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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number _______0-11103_________________________
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CENTOCOR, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 23-2117202
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 Great Valley Parkway, Malvern, PA 19355
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 651-6000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
None Not Applicable
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Series A Preferred Stock Purchase Rights
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(TITLE OF CLASS)
Common Stock, par value $.01 per share
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(TITLE OF CLASS)
Warrants for the purchase of shares of Common Stock,
par value $.01 per share*
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(TITLE OF CLASS)
7 1/4% Convertible Subordinated Notes Due February 1, 2001
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(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the 43,332,243 shares of voting stock held by
non-affiliates of the registrant as of March 1, 1994 was $460,405,082.
Common Stock outstanding at March 1, 1994: 43,786,274 shares.
*Includes Warrants issued in July and August 1989 which were registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934 as part of Units, each
Unit consisting of one share of Callable Common Stock of Tocor, Inc. and one
Warrant, and Warrants issued in January 1992 which were registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934 as part of Units, each Unit
consisting of one share of Callable Common Stock of Tocor II, Inc., one Series T
Warrant and one callable Warrant.
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PART I
Item 1. Business
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GENERAL
Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical company
specializing in the development and commercialization of monoclonal antibody-
based products to meet critical human health care needs. Additionally, the
Company performs research activities in the field of small peptide molecule-
based pharmaceutical products. See "Business - Research and Development." The
Company focuses on four major disease areas - infectious, cardiovascular and
autoimmune diseases and cancer. The Company'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"). See "Business - Research
and Development." For a further discussion of CentoRx, Panorex, CenTNF and HA-
1A, see "Products - Pharmaceutical Products." Other therapeutic products are
also under development. The Company's imaging products include Myoscint, a
cardiac imaging agent, and other contrast agents under development for use in
in-vivo diagnostic imaging procedures. The Company 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 the Company's in-vitro diagnostic products, CA 125, has
received FDA approval.
Since 1992, the Company has been implementing a business plan employing a
collaborative strategy utilizing, among other things, alliances with established
pharmaceutical companies. See Part II Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Part II Item 8
"Financial Statements and Supplementary Data." In the diagnostic area, Centocor
has maintained distribution agreements with companies having established
positions and distribution networks in applicable market segments. In
conjunction with its business plan, Centocor eliminated its European and United
States sales force and established collaborative arrangements in the
pharmaceutical area in 1992 and 1993. Centocor expects to continue to pursue
collaborative arrangements with pharmaceutical companies.
At March 1, 1994, Centocor had approximately 500 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 (610) 651-6000. The Company also maintains
facilities in Leiden, The Netherlands, and Surrey, the United Kingdom, and an
office in Tokyo, Japan.
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TECHNOLOGY AND KNOW-HOW
Antibodies are proteins produced by cells from the immune system in
response to the presence of specific antigens. An antigen is any substance
which activates this immune response. Antibodies recognize the shape of
particular compositions on the surface of antigens and bind specifically with
only those antigens having such surface compositions.
Prior to the development of monoclonal antibody technology in the
1970s, it was not practicable to separate and grow a single type of antibody.
Monoclonal antibody technology involves the creation of a hybrid cell, or
hybridoma, by combining a cell which produces a specific antibody with a cell
which reproduces indefinitely. The resulting hybridoma produces a specific
antibody continually. Antibodies produced by such hybridomas are chemically and
structurally homogeneous and hence are monoclonal. Centocor believes that there
is a significant potential for using monoclonal antibodies to develop human
health care products.
While the specificity of monoclonal antibodies makes them attractive
candidates for pharmaceutical product development, antibody-based products
generally must be administered by injection, usually in a hospital setting, and
are therefore used principally to treat acute diseases. Centocor believes that
small peptide molecule drugs may potentially be formulated for convenient
administration, including oral delivery, thereby affording an opportunity to
treat not only acute diseases, but the larger patient population with chronic
disease indications as well. The Company is conducting research activities in
the field of small peptide molecule-based pharmaceutical products. See
"Business - Research and Development."
PRODUCTS
Pharmaceutical Products
The Company is developing therapeutic products for use in the
treatment of specific types of infectious, cardiovascular and autoimmune
diseases and cancer.
