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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1993
REGISTRATION NO. 33-51421
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CENTOCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 7351 23-2117202
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
200 GREAT VALLEY PARKWAY, MALVERN, PENNSYLVANIA 19355
(215)651-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GEORGE D. HOBBS, ESQ.
VICE PRESIDENT,
CORPORATE COUNSEL
AND
SECRETARY
CENTOCOR, INC.
200 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
(215)651-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on the Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE
$.01 PER SHARE
(INCLUDING COMMON
STOCK PURCHASE
RIGHTS)(1)............ 7,200,000(2) (3) $50,625,000.00(4) $17,456.90(4)
</TABLE>
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(1) Prior to the occurrence of certain events, the common stock purchase rights
will not be evidenced separately from the common stock.
(2) Maximum number of shares of Common Stock issuable upon consummation of the
exchange offer for Units (each Unit consisting of one share of Tocor II
Callable Common Stock, one Series T Warrant to Purchase One Share of
Centocor, Inc. Common Stock, and one Callable Warrant to Purchase One Share
of Centocor, Inc. Common Stock).
(3) For each Unit tendered in the exchange offer, the exchanging holder will
receive $40, subject to certain adjustments described herein, payable in
shares of Centocor, Inc. Common Stock, par value $.01 per share (including
common stock purchase rights).
(4) Pursuant to Rule 457(f), and estimated solely for purpose of calculating
the registration fee, based upon the average of the high and low sale
prices of Units on the Nasdaq National Market System on December 6, 1993.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. AND CAPTION PROSPECTUS CAPTION
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<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Introduction, Available
Information, Incorporation of
Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Prospectus Summary; Risk
Factors
4. Terms of the Transaction................. Prospectus Summary; Pro Forma
Condensed Combined Financial
Information; The Exchange
Offer; Certain Federal Income
Tax Considerations; Description
of the Securities
5. Pro Forma Information.................... Pro Forma Condensed Combined
Financial Information
6. Material Contacts with The Company Being
Acquired................................ The Exchange Offer
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
8. Interests of Named Experts and Counsel... Validity of the Centocor Common
Stock; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
10. Information with Respect to S-3
Registrants............................. Description of Centocor and
Tocor II
11. Incorporation of Certain Information by
Reference............................... Incorporation of Certain
Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants....... Not Applicable
15. Information with Respect to S-3
Companies............................... Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information with Respect to Companies
Other than S-3 or S-2 Companies......... Description of Centocor and
Tocor II; Price Range of
Centocor Common Stock and Units
and Dividend Policies of
Centocor and Tocor II; Selected
Financial Information; Tocor II
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Tocor II Financial Statements
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Introduction; The Exchange
Offer
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PROSPECTUS (SUBJECT TO COMPLETION DATED )
CENTOCOR, INC.
EXCHANGE OFFER TO HOLDERS OF UNITS,
EACH UNIT CONSISTING OF ONE SHARE OF CALLABLE
COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT
TO PURCHASE ONE SHARE OF CENTOCOR, INC. COMMON STOCK
AND ONE CALLABLE WARRANT TO PURCHASE ONE SHARE
OF CENTOCOR, INC. COMMON STOCK
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON [ ], 1994, UNLESS EXTENDED
NEITHER CENTOCOR, INC. NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY HOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING UNITS. THE BOARD
OF DIRECTORS OF TOCOR II, INC., BASED UPON A RECOMMENDATION OF A SPECIAL
COMMITTEE OF THE BOARD OF DIRECTORS OF TOCOR II, INC., HAS RECOMMENDED THAT
HOLDERS OF TOCOR II, INC. CALLABLE COMMON STOCK ACCEPT THE EXCHANGE OFFER AND
TENDER THEIR UNITS. EACH HOLDER MUST INDIVIDUALLY MAKE THE DECISION WHETHER TO
TENDER UNITS AND, IF SO, HOW MANY UNITS TO TENDER.
IMPORTANT
Any Holder desiring to tender all or any portion of his Units should either
(i) complete and sign the enclosed Letter of Transmittal and forward it with
any other required documents to the Depositary and deliver the certificates for
such tendered Units to the Depositary or (ii) request his broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
him. Holders of Units registered in the name of a broker, dealer, commercial
bank, trust company or other nominee should contact such person if they desire
to tender their Units.
IN ADDITION, ALTHOUGH THE SERIES T WARRANTS COMPRISING PART OF THE UNITS
DETACH, BY THEIR TERMS, FROM THE TWO OTHER COMPONENTS OF THE UNITS ON JANUARY
1, 1994, CENTOCOR WILL ONLY ACCEPT FOR EXCHANGE COMPLETE UNITS, EACH CONSISTING
OF ONE SHARE OF TOCOR II CALLABLE COMMON STOCK, ONE SERIES T WARRANT AND ONE
CALLABLE WARRANT.
Questions and requests for assistance or for additional copies of this
Prospectus and the Letter of Transmittal may be directed to Centocor, Inc. at
its address set forth on page 23 of this Prospectus or to D. F. King & Co. at
its address set forth on the back cover of this Prospectus. Additional copies
of this Prospectus may also be obtained from brokers, dealers, commercial
banks, trust companies and other nominees.
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THE EXCHANGE OFFER IS CONDITIONED UPON SATISFACTION OF THE MINIMUM TENDER
CONDITION AND CERTAIN OTHER CONDITIONS DESCRIBED IN THIS PROSPECTUS. SEE "THE
EXCHANGE OFFER--TERMS OF THE EXCHANGE OFFER--CONDITIONS TO THE EXCHANGE OFFER."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS DATED , 1994.
<PAGE>
TO THE HOLDERS OF UNITS,
EACH UNIT CONSISTING OF ONE SHARE OF CALLABLE
COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT
TO PURCHASE ONE SHARE OF CENTOCOR, INC. COMMON STOCK
AND ONE CALLABLE WARRANT TO PURCHASE ONE SHARE
OF CENTOCOR, INC. COMMON STOCK
INTRODUCTION
Centocor, Inc., a Pennsylvania corporation ("Centocor"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), $40, payable in shares of Centocor Common Stock, par value $.01
per share (including the associated Rights (as defined below), the "Centocor
Common Stock"), based upon the average closing price of Centocor Common Stock
on the Nasdaq National Market System over the 30 consecutive trading days
immediately preceding the fifth trading day prior to 5:00 P.M., New York City
Time on [ ], ("the Expiration Date"), provided that if such actual number
exceeds 3.20 shares (the "Upper Bound"), the Upper Bound shall be paid, and if
such actual number is less than 2.73 shares (the "Lower Bound"), the Lower
Bound shall be paid, to holders ("Holders") of outstanding Units for each Unit
tendered, each Unit consisting of one share of Callable Common Stock, par value
$1.00 per share (the "Tocor II Callable Common Stock"), of Tocor II, Inc., a
British Virgin Islands corporation, ("Tocor II"), one Series T Warrant to
Purchase One Share of Centocor Common Stock (a "Series T Warrant") and one
Callable Warrant to Purchase One Share of Centocor Common Stock (a "Callable
Warrant" and, together with the Series T Warrants, the "Warrants"). No
fractional shares of Centocor Common Stock will be issued. Centocor shall pay
cash in lieu of fractional shares.
Tendering Holders will not be obligated to pay brokerage fees, commissions,
solicitation fees or, subject to Instruction 6 to the Letter of Transmittal,
stock transfer taxes on the purchase of Units by Centocor. In addition,
Centocor will pay all charges and expenses of The First National Bank of
Boston, as depositary (the "Depositary"), and D. F. King and Co., Inc., as
Information Agent, incurred in connection with the Exchange Offer. However, any
tendering Holders or other payees who fail to complete and sign the Substitute
Treasury Form W-9 that accompanies the Letter of Transmittal may be subject to
a required tax withholding of 31% of the gross proceeds paid to the Holder or
other payee pursuant to the Exchange Offer.
The Centocor Common Stock and the Units are listed and publicly traded on the
Nasdaq National Market System under the symbols "CNTO" and "TOCRZ,"
respectively. On December 9, 1993, the closing sale price as reported by the
Nasdaq National Market System of the Centocor Common Stock was $12.375 per
share and of the Units was $23 per Unit. See "Price Range of Centocor Common
Stock and Units and Dividend Policies of Centocor and Tocor II."
The Exchange Offer is conditioned upon (1) there being validly tendered and
not withdrawn a majority of the Units then outstanding, (2) Centocor having
received all necessary and desirable government and regulatory approvals and
consents for the acquisition of Units pursuant to the Exchange Offer and for
consummation of the subsequent merger and (3) no legal impediment existing
that, in the sole judgment of Centocor, makes it inadvisable to proceed with
the Exchange Offer. IN ADDITION, ALTHOUGH THE SERIES T WARRANTS COMPRISING PART
OF THE UNITS DETACH, BY THEIR TERMS, FROM THE TWO OTHER COMPONENTS OF THE UNITS
ON JANUARY 1, 1994, CENTOCOR WILL ONLY ACCEPT FOR EXCHANGE COMPLETE UNITS, EACH
CONSISTING OF ONE SHARE OF TOCOR II CALLABLE COMMON STOCK, ONE SERIES T WARRANT
AND ONE CALLABLE WARRANT. Any Units not tendered pursuant hereto will remain
outstanding and subject to their existing terms and conditions. If the Exchange
Offer is consummated but not all Units are accepted in the Exchange Offer,
Centocor will own a majority of the Tocor II Callable Common Stock and will
vote those shares in favor of, if necessary, and thereby cause a transaction
(which may include a merger of Tocor II into a wholly-owned subsidiary of
Centocor, a merger of such a subsidiary into Tocor II, a purchase of the assets
of Tocor II followed by a dissolution of Tocor II,
2
<PAGE>
or a similar transaction) by which Centocor shall acquire all of the remaining
securities or assets of Tocor II (a "Second-Step Transaction") in exchange for
shares of Centocor Common Stock. Because such holders of Tocor II Callable
Common Stock will retain in any Second-Step Transaction any Warrants that they
hold, the value of the consideration to be received by such holders for their
Tocor II Callable Common Stock in any Second-Step Transaction will be 90% of
the value of the consideration received by Holders for their Units in the
Exchange Offer. Holders of Units may be entitled to dissenters' rights in a
Second-Step Transaction under the law of the British Virgin Islands ("BVI").
See "The Exchange Offer--Terms of the Exchange Offer--Dissenters' Rights."
Centocor does not intend to list the Warrants remaining outstanding after the
merger on any securities exchange or to make a market in such Warrants. As a
result, no liquid market may develop for such Warrants, which may adversely
affect their value. See "The Exchange Offer--Terms of the Exchange Offer--
Consequences to Non-Tendering Holders."
Centocor will use the services of D.F. King & Co., Inc., as Information
Agent, to aid in the distribution of offering materials.
HOLDERS ARE URGED TO READ THE PROSPECTUS AND THE RELATED LETTER OF
TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR UNITS.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS APPLICABLE TO AN
INVESTMENT IN CENTOCOR.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE EXCHANGE OFFER CONTAINED HEREIN, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY CENTOCOR. CENTOCOR IS NOT AWARE OF ANY JURISDICTION
IN WHICH THE MAKING OF THE EXCHANGE OFFER IS NOT IN COMPLIANCE WITH APPLICABLE
LAW. IF CENTOCOR BECOMES AWARE OF ANY JURISDICTION IN WHICH THE MAKING OF THE
EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH APPLICABLE LAW, CENTOCOR WILL
MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH LAW. IF, AFTER SUCH GOOD FAITH
EFFORT, CENTOCOR CANNOT COMPLY WITH ANY SUCH LAW, THE EXCHANGE OFFER WILL NOT
BE MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS RESIDING
IN SUCH JURISDICTIONS. IN ANY JURISDICTION WHERE THE SECURITIES, "BLUE SKY" OR
OTHER LAWS REQUIRE THE EXCHANGE OFFER TO BE MADE BY A LICENSED BROKER OR
DEALER, THE EXCHANGE OFFER WILL BE DEEMED TO BE MADE ON BEHALF OF CENTOCOR BY
ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH
JURISDICTIONS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF THE
CENTOCOR COMMON STOCK FOR UNITS PURSUANT TO THE EXCHANGE OFFER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CENTOCOR OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
3
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AVAILABLE INFORMATION
Each of Centocor and Tocor II is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by Centocor can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain
of its Regional Offices located at 13th Floor, 7 World Trade Center, New York,
New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
Centocor has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, incorporated documents and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities being offered pursuant to
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to Centocor and such securities, reference is made to
the Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or any other document filed, or incorporated by
reference, as an exhibit to the Registration Statement, are qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Ms. Drew Dorgan at Centocor, Inc., 200 Great Valley Parkway, Malvern,
Pennsylvania 19355 or (215) 651-6000. In order to ensure timely delivery of the
documents, any request should be made by [ ].
The following documents filed with the Commission pursuant to the Exchange
Act by Centocor (File No. 0-11103) are incorporated herein by reference:
(a) The Annual Report of Centocor on Form 10-K for the year ended
December 31, 1992;
(b) The Quarterly Reports of Centocor on Form 10-Q for the quarters ended
March 31, 1993, June 30, 1993 and September 30, 1993;
(c) Current Reports of Centocor on Form 8-K, dated January 18, 1993,
January 18, 1993, May 28, 1993 and January 10, 1994;
(d) Form 8-A, filed April 28, 1983, as amended; and
(e) Form 8-A, filed October 11, 1988.
Each document filed by Centocor pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and shall be a part hereof from the date of filing
of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The following product names mentioned in this Prospectus are trademarks of
Centocor: CentoRx(R), Panorex(R), CenTNF(TM), HA-1A(TM), Centoxin(R),
Myoscint(R) and CA125(TM).
4
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TABLE OF CONTENTS
<TABLE>
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PAGE
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Introduction.............................................................. 2
Available Information..................................................... 4
Incorporation of Certain Documents By Reference........................... 4
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 17
Description of Centocor and Tocor II...................................... 23
The Agreements............................................................ 26
Legal Proceedings......................................................... 29
Price Range of Centocor Common Stock and Units and Dividend Policies of
Centocor and Tocor II.................................................... 31
Selected Financial Information............................................ 32
Tocor II Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 33
Pro Forma Condensed Combined Financial Information........................ 34
The Exchange Offer........................................................ 38
Certain Federal Income Tax Considerations................................. 48
Description of Securities................................................. 50
Validity of the Centocor Common Stock..................................... 56
Experts................................................................... 56
Index to Tocor II Financial Statements.................................... 57
</TABLE>
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
description and the financial statements appearing elsewhere or incorporated by
reference in this Prospectus.
CENTOCOR, INC.
Centocor, Inc. is a biopharmaceutical company specializing in the development
and commercialization of monoclonal antibody-based products to meet critical
human health care needs. Additionally, Centocor performs research activities in
the field of small peptide molecule-based pharmaceutical products on behalf of
Tocor II. Centocor focuses on four major disease areas--infectious,
cardiovascular and autoimmune diseases and cancer. Centocor's therapeutic
products under development include CentoRx, a product intended to treat or
prevent the formation of blood clots in the cardiovascular system; Panorex, a
product intended to treat colorectal cancer; CenTNF, a product targeted for the
treatment of rheumatoid arthritis and inflammatory bowel diseases such as
Crohn's disease; and HA-1A, a product intended for the treatment of patients
with severe sepsis who are dying from endotoxemia. CentoRx is being developed
by Centocor for Centocor Partners III, L.P. ("CPIII"). For a further discussion
of CentoRx, Panorex, CenTNF and HA-1A, see "Risk Factors--Status of CentoRx,"
"Risk Factors--Status of Panorex," "Risk Factors--Status of CenTNF" and "Risk
Factors--Status of HA-1A." Other therapeutic products are also under
development. Centocor's imaging products include Myoscint, a cardiac imaging
agent, and other contrast agents under development for use in in-vivo
diagnostic imaging procedures. Centocor has also developed a number of in-vitro
diagnostic products, which have generated substantially all of its product
sales to date. Centocor has not received marketing approval from the U.S. Food
and Drug Administration ("FDA") for any of its pharmaceutical products. One of
Centocor's in-vitro diagnostic products, CA125(TM), has received FDA approval.
During 1992, a significant percentage of Centocor's in-vitro diagnostic sales
were to three distributors: Toray-Fuji Bionics, Inc. in Japan, Compagnie Oris
Industrie in France and Boehringer Mannheim GmbH in Germany. Additionally,
prior to June 30, 1991, sales of in-vitro diagnostic products included
investigational-use-only sales in the United States of certain products that
have not been approved by the FDA, including CA 19-9, CA 15-3, CA 72-4, P-
glycoCHEK and Gamma Interferon. Effective June 30, 1991, Centocor ceased sales
in the United States of all diagnostic products that had not been approved by
the FDA.
During 1992 and 1993, Centocor has been implementing a new business plan
employing a more collaborative strategy utilizing, among other things,
alliances with established pharmaceutical companies. Pursuant to this plan,
Centocor made reductions in staff and corresponding reductions of related
expenses. In the in-vitro diagnostic and imaging areas, Centocor has maintained
distribution agreements with companies having established positions and
distribution networks in applicable market segments. In conjunction with such
new business plan, Centocor eliminated its European and United States sales
forces in 1992 and 1993. Centocor expects to continue to effect plans to
further reduce its current rate of net cash outflows, including the development
of additional collaborative arrangements with pharmaceutical companies.
At September 30, 1993, Centocor had approximately 530 full-time employees. To
complement its own expertise in various fields, Centocor utilizes scientific
consultants and advisors, many of whom have formal consulting agreements with
Centocor.
Centocor was incorporated in Pennsylvania in 1979 and maintains its principal
executive offices at 200 Great Valley Parkway, Malvern, Pennsylvania 19355. Its
telephone number is (215) 651-6000. Centocor also maintains facilities in
Leiden, the Netherlands and Surrey, the United Kingdom, and an office in Tokyo,
Japan.
6
<PAGE>
SUMMARY RISK FACTORS
The securities to which this Prospectus relates involve a high degree of
risk. The following is a summary of only certain investment risk factors.
Investors should more carefully consider the complete listing and description
of risk factors set forth under the heading "Risk Factors."
Centocor's future financial condition is highly dependent upon the reduction
of Centocor's rate of net cash outflows and, ultimately, upon the achievement
of significant and sustained levels of pharmaceutical product sales. In
addition, Centocor will need to secure significant additional capital in the
future from collaborative arrangements with pharmaceutical companies or from
the capital markets.
Centocor's product sales to date have not included significant sales of any
of its pharmaceutical products and have not been sufficient to cover its
operating expenses.
Other than the approval of HA-1A in certain European countries, Centocor has
not yet received regulatory approval for any of its pharmaceutical products.
The market prices for securities of biotechnology companies in general, and
Centocor in particular, have been highly volatile and may continue to be highly
volatile in the future.
Centocor intends to manufacture its own pharmaceutical products. Centocor has
only limited experience in manufacturing pharmaceutical products.
The levels of revenues and profitability of Centocor may be affected by the
continuing efforts of governmental and third party payors to contain or reduce
the costs of health care through various means, including pharmaceutical price
controls.
TOCOR II, INC.
Tocor II, Inc. was formed to engage in research, development and preliminary
clinical studies of small peptide molecule-based pharmaceutical products (the
"Products") for the treatment of human disease (excluding any technology
relating solely to monoclonal antibodies, the "Field").
Because Tocor II's research program commenced in 1992, all of its Product
candidates are in early stages of development. Tocor II has incurred expenses
of approximately $28,800,000 under its research program to date. Product
development involves a high degree of risk. Only limited research, all of which
has been conducted by Centocor, and no clinical trials have been conducted on
the Products. There can be no assurance that Tocor II's research and
development efforts will result in the development or human clinical testing of
any Products.
Tocor II's present focus is in certain disease areas with significant market
potential in which Centocor has knowledge regarding certain related targeted
receptors and relevant clinical research experience. These disease areas
include rheumatoid arthritis and other autoimmune diseases, adult respiratory
distress syndrome, reperfusion syndrome and other inflammatory conditions and
certain cardiovascular diseases. Tocor II has no employees or facilities
necessary to perform research in the Field and is heavily dependent on
Centocor. Centocor conducts early stage research in the Field on behalf of
Tocor II pursuant to a Development Agreement. See "The Agreements--The
Development Agreement." Centocor has licensed to Tocor II its technology
relating to the Field pursuant to a Technology License Agreement. See "The
Agreements--The Technology License Agreement."
Tocor II's research program to date has principally been involved in three
specific program areas. The first area is the screening and testing of peptides
directed against adhesion molecules on the interior walls of blood vessels or
certain white blood cells. The second area involves peptides against tumor
necrosis factor ("TNF"). The third area involves the discovery of inhibitors of
lipopolysaccharides.
Tocor II is a British Virgin Islands corporation organized in 1991 and its
principal executive offices are located at Todman Building, Main Street, Road
Town, Tortola, British Virgin Islands. Tocor II's telephone number is (809)
494-2065.
7
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
SECURITIES OFFERED: Shares of Centocor Common Stock, par value $.01 per
share, are being offered pursuant hereto. See "De-
scription of Securities."
THE EXCHANGE: Centocor will exchange $40 for each Unit tendered,
payable in shares of Centocor Common Stock, based
upon the average closing price of Centocor Common
Stock on the Nasdaq National Market System over
the 30 consecutive trading days immediately pre-
ceding the fifth trading day prior to the Expira-
tion Date, provided that if such actual number of
shares exceeds the Upper Bound (3.20 shares), the
Upper Bound shall be paid, and if such actual num-
ber of shares is less than the Lower Bound (2.73
shares), the Lower Bound shall be paid. No frac-
tional shares of Centocor Common Stock will be is-
sued. Centocor shall pay cash in lieu of frac-
tional shares. See "The Exchange Offer--Terms of
the Exchange Offer."
In addition, although the Series T Warrants com-
prising part of the units detach, by their terms,
from the two other components of the units on Jan-
uary 1, 1994, Centocor will only accept for ex-
change complete units, each consisting of one
share of Tocor II Callable Common Stock, one Se-
ries T Warrant and one Callable Warrant. Accord-
ingly, those holders wishing to tender their units
should not sell or otherwise transfer ownership of
their Series T Warrants.
PURPOSES OF THE EXCHANGE Consummation of the Exchange Offer will enable
OFFER: Centocor to obtain the technology developed in
connection with the small peptide molecule-based
research currently being conducted on behalf of
Tocor II and to continue a peptide research pro-
gram on a more flexible schedule than is currently
permissible under the Development Agreement (as
defined below). In addition, following a Second-
Step Transaction (see "The Exchange Offer--Terms
of the Exchange Offer--Consequences to Non-
Tendering Holders"), Centocor anticipates that it
will obtain approximately $50,000,000 of cash cur-
rently held by Tocor II to support Centocor's ef-
forts on behalf of Tocor II under the Development
Agreement, which could instead be used at
Centocor's discretion for any of its research pro-
grams.
Centocor may effectively acquire the technology de-
veloped in connection with the research program
conducted under the Development Agreement only by
purchasing Tocor II. Centocor may purchase shares
of Tocor II by exercising its option under the
Purchase Option Agreement (as defined below) to
acquire all of the outstanding Tocor II Units (the
"Purchase Option") at prices that increase from
$58 per Unit currently to $107 per Unit through
December 31, 1995, the expiration date of the Pur-
chase Option, or through a transaction with the
holders of shares of Tocor II Callable Common
Stock without a predetermined price, such as the
Exchange Offer. See "The Agreements--The Purchase
Option Agreement." Centocor anticipates that the
Exchange Offer will allow Centocor to acquire the
desired technology at a more favorable price than
under the Purchase Option Agreement. There can be
no assurance that Centocor will exercise its Pur-
chase Option or otherwise enter into a transaction
to acquire shares of Tocor II Callable Common
Stock if the Exchange Offer is not consummated for
any reason. Centocor will exercise its Purchase
Option or enter into any such other transaction
only if it perceives such exercise or other trans-
action to be in its best interest.
8
<PAGE>
Additionally, Centocor believes that the small pep-
tide molecule-based program is closely linked with
Centocor's monoclonal antibody program, because
discoveries or developments in either one may di-
rectly impact the other. Due to such integration,
Centocor believes that the small peptide molecule-
based program should be conducted at a pace that
is related to the progress in its monoclonal anti-
body program rather than at the pace dictated by
the Development Agreement. With both programs man-
aged on a parallel track, Centocor believes it
will derive the greatest possible benefit from
discoveries or developments in either program.
Furthermore, if Centocor consummates the Exchange
Offer, the number of outstanding warrants to pur-
chase shares of Centocor Common Stock will be sig-
nificantly reduced. See "Description of Securi-
ties--The Warrants."
CONDITIONS TO THE A Holder must tender the Units for exchange by for-
EXCHANGE OFFER: warding Units, together with the Letter of Trans-
mittal, to the Depositary. The Exchange Offer is
conditioned upon (1) a majority of Units being
tendered, (2) Centocor having received all neces-
sary and desirable government and regulatory ap-
provals and consents for the acquisition of Units
pursuant to the Exchange Offer and for consumma-
tion of a Second-Step Transaction and (3) no legal
impediment existing that, in the sole judgment of
Centocor, makes it inadvisable to proceed with the
Exchange Offer. See "The Exchange Offer--Terms of
the Exchange Offer--Conditions to the Exchange Of-
fer" for a complete description of the conditions
to the Exchange Offer.
