West Lancaster Avenue Attorneys for the
Haverford, PA 19041 Representative Plaintiff
(215) 642-8500 Peter Cordaro and the
Class Plaintiffs
(Names of Additional
Counsel on Back Page)
- ----------------------------------------
PETER CORDARO, :
920 Ilse Court :
North Bellmore, NY 11710, :
:
Plaintiff, :
:
v. :
:
HUBERT J.B. SCHOEMAKER : COURT OF COMMON PLEAS
c/o CENTOCOR, INC. : CHESTER COUNTY
200 Great Valley Parkway :
Malvern, PA 19355, :
:
STELIOS PAPADOPOULOS : CIVIL ACTION
c/o CENTOCOR, INC. :
200 Great Valley Parkway : NO. 93-11719
Malvern, PA 19355, : ------------
:
MARC FELDMANN :
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
DAVID GOLDEN : CLASS ACTION
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
TOCOR II, INC. :
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
Defendants. :
:
- ----------------------------------------
NOTICE TO DEFEND
----------------
<PAGE>
You have been sued in court. If you wish to defend against the claims set
forth in the following pages, you must take action within twenty (20) days after
this complaint and notice are served, by entering a written appearance
personally or by attorney and filing in writing with the court your defenses or
objections to the claims set forth against you. You are warned that if you fail
to do so the case may proceed without you and a judgment may be entered against
you by the court without further notice for any money claimed in the complaint
or for any other claim or relief requested by the plaintiff. You may lose money
or property or other rights important to you.
YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE. IF YOU DO NOT HAVE A
LAWYER OR CANNOT AFFORD ONE, GO TO OR TELEPHONE THE OFFICE SET FORTH BELOW TO
FIND OUT WHERE YOU CAN GET LEGAL HELP.
LAWYER REFERENCE AND INFORMATION SERVICE
CHESTER COUNTY BAR ASSOCIATION
15 West Gay Street
West Chester, PA 19380
(215) 696-5094
<PAGE>
CHIMICLES, BURT & JACOBSEN THIS IS NOT AN ARBITRATION
BY: NICHOLAS E. CHIMICLES, ESQUIRE CASE. ASSESSMENT OF
STEVEN A. SCHWARTZ, ESQUIRE DAMAGES HEARING IS
ATTORNEY I.D. NOS. 17928 and 50579 REQUIRED.
One Haverford Center
361 West Lancaster Avenue Attorneys for the
Haverford, PA 19041 Representative Plaintiff
(215) 642-8500 Peter Cordaro and the
Class Plaintiffs
(Names of Additional
Counsel on Back Page)
- ----------------------------------------
PETER CORDARO, :
920 Ilse Court :
North Bellmore, NY 11710, :
:
Plaintiff, :
:
v. :
:
HUBERT J.B. SCHOEMAKER : COURT OF COMMON PLEAS
c/o CENTOCOR, INC. : CHESTER COUNTY
200 Great Valley Parkway :
Malvern, PA 19355, :
:
STELIOS PAPADOPOULOS : CIVIL ACTION
c/o CENTOCOR, INC. :
200 Great Valley Parkway : NO. 93-11719
Malvern, PA 19355, : -------------
:
MARC FELDMANN :
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
DAVID GOLDEN : CLASS ACTION
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
TOCOR II, INC. :
c/o CENTOCOR, INC. :
200 Great Valley Parkway :
Malvern, PA 19355, :
:
Defendants. :
:
- ----------------------------------------
CLASS ACTION COMPLAINT
----------------------
<PAGE>
Plaintiff, by his attorney, alleges upon knowledge with respect to
himself and his own acts and upon information and belief based, in part, on the
investigation of counsel and publicly available reports, statements and
information as to all matters as follows:
NATURE OF THE CASE
------------------
1. This action seeks to enjoin the consummation of, or in the
alternative, damages resulting from a proposed offer more fully described below,
by which defendant Centocor, Inc. ("Centocor") will acquire all of the
outstanding units ("Units") (described in (P) 27 below) of defendant
Tocor II, Inc. ("Tocor II") for $40 a Unit, payable in Centocor stock (the
"Offer").
JURISDICTION
------------
2. Jurisdiction is proper in this Court pursuant to 42 P.S. (S) 931(a).
THE PARTIES
-----------
3. Representative Plaintiff Peter Cordaro is the owner of 100 Units of
Tocor II and has been the owner continuously of such Units since prior to the
wrongs complained of herein.
4. Defendant Centocor is a Pennsylvania corporation with its principal
executive offices located at 200 Great Valley Parkway, Malvern, Pennsylvania.
Centocor is a biopharmaceutical company founded in 1979 that specializes in the
development and the
<PAGE>
commercialization of monoclonal antibody-based products. Centocor's securities
are registered pursuant to Section 12(g) of the Exchange Act. The Common Stock
of Centocor trades on the NASDAQ National Market System.
5. Defendant Tocor II is a British Virgin Islands corporation with its
principal executive offices purportedly located at the Todman Building, Main
Street, Roadtown, Tortola, British Virgin Islands. Tocor II is subject to the
jurisdiction of this Court since it conducts and transacts business in the State
of Pennsylvania. As set forth below, Tocor II was initially organized by
Centocor, and the two entities are highly interrelated. All of Tocor II's
officers are full-time employees of defendant Centocor. Dominic J. Caruso
("Caruso") is presently Chief Accounting officer of Centocor and Treasurer of
Tocor II. George D. Hobbs, Esquire is the Secretary of both companies (and also
the Vice President and Corporate Counsel of Centocor). Moreover, the most
recent annual meeting of the shareholders of Tocor II was held on June 30, 1993
at Centocor's offices at the Great Valley Corporate Center, Malvern,
Pennsylvania. Tocor II does not maintain staff or occupy any facilities other
than office facilities and as such, is heavily dependent on Centocor. The
Callable Common Stock of Tocor II (the "Tocor Stock") is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Tocor II Units trade on the NASDAQ National Market System.