Cardiovascular Therapy. The Company's therapeutic products under
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development include CentoRx, a product intended to treat or prevent the
formation of blood clots in the cardiovascular system. In the first quarter of
1993, the Company completed a randomized, double-blinded, placebo-controlled
Phase III trial in high-risk coronary angioplasty patients that enrolled 2,099
patients at 56 medical centers. The Company filed product license applications
for CentoRx in the United States and Canada in 1993 and has filed product
license applications in several countries in Europe in 1994. There can be no
assurance that CentoRx will be approved for commercial sale in the United
States, Europe or elsewhere. See "Business -Research and Development." During
the second quarter of 1993, Eli Lilly and Company ("Lilly") exercised its option
to become the exclusive worldwide distributor of CentoRx and the Company and
Lilly amended their Sales and Distribution Agreement to reflect such event. See
"Business - Marketing and Sales." Pursuant to that amendment, Lilly has assisted
the Company and will continue to assist the Company in the regulatory filings
and continued development of CentoRx for various clinical indications.
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Cancer Therapy. Panorex, a product intended to treat colorectal
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cancer, 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. The Company expects to complete the
filing of an application in 1994 requesting marketing approval for Panorex in
Germany. There can be no assurance that Panorex will be approved for commercial
sale in Germany or elsewhere. During 1993, the Company and Wellcome plc
("Wellcome") entered into an alliance agreement for the development and
marketing of certain of the Company's monoclonal antibody-based cancer
therapeutic products, including Panorex. See "Business - Marketing and Sales."
Autoimmune Disease Therapy. The Company is currently developing
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CenTNF, a product targeted for the treatment of rheumatoid arthritis and
inflammatory bowel diseases such as Crohn's disease. The Company 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. The Company has
entered into an agreement with Tanabe Seiyaku Co., Ltd. under which Tanabe will
undertake the human clinical testing and distribution of CenTNF in Japan.
Infectious Disease Therapy. HA-1A is a product intended for the
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treatment of patients with severe sepsis who are dying from endotoxemia. The
Company 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 the Company that there was insufficient evidence of efficacy for
approval of HA-1A at that time. In June 1992, the Company initiated a second
randomized, double-blinded, placebo-controlled, Phase III U.S. clinical trial of
HA-1A in the treatment of patients with Gram-negative bacteremia and septic
shock. The Company terminated this trial in 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. The Company 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. The Company 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.
The Company is supplying HA-1A on a limited compassionate-use basis in
certain countries in Europe. There can be no assurance that any commercial
sales of HA-1A will resume in Europe.
Diagnostic Imaging Products
The Company has developed techniques for modifying monoclonal
antibodies so that they may be coupled with radioactive isotopes and used as
contrast agents in diagnostic imaging procedures. After injection, antibodies
labelled with a radioactive isotope travel to the disease site, allowing the
site to be visualized or "imaged" with nuclear medicine equipment in a procedure
similar to an X-ray. The Company's focus in this area is primarily on
developing imaging agents for cardiovascular disease.
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The Company has received marketing approvals for Myoscint, a cardiac
imaging agent, in several European countries and a United States product license
application for Myoscint is expected to be resubmitted to the FDA in 1994.
Revenues from the sale of Myoscint in Europe have not been significant. There
can be no assurance that Myoscint will be approved by the FDA or that sales, if
any, in the United States will be significant.
In-Vitro Diagnostic Products
In-vitro diagnostic products are used to test patient blood samples
outside the body to detect or monitor disease. In this area, the Company has
focused principally on developing cancer diagnostic assays, certain of which it
now manufactures and sells, as follows:
Ovarian Cancer Test, CA 125. CA 125, which aids in the detection of
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residual epithelial ovarian cancer following first-line therapy, is sold for
clinical use in the United States, certain European countries and Japan.
Pancreatic Cancer Test, CA 19-9. CA 19-9, which aids in the detection
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of pancreatic cancer, is sold for clinical use in certain European countries and
Japan.
Breast Cancer Test, CA 15-3. CA 15-3, which aids in the monitoring of
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breast cancer, is sold for clinical use in certain European countries and Japan.
Gastric Cancer Test, CA 72-4. CA 72-4, which aids in the monitoring
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of gastrointestinal cancer, is sold for clinical use in certain European
countries and Japan.
Multidrug Resistance Test, P-glycoCHEK. P-glycoCHEK, which detects a
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cellular protein associated with resistance to chemotherapeutic drugs, is
available for investigational use in certain European countries and Japan.
Non-Small Cell Lung Cancer Test, CYFRA 21-1. CYFRA 21-1, which aids
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in the monitoring of non-small cell lung cancer, is available for clinical use
in certain European countries and investigational use in Japan.