PROCEDURES FOR TENDERING Holders of the Units electing to accept the Ex-
UNITS: change Offer must complete and sign the Letter of
Transmittal in accordance with the instructions
contained therein and forward or hand deliver it
along with each Unit to The First National Bank of
Boston at Blue Hills Office Park, 150 Royall
Street, Canton, MA 02021, Mail Stop: 45-02-05.
Holders of Units registered in the name of a bro-
ker, dealer, commercial bank, trust company or
nominee are urged to contact such registered
holder promptly if they wish to accept the Ex-
change Offer. See "The Exchange Offer--Terms of
the Exchange Offer--Procedures for Tendering
Units."
CONSEQUENCES TO NON-
TENDERING HOLDERS: The rights of non-tendering Holders will not be al-
tered, impaired or modified by this Exchange Of-
fer. Such non-tendering Holders may transfer their
respective Units in accordance with their terms.
If the Exchange Offer is consummated but not all
Units are accepted in the Exchange Offer, Centocor
will own a majority of the Tocor II Callable Com-
mon Stock and will vote those shares in favor of,
if necessary, and thereby cause a transaction
(which may include a merger of Tocor II into a
wholly-owned subsidiary of Centocor, a merger of
such a subsidiary into Tocor II, a purchase of the
assets of Tocor II followed by a dissolution of
Tocor II, or a similar transaction) by which
Centocor shall acquire all of the remaining secu-
rities or assets of Tocor II in exchange for
shares of Centocor Common Stock. Because holders
of Tocor II Callable Common Stock will retain in
any Second-Step Transaction any Warrants that they
hold, the value of the consideration to be re-
ceived by such holders for their Tocor II Callable
Common Stock in any Second-Step Transaction will
be 90% of the value of the consider
9
<PAGE>
ation received by Holders for their Units in the
Exchange Offer. Holders of Units may be entitled
to dissenters' rights in a Second-Step Transaction
under BVI law. See "The Exchange Offer--Terms of
the Exchange Offer--Dissenters' Rights." Centocor
does not intend to list the Warrants remaining
outstanding after consummation of the Exchange Of-
fer on any securities exchange or to make a market
in such Warrants. As a result, no liquid trading
market may develop for such Warrants, which may
adversely affect their value.
Units not tendered in the Exchange Offer will only
remain outstanding as Units until such time as
Centocor consummates a Second-Step Transaction. A
class of securities with a small number outstand-
ing and available for trading (the "float") only
for an extremely limited period may command a
lower price than would a comparable class with a
greater float and longer duration. Therefore, the
market price for remaining Units after the termi-
nation of the Exchange Offer may be affected ad-
versely to the extent that the number of Units ex-
changed pursuant to the Exchange Offer reduces the
float and because the Units not tendered are ex-
pected to remain outstanding only briefly. The re-
duced float may also tend to make the trading
price for the Units more volatile. In addition,
depending on the number of Units tendered, the
Units may no longer trade on the Nasdaq National
Market System.
DISSENTERS RIGHTS: Under BVI law, holders of shares of a BVI company,
or members, are entitled to payment of fair value
for their shares upon dissenting from mergers,
consolidations, certain dispositions of more than
50% of the company's assets, compulsory redemp-
tions of shares, and certain other transactions,
if the BVI company is a constituent company in the
merger and not the surviving company. A member who
desires to exercise dissenters' rights must give
to the company before or at the meeting of members
at which the merger is submitted to a vote, a no-
tice of an objection to the merger. The objection
must include a statement that the member proposes
to demand payment for his shares if the action is
taken. In the event that the member does not re-
ceive notice of the meeting, or if the proposed
action is authorized by written consent without a
meeting, no notice of objection is required. See
"The Exchange Offer--Terms of the Exchange Offer--
Dissenters Rights."
EXPIRATION DATE: [ ], 1994 at 5:00 p.m., New York City time, or
such later date as Centocor may determine in its
sole discretion, provided that the expiration date
will not be extended beyond [ ]. See "The Ex-
change Offer--Terms of the Exchange Offer."
FEDERAL INCOME TAX The following applies to Holders in general and
CONSEQUENCES: does not reflect various special rules that may
apply to particular Holders. The exchange of Tocor
II Callable Common Stock for Centocor Common Stock
may qualify as a tax-free "reorganization" if
Centocor acquires as a result of the Exchange Of-
fer at least 80% of the Tocor II Callable Common
Stock, in which case Holders who tender their
Units would not recognize gain or loss (except
with
10
<PAGE>
respect to the receipt of cash in lieu of the is-
suance of fractional shares of Centocor Common
Stock) with respect to that exchange. If the ex-
change does not so qualify, Holders will recognize
gain or loss with respect thereto. Holders will
recognize gain or loss with respect to the ex-
change of Callable Warrants and Series T Warrants
for Centocor Common Stock. Holders may also be re-
quired to recognize short-term capital gain in re-
spect of the lapse or termination of the Purchase
Option in connection with their exchange of Units
for Centocor Common Stock (the "Exchange"). See
"Certain Federal Income Tax Considerations" for a
more complete summary of certain tax aspects of
the transaction. Holders are encouraged to consult
their own tax advisors regarding the potential
consequences of the Exchange. See "Certain Federal
Income Tax Consequences."
CENTOCOR COMMON STOCK As of December 31, 1993, there were 43,671,968 is-
OUTSTANDING: sued and outstanding shares of Centocor Common
Stock. See "Description of Securities."
UNITS OUTSTANDING: As of December 31, 1993, there were 2,250,000 is-
sued and outstanding Units. See "Description of
Securities."
REGULATORY APPROVALS
Centocor is not aware of any approval or other action by any state, federal
or foreign governmental administrative or regulatory agency or authority that
would be required prior to the Exchange Offer or a Second-Step Transaction.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected historical financial information set forth below should be read
in conjunction with the historical financial statements and notes thereto
contained in the Annual Report on Form 10-K for the year ended December 31,
1992 and the Quarterly Report on Form 10-Q for the quarter ended September 30,
1993 for Centocor, which are incorporated by reference herein and the audited
and unaudited Tocor II Financial Statements and notes thereto and Tocor II
Management's Discussion and Analysis of Financial Position and Results of
Operations appearing elsewhere in this Prospectus. The Consolidated Statements
of Operations Data presented below for Centocor is not necessarily indicative
of the expected future results of operations. See "Risk Factors--Results of
Operations--Special Charges."
12
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------
1993 1992 1991 1990 1989 1988
------------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Sales.................. $ 34,650 $ 58,394 $ 44,328 $ 32,863 $27,616 $22,085
Contracts:
Related parties....... 7,950 16,071 4,902 27,870 28,900 30,887
Other*................ 2,860 51,767 3,967 3,901 15,444 2,229
-------- --------- --------- --------- ------- -------
45,460 126,232 53,197 64,634 71,960 55,201
Costs and expenses**.... 100,256 295,978 247,151 217,966 74,341 55,942
Other income
(expenses)***.......... (12,558) (24,400) (1,601) 18,952 2,637 7,736
(Benefit) provision for
income taxes........... -- -- -- (2,200) 141 2,868
-------- --------- --------- --------- ------- -------
(Loss) income........... $(67,354) $(194,146) $(195,555) $(132,180) $ 115 $ 4,127
======== ========= ========= ========= ======= =======
(Loss) income per share. $ (1.63) $ (4.90) $ (5.72) $ (5.10) $ .01 $ .18
======== ========= ========= ========= ======= =======
Weighted average number
of shares outstanding.. 41,315 39,623 34,172 25,930 23,220 23,016
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
SEPTEMBER 30, --------------------------------------------
1993 1992 1991 1990 1989 1988
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and
investments****........ $122,169 $163,083 $233,598 $100,877 $ 86,201 $ 73,667
Total assets............ 272,764 349,268 472,929 273,080 179,601 152,589
Long-term debt.......... 238,121 238,166 259,368 42,083 22,489 12,961
Shareholders'
equity*****............ (36,894) 30,721 144,027 168,664 132,955 121,505
</TABLE>
- --------
No dividends have been declared or paid during any of the periods presented.
* Other contract revenues in 1992 include $50,000 of revenue recognized
pursuant to terms of certain agreements with Eli Lilly and Company.
** Costs and expenses include the following: (a) charges for acquired
research and development of $70,147 and $115,475 in 1991 and 1990,
respectively, (b) charges of $64,877 and $3,518 in 1992 and 1990,
respectively, related to HA-1A inventory and (c) restructuring charges of
$9,387, $15,266 and $3,548 in 1993, 1992 and 1990, respectively.
*** Other income (expenses) in 1992 includes charges of $11,245 related to the
proposed settlement of certain litigation. Other income (expenses) in 1990
includes gains of $12,976 from the sale of certain investments.
**** Cash and investments at September 30, 1993 included equity investments of
$9,170. Additionally, Centocor maintained $26,595 of investments at
certain banks as collateral for certain debt outstanding at September 30,
1993.
***** Shareholders' equity does not include the issuance of 2,000,000 shares of
Centocor Common Stock to Wellcome plc ("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."
13
<PAGE>
TOCOR II, INC.
STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED
SEPTEMBER 30, JANUARY 21, 1992
1993 TO DECEMBER 31, 1992
------------- --------------------
<S> <C> <C>
Investment income........................... $ 1,750 $ 2,913
Total expenses.............................. 10,090 22,507
------- --------
Loss........................................ (8,340) (19,594)
======= ========
Loss per share.............................. $ (3.71) $ (8.71)
======= ========
Weighted average number of shares
outstanding................................ 2,250 2,250
</TABLE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------- ------------
<S> <C> <C>
Cash and investments................................. $52,489 $64,268
Total assets......................................... 56,106 67,604
Shareholders' equity................................. 55,991 64,331
</TABLE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The selected pro forma combined financial data sets forth the combined
historical financial information of Centocor and Tocor II, adjusted to give
effect to the Exchange Offer as if the Exchange Offer had been consummated as
of the beginning of the periods presented for the statements of operations data
and as of September 30, 1993 for the balance sheet data. The selected pro forma
combined financial data is not necessarily indicative of the operating results
or financial position that would have occurred had the Exchange Offer been
consummated on the dates for which the consummation of the Exchange Offer is
being given effect, nor is it necessarily indicative of future operating
results or financial position. See "Pro Forma Condensed Combined Financial
Information."
SELECTED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1993 DECEMBER 31, 1992
------------------ -----------------
<S> <C> <C>
Revenue.................................... $ 37,510 $ 110,161
Loss....................................... (73,776) (210,552)
Loss per share............................. (1.54) (4.55)
</TABLE>
SELECTED PRO FORMA COMBINED BALANCE SHEET DATA
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
------------------
<S> <C>
Total Assets................................................. $315,916
Long-Term Debt............................................... 238,121
Shareholders' Equity......................................... 8,791
</TABLE>
The Pro Forma Combined Statements of Operations Data do not reflect the
nonrecurring charges to be recorded subject to the consummation of the Exchange
Offer representing acquired research and development of $25,009, the write off
of the unamortized portion of deferred warrant cost of $9,537 and the write off
of the unamortized portion of organization costs of $769.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents historical data for Centocor and Tocor II and
pro forma per share data giving effect to the Exchange Offer on the basis
described in the notes to the pro forma condensed combined financial statements
included elsewhere herein. The table should be read in conjunction with the
historical financial statements of Centocor and Tocor II and the pro forma
condensed combined financial statements included or incorporated elsewhere
herein. See "Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1993
---------------------------------------
PRO FORMA EQUIVALENT PRO
HISTORICAL COMBINED FORMA TOCOR II (A)
---------- --------- ------------------
<S> <C> <C> <C>
CENTOCOR, INC.
Loss per common share.................. $(1.63) $(1.54) --
Book value per common share............ $ (.89) $ .18 --
TOCOR II, INC.
Loss per common share.................. $(3.71) -- $ (4.54)
Book value per common share............ $24.88 -- $ .53
<CAPTION>
FOR THE NINE MONTHS ENDED
DECEMBER 31, 1992
---------------------------------------
PRO FORMA EQUIVALENT PRO
HISTORICAL COMBINED FORMA TOCOR II (A)
---------- --------- ------------------
<S> <C> <C> <C>
CENTOCOR, INC.
Loss per common share.................. $(4.90) $(4.55) --
Book value per common share............ $ (.78) $ 1.79 --
TOCOR II, INC.
Loss per common share.................. $(8.71) -- $(13.42)
Book value per common share............ $28.59 -- $ 5.28
</TABLE>
- --------
(a) Equivalent pro forma share information for Tocor II, Inc. presented on an
equivalent per share basis assuming conversion ratio of 2.95 shares of
Centocor Common Stock for each Tocor II Unit (an assumed ratio based upon
the average closing price of Centocor Common Stock over the 30 consecutive
trading days ended November 30, 1993). The actual conversion ratio will be
determined based upon the average closing price of Centocor Common Stock
over the 30 consecutive trading days immediately preceding the fifth
trading day prior to the Expiration Date.
15
<PAGE>
COMPARATIVE MARKET PRICE DATA
As of December 9, 1993, the equivalent market price of each Unit that is to
be exchanged for shares of Centocor Common Stock in the Exchange Offer was
$36.50, which represents the closing price per share of Centocor Common Stock
on Nasdaq National Market System on December 9, 1993, multiplied by 2.95 (an
assumed ratio, based upon the average closing price of Centocor Common Stock
over the 30 consecutive trading days ended November 30, 1993). The actual
conversion ratio will be determined based upon the average closing price of
Centocor Common Stock over the 30 consecutive trading days immediately
preceding the fifth trading day prior to the Expiration Date.
<TABLE>
<CAPTION>
TOCOR II
CENTOCOR TOCOR II PER UNIT
HISTORICAL HISTORICAL EQUIVALENT
---------- ---------- ----------
<S> <C> <C> <C>
December 9, 1993............................... $12.375 $23 $36.50
</TABLE>
NO SHAREHOLDER VOTE REQUIRED
No vote of the shareholders of Centocor or Tocor II will be required for the
consummation of the Exchange Offer.
Centocor is not soliciting your proxy on any matter by means of this Exchange
Offer. In the event that the solicitation of proxies is required in connection
with a Second-Step Transaction, Centocor will solicit such proxies separately
pursuant to proxy materials that will comply with the requirements of the
Exchange Act.
16
<PAGE>
RISK FACTORS
Holders of Units should consider carefully the following risk factors, in
addition to the other information presented in the Prospectus, before
determining whether to tender their Units in the Exchange Offer.
Liquidity and Capital Resources; Need for and Uncertainty of Additional
Capital. Centocor's future financial condition is highly dependent upon the
reduction of Centocor's rate of net cash outflows and, ultimately, upon the
achievement of significant and sustained levels of pharmaceutical product
sales. In addition, Centocor will need to secure significant additional capital
in the future from collaborative arrangements with pharmaceutical companies or
from the capital markets. During 1992 and 1993, Centocor has been implementing
a new business plan employing a more collaborative strategy utilizing, among
other things, alliances with established pharmaceutical companies. Centocor
made reductions in staff, along with corresponding reductions of related
expenses. Centocor expects to continue to effect plans to further reduce its
current rate of net cash outflows, including the establishment of additional
collaborations with established pharmaceutical companies. There can be no
assurance that Centocor will materially reduce its current rate of net cash
outflows or generate significant and sustained levels of pharmaceutical product
sales. There also can be no assurance that significant additional capital will
be available to Centocor. In addition, the FDA has not approved any of
Centocor's pharmaceutical products for marketing. There can be no assurance
that FDA or other regulatory approvals of any of Centocor's products will be
obtained. See "--Regulatory Approvals."
Agreements covering $22,583,000 of Centocor's outstanding debt balances
contain certain financial and non-financial covenants, including the
maintenance of minimum equity and cash balances and compliance with certain
financial ratios. Centocor has obtained waivers of certain of such covenants on
the condition that it maintains as collateral for such debt balances certain
investments at the respective banks, which at September 30, 1993 totalled
$20,000,000. There can be no assurance that Centocor will be able to continue
to collateralize such loans and, accordingly, Centocor has classified
$22,583,000 of debt as short-term. Additionally, $6,593,000 of Centocor's
short-term debt is secured by investments at the lending bank of $6,595,000. If
cash flows continue to be negative, Centocor's ability to service its debt may
be impaired.
Results of Operations; History of Losses--Special Charges. Centocor's product
sales to date have not included significant sales of any of its pharmaceutical
products and have not been sufficient to cover its operating expenses. Centocor
has recorded losses from operations for the nine months ended September 30,
1993 and in 1992, 1991 and 1990. Such losses have included charges for acquired
research and development of $70.1 million and $115.5 million in 1991 and 1990,
respectively. Additionally, such losses have included charges of $64.9 million
and $3.5 million in 1992 and 1990, respectively, related to HA-1A inventory and
restructuring charges of $9.4 million, $15.3 million and $3.5 million in the
nine months ended September 30, 1993, and in 1992 and 1990, respectively. There
can be no assurance that Centocor will not record additional restructuring or
inventory charges in the future or that product sales will be sufficient to
cover its future operating expenses. Centocor anticipates that if the Exchange
Offer is consummated, it will record a charge to operations of approximately
$35 million.
Need for Regulatory Approvals. Other than the approval of HA-1A in certain
European countries, Centocor has not yet received regulatory approval for any
of its pharmaceutical products. There can be no assurance that Centocor will
receive any such approvals. See "--Government Regulation." The following is the
status of four of Centocor's pharmaceutical products.
Status of CentoRx
In the first quarter of 1993, Centocor completed a randomized, double-
blinded, placebo-controlled, Phase III trial involving CentoRx, a
cardiovascular agent designed to reduce blood-clot-related complications in
high-risk coronary angioplasty patients, that enrolled 2,099 patients at 56
medical centers. Centocor filed a product license application for CentoRx in
the United States in 1993 and expects to file a product license application in
Europe in 1994. There can be no assurance that CentoRx will be approved for
commercial sale
17
<PAGE>
in the United States, Europe or elsewhere. During the second quarter of 1993,
Eli Lilly and Company ("Lilly") exercised its option to become the exclusive
worldwide distributor of CentoRx and Centocor and Lilly amended their Sales and
Distribution Agreement to reflect such event. See "--Manufacturing and Sales
Considerations." Lilly will assist Centocor in the regulatory filings and
continued development of CentoRx for various clinical indications.
Status of Panorex
On November 5, 1993, Centocor and Wellcome plc ("Wellcome") signed an
alliance agreement for the development and marketing of certain of Centocor's
monoclonal antibody-based cancer therapeutic products, including Panorex.
Wellcome will contribute to the continuing clinical development of Panorex and
six other potential drugs and then market and sell any approved drugs in most
parts of the world.
Upon closing of the transaction on December 16, 1993, Wellcome paid Centocor
$20 million in exchange for two million newly issued shares of Centocor's
Common Stock, which represent slightly less than five percent of the total
Common Stock of Centocor outstanding. In addition, Wellcome paid Centocor a $10
million non-refundable license fee at the closing of the transaction, and may
make certain future payments up to $70 million based on milestones and
acquisition of certain manufacturing technologies.
Panorex has been tested in a Phase III trial (see "--Government Regulation")
at six German medical centers which enrolled 189 colorectal cancer patients who
were subsequently monitored for the accumulation of five-year survival data.
Centocor expects to file an application in 1993 requesting marketing approval
for Panorex in Germany. There can be no assurance that Panorex will be approved
for commercial sale in Germany or elsewhere.
Status of CenTNF
Centocor is currently developing CenTNF, a product targeted for the treatment
of rheumatoid arthritis and inflammatory bowel diseases such as Crohn's
disease. Centocor is conducting Phase II clinical trials (see "--Government
Regulation") of CenTNF in rheumatoid arthritis and Crohn's disease and expects
to commence a Phase III study in Europe in 1994. Centocor has entered into an
agreement with Tanabe Seiyaku Co., Ltd. ("Tanabe") under which Tanabe will
undertake the human clinical testing of CenTNF in Japan.
Status of HA-1A
Centocor has filed product license applications in the United States, Europe
and other countries seeking approval to market HA-1A. Regulatory approvals to
market HA-1A were received in several European countries. In April 1992, the
FDA advised Centocor that there was insufficient evidence of efficacy for
approval of HA-1A at that time. In June 1992, Centocor initiated a second
randomized, double-blinded, placebo-controlled, Phase III U.S. clinical trial
of the efficacy of HA-1A in the treatment of patients with Gram-negative
bacteremia and septic shock. Centocor terminated this trial in January 1993
after concluding that there was no reduction in the mortality rate among HA-1A-
treated patients who did have Gram-negative bacteremia in comparison with
placebo-treated patients in the same group. Additionally, Centocor and its
principal distributor of HA-1A, Lilly, also voluntarily suspended sales and
conducted a recall of the drug in Europe and elsewhere where the drug is
authorized for sale. The regulatory approvals to market HA-1A currently remain
in effect pending the results of further clinical trials. Centocor is currently
conducting a randomized, double-blinded, placebo-controlled Phase III European
clinical trial of the efficacy of HA-1A in the treatment of patients with
fulminant meningococcemia. There can be no assurance that any further trials of
HA-1A will be initiated or will be successful.
18
<PAGE>
Centocor expects to sell HA-1A on a limited compassionate-use basis in
certain countries in Europe. There can be no assurance that any sales of HA-1A
will resume in Europe.
Uncertainty as to Rights to Technology and Products. Centocor has an option
to purchase the limited partnership interests in CPIII. Centocor's option to
purchase the limited partnership interests in CPIII is exercisable upon the
earlier of (a) each limited partner having received distributions related to
sales of the CPIII products equal to $15,000 per full limited partnership
interest and the expiration of at least 24 months after the first commercial
sale of a CPIII product or (b) the expiration of at least 48 months after the
first commercial sale of a CPIII product; but, in any event, not prior to the
expiration of the then applicable long-term capital gains holding period after
the expenditure by the Company of all funds paid to it pursuant to the
Development Agreement with CPIII. There have not as yet been any commercial
sales of CPIII products. If the Company elects to exercise its option to
purchase the limited partnership interests in CPIII, the Company must make an
advance payment of approximately $13,598,000 in cash or, at the Company's
election, approximately $15,229,000 in shares of the Company's Common Stock,
and future payments generally of six percent of sales of products developed by
CPIII. There can be no assurance that Centocor will exercise its option to
purchase the limited partnership interests in CPIII. If Centocor does not
exercise such option, it will have no rights to the technology or products
developed on behalf of CPIII.
Volatility of Centocor Common Stock Price; Absence of Dividends. The market
prices for securities of biotechnology companies in general, and Centocor in
particular, have been highly volatile and may continue to be highly volatile in
the future. See "Price Range of Centocor Common Stock and Units and Dividend
Policies of Centocor and Tocor II". Announcements of technological innovations
or new commercial products by Centocor or its competitors, developments
concerning proprietary rights, including patents, publicity regarding actual or
potential medical results relating to products under development by Centocor,
regulatory developments in both the United States and foreign countries, public
concern as to the safety of biotechnology products and economic and other
external factors or other calamity or crisis, as well as period-to-period
fluctuations in financial results, may have a significant impact on the market
price of Centocor Common Stock. Centocor has not paid any dividends and does
not expect to pay any dividends in the foreseeable future.
Manufacturing and Sales Considerations. Centocor intends to manufacture its
own pharmaceutical products. Centocor has only limited experience in
manufacturing pharmaceutical products.
Centocor utilizes fetal calf serum in the production of its pharmaceutical
products. Although the availability and price of such serum is subject to
volatility, Centocor has been able to obtain an adequate supply to meet its
requirements to date. However, there can be no assurance that an adequate
supply of fetal calf serum will be available to Centocor on reasonable terms in
the future.
Centocor's antibody-based products are produced through the growth of living
cells in culture, which cells secrete the desired antibody. The production
costs per unit, and consequently the profit margin from sales, are highly
dependent upon the antibody yields.
In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement. Under that Agreement, Centocor is principally responsible for
developing and manufacturing HA-1A and for securing regulatory approvals.
Centocor and Lilly suspended sales and conducted a recall of HA-1A in Europe.
See "--Status of HA-1A." If sales of HA-1A are resumed, Lilly will be
principally responsible for the marketing, selling and distribution of HA-1A.
Centocor will sell the product to Lilly for Lilly's further sale to the end
market.
During the second quarter of 1993, Lilly exercised its option to become the
exclusive worldwide distributor of CentoRx and Centocor and Lilly amended their
Sales and Distribution Agreement. As part of the amendment Lilly will assist
Centocor in the regulatory filings and continued development of CentoRx for
various clinical indications. Also, under certain circumstances, such as acts
of God, material breach of the agreement or bankruptcy by Centocor, or in the
event Centocor cannot manufacture CentoRx, Lilly has the option to assume the
manufacture of CentoRx and assure the continued supply of the product, even to
the
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extent of acquiring Centocor's related manufacturing assets at their
independently appraised values. Lilly and Centocor are cooperating in order to
maximize the commercial potential of CentoRx. See "--Rights to Technology and
Products."
Centocor may be required to make a payment to Lilly of $60 million through
December 31, 1994, or decreasing amounts through December 31, 1999, in the
event of any change in control of Centocor or in the event of any governmental
action or determination that results in the Sales and Distribution Agreement
not being in full force and effect in all material respects in major
jurisdictions, excluding the United States, and the subsequent termination of
the Sales and Distribution Agreement by Lilly based solely on such events.