6. Defendant Hubert J. P. Schoemaker ("Schoemaker") is Chairman of the
Board of Tocor II. He is also Chairman of
<PAGE>
the Board of Centocor and President of Centocor since its formation.
Schoemaker's salary as Centocor's Chairman of the Board was $352,000 for 1992.
As of December 31, 1992, Schoemaker held 389,000 exercisable options and 175,000
unexercisable options for Centocor common stock. He also held 741,000 shares of
Centocor stock as of September 30, 1993. As of May 17, 1993, Schoemaker owned
no Tocor II Stock.
7. Defendant Stelios Papadopoulos ("Papadopoulos") is a director of Tocor
II. He is also the Managing Director and Head of the Health Sciences Investment
Banking Group for PaineWebber Incorporated, Inc. ("PaineWebber"). PaineWebber
and Hambrecht & Quist, Incorporated ("H&Q") acted as co-lead underwriters of
Tocor II's and Centocor's public offering of the Tocor II Units (defined in
(P) 27 below) (the "Offering"). PaineWebber has been involved with nearly
all of Centocor's equity offerings and other material financing transactions,
several research and development partnerships, and the development of a share
purchase rights plan for Centocor's Board of Directors. PaineWebber also
actively trades the equity and derivative securities of both Centocor and Tocor
II and at times holds long or short positions in such securities. PaineWebber
also acts as a market maker and broker in the publicly traded securities of
Centocor and Tocor II and receives compensation in connection therewith, and
also provides research coverage for both companies. Papadopoulos participated
directly in all of PaineWebber's work for Centocor and Tocor II.
3
<PAGE>
Papadopoulos, as of May 17, 1993, owned 17,000 shares of Tocor II Stock.
8. Defendant Marc Feldmann ("Feldmann"), at all relevant times, has been
a director of Tocor II. Feldmann provides consulting services to Centocor at
its Malvern, Pennsylvania facility under a consulting agreement which paid him
$16,000 per year until July 11, 1993, when Feldmann's compensation was increased
to $32,000 per year for only 4 to 6 days work per year. In addition, Centocor
supports the research of Feldmann and others at the Kennedy Institute of
Rheumatology (the "Institute"). Feldmann is director of the Institute. Such
funding is $250,000 per year (4% of its funding), and has amounted to an
aggregate of approximately $420,000 since the beginning of 1992. Feldmann, as
of May 17, 1993, owned no Tocor II Stock. Feldmann presently holds options to
purchase 5,000 shares of Centocor stock at $47.00 per share and expects to
receive options to purchase approximately 10,000 shares of Centocor stock at
approximately $13.00 per share.
9. Defendant David Golden ("Golden") is a director of Tocor II. He is
also a managing director of H&Q. H&Q acted as a managing underwriter of the
public Offering. H&Q also acted as a managing underwriter of public offerings
of Centocor stock in 1982, 1986, 1990, and 7.25% Convertible Subordinated Notes
in 1991. H&Q also acted as a managing underwriter of units of Tocor, Inc.
("Tocor I"), an affiliate of Centocor (see (P) 25 below) unrelated to
---
Tocor II, in 1989. Golden participated directly in all of H&Q's work for
Tocor II. H&Q actively trades in equity and derivative
4
<PAGE>
securities of both Centocor and Tocor II, and at times holds long or short
positions in such securities. H&Q may in the future provide additional
investment banking or other financial advisory services for Centocor. H&Q also
acts as a market maker and broker in the publicly traded securities of Centocor
and Tocor II and receives compensation in connection therewith, and also
provides research coverage for both companies. Golden, as of May 17, 1993,
owned no Tocor II Stock.
10. By reason of the positions with Tocor II of the defendants named in
(P)(P) 6 through 9 (the "Individual Defendants"), the Individual
Defendants are in a fiduciary relationship with Representative Plaintiff and
all other public Unitholders of Tocor II, and owe Representative Plaintiff and
other members of the Class (defined below in (P) 12), the highest obligation
of good faith, fair dealing, due care, loyalty and full, candid and adequate
disclosure.
11. By virtue of Tocor II's dependence and interrelationship with Centocor
and Centocor's financial relationships with Tocor II, Centocor is in a fiduciary
relationship with Representative Plaintiff and the other public Unitholders of
Tocor II and owes them the highest obligations of good faith, fair dealing, due
care, loyalty and full, candid and adequate disclosure.
CLASS ACTION ALLEGATIONS
------------------------
12. Representative Plaintiff brings this action on his own behalf and
as a class action, pursuant to Rule 1701 et seq. of the
5
<PAGE>
Pennsylvania Rules of Civil Procedure, on behalf of himself and all holders of
the Units, or their successor in interest, who are or will be threatened with
deprivation of their equity interest in Tocor II by reason of the Offer (the
"Class"). Excluded from the Class are the defendants, any person, firm, trust,
corporation, or other entity related to or affiliated with any of the
defendants.