Additionally, the Company manufactures and sells various in-vitro
diagnostic products for infectious disease primarily in Europe. The Company
submitted an application to the FDA in 1994 seeking approval to market a blood
test for the detection of syphilis.
The following product names are trademarks of the Company: HA-1A, Centoxin,
CentoRx, CenTNF, Panorex, Myoscint, Capiscint, P-glycoCHEK, CA 125, CA 19-9, CA
72-4, CA 15-3, and CYFRA 21-1.
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MARKETING AND SALES
In the in-vitro diagnostic and imaging areas, Centocor has distribution
agreements with companies having established positions and distribution networks
in applicable market segments. During 1992, the Company adopted a similar
collaborative strategy in its pharmaceutical business. In conjunction with such
marketing strategy, the Company eliminated its European sales force in 1992 and
eliminated its United States sales force in 1993.
In July 1992, the Company and Lilly entered into a Sales and Distribution
Agreement. During the second quarter of 1993, Lilly exercised its option under
the Agreement to become the exclusive worldwide distributor of CentoRx and the
Company and Lilly amended their Sales and Distribution Agreement to reflect such
event. Under that Agreement, the Company is principally responsible for
developing and manufacturing HA-1A and CentoRx and for securing regulatory
approvals. If sales of HA-1A are resumed or approvals for the sale of CentoRx
are obtained, Lilly will be principally responsible for the marketing, selling
and distribution of HA-1A and CentoRx. The Company will sell the product to
Lilly for Lilly's further sale to the end market. See Part II Item 8
"Financial Statements and Supplementary Data."
In November 1993, the Company and Wellcome entered into an alliance
agreement for the development and marketing of certain of the Company'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. See Part II Item 8 "Financial Statements and Supplementary
Data."
During 1993, approximately 42 percent of the Company's total product 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 which
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, the Company ceased
sales in the United States of all diagnostic products which had not been
approved by the FDA.
Certain financial information by geographic area as well as major customer
information is set forth in Part II Item 8 "Financial Statements and
Supplementary Data."
The Company has no significant product backlog.
MANUFACTURING
The Company currently maintains a biopharmaceutical manufacturing
facility in Leiden, The Netherlands, for the production of monoclonal antibody-
based products using a proprietary cell-culture system. See Item 2
"Properties." The Company manufactures in-vitro diagnostic products at
facilities in Malvern, Pennsylvania, and Surrey, the United Kingdom.
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PATENTS AND LICENSING ARRANGEMENTS
The Company owns or has rights to certain proprietary information,
patent applications and patents which 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 the Company's expertise, or that any patents, or rights
thereto, of the Company 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 the Company may need to
acquire rights. There can be no assurance that the Company will not infringe
upon the patent rights of others. The extent to which the Company 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 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 the Company is required to acquire rights to valid and
enforceable patents but cannot do so at a reasonable cost, the Company'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 the
Company's products and in ongoing research and product development activities.
All of the Company'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 the Company to obtain, or any delay in obtaining,
regulatory approvals could materially adversely affect the Company or its
ability to market the Company'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
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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 commercial 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 for the manufacture of any product, it is subject to
periodic inspections by the FDA.
The requirements such as those described above which the Company 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.
The Company 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 connection with the Company's research. The extent of
government regulation which might result from any legislative or administrative
action cannot be accurately predicted.
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 the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted, the adoption of such
proposals could have a material adverse effect on the Company'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
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products and services. If the Company 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 the Company to sell
its products on a competitive basis.
TECHNOLOGICAL CHANGES 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 have greater resources than Centocor. 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, many 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 the Company's 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 the Company's products or technologies obsolete or
uncompetitive.
RESEARCH AND DEVELOPMENT
Centocor's research and development activities focus primarily on
monoclonal antibody technology and proprietary techniques to screen and
characterize large numbers of monoclonal antibodies in search of optimal
pharmaceutical agents. The Company's ability to select effective hybridomas and
to produce antibodies from them is central to its business. The Company has
living hybridomas that it has produced or that it has received under license
agreements. These hybridomas are the source of the antibodies used by the
Company in its existing products and in the antibody-based products it is
developing and, therefore, are of proprietary importance.
An understanding of the structure and function of antibodies is
necessary in order to modify them for incorporation into diagnostic or
therapeutic products. The Company has developed techniques for characterizing
an antibody with respect to its structure, specificity and binding ability which
are used in an effort to select the best antibody for a particular application.