Dilution. As of September 30, 1993, approximately 13,832,740 shares of
Centocor Common Stock were reserved for issuance upon exercise of warrants,
approximately 3,843,000 and 2,049,000 shares of Centocor Common Stock were
reserved for issuance upon conversion of Centocor's 7 1/4% Convertible
Subordinated Notes and the 6 3/4% Convertible Subordinated Debentures,
respectively, and approximately 9,378,000 shares of Centocor Common Stock were
reserved for issuance pursuant to employee retirement savings, stock option
and stock award plans and agreements. Centocor also holds an option under an
arrangement with CPIII under which Centocor may issue additional shares of
Centocor Common Stock. See "--Rights to Technology and Products." To the
extent such options and warrants are exercised and such securities are
converted, the interests of holders of Centocor Common Stock will be diluted.
There are currently approximately 43,672,000 shares of Centocor Common Stock
issued and outstanding.
Exposure to Currency Fluctuations. Centocor manufactures its pharmaceutical
products in its manufacturing facility in Leiden, The Netherlands. In
addition, product sales include sales in foreign currencies. As a result,
Centocor's operating results are subject to currency fluctuations. Currency
fluctuations may result in variations in the costs of products produced which
may affect the Company's gross margin from sales. Furthermore, currency
fluctuations may cause reported sales to fluctuate from period to period
regardless of the fluctuation in the volume of such sales in foreign
currencies.
Change in Control. Certain provisions of Centocor's charter documents
(including cumulative voting provisions for electing directors and provisions
permitting Centocor to issue preferred stock in the future), the terms of
Centocor's Rights Agreement (as defined below), the terms relating to the
acceleration of the exercisability of certain warrants and options and the
terms of certain convertible securities relating to the purchase of such
securities by Centocor, in the event of a change in control may have the
effect of delaying, deferring or preventing a change in control of Centocor,
thereby possibly having the effect of depriving shareholders of receiving a
premium for their shares of Centocor Common Stock. Certain provisions of
Pennsylvania law related to acquisition of control shares (as defined below)
may have a similar effect. See "Description of Securities--Centocor Capital
Stock."
Additionally, in the event of a change in control of Centocor, Centocor may
be required to make a payment to Lilly of $60 million through December 31,
1994 or decreasing amounts through December 31, 1999. See "Manufacturing and
Sales Considerations."
Patents and Licensing Arrangements. Centocor owns or has rights to certain
proprietary information, patent applications and patents that it deems
important to the future commercial success of its products. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information or obtain access to Centocor's expertise, or that any
patents, or rights thereto, of Centocor will provide it with sufficient
protection of its technology or survive any challenge to the scope or validity
thereof. In addition, there can be no assurance that any patents will issue
from any patent applications.
Other entities have filed applications for or have been issued patents and
are expected to obtain additional patents to which Centocor may need to
acquire rights. There can be no assurance that Centocor will not infringe upon
the patent rights of others. The extent to which Centocor may need to obtain
rights to any such patents or to contest their scope or validity will depend
on final product formulation and other factors. The
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ability to license any such patents and the likelihood of successfully
contesting the scope or validity of such patents are uncertain and the costs
associated therewith may be significant. If Centocor is required to acquire
rights to valid and enforceable patents but cannot do so at a reasonable cost,
Centocor's ability to manufacture or market its products in the country of
issuance of any such patent may be materially adversely affected.
Centocor presently licenses the majority of the cell lines used to produce
its monoclonal antibodies from research institutions pursuant to long-term
licenses, for which it is generally obligated to pay royalties based upon
sales of products incorporating such antibodies. There can be no assurance
that others will not acquire rights to such cell lines in the future.
Government Regulation. Regulation by governmental authorities in the United
States and other countries is a significant factor in the manufacture and
marketing of Centocor's products and in ongoing research and product
development activities. All of Centocor's products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing and other premarket approval requirements by the FDA and regulatory
authorities in other countries. Various statutes and regulations also govern
or influence the manufacturing, safety, labeling, storage, recordkeeping and
marketing of such products. The lengthy process of seeking these approvals,
and the subsequent compliance with applicable statutes and regulations,
require the expenditure of substantial resources. Any failure by Centocor to
obtain, or any delay in obtaining, regulatory approvals could materially
adversely affect Centocor or its ability to market Centocor's products.
The activities required before a pharmaceutical product may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an Investigational
New Drug application, which must be reviewed by the FDA before proposed
clinical testing can begin. Typically, clinical testing involves a three-phase
process. In Phase I, clinical trials are conducted with a small number of
subjects to determine the early safety profile and the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specified disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In
Phase III, large scale, multicenter, comparative clinical trials are conducted
with patients afflicted with a target disease in order to provide enough data
to statistically evaluate the efficacy and safety of the product, as required
by the FDA. The results of the preclinical and clinical testing of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA") or, for a biological product, in the form of a Product
License Application ("PLA"), for approval to commence sales. In responding to
an NDA or PLA, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does
not satisfy its regulatory approval criteria. There can be no assurance that
any approval required by the FDA will be obtained on a timely basis, if at
all.
Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with Good Manufacturing Practices ("GMP"). An
Establishment License Application ("ELA") must be submitted for approval by
the FDA with information about manufacturing facilities. Before approval of
the ELA, the FDA will perform a prelicensing inspection of the facility to
determine its compliance with GMP and other rules and regulations. In
complying with GMP, manufacturers must continue to expend time, money and
effort in the area of production and quality control to ensure full technical
compliance. After the establishment is licensed it is subject to periodic
inspections by the FDA.
The requirements that Centocor must satisfy to obtain regulatory approval by
governmental agencies in other countries prior to commercialization of its
products in such countries can be as rigorous, costly, and uncertain as those
described above.
Centocor is also subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, the experimental
use of animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents,
used in
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connection with Centocor's research. The extent of governmental regulation that
may result from any legislative or administrative action cannot be accurately
predicted.
Uncertainty of Pharmaceutical Pricing, Profitability and Related Matters. The
levels of revenues and profitability of biopharmaceutical companies may be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets pricing or profitability of therapeutic and other
pharmaceutical products is subject to government control. In the United States,
there have been, and Centocor expects that there will continue to be, a number
of federal and state proposals to implement similar government control. While
Centocor cannot predict whether any such legislative or regulatory proposals
will be adopted, the adoption of such proposals could have a material adverse
effect on Centocor's business, financial condition and profitability. In
addition, in both the United States and elsewhere, sales of therapeutic and
other pharmaceutical products are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. Third party payors are increasingly challenging the
prices charged for medical products and services. If Centocor succeeds in
bringing one or more therapeutic products to the market, there can be no
assurance that these products will be considered cost effective and that
reimbursement to the consumer will be available or will be sufficient to allow
Centocor to sell its products on a competitive basis.
Technological Change and Competition. Monoclonal antibody and peptide
technology and other innovations in biotechnology are being examined, evaluated
and practiced in biology research laboratories throughout the United States and
in many other countries, including laboratories of other biotechnology
companies and major pharmaceutical firms, many of which may have greater
resources than Centocor and Tocor II. In addition, many companies have been
formed to produce monoclonal antibody-based, peptide-based and other biological
products.
Several established pharmaceutical companies have internal research and
development groups, and alliances with other biotechnology companies, and are
seeking to develop monoclonal antibody-based, peptide-based, and other
biological products. In addition, a number of companies have recently entered
the biological products field, some through acquisition or merger, and more may
be expected to do so in the future. As a result, Centocor anticipates that new
monoclonal antibody-based, peptide-based and other biological products will be
developed by others, and that competition for highly qualified scientific,
technical, marketing and sales, and managerial personnel will be intense.
Centocor's management believes that its ability to compete in its targeted
markets will depend upon, among other things, its ability to develop, produce
and market innovative products. Centocor's management also believes that
significant competition will come from established pharmaceutical companies
that have greater capital resources, manufacturing and marketing experience,
research and development staffs, sales forces and production facilities than
Centocor. Such competition is expected to be in the form of a variety of
pharmaceutical products which may include monoclonal antibody-based and
peptide-based products. There can be no assurance that the activities of others
will not render Centocor's products or technologies obsolete or uncompetitive.
Key Personnel and Relationships. The success of Centocor will depend, in
large part, on Centocor's continued ability to attract and retain highly
qualified management, scientific, manufacturing and sales and marketing
personnel, and on its ability to develop and maintain important relationships
with leading research institutions and key distributors. Competition for such
personnel and relationships is intense. There can be no assurance that Centocor
will be able to attract or retain such personnel or maintain such
relationships.
Product Liability. The testing and marketing of medical products entail an
inherent risk of product liability. Centocor maintains limited product
liability insurance coverage. Centocor's business may be materially adversely
affected by a successful product liability claim in excess of any insurance
coverage. There can be no assurance that product liability insurance coverage
will continue to be available to Centocor in the future on reasonable terms or
at all.
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DESCRIPTION OF CENTOCOR AND TOCOR II
CENTOCOR, INC.
Centocor, Inc. is a biopharmaceutical company specializing in the development
and commercialization of monoclonal antibody-based products to meet critical
human health care needs. Additionally, Centocor performs research activities in
the field of small peptide molecule-based pharmaceutical products on behalf of
Tocor II. Centocor focuses on four major disease areas--infectious,
cardiovascular and autoimmune diseases and cancer. Centocor's therapeutic
products under development include CentoRx, a product intended to treat or
prevent the formation of blood clots in the cardiovascular system; Panorex, a
product intended to treat colorectal cancer; CenTNF, a product targeted for the
treatment of rheumatoid arthritis and inflammatory bowel diseases such as
Crohn's disease; and HA-1A, a product intended for the treatment of patients
with severe sepsis who are dying from endotoxemia. CentoRx is being developed
by Centocor for Centocor Partners III, L.P. For a further discussion of
CentoRx, Panorex, CenTNF and HA-1A, see "Risk Factors--Status of CentoRx,"
"Risk Factors--Status of Panorex," "Risk Factors--Status of CenTNF" and "Risk
Factors--Status of HA-1A." Other therapeutic products are also under
development. Centocor's imaging products include Myoscint, a cardiac imaging
agent, and other contrast agents under development for use in-vivo diagnostic
imaging procedures. Centocor has also developed a number of in-vitro diagnostic
products, which have generated substantially all of its product sales to date.
Centocor has not received marketing approval from the FDA for any of its
pharmaceutical products. One of Centocor's in-vitro diagnostic products,
CA125 (TM), has received FDA approval.
During 1992, a significant percentage of Centocor's in-vitro diagnostic sales
were to three distributors: Toray-Fuji Bionics, Inc. in Japan, Compagnie Oris
Industrie in France and Boehringer Mannheim GmbH in Germany. Additionally,
prior to June 30, 1991, sales of in-vitro diagnostic products included
investigational-use-only sales in the United States of certain products that
have not been approved by the FDA, including CA 19-9, CA 15-3, CA 72-4, P-
glycoCHEK and Gamma Interferon. Effective June 30, 1991, Centocor ceased sales
in the United States of all diagnostic products that had not been approved by
the FDA.
During 1992 and 1993, Centocor has been implementing a new business plan
employing a more collaborative strategy utilizing, among other things,
alliances with established pharmaceutical companies. Pursuant to this plan,
Centocor made reductions in staff and corresponding reductions of related
expenses. In the in-vitro diagnostic and imaging areas, Centocor has maintained
distribution agreements with companies having established positions and
distribution networks in applicable market segments. In conjunction with such
new business plan, Centocor eliminated its European and United States sales
forces in 1992 and 1993. Centocor expects to continue to effect plans to
further reduce its current rate of net cash outflows, including the development
of additional collaborative arrangements with pharmaceutical companies.
At September 30, 1993, Centocor had approximately 530 full-time employees. To
complement its own expertise in various fields, Centocor utilizes scientific
consultants and advisors, many of whom have formal consulting agreements with
Centocor.
Centocor was incorporated in Pennsylvania in 1979 and maintains its principal
executive offices at 200 Great Valley Parkway, Malvern, Pennsylvania 19355. Its
telephone number is (215) 651-6000. Centocor also maintains facilities in
Leiden, the Netherlands and Surrey, the United Kingdom, and an office in Tokyo,
Japan.
Status of CentoRx
In the first quarter of 1993, Centocor completed a randomized, double-
blinded, placebo-controlled, Phase III trial involving CentoRx, a
cardiovascular agent designed to reduce blood-clot-related complications in
high-risk coronary angioplasty patients, that enrolled 2,099 patients at 56
medical centers. Centocor
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filed a product license application for CentoRx in the United States in 1993
and expects to file a product license application in Europe in 1994. There can
be no assurance that CentoRx will be approved for commercial sale in the United
States, Europe or elsewhere. During the second quarter of 1993, Eli Lilly and
Company exercised its option to become the exclusive worldwide distributor of
CentoRx and Centocor and Lilly amended their Sales and Distribution Agreement
to reflect such event. See "Risk Factors--Manufacturing and Sales
Considerations." Lilly will assist Centocor in the regulatory filings and
continued development of CentoRx for various clinical indications.
Status of Panorex
On November 5, 1993, Centocor and Wellcome plc signed an alliance agreement
for the development and marketing of certain of Centocor's monoclonal antibody-
based cancer therapeutic products, including Panorex. Wellcome will contribute
to the continuing clinical development of Panorex and six other potential drugs
and then market and sell any approved drugs in most parts of the world.
Upon closing of the transaction on December 16, 1993, Wellcome paid Centocor
$20 million in exchange for two million newly issued shares of Centocor's
Common Stock, which represent slightly less than five percent of the total
common stock of Centocor outstanding. In addition, Wellcome paid Centocor a $10
million non-refundable license fee at the closing of the transaction, and may
make certain future payments up to $70 million based on milestones and
acquisition of certain manufacturing technologies.
Panorex has been tested in a Phase III trial at six German medical centers
which enrolled 189 colorectal cancer patients who were subsequently monitored
for the accumulation of five-year survival data. Centocor expects to file an
application in 1993 requesting marketing approval for Panorex in Germany. There
can be no assurance that Panorex will be approved for commercial sale in
Germany or elsewhere.
Status of CenTNF
Centocor is currently developing CenTNF, a product targeted for the treatment
of rheumatoid arthritis and inflammatory bowel diseases such as Crohn's
disease. Centocor is conducting Phase II clinical trials of CenTNF in
rheumatoid arthritis and Crohn's disease and expects to commence a Phase III
study in Europe in 1994 (See "--Government Regulation"). Centocor has entered
into an agreement with Tanabe Seiyaku Co., Ltd. under which Tanabe will
undertake the human clinical testing of CenTNF in Japan.
Status of HA-1A
Centocor has filed product license applications in the United States, Europe
and other countries seeking approval to market HA-1A. Regulatory approvals to
market HA-1A were received in several European countries. In April 1992, the
FDA advised Centocor that there was insufficient evidence of efficacy for
approval of HA-1A at that time. In June 1992, Centocor initiated a second
randomized, double-blinded, placebo-controlled, Phase III U.S. clinical trial
of the efficacy of HA-1A in the treatment of patients with Gram-negative
bacteremia and septic shock. Centocor terminated this trial in January 1993
after concluding that there was no reduction in the mortality rate among HA-1A-
treated patients who did have Gram-negative bacteremia in comparison with
placebo-treated patients in the same group. Additionally, Centocor and its
principal distributor of HA-1A, Lilly, also voluntarily suspended sales and
conducted a recall of the drug in Europe and elsewhere where the drug is
authorized for sale. The regulatory approvals to market HA-1A currently remain
in effect pending the results of further clinical trials. Centocor is currently
conducting a randomized, double-blinded, placebo-controlled Phase III European
clinical trial of the efficacy of HA-1A in the treatment of patients with
fulminant meningococcemia. There can be no assurance that any further trials of
HA-1A will be initiated or will be successful.
Centocor expects to sell HA-1A on a limited compassionate-use basis in
certain countries in Europe. There can be no assurance that any sales of HA-1A
will resume in Europe.
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TOCOR II, INC.
Tocor II, Inc. was formed to engage in research, development and preliminary
clinical studies of small peptide molecule-based pharmaceutical products for
the treatment of human disease (excluding any technology relating solely to
monoclonal antibodies).
Tocor II's research program commenced in 1992, all of its Product candidates
are in early stages of development. Tocor II has incurred expenses of
approximately $28,800,000 under its research program to date. Product
development involves a high degree of risk. Only limited research, all of which
has been conducted by Centocor, and no clinical trials have been conducted on
the Products. There can be no assurance that Tocor II's research and
development efforts will result in the development or human clinical testing of
any Products.
Tocor II's present focus is in certain disease areas with significant market
potential in which Centocor has knowledge regarding certain related targeted
receptors and relevant clinical research experience. These disease areas
include rheumatoid arthritis and other autoimmune diseases, adult respiratory
distress syndrome, reperfusion syndrome and other inflammatory conditions and
certain cardiovascular diseases. Tocor II has no employees or facilities
necessary to perform research in the Field and is heavily dependent on
Centocor. Centocor conducts early stage research in the Field on behalf of
Tocor II pursuant to a Development Agreement. See "The Agreements--The
Development Agreement." Centocor has licensed to Tocor II its technology
relating to the Field pursuant to the Technology License Agreement. See "The
Agreements--The Technology License Agreement."
Tocor II's research program to date has principally been involved in three
specific program areas. The first area is the screening and testing of peptides
directed against adhesion molecules on the interior walls of blood vessels or
certain white blood cells. The second area involves peptides against tumor
necrosis factor ("TNF"). The third area involves the discovery of inhibitors of
lipopolysaccharides.
Tocor II is a British Virgin Islands corporation organized in 1991 and its
principal executive offices are located at Todman Building, Main Street, Road
Town, Tortola, British Virgin Islands. Tocor II's telephone number is (809)
494-2065.
Adhesion molecules are glycoproteins expressed on the surface of cells and
are responsible for the migration of specific subpopulations of cells from one
area of the body to another in response to stimuli, insult or injury and for
various types of cell to cell communication. Cell adhesion and trafficking are
parts of the normal defense mechanism against microbial pathogens; however,
inappropriate expression or binding of these proteins results in unnecessary
damage such as neutrophil-mediated joint erosion in rheumatoid arthritis,
destruction and rejection of transplanted organs and adhesion of circulating
tumor cells and subsequent metastasis. The selectin family of adhesion
molecules is involved in the earliest phases of the cell adhesion process, the
recruitment of circulating cells. Modifications of these structures have
resulted in compounds with enhanced potency and stability that are active in
animal models of inflammation. Comprehensive patent applications, covering
these compounds and their use as therapeutic agents, have been filed. Selected
compounds are currently being evaluated in animal models for safety and
efficacy to identify a development candidate and back-up compounds for clinical
evaluation.
Tumor necrosis factor (TNF) is a potent protein that has been identified as a
causative factor in several conditions including rheumatoid arthritis and
cellular damage in inflammation. The prevention of TNF-induced activity by
monoclonal antibodies such as Centocor's cA2 has been shown to be effective in
the treatment of these conditions. Tocor II has prepared synthetic constructs
of the receptors for TNF that are responsible for its activity and has used
these constructs to screen for TNF antagonists. This work has led to the
identification of unique peptide sequences from the TNF receptors that will
prevent the binding of TNF to these receptors. The regions of the proprietary
structure of cA2 that define the putative binding antibody binding site have
been synthesized and tested for TNF inhibitory activity. Several of these small
peptides
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have been shown to function as TNF antagonists. Rational drug design is being
used to increase the potency of these lead sequences from the receptor and cA2.
Patent applications covering these compounds and their utility in the treatment
of TNF-induced conditions are in preparation.
Lipopolysaccharides (LPS) released by antibiotic treatment of bacteria are
the initial step in the cascade of events leading to septic shock with its
associated mortality rate. In order for LPS to induce this cascade, it must
bind to lipopolysaccharide binding protein (LBP) and the resulting complex
binds to the cell surface molecule CD14. From a systematic investigation of the
LBP structure, Tocor II has identified small peptides that can completely
inhibit the binding of LPS to LBP and prevent the cellular response induced by
LPS. These peptides bind both smooth and rough LPS and lipid A and will block
the Limulus amoebocyte lysate (LAL) reaction. Protease-resistant analogs have
been prepared and are active in the presence of human serum. A patent
application covering these compounds and their use in preventing LPS-induced
events has been filed. Selected compounds are currently being evaluated in
animal models to prevent the deleterious effects resulting from LPS challenge.
Tocor II was initially organized by Centocor and, as a result, the two
entities are highly interrelated. All of Tocor II's officers are also officers
of Centocor. In addition to the contractual relationship between Centocor and
Tocor II (see "The Agreements"), there exist a number of other relationships.
Dr. Hubert J. P. Schoemaker is Chairman of the Board of Directors of both
companies. Dr. Marc Feldmann, a Tocor II director, provides consulting services
to Centocor under a consulting agreement. Centocor also directly provides
financial support to Dr. Feldmann's laboratory. Mr. David G. Golden, also a
Tocor II director, is a Managing Director of Hambrecht & Quist Incorporated, an
investment banking firm that has provided investment banking services to both
Centocor and Tocor II in the past, acted as an underwriter in connection with
the initial offering of the Units and has rendered an opinion to Tocor II's
Board of Directors as to the fairness of the Exchange Offer to the Tocor II
shareholders. Mr. Stelios Papadopoulos, also a Tocor II director, is a Managing
Director and Head of the Health Sciences Investment Banking Group at
PaineWebber Incorporated, an investment banking firm that has provided
investment banking services to both Centocor and Tocor II in the past and acted
as an underwriter in connection with the initial offering of the Units.
THE AGREEMENTS
Centocor and Tocor II have entered into a Development Agreement, a Technology
License Agreement, a Purchase Option Agreement, a Services Agreement and an
Administrative Agreement, each dated as of January 21, 1992 (the "Technology
License Agreement," the "Development Agreement," the "Purchase Option
Agreement," the "Service Agreement" and the "Administrative Agreement,"
respectively) as described below.
THE DEVELOPMENT AGREEMENT
Under the Development Agreement, Tocor II has engaged Centocor to use its
reasonable efforts to perform all of Tocor II's research, development and
experimentation activities during the term of the Development Agreement. In
consideration for such activities Tocor II reimburses Centocor for all
development costs plus a management fee. The amount of the management fee is
five percent of Centocor's costs incurred in connection with the Tocor II
research program until the earlier of (i) the termination of the Development
Agreement or (ii) the aggregate reduction in management fees resulting from a
certain amendment to the Development Agreement reducing the amount of such
management fees equals $3,000,000, after which the fee will be ten percent of
Centocor's costs incurred in connection with the Tocor II research program. The
total costs and fees earned by Centocor under this agreement for the period
January 21, 1992 through December 31, 1992 and for the period January 1, 1993
through September 30, 1993 were $16,548,000 and $9,695,000, respectively.
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Tocor II is obligated to pay to Centocor (i) all of its present cash, cash
equivalents and other liquid assets (less $1,000,000 to be retained by Tocor II
as working capital in the event that Centocor does not exercise the Purchase
Option and amounts estimated for Tocor II's general and administrative
expenses), (ii) any interest and other income earned through temporary
investment of Tocor II's funds and (iii) $3,000,000 in connection with
settlement of certain security litigation (collectively, the "Research Funds").
See "Legal Proceedings--Shareholders Litigation."
The Development Agreement provides that Centocor, on an annual basis, will
provide Tocor II with a work plan and budget that shall set forth, in
reasonable detail, the activities to be conducted by Centocor on behalf of
Tocor II, pursuant to the Development Agreement. The Board of Directors of
Tocor II will determine, in the exercise of its reasonable business judgment,
whether to approve such work plan and budget. If not so approved, Centocor and
Tocor II will promptly negotiate mutually acceptable modifications to such work
plan and budget.
The Development Agreement will terminate automatically upon termination of
the Purchase Option Agreement or the Technology License Agreement. 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
Technology License Agreement and such breach continues for 60 days after
written notice thereof from the non-breaching party or (ii) if the other party
enters into any voluntary proceeding in bankruptcy, reorganization or an
arrangement for the benefit of its creditors for 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 TECHNOLOGY LICENSE AGREEMENT
Tocor II and Centocor are parties to a Technology License Agreement pursuant
to which Centocor granted to Tocor II a worldwide, exclusive, royalty-free,
fully paid-up right and license, in perpetuity, 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 (the "Licensed Technology"). 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.
Tocor II has agreed not to sublicense the Licensed Technology to, or enter
into arrangements with respect to the Licensed Technology with, any third party
(other than pursuant to the Development Agreement) prior to the termination of
the Purchase Option Agreement.
Centocor may terminate the Technology License Agreement upon a material
breach by Tocor II of the Technology License Agreement or the Development
Agreement, which breach continues for a period of 60 days after written notice
thereof is delivered to Tocor II. In addition, Centocor may terminate the
Technology License Agreement if Tocor II enters into any voluntary proceeding
in bankruptcy, reorganization or an arrangement for the benefit of its
creditors for 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. If the Technology License Agreement is terminated by Centocor, Tocor
II's license to the Licensed Technology will terminate, Tocor II will retain
the technology developed within the Field and Centocor will retain its license
to the technology developed outside of the Field. In the event of Centocor's
termination of the Technology License Agreement due to a breach by Tocor II
thereunder, under the Development Agreement Centocor and Tocor II have agreed
to use their reasonable efforts for a period of 120 days to reach a mutually
acceptable agreement with respect to the development and commercialization of
the Licensed Technology and the technology developed.