13. This action is properly maintainable as a class action. A class action
provides a fair and efficient method of adjudicating this controversy. The
substantive legal claims of the Representative Plaintiff and the Class are
identical and will require evidentiary proof of the same kind and application of
the same law.
14. A class action provides a fair and efficient method of adjudicating
this controversy. The substantive legal claims of the Representative Plaintiff
and the Class are identical and will require evidentiary proof of the same kind
and application of the same law.
15. The Class is so numerous that joinder of all members in
impracticable. As of March 15, 1993, there were approximately 2.25 million
Units outstanding, in the hands of hundreds of beneficial owners.
16. There are questions of law and fact which are common to the Class,
which predominate over questions affecting any individual Class members. The
common questions include, inter alia, the following:
----- ----
6
<PAGE>
(a) Whether the defendants have engaged or will engage in conduct
constituting unfair dealing to the detriment of the public
Unitholders of Tocor II;
(b) Whether the transaction is grossly unfair to the public
Unitholders of Tocor II;
(c) Whether the defendants are engaging in self dealing to benefit
themselves by proposing the Offer at a grossly unfair price and
on unfair terms;
(d) Whether the plaintiff and other members of the Class will be
irreparably damaged when the Offer complained of here is
consummated; and
(e) Whether the defendants have breached or aided and abetted the
breach of fiduciary and other common law duties owed by them to
the plaintiff and other members of the Class.
17. Representative Plaintiff is committed to prosecuting this action and
has retained competent counsel experienced in litigation of this nature. The
claims of the Representative Plaintiff are typical of the claims of other
members of the Class and the Representative Plaintiff has the same interest as
the other members of the Class. Accordingly, Representative Plaintiff is an
adequate representative of the Class and will fairly and adequately protect the
interest of the Class.
18. Representative Plaintiff anticipates that there will be no difficulty
in the management of this litigation as a class action.
7
<PAGE>
19. In view of the complexity of the issues and the expenses of this
litigation, the separate claims of individual Class members are insufficient in
amount to support separate actions. If their damages are aggregated, however,
the amount at issue is significant.
20. The Representative Plaintiff has an agreement with the undersigned
counsel that provides for counsel to advance all reasonable and necessary costs
to litigate this action contingent on the success of the action.
21. Retained counsel are experienced in litigating class actions and
have handled many class actions in the state courts and the federal courts.
Counsel are handling this case on a contingent basis and will receive
compensation for their professional services contingent on the outcome and
subject to Court approval.
22. The defendants have acted on grounds generally applicable to the Class
with respect to the matters complained of herein, thereby making appropriate the
relief sought herein with respect to the Class of a whole.
ALLEGATIONS OF FACT
-------------------
23. In late 1991, Centocor set up Tocor II to serve as a research and
development vehicle.
24. Tocor II was the second time Centocor had set up a separate
company to raise money and conduct research.
25. Centocor created Tocor I in 1989. Centocor and Tocor I sold 2.88
million units in August 1989 to raise $31 million. In
8
<PAGE>
June 1991, Centocor repurchased Tocor I pursuant to a purchase option agreement
for $71 million.
26. Centocor formed Tocor II to engage in research, development and
preliminary clinical studies in the field of peptide molecule-based
pharmaceutical products for the treatment of human diseases. Virtually all of
Tocor II's activities are conducted pursuant to contracts with Centocor. Tocor
II has no employees, other than its officers, who are officers of Centocor.
27. In January 1992, Tocor II and Centocor completed the Offering of
2,250,000 units (the "Units"), each Unit consisting of one share of Tocor II
Stock, one Series T Warrant to purchase one share of Centocor's common stock
(the "Series T Warrants"), and one Callable Warrant (the "Warrant") to purchase
one share of Centocor Stock.
28. The Offering was managed by PaineWebber, H&Q, The First Boston Corp.,
and J. P. Morgan Securities Inc.
29. The Tocor II Stock and both warrants will trade only as units
through December 31, 1993, at which time, the Series T Warrants will separate
and the Tocor II Stock will continue to trade only as units with the Warrants
through December 31, 1995.
30. As a result of the offering, by which nearly $84 million was raised,
Tocor II was contractually obligated to use all of the proceeds to engage
Centocor to conduct research, development and preliminary clinical studies in
Tocor II's field of activity.
31. At the time of the Offering, Tocor II and Centocor entered into a
technology license agreement ("License Agreement")
9
<PAGE>
under which Centocor granted to Tocor II a worldwide, exclusive royalty-free
perpetual, fully paid license to proprietary rights owned or controlled by
Centocor which were necessary or useful for research, development, manufacture
or sale of Tocor II's products. Under this agreement, Tocor II granted to
Centocor a worldwide, fully paid, exclusive, royalty free, right and license
in proprietary to Tocor II's technology.
32. Also in January 1992, Tocor II entered into an agreement with Centocor
under which Centocor will conduct research and development ("Development
Agreement") with respect to Tocor II's products. Under this agreement, Tocor II
became obligated to pay Centocor an amount consisting of substantially all of
the proceeds of the offering and any interest and other income earned by the
temporary investment by Tocor II of its funds.
33. Also, in January 1992, Tocor II entered into a Services Agreement with
Centocor whereby Centocor provides 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% of such cost incurred.
34. In connection with the offering and 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 Tocor
Stock. The option price is $58 per share in 1993, $76 per share in 1994, and
$107 per share in 1995. Until the termination of the Purchase Option, Tocor II
cannot issue additional capital stock, borrow more than $1 million
10
<PAGE>
in the aggregate, declare or pay dividends, merge, liquidate or sell all or
substantially all of its assets without the approval of Centocor.