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The Company carries out research efforts in the use of recombinant DNA
techniques to manipulate the genetic structure of antibody-producing cells.
These efforts are intended to create re-engineered antibodies which combine the
desired properties of more than one antibody, or the desired properties of
antibodies and other system-regulating biochemicals such as enzymes.
During 1992, the Company expanded its research efforts to include the
field of small peptide molecule-based pharmaceutical products.
For the three years ended December 31, 1993, 1992 and 1991, the
Company's research and development expenses were $66,113,000, $106,633,000 and
$71,701,000, respectively.
The Company organized Centocor Cardiovascular Imaging Partners, L.P.
("CCIP"), Centocor Partners II, L.P. ("CPII"), CPIII, Tocor, Inc. ("Tocor") and
Tocor II, Inc. ("Tocor II") to finance the research and development of certain
products and/or technology. Under agreements with each of these entities,
Centocor licensed certain technology to the entity and performed or continues to
perform research and development in such technology areas on behalf of the
entity. The Company purchased the limited partnership interests in CCIP and the
callable common stock of Tocor in 1991, and the limited partnership interests in
CPII in 1992. The Company granted CPIII an exclusive license to use all patent
rights, know-how, technical information and biological materials owned or
controlled by the Company within CPIII's field of activity, which includes
CentoRx. CPIII also retains the rights to the results of research and
development efforts conducted on its behalf. The Company has the ability to
acquire such rights through an option to purchase the partnership interests in
CPIII. See Part II Item 8 "Financial Statements and Supplementary Data."
In February 1994, the Company initiated an Exchange Offer (the
"Exchange Offer"), pursuant to which the Company offered to exchange 3.2 shares
of its Common Stock for each of the 2,250,000 outstanding Tocor II Units
tendered. Each Unit consists of one share of callable common stock of Tocor II,
one callable warrant to purchase one share of Centocor Common Stock and one
Series T warrant to purchase one share of Centocor Common Stock (the
"Warrants"). No fractional shares of Centocor Common Stock will be issued. The
expiration date of the Exchange Offer was March 11, 1994. With respect to the
Tocor II Units not tendered, the Company would issue 2.88 shares of its Common
Stock in exchange for the remaining Tocor II callable common stock in a merger
transaction which is expected to be completed by March 31, 1994 (the "Second-
Step Transaction"). Non-tendering Tocor II Unitholders would retain their
Warrants.
On March 11, 1994, the Company accepted 94 percent of the Tocor II
Units tendered pursuant to the Exchange Offer, and the Company exchanged 3.2
shares of its Common Stock for each Tocor II Unit tendered. As a result of the
Exchange Offer and the Second-Step Transaction, the Company will issue
approximately 7,159,000 shares of its Common Stock. See Part II Item 8
"Financial Statements and Supplementary Data."
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ITEM 2. PROPERTIES
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The Company owns four buildings in Malvern, Pennsylvania, and leases
space in other buildings at this location. These buildings contain Centocor's
corporate offices, research and development laboratories, marketing offices, and
certain manufacturing facilities. Space is available in these buildings for
future expansion. The acquisition costs of certain of these buildings were
financed in part by mortgage loans which are still outstanding.
The Company owns a biopharmaceutical manufacturing facility in Leiden,
The Netherlands, and also leases research and development laboratories and
office space at such location. A portion of the construction cost of the Leiden
facility was financed by a mortgage loan which is still outstanding. See Part
II Item 8 "Financial Statements and Supplementary Data." The Company also
leases an in-vitro diagnostic manufacturing facility in Surrey, the United
Kingdom.
As a result of the downsizing of the Company's staff and present level
of operations, portions of the Company's facilities and equipment in Malvern and
Leiden are idle. The Company continually evaluates the future needs for its
facilities and equipment.
ITEM 3. LEGAL PROCEEDINGS
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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
sought, 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 rescissionary damages), costs and plaintiff's counsel fees. No
injunction was, in fact, sought, and the Exchange Offer was made and
consummated. The Company believes that the allegations set forth in the
complaint are without merit and intends to vigorously defend the suit. The
Company does not expect the effect, if any, of the outcome of this litigation to
be material to the Company's financial condition.
In January 1993, purported security holders of the Company and/or
Tocor II filed complaints in the United States District Court for the Eastern
District of Pennsylvania against the Company, Tocor II, and certain present and
former directors and/or officers of the Company 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 1993, 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 the Company and two of
its officers/directors, were voluntarily dismissed when the Complaint was filed.