Tocor II may not terminate the Technology License Agreement.
27
<PAGE>
THE PURCHASE OPTION AGREEMENT
The Purchase Option Agreement provides that Centocor may purchase all (but
not less than all) of the shares of Tocor II Callable Common Stock. The
Purchase Option may be exercised at any time during the period beginning
January 1, 1993 and ending on December 31, 1995.
The relevant exercise periods, the Purchase Option Exercise Prices and dates
thereof are as follows:
<TABLE>
<S> <C>
From January 1, 1993 through December 31, 1993...................... $ 58.00
From January 1, 1994 through December 31, 1994...................... 76.00
From January 1, 1995 through December 31, 1995...................... 107.00
</TABLE>
If all funds available for payment by Tocor II under the Development
Agreement are expended prior to December 31, 1995, 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 after such
expenditure, but may do so at its option.
If the Development Agreement or the Technology License Agreement terminates,
the Purchase Option may only be exercised by Centocor for a period of 30 days
after such termination.
The Purchase Option Exercise Prices may be paid in cash, shares of Centocor
Common Stock or any combination thereof, at Centocor's discretion, within 60
days after exercise of the Purchase Option. If Centocor pays all or any of the
Purchase Option Exercise Prices in shares of Centocor Common Stock, such shares
of Centocor Common Stock will be registered under the Securities Act and listed
on such national securities exchange or approved for over-the-counter quotation
on such over-the-counter trading market as the Centocor Common Stock is listed
or traded at the time of payment. The number of shares of Centocor Common Stock
to be delivered in payment of the Purchase Option Exercise Prices will be
determined by dividing that portion of the Purchase Option Exercise Prices to
be paid in shares of Centocor Common Stock by the average of the closing prices
of the Centocor Common Stock for the 20 trading days immediately preceding the
exercise of such option.
Upon the assignment, sale or other transfer by any record holder of Tocor II
Callable Common Stock, the Purchase Option Agreement will automatically be
assigned to, assumed by and binding upon such record holder's assignee,
purchaser or transferee and all subsequent assignees, purchasers and
transferees, and such shares of Tocor II Callable Common Stock will
automatically be subject to the Purchase Option Agreement.
Under its Amended and Restated Memorandum of Association, Tocor II and its
shareholders will be prohibited from taking any action or permitting any action
to be taken which is inconsistent with Centocor's rights under the Purchase
Option Agreement. See "Description of Securities--Tocor II Capital Stock."
The Purchase Option Agreement may not be released, discharged, amended or
modified in any manner except by an instrument approved by Centocor and the
holders of record of two-thirds of the Tocor II Callable Common Stock; provided
that the Purchase Option Agreement may not be amended to change (i) the amounts
of the Purchase Option Exercise Prices, (ii) the relevant periods during which
the Purchase Option may be exercised and the Purchase Option Exercise Prices
may be paid, (iii) the number or type of securities to be delivered in payment
of the Purchase Option Exercise Prices or (iv) the section of the Purchase
Option Agreement providing for its amendment as described above, without the
consent of the holders of 95 percent of the shares of Tocor II Callable Common
Stock.
The Purchase Option Agreement will terminate upon the earlier of (i) the
exercise of the Purchase Option and payment of the applicable the Purchase
Option Exercise Price, (ii) December 31, 1995 or (iii) 30 days after the
termination of the Technology License Agreement or the Development Agreement.
If Centocor elected to acquire all of the shares of Tocor II Callable Common
Stock by exercising its option under the Purchase Option Agreement, the
consideration received by each holder of Tocor II Callable Common Stock would
exceed the consideration expected to be received by each such holder in
exchange for each such share in this Exchange Offer. However, there can be no
assurance that Centocor will exercise its Purchase Option if the Exchange Offer
is not consummated for any reason. Centocor will exercise its Purchase Option
only if it perceives such exercise to be in its best interest.
28
<PAGE>
THE SERVICES AGREEMENT
Tocor II entered into a Services Agreement with Centocor B.V. ("CBV"), a
wholly-owned subsidiary of Centocor, pursuant to which CBV provides certain
services, including financial, legal and administrative services to Tocor II
on a fully burdened cost reimbursement basis and is paid a management fee
equal to 10 percent of such costs. However, CBV has no authority to negotiate
and enter into contracts on behalf of Tocor II.
ADMINISTRATIVE AGREEMENT
Tocor II and Centocor entered into an Administrative Agreement pursuant to
which Tocor II, at the written request of Centocor for the purpose of enabling
Centocor to effect its rights under the Purchase Option Agreement or
fulfilling its obligations under the Administrative Agreement, will prepare
and deliver a complete list of record holders of Tocor II Callable Common
Stock. If Centocor elects to exercise its Purchase Option, it is required to
give written notice of such fact to Tocor II and, upon the closing date for
the purchase of all of the shares of Tocor II Callable Common Stock, Tocor II
is entitled to treat Centocor as the sole holder of all of such shares of
Tocor II Callable Common Stock. If the Purchase Option terminates without
having been exercised, the Administrative Agreement provides that holders of
Tocor II Callable Common Stock may request the removal of the restrictive
legend contained on the certificates of such stock, and Tocor II will take
such steps as are necessary to effect such removal. The Administrative
Agreement will terminate when the Purchase Option Agreement terminates.
LEGAL PROCEEDINGS
SHAREHOLDER LITIGATION
On December 23, 1993, a purported class action captioned Peter Cordaro v.
Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden,
Centocor, Inc., and Tocor II, Inc. was filed in the court of common pleas of
the Commonwealth of Pennsylvania, in and for Chester County. The complaint
alleges that the defendants breached their fiduciary duties to Tocor II
Unitholders by, among other things, making the Exchange Offer, recommending
acceptance of the Exchange Offer, and failing to maximize shareholder value.
The complaint seeks, among other relief, an injunction against consummation of
the Exchange Offer, the establishment of a "truly independent" special
committee and financial advisor to consider the Exchange Offer, and an award
of damages (including recissionary damages), costs and plaintiff's counsel
fees.
In January 1993, purported security holders of Centocor and/or Tocor II
filed complaints in the United States District Court for the Eastern District
of Pennsylvania against Centocor, Tocor II, and certain present and former
directors and/or officers of Centocor, and/or Tocor II and Lilly. The cases
were consolidated pursuant to an order, and a Consolidated Class Action
Complaint captioned In Re Centocor Securities Litigation II, No. 93-CV-0236
(the "Complaint") was filed in May, based on alleged violations of securities
laws and alleged breaches of the named individual defendants of fiduciary
duties to Centocor. All claims against all defendants, except Centocor and two
of its officers/directors, were voluntarily dismissed when the Complaint was
filed. The Complaint alleges that 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 also alleges violations of
the common law of negligent misrepresentation. The action has been
conditionally certified as a class action on behalf of persons who purchased
common stock of Centocor from April 21, 1992 through January 15, 1993 and who
were allegedly damaged thereby. The Complaint seeks compensatory damages in
unspecified amounts, counsel fees, interest, costs of suit and such other
relief that the court deems appropriate. Defendants answered the Complaint and
denied the allegations therein. Centocor believes that the allegations set
forth in the Complaint are without merit and intends vigorously to defend the
suit. Centocor does not expect the effect, if any, of the outcome of this
litigation to be material to Centocor's financial condition.
On June 3, 1993, the United States District Court for the Eastern District
of Pennsylvania entered an order approving as final a settlement of the class
action securities litigation and derivative actions captioned In Re Centocor,
Inc. Securities Litigation, No. 92-CV-1071, which had been preliminarily
approved in
29
<PAGE>
December 1992. 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 Centocor securities during the period
February 19, 1991 through April 20, 1992, and who sustained damages as a result
of such purchases. All claims against Centocor and the other defendants were
dismissed on June 3, 1993, except as to those who opted out of the class. In
settlement of the securities claims, Centocor made a cash payment of
$18,000,000; in settlement of the derivative action brought on behalf of
Centocor, Centocor received a cash payment of $8,000,000; and in settlement of
the derivative action brought on behalf of Tocor II, Centocor and Tocor II
amended certain agreements between them to provide that Centocor will, over
time, forgo $3,000,000 of contract payments. In connection with the settlement,
Centocor recorded a charge to earnings of $11,245,000 in the fourth quarter of
1992, representing the net cost of the proposed settlement to Centocor,
including legal fees.
OTHER LITIGATION
In October 1992, Centocor was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos"), in the United States District Court
for the District of Maryland. The complaint alleges, principally, that Centocor
breached certain provisions of a license agreement between Velos and Centocor
pursuant to which Centocor has exclusive rights to U.S. Patent No. 5,057,598,
which includes claims relating to monocolonal antibodies used in treating
manifestations of Gram-negative bacterial infections. The complaint seeks
declaratory relief, monetary relief in excess of $100,000,000 and requests that
Centocor place in escrow one-half of the amounts received by Centocor pursuant
to its agreements with Lilly. The complaint does not seek to terminate or
rescind any of Centocor's rights under the license agreement. Centocor answered
the complaint and asserted affirmative defenses and counterclaims on January 7,
1993, but the counterclaims and certain affirmative defenses were dismissed
with leave to replead on June 22, 1993. On July 28, 1993, the Court permitted
plaintiff to file an amended complaint that updated some of the claims in the
original complaint but otherwise reasserted the basic factual allegations and,
with one minor exception, relied upon the same legal theories. On August 27,
1993, Centocor filed its Answer, Affirmative Defenses and Counterclaim for
Damages and Equitable Relief (the "Amended Answer"). In the Amended Answer,
Centocor again denied all of the allegations made by Velos and stated certain
affirmative defenses and counterclaims against Velos with respect to the
license agreement, based on theories of (i) failure of consideration, (ii)
fraud in the inducement, and (iii) unilateral mistake as to facts, which
mistake was induced by the fraudulent misrepresentation of Velos. On September
22, 1993, plaintiff moved to dismiss Centocor's counterclaims and to strike
certain of Centocor's affirmative defenses. Centocor has responded to that
motion. Centocor believes that the allegations of Velos are without merit and
intends vigorously to defend the suit. Centocor does not expect the effect, if
any, of the outcome of this litigation to be material to Centocor's financial
condition.
In May 1993, Centocor was served with a complaint filed earlier in the United
States District Court for the Southern District of California at San Diego. The
plaintiff, who allegedly had purchased shares of Corvas International Inc.
("Corvas"), a California corporation, in its initial public offering on January
30, 1992, brought suit against Corvas and certain of its directors, Centocor,
and one of Centocor's directors and a former director (the "Centocor
defendants"), on behalf of similarly situated investors. The complaint alleges
the defendants violated the federal securities laws by disclosing to Corvas'
investors that Centocor and Corvas had entered into a "strategic alliance" to
develop one of Corvas' products, but failing to disclose that Centocor
allegedly would not be able to perform on that agreement because of events
relating to Centoxin (HA-1A). The Complaint sought to proceed as a class action
on behalf of all those who purchased Corvas common stock during the period from
January 30, 1992 through January 15, 1993. A motion to dismiss the complaint in
its entirety as to the Centocor defendants was filed in early June 1993. Corvas
and its directors had filed a motion to dismiss earlier. In September, the
Court dismissed a number of plaintiff's claims including claims relating to the
period after April 14, 1992 and, in effect, the claim brought against Centocor
under Section 10(b) of the Securities Exchange Act of 1934. Centocor believes
the allegations which remain are without merit and intends vigorously to defend
the suit. Centocor does not expect the effect, if any, of the outcome of this
litigation to be material to Centocor's financial condition.
30
<PAGE>
PRICE RANGE OF CENTOCOR COMMON STOCK AND UNITS
AND DIVIDEND POLICIES OF CENTOCOR AND TOCOR II
CENTOCOR
Centocor Common Stock is traded on the Nasdaq National Market System under
the symbol "CNTO." The following table sets forth the high and low sale prices
for Centocor Common Stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1990
First Quarter................................................... 17 1/8 11 7/8
Second Quarter.................................................. 22 7/8 13 3/4
Third Quarter................................................... 22 7/8 15 5/8
Fourth Quarter.................................................. 24 1/8 15 1/8
1991
First Quarter................................................... 36 19 3/8
Second Quarter.................................................. 39 7/8 29 1/4
Third Quarter................................................... 56 1/4 30 1/2
Fourth Quarter.................................................. 55 1/8 43 1/4
1992
First Quarter................................................... 60 1/4 28 1/2
Second Quarter.................................................. 35 9 3/4
Third Quarter................................................... 17 10 3/4
Fourth Quarter.................................................. 19 3/4 9 1/2
1993
First Quarter................................................... 19 1/2 5 1/2
Second Quarter.................................................. 9 5 1/2
Third Quarter................................................... 10 7/8 6 3/4
Fourth Quarter.................................................. 15 3/4 10
1994
First Quarter (through January 20, 1994)........................ 14 11 5/8
</TABLE>
On January 20, 1994, the last sale price of Centocor Common Stock as reported
on the Nasdaq National Market System was $12.625 per share. The number of
shareholders of record of Centocor Common Stock on January 20, 1994 was 5,680.
Centocor has not paid any dividends and does not expect to pay any dividends
in the foreseeable future.
TOCOR II
The Units trade on the Nasdaq National Market System under the symbol
"TOCRZ." The following table sets forth the high and low sale prices for the
Units for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1992
First Quarter (from January 21, 1992)........................... 42 1/2 23 1/2
Second Quarter.................................................. 28 11
Third Quarter................................................... 16 1/2 12 3/4
Fourth Quarter.................................................. 15 1/2 9 1/2
1993
First Quarter................................................... 14 1/4 3 1/2
Second Quarter.................................................. 13 1/4 10 1/4
Third Quarter................................................... 15 1/2 11 1/4
Fourth Quarter.................................................. 36 3/4 15
1994
First Quarter (through January 20, 1994)........................ 39 1/4 35 1/2
</TABLE>
On January 20, 1994, the last sale price of Units as reported on the Nasdaq
National Market System was $36.75 per Unit. The number of holders of record of
Units on January 20, 1994 was 152.
Tocor II has not paid any dividends and does not expect to pay any dividends
in the foreseeable future. Until the termination of the Purchase Option
Agreement, Tocor II may not declare or pay dividends utilizing funds committed
to be paid to Centocor under the Development Agreement.
31
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected historical financial information set forth below should be read
in conjunction with the audited and unaudited Tocor II Financial Statements and
notes thereto and Tocor II Management's Discussion and Analysis of Financial
Position and Results of Operations appearing elsewhere in this Prospectus.
TOCOR II, INC.
STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED
SEPTEMBER 30, JANUARY 21, 1992
1993 TO DECEMBER 31, 1992
------------- --------------------
<S> <C> <C>
Investment income........................... $ 1,750 $ 2,913
Total expenses.............................. 10,090 22,507
------- --------
Loss........................................ (8,340) (19,594)
======= ========
Loss per share.............................. $ (3.71) $ (8.71)
======= ========
Weighted average number of shares
outstanding................................ 2,250 2,250
</TABLE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------- ------------
<S> <C> <C>
Cash and investments................................. $52,489 $64,268
Total assets......................................... 56,106 67,604
Shareholders' equity................................. 55,991 64,331
</TABLE>
32
<PAGE>
TOCOR II MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Tocor II's principal source of cash was the approximately $83,925,000 net
proceeds from the initial public offering of its Callable Common Stock. For the
period January 21, 1992 through December 31, 1992, cash flows from operations
were negative resulting primarily from the payment of $18,318,000 to Centocor
under the Development Agreement and from the payment of a non-refundable fee of
$2,500,000 to Centocor under the License Agreement, partially offset by cash
inflows from interest earned on Tocor II's investments. For the nine months
ended September 30, 1993, cash flows from operations were negative resulting
primarily from payments to Centocor under the Development Agreement, partially
offset by cash inflows from interest earned on Tocor II's investments.
Tocor II is obligated to pay substantially all of its available cash, cash
equivalents and investments, and all interest earned on such funds, to Centocor
for conducting the initial phases of research and development with respect to
the Products. The proceeds from Tocor II's initial public offering are expected
to provide sufficient funding to undertake only such initial phases. However,
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
Tocor II'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 Tocor II, and if Tocor II decides to continue
the research program, Tocor II will need to obtain additional funding. Further,
if Tocor II decides to manufacture or market Products itself, which is
unlikely, Tocor II 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.
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.
Until the termination of the Purchase Option Agreement, Tocor II is not
permitted to issue additional capital stock, borrow more than $1,000,000 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.
FINANCIAL CONDITION
Cash and cash equivalents and short-term investments were approximately
$52,488,000 at September 30, 1993 and $64,267,000 at December 31, 1992
representing the net proceeds of the initial public offering of Tocor II 's
Callable Common Stock less amounts paid under agreements with Centocor. Prepaid
research and development expenses at September 30, 1993 and December 31, 1992
represent prepayments made to Centocor pursuant to the terms of the Development
Agreement.
33
<PAGE>
RESULTS OF OPERATIONS
Tocor II's losses to date have resulted primarily from incurring expenses
under Tocor II's agreements with Centocor. These expenses were partially offset
by net investment income. The decrease in research and development expenses in
1993 as compared to 1992 is due to a payment of $2,500,000 to Centocor by Tocor
II in the first quarter of 1992 pursuant to the License Agreement as well as a
reduction in Centocor's antibody research program costs allocated to the Tocor
II research program. The amount of future research and development expenses
will primarily depend upon the extent of activities conducted by Centocor under
the Tocor II research program. Future results are expected to reflect lower
interest income as the available cash and investments are used to fund
operations. For the next several years, Tocor II expects its activities to be
limited to conducting research and development and does not expect to generate
any revenues other than interest income. Consequently, it expects to continue
to incur losses in such periods. Expenses incurred under the Development
Agreement to date have been below the level expected by Tocor II at the time of
the January 1992 initial public offering of Tocor's II Callable Common Stock.
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.
The ability of Centocor to continue to perform under the Development
Agreement is highly dependent upon the future financial condition of Centocor.
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.
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
<PAGE>
THE EXCHANGE OFFER
BACKGROUND OF THE OFFER
In late February 1993, Dr. Hubert J. P. Schoemaker, as Chairman of the Board
of Directors of Centocor and of Tocor II, approached Mr. Stelios Papadopoulos
and Mr. David G. Golden, both directors of Tocor II, to discuss on a
preliminary basis the possible advantages and disadvantages to Centocor and
Tocor II of a merger or tender offer pursuant to which Tocor II would be
acquired by Centocor. On March 5, 1993, the Board of Directors of Tocor II met,
and one of the items discussed at this meeting was a possible tender offer by
Centocor for Units. The Board approved the creation of a special committee (the
"Special Committee") to have exclusive authority to act for Tocor II in
evaluating, responding to and approving or disapproving any possible merger,
sale of assets or tender offer relating to Tocor II and to consider any and all
other alternatives thereto available to Tocor II. The Special Committee members
are Dr. Marc Feldmann, Mr. Golden and Mr. Papadopoulos. Immediately after the
creation of the Special Committee, the Tocor II Board of Directors meeting was
recessed while the Special Committee held a separate meeting to discuss the
possible tender offer. At such meeting, the Special Committee also retained
Cooley Godward Castro Huddleson & Tatum as special legal counsel and authorized
the engagement of a financial advisor.
During the next several weeks, several telephone conversations occurred
involving members of the Special Committee, its legal counsel, Dr. Schoemaker,
Mr. Michael Dougherty, then Centocor's chief financial officer, and Mr. Dennis
Purcell, a Managing Director at PaineWebber Incorporated. These discussions
involved general structuring issues and preliminary discussions of possible
price ranges to be paid. By the end of April these discussions ceased without
any agreement regarding a possible tender offer.
On September 29, 1993, following the adjournment of a regular meeting of the
Board of Tocor II, Dr. Schoemaker, Mr. Golden, Mr. Papadopoulos and Dr.
Feldmann discussed in general terms various means by which Centocor might
acquire all or a portion of the assets or securities of Tocor II.
In early October, 1993, Dr. Schoemaker called Mr. Papadopoulos and stated
that the Board of Centocor would again like to explore options for the purchase
by Centocor of the assets or securities of Tocor II. On November 3, 1993, Mr.
Purcell and Mr. Golden met with Mr. Dominic Caruso, Centocor's chief accounting
officer, to discuss possible structures. At this meeting Mr. Caruso suggested
an exchange offer structure, and the parties discussed possible price ranges
without reaching any understanding regarding the terms of such an offer.
On November 10, 1993, Dr. Schoemaker, Mr. Papadopoulos, Mr. Golden and Mr.
Purcell participated in a conference call during which preliminary price
negotiations took place. The parties did not reach any understanding regarding
the terms of a possible offer.
On November 23, 1993, Mr. Golden, Mr. Papadopoulos, Anthony Evnin, a member
of Centocor's Board of Directors, Dr. Schoemaker, Mr. Purcell and Mr. David
Holveck, Centocor's President and Chief Executive Officer, met and conducted
substantial negotiations regarding a possible exchange offer. At the end of
this meeting each side agreed to consider the reasonableness of an exchange
offer on terms approximately like those described herein.
On December 2, 1993, Mr. Golden, Dr. Schoemaker, other officers and employees
of Centocor, representatives of financial and legal counsel for the Special
Committee, and representatives of financial and legal counsel for Centocor, met
at Centocor's offices. They discussed the possible timing and structure of an
exchange offer by Centocor, conducted due diligence regarding the research and
development efforts being undertaken by Tocor II and Centocor, and discussed
the reasonableness of the possible offer. In addition, on December 2, 1993, the
Board of Directors of Centocor held a meeting at which a possible tender offer
was discussed.
38
<PAGE>
On December 3, 1993, the Board of Directors of Tocor II held a meeting at
which the possible exchange offer and the status of Tocor II's research and
development efforts were discussed. This meeting was adjourned, and was
followed immediately by a meeting of the Special Committee. The Special
Committee heard reports from its legal and financial advisors and discussed the
potential offer at length.
On December 10, 1993, the Board of Directors of Centocor met and, after
hearing and considering reports by its financial and legal counsel (including
review and discussion of a fairness opinion from its financial advisor) and
following substantial discussion, determined that Centocor should pursue the
Exchange Offer described herein and communicated the terms of the Exchange
Offer to the Board of Directors of Tocor II. Also on December 10, 1993, the
Special Committee met to consider the Exchange Offer. After hearing and
considering reports by its financial and legal counsel (including review and
discussion of a fairness opinion from its financial advisor) and following
substantial discussion, the Special Committee determined that it would
recommend that holders of Tocor II Units tender their Units in the Exchange
Offer.
On December 10, 1993, Centocor issued a press release announcing Centocor's
intention to commence the Exchange Offer and Tocor II issued a press release
announcing the recommendation of its Board of Directors, based upon a
recommendation of the Special Committee, that shareholders of Tocor II accept
the Exchange Offer and tender their Units thereunder to Centocor.
PURPOSES OF THE EXCHANGE OFFER
Since Centocor's option to acquire all of the Tocor II Units at a
predetermined price pursuant to the Purchase Option Agreement first became
exercisable in 1993, the Company then focused its attention on whether to
acquire Tocor II's assets. See the chronology of events in the "Background of
the Offer." Consummation of the Exchange Offer will enable Centocor to obtain
the technology developed in connection with the small peptide molecule-based
research currently being conducted on behalf of Tocor II and to continue a
peptide research program on a more flexible schedule than is currently
permissible under the Development Agreement (as defined below). In addition,
following a Second-Step Transaction (see "The Exchange Offer--Terms of the
Exchange Offer--Consequences to Non-Tendering Holders"), Centocor anticipates
that it will obtain approximately $50,000,000 of cash currently held by Tocor
II to support Centocor's efforts on behalf of Tocor II under the Development
Agreement, which could instead be used at Centocor's discretion for any of its
research programs.
Centocor may effectively acquire the technology developed in connection with
the research program conducted under the Development Agreement only by
purchasing Tocor II. Centocor may purchase shares of Tocor II by exercising its
option under the Purchase Option Agreement (as defined below) to acquire all of
the outstanding Tocor II Units (the "Purchase Option") at prices that increase
from $58 per Unit currently to $107 per Unit through December 31, 1995, the
expiration date of the Purchase Option, or through a transaction with the
holders of shares of Tocor II Callable Common Stock without a predetermined
price, such as the Exchange Offer. See "The Agreements--The Purchase Option
Agreement." Centocor anticipates that the Exchange Offer will allow Centocor to
acquire the desired technology at a more favorable price than under the
Purchase Option Agreement. There can be no assurance that Centocor will
exercise its Purchase Option or otherwise enter into a transaction to acquire
shares of Tocor II Callable Common Stock if the Exchange Offer is not
consummated for any reason. Centocor will exercise its Purchase Option or enter
into any such other transaction only if it perceives such exercise or other
transaction to be in its best interest.
Additionally, Centocor believes that the small peptide molecule-based program
is closely linked with Centocor's monoclonal antibody program, because
discoveries or developments in either one may directly impact the other. Due to
such integration, Centocor believes that the small peptide molecule-based
program should be conducted at a pace that is related to the progress in its
monoclonal antibody program rather than at the pace dictated by the Development
Agreement. With both programs managed on a parallel track, Centocor believes it
will derive the greatest possible benefit from discoveries or developments in
either program.