35. The Offering represented a vehicle by which Centocor could tap into
equity markets with hybrid securities known as stock and warrant offerings for
research and development, or "SWORDs" which allowed it to finance research
projects without tarnishing its balance sheet.
36. In a typical SWORD offering, a biotechnology company creates an
affiliate that raises money by selling units consisting of its own stock and
warrants for the original company's stock. The affiliate then hands over the
offering proceeds to the biotechnology company as payment for research on its
behalf.
37. The affiliate has exclusive rights to drugs and technologies
developed through the research it funds, but the biotechnology company holds
call options on the affiliate's stock. If the research is successful, the
sponsoring company usually buys in the affiliate at the price set by the
purchase option price, thus acquiring the rights. Still, the biotechnology
company does not directly own the affiliate, so the new company does not show up
on its financial statements. If the research is not successful, the sponsoring
company does not buy the affiliate.
38. SWORD investors hope that the research will succeed and the
affiliate's stock will be called in, but the warrants act as a safety net in
case that does not happen.
11
<PAGE>
39. SWORD warrants generally have a limited life and are exercisable at
set exercise prices.
40. Investors who buy into such offerings typically experience compounded
annual returns exceeding 30%.
41. The Tocor II Units offered a new wrinkle compared to typical SWORDS,
which was a second set of warrants for the sponsoring company's (Centocor)
stock. This second set of warrants represents an additional sweetener (compared
to typical SWORDS) in case the research efforts did not amount to anything and
the affiliate is not bought out.
42. The first set of warrants stays with the stock, but the second set
trades separately after a certain date. These warrants expire if the sponsoring
company (Centocor) buys the affiliate.
43. For the period January 21, 1992 through April 14, 1992, the market
price of the Units ranged between $40 and $25.25 per Unit.
44. On April 14, 1992, financial correspondent Dan Dorfman reported on
CNBC that articles scheduled to appear in an upcoming article in the New England
-----------
Journal of Medicine would question the viability of Centocor's highly-touted
- -------------------
lead developmental drug Centoxin and criticize how Centocor conducted its Phase
III clinical trials for Centoxin. On April 15, Centocor announced that it had
been advised by the Food & Drug Administration ("FDA") that there is
"insufficient evidence of efficacy for approval at this time of [Centoxin]." As
a result thereof, the price of the Tocor II
12
<PAGE>
Units on April 15, 1992, closed at $17 per Unit, down from $25.25 per Unit on
April 14, 1992.
45. A day later, on April 16, 1992, The Wall Street Journal reported that
-----------------------
"the FDA questioned the way Centocor conducted a major clinical trial of
Centoxin and asked the company to submit data from an additional well-controlled
trial." It further reported "that since the [FDA advisory] panel met [on
September 4, 1991], its staff had learned that the company had revised its
protocol for analyzing data in the midst of a trial after looking at interim
results, a move the FDA said could have introduced bias into the result."
46. On April 20, 1992, Barron's reported the following remarks of one
--------
biotechnology analyst describing the Centoxin debacle:
You can't fool mother nature -- and you shouldn't mess with the FDA,
either. That's the clear message from last week's brouhaha at
Centocor. The FDA told the company that it hadn't provided clear
evidence that its lead drug, HA-1A, or Centoxin, is effective in
treating sepsis, an often deadly infection which frequently afflicts
surgical patients.
Last September, an FDA advisory panel had recommended Centoxin
for approval. In February, Centocor said the FDA had raised some new
questions that might delay approval, but the company didn't provide
details. Now the picture is clear.
"What seems to have emerged is that they may have pulled a fast
one on the FDA", explains Jeffrey Casdin, biotechnology analyst at
Oppenheimer & Co. "The guy who ran the Centocor trial looked at the
preliminary efficacy data, and they filed a revised plan. And that's
strictly verboten. So the FDA threw out the revised plan, and once
-------- ----
you've
-------
13
<PAGE>
been found to have done that, everything is suspect."
---------- -------------------------------------
So the agency used Centocor's original test criteria for
examining the data. And, as Casdin notes, one of the primary
endpoints Centocor intended to look at under that plan was change in
mortality for patients with "gram negative bacteremia" 14 days after
administration of the drug. And at that point, the company admits,
there was no statistically significant improvement. The company
points out that there was evidence of decreased deaths at other
points, after three days, seven days, and 28 days -- but the 14 day
mark was a key evaluation point in the original plan for the trial.
Had Centocor played by the rules. Casdin theorizes, the FDA might have
----------------------------------------------------------------------
been willing to approve the drug anyway.
---------------------------------------
But now, he maintains, Centocor's management has zero credibility
-----------------------------------------------------------------
left, and the company will have great difficulty getting the drug
-----------------------------------------------------------------
through the approval process without a costly new trial. (Emphasis
-------------------------------------------------------
added).
47. In 1992, purchasers of the securities of Tocor II and Centocor filed
class action complaints alleging violation of Sections 10(b) and 20 of the
Exchange Act (the "First Class Action").
48. On June 2, 1993, the United States District Court for the Eastern
District of Pennsylvania (the "Federal Court") approved a settlement of the
First Class Action.
49. Between June 2, 1993, (the settlement of the First Class Action), and
January 15, 1993, the market price of the Units traded between $12.75 and
$15.75.