The Complaint alleges that defendants
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knowingly or recklessly omitted certain material facts and made false and
misleading statements of material facts about the Company 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 the Company 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. The
Company believes that the allegations set forth in the Complaint are without
merit and intends to vigorously defend the suit. The Company does not expect
the effect, if any, of the outcome of this litigation to be material to the
Company'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 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 the Company's
securities during the period February 19, 1991 through April 20, 1992, and who
sustained damages as a result of such purchases. All claims against the Company
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, the Company
made a cash payment of $18,000,000; in settlement of the derivative action
brought on behalf of the Company, the Company received a cash payment of
$8,000,000; and in settlement of the derivative action brought on behalf of
Tocor II, the Company and Tocor II amended certain agreements between them to
provide that the Company would, over time, forego $3,000,000 of contract
payments. In connection with the settlement, the Company recorded a charge to
earnings of $11,245,000 in the fourth quarter of 1992, representing the net cost
of the proposed settlement to the Company, including legal fees. The Company
does not expect the effect, if any, of the outcome of any litigation resulting
from those who opted out of the class to be material to the Company's financial
condition.
OTHER LITIGATION
In October 1992, the Company 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
the Company breached certain provisions of a license agreement between Velos and
the Company pursuant to which the Company has exclusive rights to U.S. Patent
No. 5,057,598, which includes claims relating to monoclonal 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 the Company place in escrow one-half of the amounts received by
the Company pursuant to its agreements with Lilly. The complaint does not seek
to terminate or rescind any of the Company's rights under the license agreement.
The Company 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
11
<PAGE>
one minor exception, relied upon the same legal theories. On August 27, 1993,
the Company filed its Answer, Affirmative Defenses and Counterclaim for Damages
and Equitable Relief (the "Amended Answer"). In the Amended Answer, the Company
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 the Company's counterclaims and to strike certain of Centocor's
affirmative defenses. The Company has responded to that motion. The Company
believes that the allegations of Velos are without merit and intends to
vigorously defend the suit. The Company does not expect the effect, if any, of
the outcome of this litigation to be material to the Company's financial
condition.
In May 1993, the Company 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, the Company, and one of the Company'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 the Company 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 the Company under Section 10(b) of the Securities Exchange
Act of 1934. The Company believes the allegations which remain are without
merit and intends vigorously to defend the suit. The Company does not expect
the effect, if any, of the outcome of this litigation to be material to the
Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ---------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Centocor's Common Stock is traded on the National Market System of NASDAQ
under the symbol CNTO. Set forth below for the indicated periods are the high
and low sale prices for Centocor's Common Stock:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
First Quarter 1992 60 1/4 28 1/2
Second Quarter 1992 35 9 3/4
Third Quarter 1992 17 10 3/4
Fourth Quarter 1992 19 3/4 9 1/2
First Quarter 1993 19 1/2 5 1/2
Second Quarter 1993 9 1/2 5 1/4
Third Quarter 1993 10 7/8 6 3/4
Fourth Quarter 1993 15 3/4 10
</TABLE>
The number of shareholders of record on March 1, 1994 was 5,657.
No dividends have been paid on the Common Stock to date, and the Company
does not expect to pay cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
(in thousands except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
For the year ended December 31, 1993 1992 1991 1990 1989
-------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues
Sales $ 48,071 $ 58,394 $ 44,328 $ 32,863 $27,616
Contracts:
Related parties 10,109 16,071 4,902 27,870 28,900
Other* 17,750 51,767 3,967 3,901 15,444
-------- --------- --------- --------- -------
75,930 126,232 53,197 64,634 71,960
Costs and expenses** 130,683 295,978 247,151 217,966 74,341
Other income (expenses)*** (19,626) (24,400) (1,601) 18,952 2,637
(Benefit) provision for
income taxes - - - (2,200) 141
(Loss) income (74,379) (194,146) (195,555) (132,180) 115
(Loss) income per share ($1.79) ($4.90) ($5.72) ($5.10) $.01
Weighted average number
of shares outstanding 41,482 39,623 34,172 25,930 23,220
-------- --------- --------- --------- -------
</TABLE>
13
<PAGE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31, 1993 1992 1991 1990 1989
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash and investments**** $140,028 $163,083 $233,598 $100,877 $ 86,201
Total Assets 281,039 349,268 472,929 273,080 179,601
Long-term debt 238,100 238,166 259,368 42,083 22,489
Shareholders' equity (19,194) 30,721 144,027 168,664 132,955
</TABLE>
No dividends have been declared or paid during any of the periods presented.