Furthermore, if Centocor consummates the Exchange Offer, the number of
outstanding warrants to purchase shares of Centocor Common Stock will be
significantly reduced, with resulting reduction in potential future dilution of
Centocor Common Stock. See "Description of Securities--The Warrants."
39
<PAGE>
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions set forth herein and in the Letter of
Transmittal, Centocor is offering $40 to Holders for each outstanding Unit,
payable in shares of Centocor Common Stock, based upon the average closing
price of Centocor Common Stock on the Nasdaq National Market System over the 30
consecutive trading days immediately preceding the Expiration Date, provided
that if such actual number exceeds the Upper Bound, the Upper Bound shall be
paid, and if such actual number is less then the Lower Bound, the Lower Bound
shall be paid. No fractional shares of Centocor Common Stock will be issued,
and Centocor shall pay cash in lieu of fractional shares.
ALTHOUGH THE SERIES T WARRANTS COMPRISING PART OF THE UNITS DETACH, BY THEIR
TERMS, FROM THE TWO OTHER COMPONENTS OF THE UNITS ON JANUARY 1, 1994, CENTOCOR
WILL ONLY ACCEPT FOR EXCHANGE COMPLETE UNITS, EACH CONSISTING OF ONE SHARE OF
TOCOR II CALLABLE COMMON STOCK, ONE SERIES T WARRANT AND ONE CALLABLE WARRANT.
ACCORDINGLY, THOSE HOLDERS WISHING TO TENDER THEIR UNITS SHOULD NOT SELL OR
OTHERWISE TRANSFER OWNERSHIP OF THE SERIES T WARRANTS. HOLDERS DECIDING NOT TO
EXCHANGE THEIR UNITS PURSUANT TO THE EXCHANGE OFFER MAY RETAIN SUCH UNITS UNDER
THEIR ORIGINAL TERMS. SEE "--CONSEQUENCES TO NON-TENDERING HOLDERS."
Subject to the terms and conditions set forth herein and in the Letter of
Transmittal, Centocor expects to accept all Units duly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on [ ], 1994. Centocor
reserves the right to extend the Expiration Date of the Exchange Offer by
making a public announcement thereof prior to 9:30 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date, provided
that the Expiration Date will not be extended beyond [Date].
Centocor is not soliciting your proxy on any matter by means of this Exchange
Offer. In the event that the solicitation of proxies is required in connection
with a Second-Step Transaction, Centocor will solicit such proxies separately
pursuant to proxy materials that will comply with the requirements of the
Exchange Act.
Requests for additional copies of this Prospectus or the Letter of
Transmittal or assistance in completing an exchange should be made by mail,
facsimile transmission, or telephone to either of the following:
Ms. Drew Dorgan
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Telephone: (215) 651-6000
Fax: (215) 651-6100
OR
D. F. King & Co., Inc.
77 Water Street
New York, NY 10005
Telephone: (800) 669-5550
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any extensions
of the Exchange Offer, Centocor will not be required to accept for exchange or,
subject to any applicable rules and regulations of the Commission, to exchange
any Units not theretofore accepted for exchange or exchanged or, at its option,
Centocor may modify or otherwise amend the Exchange Offer, if any of the
following events occur:
(1) at the Expiration Date, less than a majority of the Units then
outstanding shall have been validly tendered and not withdrawn, or
40
<PAGE>
(2) at the Expiration Date, Centocor shall not have received all
necessary and desirable government and regulatory approvals and consents
for the acquisition of Units pursuant to the Exchange Offer, or
(3) any legal impediment shall exist that, in the sole judgment of
Centocor, makes it inadvisable to proceed with the Exchange Offer.
The foregoing conditions are for the sole benefit of Centocor and may be
waived by Centocor, in whole or in part, in its sole discretion. Any
determination made by Centocor concerning an event, development or circumstance
described or referred to above will be final and binding on all parties.
Procedure for Tendering Units
Except as otherwise stated below, to be properly tendered pursuant to the
Exchange Offer, Units, together with a properly completed and executed Letter
of Transmittal and any other documents required by the Letter of Transmittal,
must be received by the Depositary at its address set forth on the last page of
this Prospectus prior to the Expiration Date. The method of delivery to the
Depositary of Units and other documents is at the election and risk of the
Holder, but if such delivery is by mail it is suggested that properly insured,
registered mail with return receipt requested be used and that mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Depositary before 5:00 p.m., New York City time on the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Units shall be determined by Centocor. Such
determination shall be final and binding. Centocor reserves the absolute right
to reject any or all tenders of Units not properly delivered or the acceptance
of which would, in the opinion of Centocor, be unlawful. Centocor also reserves
the right to waive any irregularities or conditions of tender or exchange and
Centocor's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) shall be final and
binding. Any irregularities in connection with the Exchange Offer, unless
waived, must be corrected within such time as Centocor shall determine, which
time may extend beyond the Expiration Date. Centocor shall be under no duty to
give notification of defects in such deliveries or incur any liability for
failure to give such notification. Tenders of such Units shall not be deemed to
have been made until such irregularities have been cured or waived. Units
received by Centocor that are not properly tendered and as to which
irregularities have not been corrected or waived will be promptly returned by
Centocor or the Depositary to the appropriate Holder.
Procedure for Late Delivery of Tendered Units
Prior to the Expiration Date tenders may be made without the concurrent
deposit of Unit certificates if such tenders are made by or through members of
a national securities exchange or the National Association of Securities
Dealers, Inc. or by commercial banks or trust companies having an office in the
United States (an "Eligible Institution"). In such cases, the Letter of
Transmittal must be received (including by telegraphic, telex or facsimile
delivery) prior to the Expiration Date by the Depositary and the Notice of
Guaranteed Delivery contained in the Letter of Transmittal must be executed by
such Eligible Institution. In addition, the certificates tendered thereby must
be received by the Depositary no later than four business days after the
Expiration Date of the Exchange Offer.
Withdrawal Rights
Tenders of Units may be withdrawn by delivering notice of such withdrawal to
the Depositary at any time (i) prior to 5:00 P.M., New York City time, on
[ ], 1994, or (ii) after 5:00 P.M., New York City time, on [ ], 1994,
if they have not been previously accepted for exchange by Centocor.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address specified herein. Such notice of
41
<PAGE>
withdrawal must specify the name of the withdrawing holder, the name of the
registered holder if different from that of the withdrawing holder, and the
number of Units (and, if available, the certificate numbers) to be withdrawn.
All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by Centocor, whose determination shall be final
and binding. Units withdrawn in the manner specified above, or with Centocor's
consent, will not be considered to have been properly tendered.
Delivery of Centocor Common Stock
Upon the terms and subject to the conditions of the Exchange Offer, delivery
of the shares of the Centocor Common Stock in exchange for Units properly
tendered and accepted by Centocor, will be made as soon as practicable after
the Expiration Date. No fractional shares of Centocor Common Stock will be
issued. Centocor shall pay cash in lieu of fractional shares. The maximum
number of days after the Expiration Date by which the certificates representing
shares of the Centocor Common Stock and cash in lieu of fractional shares are
to be mailed to the Holders is expected to be 5 business days.
Commissions and Fees
Subject to Instruction 6 of the Letter of Transmittal, Centocor will pay all
stock transfer taxes, if any, payable on the transfer to it of Units exchanged
pursuant to the Exchange Offer. Any tendering Holder or other payee who fails
to complete and sign the Substitute Treasury Form W-9 that accompanies the
Letter of Transmittal may be subject to a required tax withholding of 31% of
the gross proceeds paid to such Holder or other payee pursuant to the Exchange
Offer.
Consequences to Non-Tendering Holders:
The rights of non-tendering Holders will not be altered, impaired or modified
by this Exchange Offer. Such non-tendering Holders may transfer their
respective Units in accordance with their terms. If the Exchange Offer is
consummated but not all Units are accepted in the Exchange Offer, Centocor will
own a majority of the Tocor II Callable Common Stock and will vote those shares
in favor of, if necessary, and thereby cause a transaction (which may include a
merger of Tocor II into a wholly-owned subsidiary of Centocor, a merger of such
a subsidiary into Tocor II, a purchase of the assets of Tocor II followed by a
dissolution of Tocor II, or a similar transaction) by which Centocor shall
acquire all of the remaining securities or assets of Tocor II in exchange for
shares of Centocor Common Stock. Because holders of Tocor II Callable Common
Stock will retain in any Second-Step Transaction any Warrants that they hold,
the value of the consideration to be received by such holders for their Tocor
II Callable Common Stock in any Second-Step Transaction will be 90% of the
value of the consideration received by Holders for their Units in the Exchange
Offer. Holders of Units may be entitled to dissenters' rights in a Second-Step
Transaction under BVI law. See "The Exchange Offer--Terms of the Exchange
Offer--Dissenters' Rights." Centocor does not intend to list the Warrants
remaining outstanding after consummation of the Exchange Offer on any
securities exchange or to make a market in such Warrants. As a result, no
liquid trading market may develop for such Warrants, which may adversely affect
their value.
Units not tendered in the Exchange Offer will only remain outstanding as
Units until such time as Centocor consummates a Second-Step Transaction. A
class of securities with a small number outstanding and available for trading
(the "float") only for an extremely limited period may command a lower price
than would a comparable class with a greater float and longer duration.
Therefore, the market price for remaining Units after the termination of the
Exchange Offer may be affected adversely to the extent that the number of Units
exchanged pursuant to the Exchange Offer reduces the float and because the
Units not tendered are expected to remain outstanding only briefly. The reduced
float may also tend to make the trading price for the Units more volatile. In
addition, depending on the number of Units tendered, the Units may no longer
trade on the Nasdaq National Market System.
Dissenters Rights
Under BVI law, holders of shares of a BVI company, or members, are entitled
to payment of fair value for their shares upon dissenting from mergers,
consolidations, certain dispositions of more than 50% of the
42
<PAGE>
company's assets, compulsory redemptions of shares, and certain other
transactions, if the BVI company is a constituent company in the merger and not
the surviving company.
. A member who desires to exercise dissenters' rights must give to the
company before or at the meeting of members at which the merger is submitted to
a vote, a notice of an objection to the merger. The objection must include a
statement that the member proposed to demand payment for his shares if the
action is taken. In the event that the member does not receive notice of the
meeting, or if the proposed action is authorized by written consent without a
meeting, no notice of objection is required.
. Within 20 days following the authorization of the merger by vote or written
consent, the company must give written notice of the action to those members
who objected to the action or, alternatively, those members who did not vote
for or consent to the merger. A member who elects to dissent must, within 20
days of notice of authorization, give to the company a written notice of his
decision to elect to dissent, stating such member's name and address, the
number and class or series of shares involved (which must include all shares
held by such member) and a demand for payment of fair value for the shares.
Upon the giving of notice, the member ceases to have the rights of a member
with the exception of the right to be paid the fair value of his shares.
. Within 7 days of the latter of: (i) the expiration of the period within
which members may give notice of election of dissent or (ii) the effective date
of the merger, the surviving corporation must make a written offer to each
dissenting member to purchase his shares at a price that the company determines
to be their fair value.
. If within 30 days of the offer, the company and the member agree on the
price to be paid for the shares, the company will pay such amount to the member
upon surrender of the certificates representing the shares.
. If the company and the dissenter fail to agree on a price within 30 days,
the following shall occur within the next 20 days:
. (i) the company and the member shall each designate an appraiser;
. (ii) the two appraisers shall designate a third appraiser;
. (iii) the three appraisers shall fix the fair value of the dissenters
shares as of the close of business on the day prior to the vote on
the merger, excluding any appreciation or depreciation directly or
indirectly induced by the merger, and such value shall be binding
on the company and the dissenter; and
. (iv) the company shall pay such amount in money upon the surrender of
the certificates representing the shares.
. The enforcement by a member of dissenters' rights will exclude the
enforcement by the member of his other rights as a holder of shares, other than
the member's right to obtain relief on the ground that the action taken was
illegal.
POSITIONS OF THE BOARDS OF DIRECTORS
The Board of Directors of Centocor is not making any recommendation to
Holders as to whether they should exchange or refrain from exchanging any or
all of their respective Units. Each Holder must make his or her own decision as
to whether to exchange all or any portion of such Units.
The Board of Directors of Tocor II, upon the recommendation of the Special
Committee, has recommended that shareholders of Tocor II should accept the
Exchange Offer and exchange their Units. The Special Committee made its
recommendation in part based upon a fairness opinion of Hambrecht & Quist
Incorporated ("Hambrecht & Quist"). Mr. David G. Golden, one of the directors
of Tocor II, is a Managing Director of Hambrecht & Quist, which has provided
investment banking services to both Centocor and Tocor II in the past, acted as
an underwriter in connection with the initial offering of the Units and has
rendered an opinion to the Special Committee as to the fairness of the Exchange
Offer to the Tocor II shareholders. Dr.
43
<PAGE>
Hubert J.P. Schoemaker, another Tocor II director, is Chairman of the Board of
Directors of Centocor and Tocor II. Dr. Marc Feldmann, a Tocor II director,
provides consulting services to Centocor under a consulting agreement. Mr.
Stelios Papadopoulos, also a Tocor II director, is a Managing Director and Head
of the Health Sciences Investment Banking Group at PaineWebber Incorporated, an
investment banking firm that has provided investment banking services to both
Centocor and Tocor II in the past and acted as an underwriter in connection
with the initial offering of the Units.
The Special Committee engaged Hambrecht & Quist to act as its financial
advisor in connection with the Exchange Offer and to render an opinion as to
the fairness from a financial point of view to the holders of the outstanding
shares of Tocor II Callable Common Stock of the consideration to be received by
such holders in the Exchange Offer. Hambrecht & Quist rendered its oral opinion
(subsequently confirmed in writing) on December 10, 1993 to the Special
Committee that, as of such date, the consideration to be received by the
holders of the Tocor II Callable Common Stock in exchange for the Units as set
forth in the Exchange Offer is fair to the holders of the Tocor II Callable
Common Stock from a financial point of view. A COPY OF HAMBRECHT & QUIST'S
OPINION DATED DECEMBER 10, 1993, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, THE SCOPE AND LIMITATIONS OF THE REVIEW UNDERTAKEN AND THE
PROCEDURES FOLLOWED BY HAMBRECHT & QUIST IS ATTACHED AS ANNEX A TO THIS
PROSPECTUS. TOCOR II SHAREHOLDERS ARE ADVISED TO READ THE OPINION IN ITS
ENTIRETY. The assumptions made, matters considered and limits of review
contained in Hambrecht & Quist's written opinion delivered December 10, 1993
were substantially the same as those contained in the opinion attached hereto.
No limitations were placed on Hambrecht & Quist by the Board of Directors of
Tocor II with respect to the investigation made or the procedures followed in
preparing and rendering its opinion. Hambrecht & Quist's engagement related to
the Exchange Offer did not include the solicitation of third party indications
of interest in acquiring all or any part of Tocor II, and Hambrecht & Quist did
not make any such solicitation in connection with its opinion.
In its review of the Exchange Offer, and in arriving at its opinion,
Hambrecht & Quist, among other things: (i) reviewed the publicly available
financial statements of Tocor II for the period January 21, 1992 through
December 31, 1992 and interim periods to date and certain other relevant
financial and operating data of Tocor II made available from the internal
records of Tocor II; (ii) discussed with certain members of the managements of
Tocor II and Centocor the business, financial condition and prospects of Tocor
II; (iii) reviewed the publicly available consolidated financial statements of
Centocor for recent years and interim periods to date and certain other
relevant financial and operating data of Centocor made available from published
sources and the internal records of Centocor; (iv) reviewed certain financial
and operating information, including certain projections provided by the
management of Centocor and discussed such projections with certain members of
the management of Centocor; (v) reviewed the recent reported prices and trading
activity for Tocor II Callable Common Stock and Centocor Common Stock and
compared such information and certain financial information of Tocor II and
Centocor with similar information for certain other companies engaged in
businesses considered comparable to those of Tocor II or Centocor, (vi)
reviewed the terms, to the extent publicly available, of certain comparable
acquisition transactions; (vii) reviewed drafts of this Prospectus, the Letter
of Transmittal and certain other materials to be filed with the Securities and
Exchange Commission in connection with the Exchange Offer; and (viii) performed
such other analyses and examinations and considered such other information,
financial studies, analyses and investigations and financial, economic and
market data as Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Tocor II or Centocor considered in connection with their review of
the Exchange Offer and, for purposes of the opinion set forth herein, Hambrecht
& Quist assumed and relied upon the accuracy and completeness of all such
information. In connection with its opinion, Hambrecht & Quist did not prepare
or obtain any independent evaluation or appraisal of any of the assets or
liabilities of Tocor II or Centocor, nor did they conduct a physical inspection
of the properties and facilities of Tocor II or Centocor. With respect to the
financial forecasts and projections made available to Hambrecht & Quist and
used in their analyses, Hambrecht & Quist, on the advice of the managements of
Tocor II and Centocor, assumed that they reflected the best currently available
estimates
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and judgments of the expected future financial performance of Centocor.
Hambrecht & Quist also assumed that neither Tocor II nor Centocor was a party
to any pending transactions, including external financings, recapitalizations
or merger discussions, other than the Exchange Offer and those in the ordinary
course of conducting their respective businesses or disclosed in this
Prospectus. Hambrecht & Quist's opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of the opinion and any subsequent change in such conditions would
require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Special
Committee. In arriving at its opinion, Hambrecht & Quist did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the above
summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the Special Committee and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Tocor II and Centocor.
The analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
sold.
Comparable Company Analysis. Hambrecht & Quist compared selected historical
and projected financials, operating and stock market performance data of Tocor
II and Centocor to the corresponding data of certain publicly traded
biotechnology companies that Hambrecht & Quist considered comparable based on
market value, scientific focus or corporate structure. Tocor II was compared
with other SWORD companies including Aramed, Inc., CytoRad Incorporated,
Genzyme Transgenics Corporation, Neozyme II Corporation, and Scigenics, Inc.
(the "SWORD Group") and with other small molecule research and development
companies including Affymax N.V., Arris Pharmaceutical Corporation, Corvas
International, Inc., Ligand Pharmaceuticals Incorporated, and Procept, Inc.
(the "Small Molecule R & D Group"). Centocor was compared with other
biotechnology companies having market values over $300 million including Amgen,
Inc., Biogen, Inc., Chiron Corporation, Genentech, Inc., Genetics Institute,
Inc., BioChem Pharma Inc., Gensia, Inc., Genzyme Corporation, Immunex
Corporation, CellPro, Incorporated, Scios Nova, Inc., and Synergen, Inc. (the
"Biotech Group"). Centocor was also compared with other monoclonal antibody
companies including Cytogen Corporation, IDEC Pharmaceuticals Corporation,
ImmunoGen, Inc., Immunomedics, Inc., Medarex, Inc., Protein Design Labs, Inc.,
and XOMA Corporation (the "Monoclonal Antibodies Group"). Hambrecht & Quist
compared certain financial characteristics such as cash, book value, net
revenues, and burn rate (cash used in operating activities plus capital
expenditures) for the latest 12 month period (LTM) for each company in the
SWORD Group, the Small Molecule R&D Group, the Biotech Group, and the
Monoclonal Antibody Group. Hambrecht & Quist also analyzed certain financial
ratios and multiples including market value to cash, market value to book value
and market value to LTM net revenues. Hambrecht & Quist also determined market
value minus cash and the ratio of market value to market value minus cash for
each company. Hambrecht & Quist calculated the ratio of the cash position to
the LTM burn rate of each company to determine the implied "survival index"
[the number of consecutive annual periods that such company could continue to
fund cash losses at the rate experienced in the latest twelve months from its
most recently reported cash without obtaining additional capital.] Hambrecht &
Quist compared the implied "survival index" of each company in the Biotech
Group to the implied "survival index" of Tocor II. In addition, Hambrecht &
Quist examined the cash multiples, shareholders' equity multiples and multiples
of market value minus cash for the SWORD Group and the Small Molecule R&D Group
in its analysis of Tocor II and for the Biotech Group and the Monoclonal
Antibody Group in its analysis of Centocor.
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Hambrecht & Quist also examined the ratio of the enterprise value (market
value plus debt less cash) to the earnings before interest and taxes ("EBIT
Multiples") for ten of the large U.S. pharmaceutical companies with the highest
pre-tax income margins (pre-tax income as a percentage of revenues) for the
fiscal year 1992 (Amgen Inc., Merck & Co., Inc., Eli Lilly and Company, Abbott
Laboratories, Marion Merrell Dow Inc., Schering-Plough Corporation, American
Home Products Corporation, Syntex Corporation, Pfizer Inc., and the Upjohn
Company (the "Pharmaceutical Group")).
Although Hambrecht & Quist uses the Groups in its analysis of Tocor II and
Centocor, Hambrecht & Quist believes that because of inherent differences
between financial and operating characteristics among the companies in the
Groups, a purely quantitative comparative analysis of the companies in the
Groups is not particularly meaningful. With respect to companies in the
Pharmaceutical Group or companies in the Biotech Group with market values over
$1.0 billion, there is no basis to compare multiples of earnings, due to the
lack of operating revenues and operating profits at Tocor II and Centocor.
Hambrecht & Quist has noted, however, that the Pharmaceutical Group's current
trading multiples are indicative of the current public market value for
established pharmaceutical companies and therefore are meaningful as a way of
estimating the long-term EBIT Multiples used to calculate the terminal value
("Terminal Value") of Centocor in the Discounted Cash Flow Analyses (see
below). Similarly, Hambrecht & Quist noted that, with respect to the other
Groups, a purely quantitative comparative analysis would not be meaningful
because each of the companies in the SWORD Group, Small Molecule R&D Group,
Biotech Group and Monoclonal Antibody Group are experiencing operating losses,
thus making a comparison of market value multiples of operating earnings and
net income irrelevant. In Hambrecht & Quist's judgment, an appropriate use of a
comparable company analysis in this instance necessarily involves a qualitative
assessment of the different financial, product and operating characteristics of
the companies comprising both the Pharmaceutical Group and the other Groups.
Discounted Cash Flow Analysis. Hambrecht & Quist analyzed the theoretical
valuation of Centocor based on unlevered discounted cash flow of the projected
financial performance of Centocor (the "Projections"). The Projections included
a range of financial forecasts and projections with respect to Centocor.
Hambrecht & Quist also analyzed certain more conservative projections that
delayed the revenues from all potential products one year and the working
capital requirements six months (beyond that date in the Projections (the
"Sensitivity Case Projections"). These delays reduced the net sales in the
Projections by 12.5% to 31.3% and the unlevered net income by 20.7% to 40.8%.
To estimate the total present value of the Company's business, before giving
effect to its capital structure, Hambrecht & Quist discounted to present value
the projected stream of after-tax cash flows and the Terminal Value of
Centocor's business as reflected in the Projections and the Sensitivity Case
Projections, using discount rates ranging from 30% to 45%. The Terminal Value
was based upon multiples of nine, ten and eleven times projected EBIT for 1998.
These multiples were based on current trading multiples for the Pharmaceutical
Group. After-tax cash flows were calculated as the after-tax operating earnings
of Centocor plus projected depreciation and amortization, minus net changes in
non-cash working capital, minus projected capital expenditures. The projected
after-tax cash flows of Centocor reflected the estimated effective tax rate
after giving effect to Centocor's net operating loss carry forward. Hambrecht &
Quist applied discount rates ranging from 30% to 45% to reflect different
assumptions regarding the required rates of return to holders or prospective
buyers of shares of Centocor Common Stock.
On a stand-alone basis, this analysis indicated equity values of $494.3
million to $924.8 million under the Projections and $311.8 million to $406.2
million under the Sensitivity Case Projections. This analysis showed that the
market value of the Centocor Common Stock of $573.0 million on December 3,
1993, was within the range of the theoretical valuation implied by the
Discounted Cash Flow analysis.
Determination of the Net Present Value of the Tocor II Units. Hambrecht &
Quist calculated the net present value of the Tocor II Units as a function of
discount rate and the terms of the Purchase Option. Under the Purchase Option,
Centocor can acquire all of the shares of Tocor II Common Stock on December 31,
1995 at the price of $107.00 per share. Hambrecht & Quist reviewed the
probabilities (10 to 100%) that Centocor would exercise the Purchase Option at
discount rates ranging from 20 to 75%. Hambrecht & Quist
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compared the Offer with such analysis and determined that with 60% probability
of repurchase and a 25% discount rate, the Units have a net present value of
$40.36 per Unit; with a 70% probability of repurchase and a 35% discount rate,
the Units have a net present value of $40.12 per Unit; with an 80% probability
of repurchase and a 45% discount rate, the Units have a net present value of
$39.52 per Unit; with a 90% probability of repurchase and a 50% discount rate,
the Units have a net present value of $41.43 per Unit; and with a 100%
probability of repurchase and a 60% discount rate the Units have a net present
value of $40.25 per Unit.
Stock Trading History Analysis. Hambrecht & Quist examined the trading
history in terms of both price and volume for the Tocor II Units during the
periods from November 20, 1992 to December 2, 1993 and from January 21, 1992 to
December 8, 1993 and for the Centocor Common Stock for the period November 20,
1992 to December 2, 1993. In addition, Hambrecht & Quist compared the prices of
the Tocor II Units and the Centocor Common Stock from November 20, 1992 to
December 2, 1993 with the stock prices of certain publicly traded biotechnology
companies.