50. On January 18, 1993, Centocor announced that due to excessive
mortality rates among patients being treated with its
14
<PAGE>
Centoxin drug, the second Phase III trials of Centoxin had been stopped by the
FDA.
51. As a result of this disclosure, the market price of the Units fell
precipitously from a high of $13.50 on January 15, 1993 to a low of $3.50 on
January 18, 1993.
52. In January 1993, securityholders of Centocor filed complaints in the
Federal Court against Centocor and certain of its present or former directors
and officers alleging violations of Section 10(b) of the Exchange Act (the
"Second Class Action").
53. Since the filing of the Second Class Action, the market price of the
Units has risen steadily closing at $23.00 per unit, prior to the announcement
of the Offer described in (P) 69 below.
54. In the wake of the announcement described in (P) 50 above, in a
report dated January 21, 1993 issued over the Dow Jones Newswire, it was
-------------------
reported that Wole Fayemi ("Fayemi"), an analyst with H&Q who follows and
reports on both Centocor and Tocor II, upgraded his investment rating on the
Units to "buy" from "neutral". It was reported that Fayemi felt that the
Units "are significantly undervalued and that investors could reap big returns
regardless of whether Centocor exercises the option to buy Tocor II, goes
bankrupt or is bought out." It was further reported that Fayemi said that
Tocor II "will ultimately be quite valuable to Centocor."
55. On February 17, 1993, H&Q, one of the underwriters in the Offering,
issued an analyst's report with respect to Centocor and Tocor II. With respect
to Tocor II, Fayemi indicated that Tocor II
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compounds might begin Phase I human clinical trials over the next year.
56. In Tocor II's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, filed with the SEC on March 31, 1993 ("Form 10-K") signed by
each of the Individual Defendants, defendants stated in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") section:
... the cost of pharmaceutical product development is inherently
uncertain, and there is no assurance that such funding will be
adequate to complete even the initial phases. In such event, the
research efforts may not provide sufficient information for Centocor
to evaluate when considering the possible exercise of its purchase
option pursuant to the Purchase Option Agreement. Pharmaceutical
product development is difficult and time consuming and there is no
assurance the Company's efforts in this regard will be successful.
Therefore, there can be no assurance that Centocor will exercise its
purchase option. The ability of Centocor to exercise this option is
highly dependent upon the future financial condition of Centocor. If
Centocor does not exercise its option to purchase all of the Callable
Common Stock of the Company, and if the Company decides to continue
the research program, the Company will need to obtain additional
funding. Further, if the Company decides to manufacture or market
products itself, which is unlikely, the Company will also require
substantial additional funds. In any of such events, there can be no
assurance that such funds will be available or will be available on
reasonable terms.
Defendants failed to disclose in the Report on Form 10-K the possibility that
Centocor might seek to acquire all outstanding Units of Tocor II at a price
substantially below the applicable exercise price pursuant to the Purchase
Option Agreement, or that
16
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Tocor II's Board of Directors would recommend accepting such an offer that was
not the result of arms length negotiations or was not based on any independent
evaluation of the current value of the Units.
57. In the MD&A section of Tocor II's Form l0-Q for the Quarter ended
March 31, 1993, filed with the SEC on May 17, 1993, signed by defendant
Schoemaker, defendants repeated the representations contained in the Tocor II
10-K as described in (P) 56 above. Defendants failed to disclose the
possibility that Centocor might seek to acquire all outstanding Units of Tocor
II at a price substantially lower than the applicable exercise price pursuant to
the Purchase Option Agreement, or that Tocor II's Board of Directors would
recommend accepting such an offer that was not the result of arms length
negotiations or based on an independent valuation of the current value of the
Units.
58. In the Letter to Shareholders (dated March 26, 1993) in the Tocor II
1992 Annual Report to Shareholders (filed with the SEC on May 19, 1993), signed
by defendant Schoemaker, Schoemaker stated that "since Tocor II was formed, we
have made steady progress towards the Company's goal of creating therapeutic
---------------
pharmaceuticals based on small peptides ... In summary, 1992 was a year of
solid achievement for Tocor II's research program." (emphasis added). In the
- -----------------
MD&A section of the Annual Report, defendants repeated the representations set
forth in (P) 56 above. Defendants failed to disclose the possibility that
Centocor might seek to acquire all outstanding Units of Tocor II at a price
substantially below the
17
<PAGE>
applicable exercise price pursuant to the Purchase Option Agreement, or that
Tocor II's Board of Directors would recommend accepting such an offer that was
not the result of arms length negotiations or was not based on any independent
evaluation of the current value of the Units.
59. In June 1993, Centocor announced a marketing and distribution deal
with Eli Lilly & Co., effecting its drug CentoRx. In connection with this
announcement, on July 19, 1993, the Dow Jones Newswire reported that Fayemi felt
------------------
that CentoRx had the potential to drive impressive earning growth over the next
few years.
60. In an H&Q July 19, 1993 analyst report, Fayemi also upgraded his
investment grading of Tocor II to "strong buy" from "buy," asserting that it
appears more likely than ever that Centocor would eventually exercise its option
to acquire all of Tocor II at the target prices set forth in the Purchase Option
Agreement. A Dow Jones Newswire story reporting Fayemi's analysis noted that
"Centocor isn't permitted to buy just a portion of the Tocor II shares; it would
have to swallow the Unit whole or not at all." Fayemi also stated that "Tocor
------------------------------
II has effectively become Centocor's entire internal R&D effort." According to
- ---------------------------------------------------------------
Fayemi, Tocor II had about $63 million, or $28 a share, in cash. Fayemi further
stated: "The progress which has been made on the $30 million spent to date has
been nothing short of phenomenal ... in just over one year, the lead program has
grown to several thousand compounds, the first of which is rapidly approaching
clinical trials, the other
18
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programs are not too far behind." Fayemi further indicated that Centocor's
improving financial condition would make it possible for Centocor to exercise
the Purchase Option when it chooses to do so.