*Other contract revenues include $5,000 and $50,000 from Lilly in 1993 and 1992,
respectively and $10,000 from Wellcome in 1993.
**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 $ 3,500, $ 64,877 and $3,518 in 1993, 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) include a charge of $11,245 in 1992 related to the
settlement of certain litigation and gains of $12,976 in 1990 from the sale of
certain investments.
****Cash and investments at December 31, 1993 included equity investments of
$11,230. Additionally, the Company maintained $26,375 of investments at certain
banks as collateral for certain debt outstanding at December 31, 1993.
The data above does not reflect the increase in cash and investments of $51,494,
and an increase in shareholders' equity of $38,198, which would have resulted if
the Tocor II Exchange Offer were consummated as of December 31, 1993. Further
in connection with the consummation of the Tocor II Exchange Offer the Company
will record a charge to earnings of $36,454 in the first quarter of 1994
representing principally the cost of acquired research and development. See
Note 18 to the Company's Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's future financial condition is highly dependent upon the
reduction of the Company's rate of net cash outflows and, ultimately, upon the
achievement of significant and sustained levels of pharmaceutical product sales.
The Company will need to secure significant additional capital in the future
from collaborative arrangements with pharmaceutical companies or from the
capital markets until significant and sustained levels of pharmaceutical sales
are achieved. There can be no assurance that significant additional capital
will be available to the Company. There also can be no assurance that the
Company will materially reduce its current rate of net cash outflows or generate
significant and sustained levels of pharmaceutical product sales. The FDA has
not approved any of the Company's pharmaceutical products for marketing. There
can be no assurance that FDA or other regulatory approvals of any of the
Company's products will be obtained. Failure to obtain timely FDA or other
regulatory approvals of pharmaceutical products will have a material adverse
effect on the Company. The status of the Company's major pharmaceutical
products is discussed below.
The Company has been implementing a business plan employing a collaborative
strategy utilizing, among other things, alliances with established
pharmaceutical companies. The
14
<PAGE>
Company's ability to further reduce its current rate of net cash outflows is
also dependent upon the extent to which it can expand collaborations with
established pharmaceutical companies and achieve milestones under such
collaborative agreements. No assurance can be given that such collaborations
can be expanded or that such milestones can be achieved.
At December 31, 1993, the Company had cash, cash equivalents and
investments of $140,028,000, including equity investments of $11,230,000.
During the year ended December 31, 1993, the Company had negative cash flows
from operations of $42,297,000. The Company's total cash flows in 1993 included
$30,000,000 received from Wellcome of which $20,000,000 was received for the
purchase of 2,000,000 shares of the Company's Common Stock. Additionally, cash
flows in 1993 included the proceeds of $11,900,000 from the sale of the
Company's St. Louis facility and the repayment of $5,800,000 of mortgage debt
related to that facility. If the exchange offer which is discussed in Note 18
to the Company's Consolidated Financial Statements had been consummated as of
December 31, 1993, the Company's cash and investment balance at December 31,
1993 would have been $191,522,000.
At December 31, 1992, the Company had cash, cash equivalents, and
investments of $163,083,000, including equity investments of $12,924,000.
During the year ended December 31, 1992, the Company had negative cash flows
from operations of $109,818,000 and acquired $23,309,000 of fixed assets. Cash
flows from operations for the year ended December 31, 1992 included $50,000,000
received from Lilly primarily for reimbursement of expenses associated with HA-
1A. Additionally, during 1992, the Company expended $12,375,000 to purchase the
limited partnership interests in CPII, $8,700,000 to acquire all the outstanding
shares of capital stock of Mercia Diagnostics Limited ("Mercia"), a European
diagnostics manufacturing and sales company, and $10,000,000 in connection with
the settlement of certain class action securities litigation. These cash
outflows were partially offset by cash inflows which included the receipt of
$50,000,000 from Lilly for the purchase of 2,000,000 shares of the Company's
Common Stock and $15,931,000 from borrowings under loan agreements. During the
year ended December 31, 1991, the Company had negative cash flows from
operations of $137,039,000 and acquired $31,129,000 of fixed assets. Also
during 1991, the Company received significant cash inflows from financing
activities, principally the net proceeds of $224,537,000 from the issuance of
the Company's 7-1/4 percent Notes and 6-3/4 percent Debentures. During the
years ended December 31, 1992 and 1991, the Company received $17,726,000 and
$80,272,000, respectively, from the exercise of warrants and options to purchase
shares of the Company's Common Stock. The extent and timing of future warrant
and option exercises, if any, are primarily dependent upon the market price of
the Company's Common Stock and general financial market conditions, as well as
the exercise prices and expiration dates of the warrants and options.