Selected Comparable Transaction Analysis. Hambrecht & Quist compared the
Offer with selected comparable merger and acquisition transactions. Hambrecht &
Quist determined that the Offer of $40.00 per Tocor II Unit represented a 79.8%
premium over the $22.25 closing market price of the Tocor II Units on December
3, 1993. With respect to the analysis of controlled collaborations and other
partial acquisitions of certain comparable biotechnology companies, Hambrecht &
Quist considered the putative per share premium paid and calculated a weighted
per share premium by weighing the premium paid and the percentage of
outstanding stock of the acquired corporations actually purchased in such
transactions. Hambrecht & Quist analyzed the Offer in comparison with the
premiums paid by Rhone-Poulenc Rorer Inc. in its purchase of 37% of Applied
Immune Sciences, Inc., by American Cyanamid Company in its 53.5% purchase of
Immunex Corporation, Scios, Inc. in its purchase of Nova Pharmaceuticals, by
Sandoz Pharma Ltd. in its 60% purchase of Systemix, Inc., by Roche Holdings in
its 60% purchase of Genentech, Inc., by Chiron Corporations in its purchase of
Cetus Corporation, and by American Home Products Corporation in its 60%
purchase of Genetics Institute, Inc. In addition, Hambrecht & Quist used these
premiums and the multiples of cash (the ratios of purchase consideration to
cash) for comparable biotechnology companies in its valuation of Centocor to
determine a hypothetical acquisition value for Centocor.
Hambrecht & Quist did not attempt to prepare any further quantitative
valuations analyses based on this comparable transaction analysis because
Hambrecht & Quist believed that any comparative multiples that might be derived
based upon earnings or other financial data of such companies would not be
meaningful. This view is based upon the same reasons that Hambrecht & Quist did
not believe a quantitative comparison between Tocor II and Centocor and the
companies comprising the Groups of comparable companies would be meaningful,
namely that because the biotechnology companies in the Comparable Transaction
analysis generally were experiencing operating losses, a comparison of
transaction multiples of operating earnings and net income would not be
relevant.
Hambrecht & Quist also compared the premium paid in the repurchases of other
SWORD companies to the market value of the SWORD companies 28 days prior to the
repurchase announcement. The Offer was compared with the premiums paid by
Centocor for Tocor, Inc., by Alza Corporation for BioElectro Systems, Inc., by
Immunex Corporation for Receptech Corporation, and by Genzyme Corporation for
the last two technology programs of Neozyme Corporation.
No company or transaction used in the above analyses is identical to Tocor
II, Centocor or the proposed Exchange Offer. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies or company to which they are compared.
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The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached at
Annex A to this Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist is familiar with Tocor II, having acted as a managing
underwriter of the Units in 1992. In addition, David G. Golden, a Managing
Director of Hambrecht & Quist, has served as a director of Tocor II since
September 1992. Hambrecht & Quist is also familiar with Centocor, having acted
as a managing underwriter of Centocor Common Stock in 1982, 1986 and 1990 and
of 7.25% Convertible Subordinated Notes in 1991. In addition, Hambrecht & Quist
acted as a managing underwriter of units of Tocor, Inc. (an affiliate of
Centocor otherwise unrelated to Tocor II) in 1989. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of Tocor II and Centocor and receives customary compensation
in connection therewith, and also provides research coverage for Tocor II and
Centocor. In the ordinary course of business, Hambrecht & Quist actively trades
in the equity and derivative securities of Tocor II and Centocor for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. Hambrecht & Quist may in the
future provide additional investment banking or other financial advisory
services to Centocor.
Pursuant to an engagement letter dated December 8, 1993, Tocor II has agreed
to pay Hambrecht & Quist a fee in connection with its services as financial
advisor to the Special Committee and the rendering of a fairness opinion. Tocor
II will pay a fee of $250,000 upon the delivery of its Fairness Opinion, a fee
of $250,000 upon the earlier to occur of (x) any mailing to shareholders of
Tocor II any proxy statement and/or prospectus or (y) any other publication or
mailing of written materials describing Tocor II's position with respect to the
Exchange Offer (including a filing of a Schedule 14D-9 with the Securities and
Exchange Commission), and a fee of $100,000 upon the rendering of any
subsequent Fairness Opinion in connection with the Exchange Offer. None of
Hambrecht & Quist's fee is contingent upon the success or failure of the
Exchange Offer. Tocor II has agreed to reimburse Hambrecht & Quist for its
reasonable out-of-pocket expenses, and to indemnify Hambrecht & Quist against
certain liabilities, including liabilities under the federal securities laws or
relating to or arising out of Hambrecht & Quist's engagement as financial
advisor.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain federal income tax considerations
applicable to Holders who tender their Units for Centocor Common Stock pursuant
to the Exchange Offer. No ruling has been or will be requested from the
Internal Revenue Service (the "IRS") regarding the tax consequences of the
exchange of Units for Centocor Common Stock. Accordingly, no assurance can be
given with respect to the federal income tax treatment of the Exchange.
This summary does not address federal income tax consequences applicable to
investors that are subject to special rules. It focuses on Holders of Units who
are individual citizens or residents of the United States or domestic
corporations and has only limited application to Holders that are foreign
corporations, regulated investment companies, insurance companies, dealers in
securities, estates, trusts, nonresident aliens or that own (directly or by
attribution) 5% or more of the Tocor II Callable Common Stock. Finally, this
summary assumes that each of the Units has been held as a capital asset in the
hands of the Holder at all relevant times.
Because of these and other considerations, the tax consequences of the
Exchange Offer will depend in large part on the facts and circumstances
applicable to each Holder and may differ significantly from the general outline
of such consequences provided herein. As a result, the tax consequences to a
particular Holder cannot be predicted with certainty, and each Holder is urged
to consult his own tax advisor. No information
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or opinion is provided with respect to state, local or foreign tax consequences
of the Exchange Offer and Holders are urged to consult their own tax advisors
with respect to such consequences.
The discussion is based upon existing federal income tax law, including the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
regulations issued by the United States Treasury Department thereunder, rulings
of the IRS and court decisions, all as in effect on the date of this
Prospectus. The Company has consulted with tax advisors in preparing the
discussion contained in this summary. Future changes in the federal income tax
laws could adversely affect the treatment of the transaction.
The discussion contained in this summary assumes that the form of the various
transactions and agreements involving Centocor, Tocor II and the Holders
(including the Technology License Agreement, the Development Agreement, and the
Purchase Option Agreement) will be respected. The IRS could contend that the
form of such transactions and agreements should be disregarded, e.g., on the
basis that the Tocor II Callable Common Stock represents an equity or debt
security in Centocor or a profits interest in the Tocor II technology. If the
IRS were to succeed with such an argument, tax free treatment as a Section 368
reorganization would not be available, and no assurance can be given with
respect to the character and amount of a Holder's income from the transactions
pursuant to such an argument.
A Holder who exchanges a Unit pursuant to the Exchange Offer will be deemed
to have exchanged each of the Unit's constituent elements (i.e., Tocor II
Callable Common Stock, Callable Warrant and Series T Warrant) for Centocor
Common Stock and will allocate the consideration received in proportion to the
relative fair market values of such Tocor II Callable Common Stock and Warrants
on the exchange date.
A Holder will recognize gain or loss with respect to the deemed exchange of
the Warrants for Centocor Common Stock, measured by the difference between the
fair market value of the Centocor Common Stock received that is allocated to
such exchange and the portion of his adjusted basis for a Unit allocable to the
Warrants. Such gain or loss will be capital gain or loss and will be long-term
if the Unit has been held for more than one year on the exchange date.
If Centocor acquires as a result of the Exchange at least 80% of the Tocor II
Callable Common Stock, it is expected that Centocor's acquisition of Tocor II
Callable Common Stock will qualify as a "reorganization" under Section 368 of
the Code. If the acquisition qualifies as a "reorganization," a Holder will
(except with respect to the receipt of cash in lieu of the issuance of
fractional shares of Centocor Common Stock and except as described below under
Passive Foreign Investment Company Considerations) not recognize gain or loss
on the exchange of Tocor II Callable Common Stock for Centocor Common Stock.
With respect to the shares of Centocor Common Stock received for Tocor II
Callable Common Stock, a Holder will have a tax basis equal to the portion of
the adjusted basis of the Unit surrendered that is allocated to the share of
Tocor II Callable Common Stock (less any amount allocable to the deemed
redemption of fractional shares for cash). Such Holder will include the holding
period for the Unit in the holding period for the Centocor Common Stock.
If the acquisition does not qualify as a "reorganization," a Holder will
recognize gain or loss on the exchange of Tocor II Callable Common Stock for
Centocor Common Stock under Section 1001 of the Code, measured by the
difference (if any) between the portion of the fair market value of the
Centocor Common Stock received that is allocated to the Tocor II Callable
Common Stock and the portion of the adjusted basis of the Unit surrendered that
is allocated to the Tocor II Callable Common Stock. Such gain or loss will
generally be capital gain or loss (except as described below under Passive
Foreign Investment Company Considerations) and will be long-term if the Units
have been held for more than one year on the exchange date. Any Holder that has
owned at any time (directly or by attribution) more than 5% of the Tocor II
Callable Common Stock (a "5% Holder") or that has owned at any time Tocor II
Callable Common Stock attributable to any 5% Holder should consider the
possible applicability of the "collapsible corporation" rules under Section 341
of the Code, which rules could result in the characterization of any such gain
as ordinary income.
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Uncertainty exists as to the treatment of the initial grant to Centocor of
the Purchase Option in exchange for the Callable Warrant. If a Holder was
deemed to have received the Callable Warrant or other consideration for
granting the Purchase Option to Centocor in connection with the original
issuance of the Units, that Holder would be required to recognize a
corresponding gain in respect of the lapse or termination of the Purchase
Option pursuant to the Exchange. Such gain would be equal to the fair market
value of that Callable Warrant or other consideration at the time of its
original acquisition by the Holder and would be short-term capital gain.
A Holder may recognize gain or loss upon a subsequent disposition of any
Centocor Common Stock received in the Exchange Offer.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
Tocor II has previously been characterized as a so-called "passive foreign
investment company" (a "PFIC"). Assuming that Tocor II is a PFIC and that
Centocor's acquisition of Tocor II Callable Common Stock qualifies as a
"reorganization," a Holder of a Unit who has not elected to treat Tocor II as a
"qualified electing fund" for each taxable year during which the taxpayer has
owned (or has been deemed to own) Tocor II Callable Common Stock (a "Non-QEF
Holder") may be required to recognize gain (but not loss) equal to the
difference between the fair market value of the Tocor II Callable Common Stock
on the exchange date and its adjusted basis. The tax due on any such gain would
be determined by apportioning the gain to all taxable years in the taxpayer's
holding period, calculating the tax due for each such year with respect to the
amount so apportioned at ordinary income rates, and adding the interest on the
tax deferred from each taxable year (other than the current year) to the tax
that would otherwise be due. A Non-QEF Holder will generally be required to
determine tax in a similar manner (at ordinary income rates) in respect of any
gain recognized if Centocor's acquisition of Tocor II Callable Common Stock
does not qualify as a "reorganization."
The foregoing summary is not intended, and should not be considered, as tax
advice or as a substitute for individual tax advice. Holders are urged to
consult their own tax advisors regarding the tax consequences of the Exchange
to them under applicable federal, state, local and foreign tax laws.
DESCRIPTION OF SECURITIES
CENTOCOR CAPITAL STOCK
The following is a brief description of the rights pertaining to shares of
Centocor Common Stock. This description does not purport to be complete and is
qualified in its entirety by reference to the full Articles of Incorporation
and By-laws of Centocor.
Centocor is authorized to issue 110,000,000 shares of capital stock divided
into two classes consisting of 100,000,000 shares of Centocor Common Stock, par
value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01
per share, 2,000,000 of which have been designated as Series A Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"). The Board of
Directors is authorized to make divisions of authorized shares of the capital
stock of Centocor into classes and into series within any class and to make
determinations of the designation and the number of shares of any class or
series and the voting rights, preferences, limitations and special rights, if
any, of the shares of any class or series, including the power to increase any
previously determined number of shares of any class or series to a number not
greater than the aggregate number of shares of all classes and series that
Centocor is authorized to issue and to decrease the previously determined
number of shares of any class or series to a number not less than that then
outstanding.
Holders of Centocor Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders, except that cumulative voting is
permitted in the election of directors. In addition, certain provisions of the
Pennsylvania Business Corporation Law of 1988, as amended, 15 Pa.C.S. (S) 2501
et seq. (the "Pennsylvania control share acquisition statute"), generally
operate, under certain circumstances, to
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(1) disenfranchise certain shares owned by a person or group that acquires
voting power over 20%, 33 1/3% or 50% or more of the voting shares of Centocor
("control shares"), unless the voting rights of such shares are restored by a
shareholder vote; (ii) permit Centocor to redeem control shares at their then
fair market value; (iii) require a person or group that acquires (or announces
an intention to acquire) 20% or more of the voting power of Centocor to
disgorge profits realized from the sale of Centocor's securities during
specified time periods and (iv) give shareholders of Centocor the right to
receive the fair value of their shares in cash from a person or group that has
acquired 20% of the voting power of Centocor.
Holders of Centocor Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by Centocor's Board of Directors in
its discretion from funds legally available therefor. Upon the liquidation,
dissolution or winding up of Centocor, holders of Centocor Common Stock are
entitled to receive all assets available for distribution to shareholders. The
Centocor Common Stock has no preemptive or other subscription rights (except as
described below), and there are no conversion rights or redemptive or sinking
fund provisions with respect to such shares.
Each outstanding share of Centocor Common Stock is, and each share of
Centocor Common Stock to be issued prior to the earliest of the Distribution
Date (as defined below), the date on which the Rights are redeemed and the
expiration of the Rights on September 26, 1998 will be, accompanied by one-half
of one right (a "Right") to purchase one one-hundredth of a share of Series A
Preferred Stock, in accordance with the terms and conditions of the Rights
Agreement (the "Rights Agreement"), dated as of September 26, 1988, between
Centocor and The First National Bank of Boston, as Rights Agent. The Rights are
attached to the certificates representing the Centocor Common Stock and will
continue to be so attached until the date (the "Distribution Date") which is
the earlier to occur of (i) ten days following a public announcement that a
person or group has acquired beneficial ownership of 20% or more of the
outstanding shares of Centocor Common Stock (an "Acquiring Person") or (ii) ten
business days following the commencement of a tender offer or exchange offer
that would, if consummated, result in a person or group owning 30% or more of
the outstanding shares of Centocor Common Stock. In the event a Distribution
Date occurs, each holder of a Right will be entitled to purchase one one-
hundredth of a share of Series A Preferred Stock at a price of $170 (the
"Rights Exercise Price"). If, following an acquisition of 20% or more of the
outstanding shares of Centocor Common Stock by an Acquiring Person, Centocor is
acquired by any person or group, or sells a majority of its assets or earning
power to any person or group, the holder of each Right will be entitled to
purchase, at the Rights Exercise Price, shares of common stock of such person
or group having a market value equal to twice the Rights Exercise Price. In
addition, if any person or group acquires 30% or more of the outstanding shares
of Centocor Common Stock or if an Acquiring Person merges into Centocor or
engages in certain self-dealing transactions, then the holder of each Right,
other than the Acquiring Person, will be entitled to purchase, at the Rights
Exercise Price, shares of Centocor Common Stock having a market value equal to
twice the Rights Exercise Price. The Rights will become exercisable only upon
the terms and conditions set forth in the Rights Agreement and may be redeemed
by Centocor at $.02 per Right at any time prior to the tenth day following a
public announcement that an Acquiring Person has acquired beneficial ownership
of 20% or more of the outstanding shares of Centocor Common Stock (which date
may be extended under certain conditions set forth in the Rights Agreement).
Until a Right is exercised, the holder thereof will have no additional rights
as a shareholder of Centocor. The Exchange Offer will not cause the Rights to
become exercisable.
Prior to the Distribution Date, the terms of the Rights Agreement may be
amended by the Board of Directors of Centocor without the approval of the
holders of Centocor Common Stock, including an amendment to lower the
thresholds for exercisability of the Rights to not less than the greater of (i)
the largest percentage of the outstanding shares of Centocor Common Stock then
known to Centocor to be beneficially owned by any person or group and (ii) 10%.
After the Distribution Date, the terms of the Rights Agreement may be amended
by the Board of Directors of Centocor without the approval of the holders of
the Rights, except that no such amendment may change the redemption price, the
final expiration date of The Rights Agreement, the Rights Exercise Price or the
number of the one-hundredths of a share of Series A Preferred
51
<PAGE>
Stock for which a Right is exercisable or otherwise adversely affect the
interest of the holders of the Rights (other than an Acquiring Person or an
affiliate or associate thereof).
The Rights and the Pennsylvania control share acquisition statute may have
certain anti-takeover effects. The Rights are designed to cause substantial
dilution to a person or group that attempts to acquire Centocor on terms not
approved by Centocor's Board of Directors. Centocor does not believe that the
Rights will interfere with any merger or other business combination approved by
its Board of Directors since the Rights or the Pennsylvania control share
acquisition statute may be redeemed by Centocor as described above. To the
extent the Rights or the Pennsylvania control share acquisition statute may
discourage potential acquirers from obtaining equity positions in Centocor,
shareholders may be deprived of receiving a premium for their shares of
Centocor Common Stock.
THE WARRANTS
In addition to one share of Tocor II Callable Common Stock, each Unit also
includes one Series T Warrant to Purchase One Share of Centocor Common Stock
and one Callable Warrant to Purchase One Share of Centocor Common Stock. In the
event that Centocor exercises the Purchase Option on or prior to December 31,
1995, the Callable Warrants will terminate. The Series T Warrants are not
subject to any such termination. The Callable Warrants will be exercisable at
any time from January 1, 1996 through December 31, 1997 and the Series T
Warrants will be exercisable at any time from January 1, 1994 through December
31, 1996, except as otherwise provided below. The exercise price of each Series
T Warrant is $64.50. The exercise price of each Callable Warrant will be equal
to 124% of the average of the closing sale prices of the Centocor Common Stock
for the 20 trading days immediately preceding the earlier of (i) January 1,
1996, (ii) the sale, lease, transfer or conveyance by Centocor of all or
substantially all of Centocor's property or assets or (iii) the termination
unexercised of the Purchase Option, provided that the exercise price shall not
be less than $49.75 (the exercise price of the Series T Warrants and the
exercise price of the Callable Warrant are referred to hereinafter together as
the "Exercise Prices").
The Series T Warrants will trade together with the Tocor II Callable Common
Stock and the Callable Warrants only as units until the earlier of (i) December
31, 1993, (ii) a change in control of Centocor or (iii) the date on which
Centocor's Purchase Option is exercised or terminates unexercised (the "First
Separation Date"). The Tocor II Callable Common Stock and the Callable Warrants
(if not previously purchased by Centocor or terminated, respectively) will
trade together as units through the earliest of (i) December 31, 1995, (ii) the
date of the sale, lease, transfer or conveyance by Centocor of all or
substantially all of its property or assets or the date of shareholder approval
if approval is required for such transaction or (iii) the date on which the
Purchase Option terminates unexercised (the "Second Separation Date").
In the event of (i) any reclassification of the Centocor Common Stock or
capital reorganization of Centocor, (ii) a merger, consolidation or other
business combination of Centocor with another entity, (iii) a sale, lease,
transfer or conveyance by Centocor of all or substantially all of its property
or assets or (iv) the announcement or commencement of a tender offer or
exchange offer for securities of Centocor pursuant to which the acquirer
thereof would beneficially own securities of Centocor representing 30% or more
of the aggregate voting power of Centocor, the First Separation Date would be
accelerated to the date of such event or the date of shareholder approval if
approval is required for such transaction (an "Acceleration Event") and the
Series T Warrants would then become exercisable and would remain exercisable
through December 31, 1996. In addition, on the thirtieth day after the
termination unexercised of the Purchase Option or on the date of the sale,
lease, transfer or conveyance by Centocor of all or substantially all of its
property or assets or the date of shareholder approval if approval is required
for such transaction, the Second Separation Date would be accelerated and the
Callable Warrants would become exercisable and would remain exercisable through
December 31, 1997.
The Exercise Prices or the number of shares of Centocor Common Stock issuable
upon exercise of each Series T Warrant and, after the Second Separation Date,
each Callable Warrant, will be appropriately adjusted in the event of stock
splits, stock combinations, stock dividends or certain special dividends. In
the
52
<PAGE>
event of an offering of rights, options, warrants or other securities
convertible into or exchangeable for Centocor Common Stock the exercise price
of which is below the then current market price of Centocor Common Stock, an
appropriate adjustment to the Exercise Prices or the number of shares of
Centocor Common Stock issuable upon exercise of the Series T Warrants and,
after the Second Separation Date, the Callable Warrants, will be made.
Fractional shares will not be issued upon exercise of the Warrants. In lieu
thereof, a cash adjustment based on the closing price of Centocor Common Stock
as reported on the Nasdaq National Market Systems (or as reported on a national
securities exchange, if applicable) on the date of exercise will be made.
In case of (i) any reclassification of the Centocor Common Stock or capital
reorganization of Centocor, (ii) any consolidation, merger or other business
combination of Centocor with another entity or (iii) any sale, lease or
transfer to another corporation of all or substantially all of the assets of
Centocor, the holder of each of the outstanding Warrants will have the right,
upon subsequent exercise of a Warrant, to purchase the kind and amount of
shares of stock or other securities and property receivable upon such
reclassification, capital reorganization, consolidation, merger, sale, lease or
transfer by a holder of the number of shares of Centocor Common Stock that
might have been received upon the exercise of such Warrant immediately prior
thereto. The Warrants do not confer upon the holder any voting or preemptive
rights, or any other rights as a shareholder of Centocor.
The Warrants may be exercised in whole or in increments of ten shares by the
surrender of the Warrants to the Warrant Agent and Registrar for the Warrants,
with the purchase form set forth on the back thereof duly executed, and
accompanied by cash or a certified or official bank check, payable to the order
of Centocor in the amount of the applicable Exercise Price multiplied by the
number of shares of Centocor Common Stock to be acquired pursuant to such
exercise. Before the First Separation Date, no Warrant may be divided or
combined, and no holder of a Unit may divide a Warrant or combine a Warrant
with other Warrants or transfer, exchange or assign a Warrant separately from
the Tocor II Callable Common Stock. After the First Separation Date, a holder
may divide a Series T Warrant or combine a Series T Warrant with other Series T
Warrants or transfer, exchange or assign such Series T Warrant separately from
the Tocor II Callable Common Stock and the Callable Warrants. Before the Second
Separation Date no Callable Warrant may be divided or combined, and no holder
of a Unit may divide a Callable Warrant or combine a Callable Warrant with
other Callable Warrants or transfer, exchange or assign a Callable Warrant
separately from the Tocor II Callable Common Stock. After the Second Separation
Date, a holder may divide a Callable Warrant or combine a Callable Warrant with
other Callable Warrants or transfer, exchange or assign such Callable Warrant
separately from the Tocor II Callable Common Stock.
At September 30, 1993, warrants to purchase 13,832,000 shares of Centocor
Common Stock were outstanding. The specific exercise prices per share and
exercise periods of such warrants are set forth below (in thousands except per
share amounts):
<TABLE>
<CAPTION>
SHARES ISSUABLE
UPON EXERCISE EXERCISE PERIOD EXERCISE PRICE PER SHARE
--------------- --------------- ------------------------
<C> <S> <C>
998 Through November 30, 1993........... $21.50
5,442 Through December 31, 1994........... $11.25
1,475 Through February 28, 1995........... $19.33
882 Through February 28, 1995........... $16.66
535 Through February 28, 1996........... $10.83*
January 1, 1994 through December 31,
2,250 1996................................ $64.50
January 1, 1996 through December 31,
2,250 1997................................ $49.75**
</TABLE>
- --------
* The exercise price increases by $2.50 per share for the last two years of
the exercise period.
** These warrants are callable and the exercise price may vary as described
above.
53
<PAGE>
TOCOR II CALLABLE COMMON STOCK
The following is a brief description of the rights pertaining to shares of
Tocor II Callable Common Stock. This description does not purport to be
complete and is qualified in its entirety by reference to the full Amended and
Restated Memorandum of Association and Amended and Restated Articles of
Association of Tocor II. Differences between the corporation laws of
Pennsylvania and the British Virgin Islands will result in several changes in
the rights of former holders of Tocor II Callable Common Stock. The following
also summarizes certain key differences between Pennsylvania and British Virgin
Islands law which may significantly affect the rights that holders of Tocor II
Callable Common Stock presently have under British Virgin Islands law.
The Tocor II Callable Common Stock is subject to the Purchase Option
Agreement and bears a legend to that effect. If Centocor elected to acquire all
of the shares of Tocor II Callable Common Stock by exercising its option under
the Purchase Option Agreement, the consideration received by each holder of
Tocor II Callable Common Stock would exceed the consideration expected to be
received by each such holder in exchange for each such share in this Exchange
Offer. See "The Agreements--The Purchase Option Agreement." However, there can
be no assurance that Centocor will exercise its Purchase Option if the Exchange
Offer is not consummated for any reason. Centocor will exercise its Purchase
Option only if it perceives such exercise to be in its best interest.