61. In the MD&A section of Tocor II's Quarterly Report on Form 10-Q for
the period ended June 30, 1993, filed with the SEC on August 3, 1993, signed by
defendant Schoemaker, defendants repeated the representations set forth in
(P) 56 above. Defendants failed to disclose the possibility that Centocor
might seek to acquire all outstanding Units of Tocor II at a price substantially
below the applicable exercise price pursuant to the Purchase Option Agreement,
or that Tocor II's Board of Directors would recommend accepting such an offer
that was not the result of arms length negotiations or was not based on any
independent evaluation of the current value of the Units.
62. On September 17, 1993, Centocor announced that its signed a letter of
intent with Wellcome, PLC ("Wellcome") to form an alliance for the development
and marketing of some of Centocor's monoclonal antibody-based agents for the
treatment of cancer.
63. As a result of the announcement made in (P) 62 above, on September 20,
1993, Fayemi upgraded his investment rating on Centocor to "strong buy" from
"buy." In doing so, Fayemi commented that the "recent financial strides the
encouraging clinical progress with CentoRx and Panorex and other upcoming
milestones have taken much of the risks out of the Centocor story."
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<PAGE>
64. On September 20, 1993, the Dow Jones Newswire reported that Centocor
------------------
expected to move some of the Tocor II compounds to clinical trials.
65. On October 12, 1993, Centocor announced encouraging results in its
initial human test of its Panorex anti-cancer treatment.
a report stating that Centocor's then lead product, CentoRx, appears on track to
be the dominant product in its class, that Panorex appears promising and that
CenTNF showed good early clinical results.
67. On November 5, 1993, Centocor announced that it had signed agreement
with the respect to the alliance described in (P) 62 above with Wellcome.
Pursuant to that agreement, Wellcome will pay Centocor $20 million in exchange
for two million shares of newly issued Centocor stock, a $10 million
non-refundable license fee, and may make future payments of up to $70 million
based on milestones and acquisition of certain manufacturing technologies.
68. In the MD&A section of Tocor II's Quarterly, Report on Form 10-Q for
the period ended September 30, 1993, filed with the SEC on November 15, 1993,
signed by defendant Schoemaker, defendants repeated the representations set
forth in (P) 56 above. Defendants failed to disclose the possibility that
Centocor might seek to acquire all outstanding Units of Tocor II at a price
substantially below the applicable exercise price pursuant to the Purchase
Option Agreement, or that Tocor II's Board of Directors
20
<PAGE>
would recommend accepting such an offer that was not the result of arms length
negotiations or was not based on any independent evaluation of the current value
of the Units.
69. On December 10, 1993, Centocor announced the Offer. Pursuant to the
Offer, Centocor would make an exchange offer for all the outstanding Units of
Tocor II, pursuant to which Centocor would offer $40.00 per Tocor II Unit,
payable in Common Stock of Centocor based on the average closing price of the
Centocor Stock for the 30 trading days immediately preceding the fifth trading
day prior to the expiration of the offer, provided that the number of shares
issued per Unit would not be less than 2.73 nor greater than 3.20. Given these
conditions, the actual value of the offer may be less than the $40 announced by
Centocor and Tocor II. As of December 9, 1993, the "equivalent market value"
under this formula was only $36.50.
70. Also on December 10, 1993, in a separate announcement, Tocor II said
that its Board of Directors unanimously recommended that holders accept the
Offer and tender their Units. Caruso was listed as the "contact" on both the
Centocor News Release and the Tocor II Release with Centocor's corporate
communications telephone number (215) 889-4447 listed on each Release.
71. In recommending that the Offer be accepted, the Tocor II Board
purportedly relied upon the recommendation of a "Special Committee of the
Board". The "Special Committee" consists of individual defendants Feldmann,
Golden and Papadopoulos.
21
<PAGE>
72. All of the executive officers of Tocor II are also executive officers
of Centocor, and Schoemaker, the Chairman of the Board of Tocor II, is the
Chairman of the Board of Centocor. In addition, the directors of Tocor II who
are members of the Special Committee maintain certain special relationships with
Centocor and Tocor II. Feldmann has been a scientific consultant for Centocor
since July 1991 and receives certain consulting fees (previously $16,000 per
year, increased to $32,000 per year in July 1993) from Centocor for only 4 to 6
---------------
days work per year. He also directs a division of the Institute, which receives
- ------------------
approximately 4.0 percent of its annual funding, $250,000, from Centocor. The
Institute has received approximately $420,000 in funding from Centocor since the
beginning of 1992. Feldmann holds options in Centocor Stock as described in
(P) 8 above. Golden is a Managing Director of H&Q, the purported "financial
advisor" to the Tocor II Special Committee evaluating the offer. H&Q has
provided extensive financial advisory services to both Centocor and Tocor II.
Papadopoulos is a Managing Director at PaineWebber. PaineWebber has provided
extensive financial advisory services to both Centocor and Tocor II. See
---
(P) 7 above.