Agreements covering $20,402,000 of the Company'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. The Company has obtained waivers of certain of such covenants on the
condition that it maintain certain investments at the lending bank, which at
December 31, 1993 totalled $20,000,000. There can be no assurance that the
Company will be able to continue to collateralize such loans and, accordingly,
the Company has classified $20,402,000 of debt as short-term. Additionally,
$6,186,000 of the Company's short-
15
<PAGE>
term debt is secured by investments at the lending bank of $6,375,000. If cash
flows continue to be negative, the Company's ability to service its debt may be
impaired.
See Note 2 to the Company's Consolidated Financial Statements for a
discussion of litigation and other factors which may affect the Company's future
liquidity and capital resources.
STATUS OF CENTORX
The Company's therapeutic products under development include CentoRx, a
product intended to treat or prevent the formation of blood clots in the
cardiovascular system. In the first quarter of 1993, the Company completed a
randomized, double-blinded, placebo-controlled Phase III trial in high-risk
coronary angioplasty patients that enrolled 2,099 patients at 56 medical
centers. The Company filed product license applications for CentoRx in the
United States and Canada in 1993 and has filed product license applications in
several countries in Europe in 1994. There can be no assurance that CentoRx
will be approved for commercial sale in the United States, Europe or elsewhere.
See Part I Item 1 "Business - Research and Development." During the second
quarter of 1993, Lilly exercised its option to become the exclusive worldwide
distributor of CentoRx and the Company and Lilly amended their Sales and
Distribution Agreement to reflect such event. See Part I Item 1 "Business -
Marketing and Sales." Pursuant to that amendment, Lilly has assisted the
Company and will continue to assist the Company in the regulatory filings and
continued development of CentoRx for various clinical indications.
STATUS OF PANOREX
Panorex, a product intended to treat colorectal cancer, 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. The Company expects to complete the filing of an
application in 1994 requesting marketing approval for Panorex in Germany. There
can be no assurance that Panorex will be approved for commercial sale in Germany
or elsewhere. During 1993, the Company and Wellcome entered into an alliance
agreement for the development and marketing of certain of the Company's
monoclonal antibody-based cancer therapeutic products, including Panorex. See
Part I Item 1 "Business - Marketing and Sales."
STATUS OF HA-1A
HA-1A is a product intended for the treatment of patients with severe
sepsis who are dying from endotoxemia. The Company 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 the Company that there was
insufficient evidence of efficacy for approval of HA-1A at that time. In June
1992, the Company initiated a second randomized, double-blinded, placebo-
controlled, Phase III U.S. clinical trial of HA-1A in the treatment of patients
with Gram-negative bacteremia and septic shock. The Company terminated this
trial in 1993 after concluding that there was no reduction in the mortality
rate among HA-1A-treated patients who did have Gram-negative
16
<PAGE>
bacteremia in comparison with placebo-treated patients in the same group. The
Company 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. The
Company 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.
The Company is supplying HA-1A on a limited compassionate-use basis in
certain countries in Europe. There can be no assurance that any commercial
sales of HA-1A will resume in Europe.
ASSETS
The decrease in the aggregate amount of cash and investments at December
31, 1993 as compared to December 31, 1992 is discussed under Liquidity and
Capital Resources. The decrease in the Company's inventory balance at December
31, 1993 as compared to December 31, 1992 is primarily due to the recording of
reserves for HA-1A inventories.
Gross fixed assets at December 31, 1993 decreased as compared to December
31, 1992 principally due to the sale of the Company's St. Louis manufacturing
facility in July 1993. The Company expects investments in fixed assets of
approximately $6,000,000 in 1994. As a result of the downsizing of the
Company's staff and present level of operations, the Company currently maintains
idle facilities and equipment. The Company continually evaluates the future
needs for its facilities and equipment. There can be no assurance that reserves
to further reduce the carrying value of certain fixed assets will not be
required in the future.
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity at December 31, 1993 decreased as compared to December
31, 1992 principally as a result of the Company's loss for the year ended
December 31, 1993, partially offset by an increase in additional paid-in capital
due to the issuance of Common Stock to Wellcome and the receipt of the proceeds
from the exercise of options and warrants. The extent and timing of future
warrant and option exercises, if any, are primarily dependent upon the market
price of the Company's Common Stock and general financial market conditions, as
well as the exercise prices and expiration dates of the warrants and options.