Tocor II is authorized to issue 3,000,000 shares of Tocor II Callable Common
Stock, par value $1.00 per share. Under BVI law, nonresidents of BVI may freely
hold, vote and transfer their shares of Tocor II Callable Common Stock in the
same manner as BVI residents.
Holders of shares of Tocor II Callable Common Stock are entitled to
participate in the receipt of dividends in proportion to their holdings. The
Board of Directors may declare and pay dividends, but they may only be declared
and paid out of surplus. Dividends may be paid in cash, shares or other
property. Under Pennsylvania corporate law, dividends may be declared and paid
unless, after giving effect thereto, the payor corporation would be unable to
pay its debts as they become due in the usual course of its business or its
total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the
time at which the distribution is measured, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights, if any, are
superior to those receiving the distribution. Based upon the latter condition,
Centocor may currently be unable to pay dividends on its Common Stock. Until
the termination of the Purchase Option Agreement, Tocor II may not declare or
pay dividends utilizing funds committed to be paid to Centocor under the
Development Agreement without the consent of Centocor. See "The Agreements--The
Development Agreement."
Every shareholder who is present in person or by proxy at a meeting of the
shareholders of Tocor II shall have one vote for each share of Tocor II
Callable Common Stock of which he or she is the holder. The Amended and
Restated Articles of Association of Tocor II make no provision for cumulative
voting in the election of directors. The Articles of Incorporation of Centocor
provide for cumulative voting in the election of directors. See "--Centocor
Capital Stock."
The Amended and Restated Articles of Association of Tocor II provide that
there shall be at least one but not more than 20 directors. Directors are
appointed by resolution passed at meetings of shareholders of Tocor II, and
each director elected holds office for the term, if any, fixed by resolution of
the shareholders or until his or her earlier death, resignation or removal.
Vacancies may be filled by action of the remaining Directors. The By-Laws of
Centocor provide that the number of directors of Centocor shall be no more than
eleven or less than five, and directors shall be appointed and vacancies shall
be filled in substantially the same manner as that provided by BVI law.
The quorum required to constitute a valid meeting of shareholders consists of
shareholders, present at the commencement of a meeting in person or by proxy,
holding at least 50% of the votes of all outstanding
54
<PAGE>
shares of Tocor II Callable Common Stock. If a meeting is adjourned for lack of
quorum, it will stand adjourned to such other time and place as the
shareholders present thereat shall determine. Pennsylvania law contains similar
provisions with respect to these matters, except that Pennsylvania law requires
a majority of the votes of all outstanding shares to constitute a quorum.
Resolutions approved at meetings of shareholders of Centocor and Tocor II
require the affirmative vote of a majority of the votes cast. Resolutions
adopted by written consent of Tocor II's shareholders require the consent of a
majority of the votes eligible to be cast. Resolutions adopted by written
consent of Centocor's shareholders require the consent of all of the
shareholders who would be entitled to vote.
Holders of shares of Tocor II Callable Common Stock are entitled to
participate in proportion to their holdings in any distribution of assets after
satisfaction of liabilities to creditors in a winding-up. Holders of Centocor
Common Stock are similarly entitled.
Tocor II's Amended and Restated Memorandum of Association and Amended and
Restated Articles of Association do not in any way restrict the transferability
of shares of Tocor II Callable Common Stock. However, the Tocor II Callable
Common Stock may only be transferred together with the Warrants during certain
periods. See "--The Warrants."
Under Tocor II's Amended and Restated Articles of Association, the Board of
Directors is authorized to exercise the power of Tocor II to issue all of the
remaining unissued shares of Tocor II Callable Common Stock. Such unissued
shares of Tocor II Callable Common Stock may only be issued on terms that
provide that the shares are fully paid or credited as fully paid. Subject to
this, however, the Board of Directors may without further shareholder action
issue any of such unissued shares of Tocor II Callable Common Stock with such
preferred, deferred or special rights or subject to such restrictions as the
Board of Directors may determine. The Board of Directors also has the authority
to fix the dividend rights and rates, voting rights, redemption provisions and
liquidation preferences, all of which may take precedence over comparable
rights of the existing shares of Tocor II Callable Common Stock. No shares of
Tocor II capital stock may be issued without Centocor's consent.
BVI law provides for mergers and consolidations. BVI law also provides for
compulsory acquisition or appraisal of the interests of a shareholder who
objects to the transfer of the ownership of assets or the merger or
consolidation of a company. See "The Exchange Offer--Dissenters' Rights." Under
Pennsylvania law, holders of Centocor Common Stock generally are not entitled
to appraisal rights in a transaction involving the transfer of the ownership or
assets or the merger or consolidation of Centocor.
Under Pennsylvania law, majority and controlling shareholders generally have
certain fiduciary responsibilities to the minority shareholders. Majority
shareholder action generally must be taken in good faith and actions by
controlling shareholders which are obviously unreasonable may be declared null
and void. The BVI law protecting the interest of minority shareholders may not
be as protective in all circumstances as the law protecting minority
shareholders in Pennsylvania.
While BVI law permits a shareholder of a BVI company in certain circumstances
to sue its directors derivatively (i.e., in the name of and for the benefit of
Tocor II) and to sue Centocor and its directors for his or her benefit and the
benefit of other similarly situated shareholders, the circumstances in which
any such action may be brought, and the procedures and defenses that may be
available in respect to any such action, may be more limited than those
applicable to a Pennsylvania company.
Under BVI law, majority shareholders are permitted to ratify corporate action
unless the action is ultra vires or illegal, unless the ratification
constitutes a fraud against the minority and the wrongdoers are in control, or
unless the resolution requires a qualified majority. This power of a majority
of the shareholders to ratify corporate action is probably broader than the
comparable authorities of directors, director committees or shareholders in
Pennsylvania. Because of this power of a majority of the shareholders to ratify
corporate
55
<PAGE>
action, the right of an individual shareholder to bring an action for the
benefit of a BVI corporation against the officers and/or directors of the BVI
corporation may be more limited than comparable shareholder rights in
Pennsylvania.
Under the International Business Companies Ordinance of the BVI, the
directors of a BVI corporation may effect a transfer by Tocor II of all or part
of its assets either in trust to a trustee or to another legal entity for the
benefit of Tocor II, its shareholders and creditors, in accordance with their
respective interests immediately prior to such transfer, provided that the
rights and interests of creditors, whether existing at the time of the transfer
or subsequent thereto, are not affected by any such transfer. Pennsylvania law
generally would require that such transfers be approved by shareholders.
Pursuant to the terms of a note (the "Class A Note") in the principal amount
of $100,000 and bearing interest at a rate of 7% per annum issued by Tocor II
to Centocor and the Amended and Restated Memorandum of Association of Tocor II,
Tocor II and its shareholders will be prohibited from taking any action or
permitting any action to be taken that is inconsistent with Centocor's rights
under the Purchase Option Agreement. While such note is outstanding, Centocor
will have the right to elect the maximum number of directors constituting a
minority of the members of Tocor II's Board of Directors. Such note shall
become due on the day following the termination of the Purchase Option
Agreement and may not be prepaid. In addition, until the termination of the
Purchase Option Agreement, Tocor II will not be able to issue additional
capital stock, borrow more than $1,000,000 in the aggregate, declare or pay
dividends out of funds required to be paid to Centocor under the Development
Agreement, merge, liquidate or sell all or substantially all of its assets
without the approval of Centocor as the holder of the Class A Note of Tocor II.
VALIDITY OF THE CENTOCOR COMMON STOCK
The validity of the Centocor Common Stock offered hereby will be passed upon
for Centocor by George D. Hobbs, Vice President, Corporate Counsel and
Secretary of Centocor.
EXPERTS
The consolidated financial statements of Centocor, Inc. and subsidiaries as
of December 31, 1992 and 1991 and for each of the years in the three-year
period ended December 31, 1992, incorporated by reference in this Prospectus,
have been incorporated by reference herein in reliance on the report of KPMG
Peat Marwick, independent certified public accountants, incorporated by
reference herein, given on the authority of that firm as experts in accounting
and auditing.
The financial statements of Tocor II as of December 31, 1992 and for the
period January 21, 1992 to December 31, 1992 are included herein in reliance on
the report of KPMG Peat Marwick, independent certified public accountants,
included herein, given on the authority of that firm as experts in accounting
and auditing.
The financial statements of CPIII as of December 31, 1992 and 1991 and for
each of the years in the three-year period ended December 31, 1992 are
incorporated herein by reference in reliance on the report of KPMG Peat
Marwick, independent certified public accountants, incorporated by reference
herein, given on the authority of that firm as experts in accounting and
auditing. The report of KPMG Peat Marwick covering the financial statements of
CPIII contains an explanatory paragraph that states that the continuation of
the product research programs by CPIII is dependent upon the general partner
continuing to provide and/or the ability of CPIII to obtain funding from
another source.
56
<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,
1993..................................................................... 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>
ANNEX A
FAIRNESS OPINION OF HAMBRECHT & QUIST INCORPORATED
December 10, 1993
The Special Committee of The Board of Directors
Tocor II, Inc.
Todman Building
Main Street
Road Town, Tortola
British Virgin Islands
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of callable common stock, par
value $1.00 per share ("Common Stock"), of Tocor II, Inc. ("Tocor II" or the
"Company") of the consideration to be received by such holders in the proposed
offer (the "Offer") by Centocor, Inc. ("Centocor") to exchange the outstanding
units of Tocor II (the "units") for shares of Centocor common stock, par value
$0.01 per share ("Centocor Common Stock"). As of the date hereof, all the
outstanding Common Stock is owned as part of a Unit, each of which consists of
(i) one share of Common Stock, (ii) one Series T Warrant to purchase one share
of Centocor Common Stock and (iii) one callable warrant to purchase one share
of Centocor Common Stock. The Offer provides, among other things, that Centocor
will file with the Securities and Exchange Commission and commence an exchange
offer to acquire any and all of the outstanding Units tendered to Centocor in
exchange for that number of newly issued shares of Centocor Common Stock
derived by dividing (a) $40.00 by (b) the average of the last sale prices of
Centocor Common Stock reported by the NASDAQ National Market System over the
thirty trading days immediately preceding the fifth trading day prior to the
expiration date of the Offer (such fraction deemed the "Exchange Ration");
provided however, that the Exchange Ratio shall not be greater than 3.20 shares
of Centocor Common Stock per Unit nor less than 2.73 shares of Centocor Common
Stock per Unit.
Hambrecht & Quist Incorporated ("Hambrecht & Quist"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
corporate restructurings, strategic alliances, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. We have acted as financial
advisor to the Special Committee of the Board of Directors of Tocor II in
connection with the Offer and will receive a fee for our services, including
the rendering of this opinion. None of our fee is contingent on the success or
failure of the Offer.
We are familiar with Tocor II, having acted as a managing underwriter of the
Units in 1992. In addition, a Managing Director of Hambrecht & Quist has served
as director of the Company since September 1992. We are also familiar with
Centocor, having acted as a managing underwriter of Centocor Common Stock in
1982, 1986 and 1990 and of 7.25% Convertible Subordinated Notes in 1991. In
addition, we acted as a managing underwriter of Units of Tocor, Inc. (an
affiliate of Centocor otherwise unrelated to the Company) in 1989. In the
ordinary course of business, Hambracht & Quist acts as a market maker and
broker in the publicly traded securities of the Company and Centocor and
receives customary compensation in connection therewith, and also provides
research coverage for the Company and Centocor. In the ordinary course of
business, Hambrecht & Quist actively trades in the equity and derivative
securities of the Company and Centocor for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities. Hambrecht & Quist may in the future provide
additional investment banking or other financial advisory services to Centocor.
A-1
<PAGE>
In connection with our review of the Offer, and in arriving at our opinion,
we have, among other things:
(i) reviewed the publicly available financial statements of the Company
for recent years and interim periods to date and certain other relevant
financial and operating data of the Company made available to us from the
internal records of the Company;
(ii) discussed with certain members of the managements of the Company and
Centocor the business, financial condition and prospects of the Company;
(iii) reviewed the publicly available consolidated financial statements
of Centocor for recent years and interim periods to date and certain other
relevant financial and operating data of Centocor made available to us from
published sources and the internal records of Centocor;
(iv) reviewed certain financial and operating information, including
certain projections provided by the management of Centocor and discussed
such projections with certain members of the management of Centocor;
(v) reviewed the recent reported prices and trading activity for the
Common Stock and the Centocor Common Stock and compared such information
and certain financial information of the Company and Centocor with similar
information for certain other companies engaged in businesses we consider
comparable to those of the Company or Centocor;
(vi) reviewed the terms, to the extent publicly available, of certain
comparable acquisition transactions;
(vii) reviewed drafts of the Prospectus, the Letter of Transmittal and
certain other materials to be filed with the Securities and Exchange
Commission in connection with the Offer; and
(viii) performed such other analysis and examinations and considered such
other information, financial studies, analysis and investigations and
financial, economic and market data as we deemed relevant.
We have not independently verified any of the information concerning the
Company or Centocor considered in connection with our review of the Offer and,
for purposes of the opinion set forth herein, we have assumed and relied upon
the accuracy and completeness of all such information. We have not prepared or
obtained any independent evaluation of appraisal of any of the assets or
liabilities of the Company or Centocor, nor have we conducted a physical
inspection of the properties and facilities of the Company or Centocor. With
respect to the financial forecasts and projections made available to us and
used in our analyses, we have assumed that they reflect the best currently
available estimates and judgements of the expected future financial performance
of Centocor. We have assumed that neither the Company nor Centocor is a party
to any pending transactions, including external financings, recapitalizations
or merger discussions, other than the Offer and those in the ordinary course of
conducting their respective businesses or disclosed in the Prospectus. Our
opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this letter and
any change in such conditions would require a reevaluation of this opinion.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in exchange
for the Units as set forth in the Offer is fair to the holders of the Common
Stock from a financial point of view. We express no opinion, however, as to the
adequacy of any consideration received in the Offer by Centocor or its
affiliates or any holder of Common Stock that does not participate in the
Offer.
Very truly yours,
Hambrecht & Quist Incorporated
A-2
<PAGE>
CENTOCOR, INC.
EXCHANGE OFFER TO HOLDERS OF UNITS, EACH UNIT CONSISTING OF ONE SHARE OF
CALLABLE COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT TO PURCHASE ONE
SHARE OF CENTOCOR, INC. COMMON STOCK AND ONE CALLABLE WARRANT TO PURCHASE ONE
SHARE OF CENTOCOR, INC. COMMON STOCK
----------------
Questions and requests for assistance or for additional copies of this
Prospectus and the Letter of Transmittal may be directed to Centocor, Inc. at
its address set forth on page 23 of this Prospectus or to D.F. King & Co. at
its address set forth below. You may also contact your broker, dealer,
commercial bank, trust company or nominee for assistance with the Offer.
----------------
THE INFORMATION AGENT IS:
D. F. KING & CO.
77 WATER STREET
NEW YORK, NY 10005
OR
CALL TOLL-FREE: (800) 669-5550
----------------
To be properly tendered pursuant to the Exchange Offer, Units, together with
a properly completed and executed Letter of Transmittal and any other documents
required by the Letter of Transmittal, must be received by the Depositary at
its address set forth below prior to the Expiration Date.
THE DEPOSITARY IS:
THE FIRST NATIONAL BANK OF BOSTON
BLUE HILLS OFFICE PARK
150 ROYALL STREET
CANTON, MA 02021
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 5 of Centocor's By-laws provides as follows:
"INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
5.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The Corporation
shall indemnify any director or officer of the Corporation or any of its
subsidiaries who was or is an "authorized representative" of the Corporation
(which shall mean, for the purposes of Paragraphs 5.1 through 5.7, a director
or officer of the Corporation, or a person serving at the request of the
Corporation as a director, officer, partner, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and who was or is a "party" (which shall include for purposes of
Paragraphs 5.1 through 5.7 the giving of testimony or similar involvement) or
is threatened to be made a party to any "proceeding" (which shall mean for
purposes of Paragraphs 5.1 through 5.7 any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal, and
whether brought by or in the right of the Corporation, its shareholders or
otherwise) by reason of the fact that such person was or is an authorized
representative of the Corporation to the fullest extent permitted by law,
including without limitation indemnification against expenses (which shall
include for purposes of Paragraphs 5.1 through 5.7 attorneys' fees and
disbursements), damages, punitive damages, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such proceeding unless the act or failure to act giving rise to
the claim is finally determined by a court to have constituted willful
misconduct or recklessness. If an authorized representative is not entitled to
indemnification in respect of a portion of any liabilities to which such person
may be subject, the Corporation shall nonetheless indemnify such person to the
maximum extent for the remaining portion of the liabilities.
5.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably incurred
in defending a proceeding on behalf of any person entitled to indemnification
under Paragraph 5.1 in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in Paragraphs 5.1 through 5.7 and
may pay such expenses in advance on behalf of any employee or agent on receipt
of a similar undertaking. The financial ability of such authorized
representative to make such repayment shall not be prerequisite to the making
of an advance.
5.3 EMPLOYEE BENEFIT PLANS. For purposes of Paragraphs 5.1 through 5.7, the
Corporation shall be deemed to have requested an officer or director to serve
as fiduciary with respect to an employee benefit plan where the performance by
such person of duties to the Corporation also imposes duties on, or otherwise
involved services by, such person as a fiduciary with respect to the plan;
excise taxes assessed on an authorized representative with respect to any
transaction with an employee benefit plan shall be deemed "fines"; and action
taken or omitted by such person with respect to an employee benefit plan in the
performance of duties for a purpose reasonably believed to be in the interest
of the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Corporation.
5.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect, satisfy or
secure the indemnification obligations provided herein or otherwise, the
Corporation may maintain insurance, obtain a letter of credit, act as self-
insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the Corporation, or use any other
mechanism or arrangement whatsoever in such, amounts, at such costs, and upon
such other terms and conditions as the Board of Directors shall deem
appropriate.
II-1
<PAGE>
5.5 RELIANCE UPON PROVISIONS. Each person who shall act as an authorized
representative of the Corporation shall be deemed to be doing so in reliance
upon the rights of indemnification provided by these Paragraphs 5.1 through
5.7.
5.6 AMENDMENT OR REPEAL. All rights of indemnification under Paragraphs 5.1
through 5.7 shall be deemed a contract between the Corporation and the person
entitled to indemnification under these Paragraphs 5.1 through 5.7 pursuant to
which the Corporation and each such person intend to be legally bound. Any
repeal, amendment or modification hereof shall be prospective only and shall
not limit, but may expand, any rights or obligations in respect of any
proceeding whether commenced prior to or after such change to the extent such
proceeding pertains to actions or failures to act occurring prior to such
change.
5.7 SCOPE. The indemnification, as authorized by these Paragraphs 5.1 through
5.7, shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in an official capacity and as to action in any other capacity
while holding such office. The indemnification and advancement of expenses
provided by, or granted pursuant to, these Paragraphs 5.1 through 5.7 shall
continue as to a person who has ceased to be an officer or director in respect
of matters arising prior to such time, and shall inure to the benefit of the
heirs, executors and administrators of such person."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
4.1 Specimen of Common Stock Certificate of Centocor (incorporated by
reference to Exhibit 4 to Amendment No. 1 to Form S-1 Registration
Statement of Centocor, Reg. No. 2-80098)
4.2 Rights Agreement between Centocor, Inc. and the First National Bank of
Boston as Rights Agent dated September 26, 1988 (incorporated by
reference to Exhibit 4 to Registrant's Current Report on Form 10-K for
the year ended September 26, 1988).
4.3 Form of Indenture between Centocor, Inc. and CoreStates Bank, N.A. as
Trustee Dated as of January 18, 1991 (incorporated by reference to
Exhibit 4.3 to Amendment No. 1 to Form S-3 Registration Statement, Reg.
No 33-38110).
4.4 Form of Note Issued to Purchasers of 7 1/4% Convertible Subordinated
Notes Due February 1, 2001 (incorporated by reference to Exhibit 4.4 to
Amendment No. 1 to Form S-3 Registration Statement, Reg. No. 33-38110).
4.5 Form of Indenture between Centocor, Inc. and Chase Manhattan Trustees
Limited as Trustee Dated as of October 16, 1991 (incorporated by
reference to Exhibit 4.3 to Form S-3 Registration Statement, Reg. No.
33-44231).
4.6 Form of Debenture Issued to Purchasers of 6 3/4% Convertible
Subordinated Debentures Due October 16, 2001 (included in Exhibit 4.5)
(incorporated by reference to Exhibit 4.3 to Form S-3 Registration
Statement, Reg. No. 33-44231).
5.1 Opinion of George D. Hobbs as to legality of securities being
registered, including consent
23.1 Consent of George D. Hobbs (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick re Tocor II Financial Statements
23.3 Consent of KPMG Peat Marwick re Centocor Financial Statements
23.4 Consent of KPMG Peat Marwick re CPIII Financial Statements
24.1 Power of Attorney (included on the Signature Pages)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
99.3 Form of Guidelines For Certification of Taxpayer Identification Number
on Substitute Form W-9
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees
99.5 Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees to their Clients
</TABLE>
(b) Financial Statement Schedules
I. Tocor II, Inc. Marketable Securities--Other Investments as of December
31, 1992
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
D. The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph C. immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
E. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
F. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
G. The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and Centocor
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
H. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CENTOCOR, INC.
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE BOROUGH OF MALVERN, COMMONWEALTH
OF PENNSYLVANIA ON JANUARY 21, 1994.
Centocor, Inc.
/s/ Hubert J. P. Schoemaker
By: _________________________________
HUBERT J. P. SCHOEMAKER
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS, HUBERT J. P. SCHOEMAKER, AND DOMINIC J. CARUSO
AND EACH OF THEM, AS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION STATEMENT, AND TO FILE THE SAME
WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT
AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND
THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO
ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE(S) INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Hubert J. P. Schoemaker* Chairman of the January 21,
- ------------------------------------- Board 1994
HUBERT J. P. SCHOEMAKER
/s/ David P. Holveck* President and Chief January 21,
- ------------------------------------- Executive Officer 1994
DAVID P. HOLVECK (Principal
Executive Officer)
/s/ Dominic J. Caruso Vice President, January 21,
- ------------------------------------- Corporate 1994
DOMINIC J. CARUSO Controller and
Chief Accounting
Officer (Principal
Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Anthony B. Evnin* Director January 21,
- ------------------------------------- 1994
ANTHONY B. EVNIN
/s/ William F. Hamilton* Director January 21,
- ------------------------------------- 1994
WILLIAM F. HAMILTON
/s/ Antonie T. Knoppers* Director January 21,
- ------------------------------------- 1994
ANTONIE T. KNOPPERS
/s/ Lawrence Steinman* Director January 21,
- ------------------------------------- 1994
LAWRENCE STEINMAN
/s/ Jean C. Tempel* Director January 21,
- ------------------------------------- 1994
JEAN C. TEMPEL
* By Dominic J. Caruso, as attorney-in-fact
</TABLE>
II-6
<PAGE>
TOCOR II, INC.
INDEX TO FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. Tocor II, Inc. Marketable Securities--Other Investments as of December
31, 1992................................................................. S-2
</TABLE>
S-1
<PAGE>
TOCOR II, INC.
MARKETABLE SECURITIES--OTHER INVESTMENTS
DECEMBER 31, 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR AMOUNT
PRINCIPAL MARKET CARRIED ON
DESCRIPTION AMOUNT VALUE COST BALANCE SHEET
----------- --------- ------- ------- -------------
<S> <C> <C> <C> <C>
Short-term investments
U.S. Government obligations........... $63,420 $63,786 $63,544 $63,544
------- ------- ------- -------
$63,786 $63,544 $63,544
======= ======= =======
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
5.1 Opinion of George D. Hobbs as to legality of securities
being registered, including consent
23.1 Consent of George D. Hobbs (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick re Tocor II Financial
Statements
23.3 Consent of KPMG Peat Marwick re Centocor Financial
Statements
23.4 Consent of KPMG Peat Marwick re CPIII Financial
Statements
24.1 Power of Attorney (included on the Signature Pages)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Guidelines For Certification of Taxpayer
Identification Number on Substitute Form W-9
99.4 Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
99.5 Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees to their Clients
</TABLE>
<PAGE>
EXHIBIT 5.1
December 10, 1993
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Re: Offer by Centocor, Inc. to exchange $40, payable in shares of Centocor,
Inc. common stock, for each unit (a "Unit"), each unit consisting of
one share of Tocor II, Inc. 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 "Exchange Offer")
Gentlemen:
I have acted as Vice President, Corporate Counsel and Secretary of Centocor,
Inc. (the "Company") in connection with the proposed issuance of a maximum of
7,200,000 shares (the "Shares") to holders of Units in connection with the
Exchange Offer.
The opinion expressed below is based on the assumption that the Registration
Statement relating to the shares filed with the Securities and Exchange
Commission on December 10, 1993 will become effective.
In that connection, I have examined originals, or copies certified or
otherwise identified to my satisfaction, or such documents, corporate records
and other instruments as I have deemed necessary for the purposes of this
opinion.
For purposes of this opinion, I have assumed the authenticity of all
documents submitted to me as originals, the conformity to the originals of all
documents submitted to me as copies, and the authenticity of the originals of
all documents submitted to me as copies. I have also assumed the genuineness of
the signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Company, and the due authorization, execution
and delivery of all documents by the parties thereto other than the Company.