73. The Special Committee's consideration of the offer was grossly
inadequate. The Special Committee heard reports from its "legal and financial
advisors" for the first time on December 2 or 3, 1993 at Centocor's offices in
Malvern, PA.
74. The Special Committee did not formally engage H&Q to act as "exclusive
financial advisor" until December 8, 1993. Tocor II
22
<PAGE>
did not sign the engagement letter until December 10, 1993. Dennis J. Purcell,
a Managing Director of PaineWebber signed the engagement letter on behalf of
Tocor II. Pursuant to its engagement as "exclusive financial advisor", H&Q
"earned" $250,000 upon delivery of its initial "Fairness Opinion" and an
additional $250,000 upon Tocor II's filing of a Schedule 14D-9 with the SEC.
Moreover, H&Q will "earn" an additional $100,000 for each additional "Fairness
Opinion."
75. H&Q's "Fairness Opinion" was delivered to Tocor II's "Special
Committee" on December 10, 1993. Tocor II's Schedule 14D-9 was also filed on
December 10.
76. Thus, H&Q "earned" $500,000 -- paid by Tocor II -- only two days after
its formal engagement by the "Special Committee." The amount paid to H&Q was
excessive and exorbitant given the nature of the transaction, the amount of work
actually performed by H&Q, the amount of time spent by H&Q in connection with
its "Fairness Opinion", common practice and typical fees paid for such work,
especially in light of H&Q's extensive prior work and relationship with Centocor
and Tocor II.
77. In connection with H&Q's work in formulating its Fairness Opinion, for
which it has already "earned" $500,000 H&Q did not:
---
(a) solicit third party indications of interest in acquiring all or
any part of Tocor II;
(b) prepare or obtain any independent evaluation or appraisal of any
of the assets or liabilities of Tocor II or Centocor, rather H&Q
simply "assumed"
23
<PAGE>
that the financial forecasts and projections provided by
Centocor and Tocor II reflected the best available information;
(c) perform an analysis relating to the value of Tocor II that
purported to be an appraisal or to reflect the price at which
Tocor II might actually be sold;
(d) determine what a third party might be willing to pay for Tocor II
in the absence of the restrictions set forth in the Purchase
Option Agreement and Licensing Agreement described in (P)(P) 31
and 34 above;
(e) conduct a purely quantitative of similarly situated companies
purportedly because analysis of such companies is necessarily
dependent on qualitative assessments; and
(f) provide any significant advise to the Special Committee before
December 2 or 3, 1993, or begin its work in connection with the
"Fairness Opinion" earlier than approximately three weeks prior
to the offer.
78. In connection with its fairness opinion, H&Q heavily relied on a
comparison of the premium paid in the repurchases of other SWORD companies
(specifically, the repurchase of Tocor I by Centocor; of BioElectric Systems,
Inc. by Alza Corp; of Receptech by Immune Corp.; and of certain segments of
Neozyme Corp. by Genzyme Corp.) as compared to the "premium" offered in
connection
24
<PAGE>
with the Exchange Offer for Tocor II Units. However, in each of those other
SWORD transactions the repurchase occurred at the purchase option price
established when the SWORD vehicle was first set up. In contrast, pursuant to
the Offer at issue, Centocor (with the complicity of the Individual Defendants)
is attempting to repurchase Tocor II Units on the cheap at a price substantially
below the price established in the Purchase Option Agreement.
79. H&Q relied on all reports of Centocor and Tocor II without any regard
to the accuracy (or lack thereof) of such reports despite the serious
allegations set forth in the First Class Action (which was settled for a total
of $23 million in the aggregate) and the Second Class Action alleging that
Centocor and Tocor II made misrepresentations and omissions of material facts in
their publicly disseminated reports and statements.
80. In addition, H&Q expressed no opinion whatsoever as to the fairness of
the transaction with respect to any Unitholder who does not participate in the
Offer. The market price of non-tendered Units will be adversely affected after
termination of the Exchange Offer because the Exchange Offer will significantly
reduce the float (the number of Units outstanding and available for trading).
81. Defendants set up Tocor II with certain restrictions, including those
contained in the License Agreement and Purchase Option Agreement with Centocor
which effectively prevent Tocor II from offering itself to bids from third
parties to compete with Centocor's Offer.
25
<PAGE>
82. Thus, Centocor was the only entity from which Tocor II could receive
any offer, and therefore Centocor was in a monopolistic bargaining position.
The $40 per Unit price "negotiated" by the Special Committee presumably
represents a discount from the price that would have been offered by third
parties in the absence of Centocor's monopolistic bargaining position and the
contractual conditions -- set up by defendants -that gave Centocor such a
monopolistic bargaining position. The Special Committee has not made any
---
representation that the Offer maximizes Unitholder value or that it represents
the highest price per Unit that could be achieved if third parties could submit
competing bids for Tocor II without the constraints imposed by the contractual
agreements with Centocor.
83. The structure of the Offer was conceived of and suggested by Caruso,
who is the Chief Accounting Officer for Centocor while at the same time serves
as the Treasurer for Tocor II. Also heavily involved in the "negotiations" that
lead up to the offer was Dennis Purcell, a Managing Director of PaineWebber.
84. The Offer is in furtherance of a plan and scheme which, if its
consummation is not enjoined, will result in the unlawful elimination of the
public Unitholders of Tocor II at a grossly inadequate price.