Based on the foregoing, I am of the opinion that the shares have been duly
authorized and, when issued and delivered upon consummation of the Exchange
Offer, will be legally issued, fully paid and nonassessable.
I consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to me under the heading "Validity of the
Centocor Common Stock" in the Prospectus included in the Registration
Statement.
Very truly yours,
GEORGE D. HOBBS
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tocor II, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick
Tortola, British Virgin Islands
January 21, 1994
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Centocor, Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick
Philadelphia, Pennsylvania
January 21, 1994
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners of Centocor
Partners III, L.P.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
Our report dated March 24, 1993, contains an explanatory paragraph that
states that the continuation of the product research programs by the
Partnership is dependent upon the general partner continuing to provide funding
and/or the ability of the Partnership to obtain funding from another source.
KPMG Peat Marwick
Philadelphia, Pennsylvania
January 21, 1994
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER UNITS
(EACH UNIT CONSISTING OF ONE SHARE OF CALLABLE
COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT TO PURCHASE
ONE SHARE OF CENTOCOR, INC. COMMON STOCK AND ONE
CALLABLE WARRANT TO PURCHASE ONE SHARE OF
CENTOCOR, INC. COMMON STOCK)
IN EXCHANGE FOR SHARES OF COMMON STOCK
OF
CENTOCOR, INC.
PURSUANT TO PROSPECTUS
DATED , 199
THE OFFER AND WITHDRAWAL
RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON [DAY], , 199 , UNLESS THE OFFER IS EXTENDED.
To: The First National Bank of Boston, Depositary
By Mail: By Facsimile Transmission: By Hand
The First National Bank 617-575-2232 The First National Bank
of Boston of Boston
Blue Hills Office Park or Blue Hills Office Park
150 Royall Street 617-575-2233 150 Royall Street
Canton, MA 02021 Canton, MA 02021
Mail Stop 45-02-05 Mail Stop 45-02-05
Delivery of this instrument to an address, or transmission of instructions
via a facsimile number, other than as set forth above does not constitute a
valid delivery.
Each Unit (as defined below) may be tendered only as a complete Unit (each
unit consisting of one share of Callable Common Stock of Tocor II, Inc., one
Series T Warrant to Purchase One Share of Centocor, Inc. Common Stock and one
Callable Warrant to Purchase One Share of Centocor, Inc. Common Stock).
Unitholders who cannot deliver their Units and all other documents required
hereby to the Depositary by the Expiration Date (as defined in the Prospectus)
must tender their Units pursuant to the guaranteed delivery procedure set forth
in the Prospectus of Centocor, Inc. dated , 199 (the "Prospectus") under
the caption "The Exchange Offer--Terms of the Exchange Offer--Procedure for
Late Delivery of Tendered Units". See Instruction 2.
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) UNITS TENDERED
OF REGISTERED HOLDER(S) (ATTACH ADDITIONAL
(PLEASE FILL IN, IF BLANK) LIST IF NECESSARY)
- --------------------------------------------------------------------------------
TOTAL NUMBER
OF UNITS NUMBER OF
CERTIFICATE REPRESENTED BY UNITS
NUMBER(S) CERTIFICATE(S) TENDERED*
------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Total Units
</TABLE>
- --------------------------------------------------------------------------------
* Unless otherwise indicated, it will be assumed that all Units represented
by any certificates delivered to the Depositary are being tendered. See
Instruction 4.
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED UNITS ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Unitholder(s) ________________________________
Date of Execution of Notice of Guaranteed Delivery ________________
Name of Institution which Guaranteed Delivery _____________________
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
The undersigned hereby tenders to Centocor, Inc., a Pennsylvania corporation
(the "Purchaser"), the above-described units (each unit consisting of one share
of Callable Common Stock of Tocor II, Inc., a British Virgin Islands
corporation (the "Company"), one Series T Warrant to Purchase One Share of
Centocor, Inc. Common Stock and one Callable Warrant to Purchase One Share of
Centocor, Inc. Common Stock) (the "Units"), upon the terms and subject to the
conditions set forth in the Purchaser's Prospectus dated , 199 , receipt
of which is hereby acknowledged, and in this Letter of Transmittal (which
together constitute the "Offer"). The Purchaser reserves the right to transfer
or assign, in whole or from time to time in part, to one or more of its
affiliates the right to purchase Units tendered pursuant to the Offer.
Upon the terms of the Offer, subject to and effective upon acceptance for
exchange and exchange of the Units tendered herewith, the undersigned hereby
sells, assigns and transfers to or upon the order of the Purchaser all right,
title and interest in and to all the Units that are being tendered hereby (and
any and all other securities issued or issuable in respect thereof on or after
, 199 ) and irrevocably constitutes and appoints the Depositary the true
and lawful agent and attorney-in-fact of the undersigned with respect to such
Units (and all such other securities), with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for such Units (and all such other
securities), together with all accompanying evidences of transfer and
authenticity, to or upon the order of the Purchaser, (b) present such Units
(and all such other securities) for transfer on the books of the Company and
(c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Units (and all such other securities), all in accordance with
the terms of the Offer.
The undersigned hereby irrevocably appoints , and and each
of them and any other designees of the Purchaser, the attorneys and proxies of
the undersigned, each with full power of substitution, to exercise all voting
and other rights of the undersigned in such manner as each such attorney and
proxy or his substitute shall in his sole discretion deem proper, with respect
to all of the Units tendered hereby that have been accepted for exchange by the
Purchaser prior to the time of any vote or other action (and any and all other
securities issued or issuable in respect thereof on or after , 199 ), at
any meeting of stockholders of the Company (whether annual or special and
whether or not an adjourned meeting), by written consent or otherwise. This
proxy is irrevocable and is granted in consideration of, and is effective upon,
the acceptance for exchange of such Units by the Purchaser in accordance with
the terms of the Offer.
Such acceptance for exchange shall, without further action, revoke any other
proxy or written consent granted by the undersigned at any time with respect to
such Units (and all such other securities), and no subsequent proxies will be
given or written consents will be executed by the undersigned (and if given or
executed, will not be deemed to be effective).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Units tendered
hereby (and any and all other securities issued or issuable in respect thereof
on or after , 199 ) and that when the same are accepted for exchange by
the Purchaser, the Purchaser will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claims. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Depositary or the Purchaser to
be necessary or desirable to complete the sale, assignment and transfer of the
Units tendered hereby (and all such other securities).
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal
<PAGE>
representatives, successors and assigns of the undersigned. Except as stated in
the Offer, this tender is irrevocable.
The undersigned understands that tenders of Units pursuant to the procedure
described in the Prospectus under the caption "The Exchange Offer--Terms of the
Exchange Offer--Procedure for Tendering Units" and in the instructions hereto
will constitute an agreement between the undersigned and the Purchaser upon the
terms and subject to the conditions of the Offer, including the tendering
holder's representation and warranty that (a) such holder owns the Units
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (b) the tender of such Units complies
with Rule 14e-4.
Unless otherwise indicated under "Special Payment Instructions", please issue
shares of Centocor, Inc. Common Stock to be issued in exchange for Units
accepted for exchange, and return any Units not tendered or not exchanged, in
the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions", please mail such shares of Centocor, Inc.
Common Stock to be issued in exchange for Units accepted for exchange, and any
certificates for Units not tendered or not exchanged (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature(s). In the event that both "Special Payment
Instructions" and "Special Delivery Instructions" are completed, please issue
such shares of Centocor, Inc. Common Stock to be issued in exchange for Units
accepted for exchange, and return any Units not tendered or not exchanged in
the name(s) of, and mail said shares and any certificates to, the person(s) so
indicated. The undersigned recognizes that the Purchaser has no obligation,
pursuant to the "Special Payment Instructions", to transfer any Units from the
name of the registered holder(s) thereof if the Purchaser does not accept for
payment any of the Units so tendered.
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7) (SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if shares of To be completed ONLY if shares of
Centocor, Inc. Common Stock or Centocor, Inc. Common Stock or
certificates for Units not certificates for Units not
tendered or not purchased are to tendered or not purchased are to
be issued in the name of someone be mailed to someone other than
other than the undersigned. the undersigned or to the
undersigned at an address other
than that shown below the
Issue [_] shares of Centocor, Inc. undersigned's signature(s).
Common Stock
[_] certificates for Units to: Mail [_] shares of Centocor, Inc.
Common Stock
[_] certificates for Units to:
Name ..............................
(Please Print) Name ..............................
(Please Print)
Address ...........................
Address ...........................
...................................
(Zip Code)
...................................
(Zip Code)
...................................
(Taxpayer Identification No.)
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
...............................................................
...............................................................
Signature(s) of Owner(s)
Dated ..................................................., 199
Name(s)........................................................
...............................................................
(Please Print)
Capacity (full title)..........................................
Address........................................................
...............................................................
(Include Zip Code)
Area Code and Telephone No. ...................................
(Must be signed by registered holder(s) exactly as name(s)
appear(s) on certificate(s) for Units or on a security
position listing or by person(s) authorized to become
registered holder(s) by certificates and documents transmitted
herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or
representative capacity, please set forth full title and see
Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm...................................................
Authorized Signature...........................................
Dated ..................................................., 199
<PAGE>
PAYER'S NAME: THE FIRST NATIONAL BANK OF BOSTON
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Name(s) as shown above on certificate(s) for Units (if joint ownership, list
first and circle the name of the person or entity whose number you enter in
Part I below).
- -------------------------------------------------------------------------------
Address (if holder does not complete, signature in Part I below will
constitute a certification that the address on the reverse hereof is
correct).
- -------------------------------------------------------------------------------
City, State, and Zip Code
- -------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR Social security number
TIN IN THE BOX AT RIGHT AND or Employer
CERTIFY BY SIGNING AND identification number
DATING BELOW.
SUBSTITUTE ----------------------
FORM W-9 --------------------------------------------------------
DEPARTMENT OF PART 2--Awaiting TIN [_]
THE TREASURY
INTERNAL For Payees exemt from backup withholding, see the
REVENUE enclosed Guidelines for Certification of Taxpayer
SERVICE Identification Number on Substitute Form W-9 and
Instruction 8 of this Letter of Transmittal.
--------------------------------------------------------
Certification--Under Penalties of Perjury, I certify
that:
PAYER'S REQUEST FOR (1) The number shown on this form is my correct
TAXPAYER Taxpayer Identification Number (or I am waiting
IDENTIFICATION for a number to be issued to me), and
NUMBER (TIN)
(2) I am not subject to backup withholding either
because (a) I am exempt from backup withholding,
(b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item
(2) above if you have been notified by the IRS that
you are subject to backup withholding because of
underreporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you are no longer subject to backup withholding,
do not cross out item (2). (Also, see the enclosed
Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.)
SIGNATURE ______________ DATE _______
- -------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART II OF SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that, notwithstanding that I have checked the box in Part II (and
have completed this Certificate of Awaiting Taxpayer Identification Number),
thirty-one (31) percent of all reportable payments made to me will be
withheld until I provide a properly-certified Taxpayer Identification Number
to the Exchange Agent.
---------------------------------- --------------------------------------
Signature Date
------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which is
a member of a registered national securities exchange of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States (an "Eligible
Institution"). Signatures on this Letter of Transmittal need not be guaranteed
(a) if this Letter of Transmittal is signed by the registered holder(s) of the
Units tendered herewith and such holder(s) have not completed the instruction
entitled "Special Payment Instructions" on this Letter of Transmittal or (b) if
such Units are tendered for the account of an Eligible Institution. See
Instruction 5.
2. Delivery of Letter of Transmittal and Units. Certificates for all Units as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal by the Expiration Date.
Holders who cannot deliver their Units and all other required documents to the
Depositary by the Expiration Date must tender their Units pursuant to the
guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Terms of the Exchange Offer--Procedure for Late Delivery
of Tendered Units". Pursuant to such procedure: (a) such tender must be made by
or through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by the
Purchaser must be received by the Depositary by the Expiration Date and (c) the
certificates for all Units, as well as a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) and any other documents required
by this Letter of Transmittal, must be received by the Depositary within five
trading days on the National Market System of the National Association of
Security Dealers, Inc. automated quotation system after the date of execution
of such Notice of Guaranteed Delivery, all as provided in the Prospectus under
the caption "The Exchange Offer--Terms of the Exchange Offer--Procedure for
Late Delivery of Tendered Units".
The method of delivery of Units and all other required documents is at the
option and risk of the tendering Unitholder. If certificates for Units are sent
by mail, registered mail with return receipt requested, properly insured, is
recommended.
No alternative, conditional or contingent tenders will be accepted, and no
fractional or incomplete Units will be accepted for exchange. By executing this
Letter of Transmittal (or facsimile thereof), the tendering holder waives any
right to receive any notice of the acceptance for payment of the Units.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Units should be listed on a separate
schedule attached hereto.
4. Partial Tenders. If fewer than all the Units represented by any
certificate delivered to the Depositary are to be tendered, fill in the number
of Units which are to be tendered in the box entitled "Number of Units
Tendered". In such case, a new certificate for the remainder of the Units
represented by the old certificate will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as promptly as practicable following the expiration or
termination of the Offer. All Units represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Units
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Units tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
<PAGE>
If any of the Units tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Units tendered hereby, no endorsements of certificates or separate stock powers
are required unless shares of Centocor, Inc. Common Stock issued in exchange
therefor are to be issued, or Units not tendered or not exchanged are to be
returned, in the name of any person other than the registered holder(s).
Signatures on any such certificates or stock powers must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Units tendered hereby, certificates must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name(s) of the registered holder(s) appear(s) on the certificates for such
Units. Signature(s) on any such certificates or stock powers must be guaranteed
by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to the Purchaser of the authority of such person so to act must be submitted.
6. Stock Transfer Taxes. The Purchaser will pay any stock transfer taxes with
respect to the sale and transfer of any Units to it or its order pursuant to
the Offer. If, however, shares of Centocor, Inc. Common Stock are to be issued
to, or Units not tendered or not purchased are to be returned in the name of,
any person other than the registered holder(s), or if a transfer tax is imposed
for any reason other than the sale or transfer of Units to the Purchaser
pursuant to the Offer, then the amount of any stock transfer taxes (whether
imposed on the registered holder(s), such other person or otherwise) will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted herewith.
7. Special Payment and Delivery Instructions. If shares of Centocor, Inc.
Common Stock are to be issued, or any Units not tendered or not purchased are
to be returned, in the name of a person other than the person(s) signing this
Letter of Transmittal or if shares of Centocor, Inc. Common Stock or any
certificates for Units not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal at an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed.
8. Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments received upon the surrender of certificate(s), a holder
thereof must, unless an exemption applies, provide the Depositary with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
on this Letter of Transmittal and certify, under penalties of perjury, that
such number is correct and that such holder is not otherwise subject to backup
withholding. If the correct TIN and certifications are not provided, a $50
penalty may be imposed by the Internal Revenue Service and payments made for
the surrender of certificate(s) may be subject to backup withholding of 31%.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of such tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered holder(s) of certificate(s) representing Units. The TIN for an
individual is his social security number. The box in Part II of the Substitute
Form W-9 may be checked if the person surrendering the certificates has not
been issued a TIN and has applied for a TIN or intends to apply for a TIN in
the near future. If the box in Part II has been checked, the person
surrendering the certificate(s) must also complete the Certificate of Awaiting
Taxpayer Identification Number on the reverse hereof in order to avoid backup
withholding. Notwithstanding
<PAGE>
that the box in Part II is checked (and the Certificate of Awaiting Taxpayer
Identification Number is completed), the Depositary will withhold 31% of
payments to be made with respect to surrendered certificate(s) prior to the
time it is provided with a properly-certified TIN.
Exempt persons (including among others, corporations) are not subject to
backup withholding. A foreign individual may qualify as an exempt person by
submitting a statement, signed under penalties of perjury, certifying such
person's foreign status. Such statements can be obtained from the Depositary. A
registered holder should consult with his tax advisor as to his qualification
for an exemption from backup withholding and the procedure for obtaining such
exemption.
For additional guidance, see the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.
9. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal may be
obtained from the Purchaser or the Information Agent at their respective
addresses or telephone numbers set forth below.
(DO NOT WRITE IN SPACES BELOW)
Date Received _______ Accepted By _________ Checked By __________
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CERTIFICATE
BLOCK
UNITS UNITS UNITS NO. OF CASH IN UNITS -----------
SURRENDERED TENDERED ACCEPTED SHARES LIEU RETURNED NO. NO.
----------- -------- -------- ------ ------- -------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
----------------------------------------------------------------------------
Delivery Prepared By _______ Checked By __________ Date __________
----------------------------------------------------------------------------
<PAGE>
CENTOCOR, INC.
200 Great Valley Parkway
Malvern, PA 19355
(215) 651-6000
(Call Collect)
The Information Agent is:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
Call Toll-Free: (800) 669-5550
<PAGE>
NOTICE OF GUARANTEED DELIVERY
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if the Units (each Unit consisting of one
share of Callable Common Stock of Tocor II, Inc., one Series T Warrant to
Purchase One Share of Centocor, Inc. Common Stock and one Callable Warrant to
Purchase One Share of Centocor, Inc. Common Stock) and all other documents
required by the Letter of Transmittal cannot be delivered to the Depositary by
the expiration of the Offer. Such form may be delivered by hand or facsimile
transmission or mail to the Depositary. See the Prospectus under the caption
"The Exchange Offer--Terms of the Exchange Offer--Procedure for Late Delivery
of Tendered Units".
To: First National Bank of Boston, Depositary
By Mail: By Facsimile Transmission: By Hand
The First National Bank 617-575-2232 The First National Bank
of Boston of Boston
Blue Hills Office Park or Blue Hills Office Park
150 Royall Street 617-575-2232 150 Royall Street
Canton, MA 02021 Canton, MA 02021
Mail Stop 45-02-05 Mail Stop 45-02-05
Gentlemen:
The undersigned hereby tenders to Centocor, Inc. (the "Purchaser"), upon the
terms and subject to the conditions set forth in the Purchaser's Prospectus
dated , 199 and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, Units
(each Unit consisting of one share of Callable Common Stock of Tocor II, Inc.,
a British Virgin Islands corporation, one Series T Warrant to Purchase One
Share of Centocor, Inc. Common Stock and one Callable Warrant to Purchase One
Share of Centocor, Inc. Common Stock), pursuant to the guaranteed delivery
procedure set forth in the Prospectus under the caption "The Exchange Offer--
Terms of the Exchange Offer--Procedure for Late Delivery of Tendered Units".
Certificate Nos. (if available): SIGN HERE
.................................... ....................................
(Signature(s))
....................................
....................................
(Name(s)) (Please Print)
....................................
(Address)
....................................
(Zip Code)
....................................
(Area Code and Telephone No.)
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in
the United States, guarantees (a) that the above named person(s) "own(s)"
the Units tendered hereby within the meaning of Rule 14e-4 under the
Securities Exchange Act of 1934, (b) that such tender of Units complies with
Rule 14e-4 and (c) to deliver to the Depositary the Units tendered hereby,
together with a properly completed and duly executed Letter(s) of
Transmittal (or facsimile(s) thereof) and any other required documents, all
within five trading days on the National Market System of the National
Association of Securities Dealers, Inc. automated quotation system.
....................................
(Name of Firm)
....................................
(Authorized Signature)
....................................
(Name)
....................................
(Address)
....................................
(Zip Code)
....................................
(Area Code and Telephone No.)
Dated: , 199 .
2
<PAGE>
OFFER TO EXCHANGE
UNITS
(EACH UNIT CONSISTING OF ONE SHARE OF CALLABLE
COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT TO PURCHASE
ONE SHARE OF CENTOCOR, INC. COMMON STOCK AND ONE
CALLABLE WARRANT TO PURCHASE ONE SHARE OF
CENTOCOR, INC. COMMON STOCK)
FOR SHARES OF COMMON STOCK
OF
CENTOCOR, INC.
, 199
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We, Centocor, Inc. a Pennsylvania corporation (the "Purchaser"), have offered
to exchange units (each unit consisting of one share of Callable Common Stock
of Tocor II, Inc., a British Virgin Islands corporation (the "Company"), one
Series T Warrant to Purchase One Share of Centocor, Inc. Common Stock and one
Callable Warrant to Purchase One Share of Centocor, Inc. Common Stock) (the
"Units") for $40 per Unit, net to the seller (subject to adjustment as provided
in the accompanying Prospectus) payable in shares of Common Stock of Centocor,
Inc., upon the terms and subject to the conditions set forth in the Purchaser's
Prospectus dated , 199 and the related Letter of Transmittal (which
together constitute the "Offer").
For your information and for forwarding to your clients for whom you hold
Units registered in your name or in the name of your nominee, we are enclosing
the following documents:
1. Prospectus dated , 199 ;
2. Letter of Transmittal for your use and for the information of your
clients, together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Units and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Prospectus);
4. A form of letter that may be sent to your clients for whose accounts you
hold Units registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to
the Offer; and
5. Return envelope addressed to First National Bank of Boston, the
Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
[DAY], , 199 , UNLESS THE OFFER IS EXTENDED.
The Purchaser will not pay any fees or commissions to any broker or dealer or
other person (other than the Information Agent or the Depositary as described
in the Prospectus) for soliciting tenders of Units pursuant to the Offer. The
Purchaser will, however, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding
<PAGE>
materials to their customers. The Purchaser will pay all stock transfer taxes
applicable to its purchase of Units pursuant to the Offer, subject to
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to,
and additional copies of the enclosed materials may be obtained from, the
Information Agent or the undersigned at the addresses and telephone numbers set
forth on the back cover of the Offer to Purchase.
Very truly yours,
CENTOCOR, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF CENTOCOR, INC., THE INFORMATION AGENT OR THE DEPOSITARY, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
OFFER TO EXCHANGE
UNITS
(EACH UNIT CONSISTING OF ONE SHARE OF CALLABLE
COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT TO PURCHASE
ONE SHARE OF CENTOCOR, INC. COMMON STOCK AND ONE
CALLABLE WARRANT TO PURCHASE ONE SHARE OF
CENTOCOR, INC. COMMON STOCK)
FOR SHARES OF COMMON STOCK
OF
CENTOCOR, INC.
To Our Clients:
Enclosed for your consideration are the Prospectus dated , 199 and the
related Letter of Transmittal (which together constitute the "Offer") in
connection with the offer by Centocor, Inc., a Pennsylvania corporation (the
"Purchaser"), to exchange, upon the terms and subject to the conditions of the
Offer, units (each unit consisting of one share of Callable Common Stock of
Tocor II, Inc., a British Virgin Islands corporation (the "Company"), one
Series T Warrant to Purchase One Share of Centocor, Inc. Common Stock and one
Callable Warrant to Purchase One Share of Centocor, Inc. Common Stock) (the
"Units") for shares of Centocor, Inc. Common Stock. We are the holder of record
of Units held for your account. A tender of such Units can be made only by us
as the holder of record and pursuant to your instructions. The Letter of
Transmittal is furnished to you for your information only and cannot be used by
you to tender Units held by us for your account.
We request instructions as to whether you wish us to tender any or all of the
Units held by us for your account, upon the terms and subject to the conditions
set forth in the Prospectus and the Letter of Transmittal.
Your attention is invited to the following:
1. The tender price is $40 per Unit, net to you (subject to adjustment as
provided in the accompanying Prospectus) payable in shares of Common Stock
of Centocor, Inc.
2. The Offer and withdrawal rights expire at 5:00 P.M., New York City
time, on [day], , 199 , unless the Offer is extended.
3. The Offer is conditioned upon, among other things, there being validly
tendered by the Expiration Date (as defined in the Offer) and not withdrawn
at least a majority of the Units then outstanding.
4. Any stock transfer taxes applicable to the sale of Units to the
Purchaser pursuant to the Offer will be paid by the Purchaser, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
If you wish to have us tender any or all of your Units, please so instruct us
by completing, executing, detaching and returning to us the instruction form on
the detachable part hereof. An envelope to return your instructions to us is
enclosed. If you authorize tender of your Units, all such Units will be
tendered unless otherwise specified on the detachable part hereof. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf by the expiration of the Offer.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Units in any jurisdiction in which the making of the
Offer or acceptance thereof would not be in compliance with the laws of such
jurisdiction.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
OFFER TO EXCHANGE
UNITS
(EACH UNIT CONSISTING OF ONE SHARE OF CALLABLE
COMMON STOCK OF TOCOR II, INC., ONE SERIES T WARRANT TO PURCHASE
ONE SHARE OF CENTOCOR, INC. COMMON STOCK AND ONE
CALLABLE WARRANT TO PURCHASE ONE SHARE OF
CENTOCOR, INC. COMMON STOCK)
FOR SHARES OF COMMON STOCK
OF
CENTOCOR, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus dated , 199 , and the related Letter of Transmittal, in
connection with the offer by Centocor, Inc. to exchange units (each unit
consisting of one share of Callable Common Stock of Tocor II, Inc., one Series
T Warrant to Purchase One Share of Centocor, Inc. Common Stock and one Callable
Warrant to Purchase One Share of Centocor, Inc. Common Stock) (the "Units").
This will instruct you to tender the number of Units indicated below held by
you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal.
Number of Units to be Tendered: SIGN HERE
............................Units(1) ....................................
Signature(s)
Dated:....................... , 199
....................................
....................................
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(1) Unless otherwise indicated, it will be assumed that all Units held by us
for your account are to be tendered.