85. As demonstrated by the Purchase Option and Centocor's prior conduct in
connection with the formation and subsequent repurchase of Tocor I,
representations made by defendants in Tocor II's quarterly and annual reports
filed with the SEC and omissions
26
<PAGE>
therein, and typical practice in connection with SWORDs including the SWORD
transactions purportedly analyzed by H&Q, it had been contemplated by members of
the Class and the investment community that Centocor would acquire the public
securities of Tocor II, if at all, at prices much in excess of the amount being
offered pursuant to the Offer.
86. The consideration offered to the Class pursuant to the Offer is unfair
and grossly inadequate because among other things, the price is not the result
of arms length negotiations and is not based upon any independent evaluation by
Centocor or Tocor II of the current value of the Units or Tocor II's assets and
was fixed arbitrarily by Centocor with the assistance of the Individual
Defendants as part of a plan to obtain Tocor II at the lowest possible price and
to obtain for itself benefits disproportionate to that to be received by the
Class.
87. Because the defendants are in possession of corporate information
concerning Centocor's and Tocor II's future financial prospects, the degree of
knowledge and economic power between the defendants and the Class is unequal,
making it grossly and inherently unfair for the defendants to obtain ownership
of Tocor II's assets from the public securityholders at the unfair and
inadequate prices which the defendants have set.
88. In its December 20, 1993 issue Forbes published a highly favorable
------
article about the progress of Centocor's autoimmune disease research and its
potential to provide relief for arthritis victims. The article notes that
Centocor has "picked up the pieces
27
<PAGE>
and used them to go after a much bigger piece" and that "time is on Centocor's
side and the price is large."
COUNT I
BREACH OF FIDUCIARY DUTY
------------------------
89. The averments of (P)(P) 1 through 88, inclusive, are incorporated
herein.
90. By (a) offering a grossly inadequate price for the Units (b)
recommending the acceptance of such offer (c) failing to conduct an independent
analysis of the fairness of the offer (d) failing to fully apprise themselves
fully of the maximum value of Tocor II (e) failing to consider the fairness of
the Offer to Unitholders who do not participate in the Offer (f) failing to
maximize shareholder value by recommending the acceptance of the Offer after
creating circumstances under which competing bids could not be solicited and
without waiting until such bids could be solicited and (g) failing to provide
full disclosure of all material facts, the defendants are seeking to coerce the
Class into approving the Offer, and have violated their duties to the Class.
91. By reason of the foregoing, the defendants have breached and continued
to breach their duties to the Class and are engaging in improper overreaching
and wrongful and coercive conduct in attempting to carry out the Offer.
92. By reason of the foregoing, the Individual Defendants have violated
their fiduciary duties to the Class in that they have failed to maximize
Unitholder value and have otherwise failed to take other steps to protect the
interest of the Class. Moreover in
28
<PAGE>
view of the fact that Individual Defendants are affiliated with Centocor and
will continue to receive substantial benefits from Centocor, the Individual
Defendants are incapable of responding to the Offer in a manner designed to
advance the interest of the Class.
93. Plaintiff and the Class will suffer irreparable damage unless the
defendants are enjoined from breaching their fiduciary duties and from carrying
out the Offer.
94. Plaintiffs have no adequate remedy at law.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Representative Plaintiff, on behalf of himself and all others
similarly situated, respectably requests that the Court grant the following
relief:
(a) Declaring this action to be a proper class action;
(b) Enjoining, preliminarily and permanently, the Offer under the
terms presently proposed; and requiring the defendants to make
fair disclosure of all material facts to the Class before the
completion of any unlawful acquisition;
(c) Establishing a truly "independent special committee" and
engaging a truly independent and objective financial advisor to
impartially determine whether the terms of the Offer are fair to
the Class;
29
<PAGE>
(d) To the extent, if any, that the Offer complained of is
consummated prior to the entry of this Court's final judgment,
rescinding such transaction, and/or awarding damages including
but not limited to rescissory damages;
(e) Directing that the defendants pay to plaintiff and the Class all
damages caused to them and account for all profits and special
benefits obtained as a result of their unlawful conduct;
(f) Awarding to plaintiff, the cost and disbursements of this action,
including a reasonable allowance for the fees and expenses of
plaintiffs' attorneys' and experts' fees; and
(g) Granting such other and further relief as may be just and proper
in the premises.
DATED: December 23, 1993 CHIMICLES, BURT & JACOBSEN
By: /s/ NICHOLAS E. CHIMICLES
-------------------------
Nicholas E. Chimicles
(I.D. No. 17928)
Steven A. Schwartz
(I.D. No. 50579)
One Haverford Center
361 West Lancaster Avenue
Haverford, PA 19041
(215) 642-8500
Attorneys for the Representative
Plaintiff and the
Class Plaintiffs
30
<PAGE>
Of Counsel:
ZWERLING, SCHACHTER & ZWERLING
Robert S. Schachter
Mary E. Neu
767 Third Avenue
New York, NY 10017
(212) 223-3900
GOODKIND LABATON RUDOFF & SUCHAROW
Lawrence A. Sucharow
100 Park Avenue
New York, NY 10017
(212) 907-0700
KENNETH A. ELAN
291 Broadway, Suite 1501
New York, NY 10007
(212) 619-0261
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VERIFICATION
PETER CORDARO verifies that he is a plaintiff in this action and that the
facts set forth in the foregoing Complaint are true and correct to the best of
his knowledge, information, and belief. This statement is made subject to
the penalties for unsworn falsification to authorities, 18 Pa. C.S. (S) 4904.
Dated: December 15, 1993 /s/ PETER CORDARO
-- ----------------------
PETER CORDARO
32