At December 31, 1993, the Company's liabilities exceeded its assets,
resulting in a negative shareholders' equity balance. Shareholders' equity will
decrease further in future periods unless and until the Company is successful in
securing additional capital from collaborative arrangements with pharmaceutical
companies or the capital markets or significant and sustained levels of
pharmaceutical product sales are achieved. There can be no assurance that
significant and sustained levels of pharmaceutical products sales will be
achieved or that any additional capital will be available to the Company. If the
exchange offer, as described in Note 18 to the Company's Consolidated Financial
Statements had been consummated as of December
17
<PAGE>
31, 1993, the Company's shareholders' equity position at December 31, 1993 would
have been approximately $19,004,000.
RESULTS OF OPERATIONS
SPECIAL CHARGES
The results of operations for the year ended December 31, 1993 include
restructuring charges of $4,273,000 related to reserves for certain fixed assets
no longer used or subsequently disposed and $5,114,000 principally related to
severance. A charge of $3,500,000 related to HA-1A inventory was recorded in
the fourth quarter of 1993. The results of operations for the year ended
December 31, 1992 included a charge of $64,877,000 representing reserves for HA-
1A inventories and a charge of $11,245,000 related to the settlement of certain
class action securities litigation. Additionally, during the year ended
December 31, 1992, the Company recorded a restructuring charge of $15,266,000
related to the downsizing of its operations. The results of operations for the
year ended December 31, 1991 included a charge to earnings of $70,147,000 for
acquired research and development as a result of the Company's purchase of all
of the callable common stock of Tocor. Excluding the items described above, the
Company incurred losses for each of the years in the three year period ended
December 31, 1993. There can be no assurance that additional charges will not be
required in the future.
In the first quarter of 1994, the Company will record a charge to earnings
of $36,454,000 for acquired research and development as a result of an exchange
offer which is described in Note 18 to the Company's Consolidated Financial
Statements.
REVENUES
Product sales have not produced sufficient revenues to cover the Company's
operating expenses. The decrease in sales for 1993 as compared to 1992 is
principally due to HA-1A sales recorded during 1992 which did not recur in 1993
(see Status of HA-1A). There were no HA-1A sales for 1993 whereas 1992 sales of
HA-1A totalled $12,545,000.
Contract revenues for the year ended December 31, 1993 include $10,109,000,
net of warrant amortization costs, recognized pursuant to the Company's
agreements with Tocor II as compared to $16,071,000 for the year ended December
31, 1992. Revenues from Tocor II for the year ended December 31, 1992 included
a $2,500,000 non-refundable fee from Tocor II in connection with the license of
certain technology by the Company to Tocor II. The decrease in such revenues
for the year ended December 31, 1993 is principally due to a reduction in the
Company's antibody research program costs allocated to the Tocor II research
program. Contract revenues for the years ended 1993 and 1992 also included
$5,000,000 and $50,000,000, respectively, of revenues recognized pursuant to the
Company's agreements with Lilly and $10,000,000 of revenues recognized in 1993
pursuant to the Company's agreements with Wellcome. For the year ended December
31, 1991, contract revenues consisted principally of revenues from research and
development agreements with CPII, CPIII, and Tocor. The Company acquired all of
the callable common stock of Tocor in 1991 and the limited partnership interests
in CPII in 1992. Funding for the CPIII research and development agreement was
18
<PAGE>
exhausted in 1991. As a result of an exchange offer which is more fully
described in Note 18 to the Company's Consolidated Financial Statements, the
revenues under the Tocor II research programs will terminate in 1994.
The level of contract revenues in future periods will primarily depend upon
the extent to which the Company enters into other collaborative contractual
arrangements, if any, and the achievement of milestones under current
arrangements.
COSTS AND EXPENSES
Cost of sales decreased in 1993 as compared to 1992 due to decreased sales,
principally sales of HA-1A as discussed above. Cost of sales increased in 1992
as compared to 1991 due to increased sales, principally sales of HA-1A. The
Company manufactures its pharmaceutical products at its manufacturing facility
in Leiden, The Netherlands. Consequently, the strength of the Dutch Guilder in
relation to the U.S. dollar may have an impact on the costs of production and,
therefore, the profit margin from sales. Additionally, the Company's antibody-
based products are produced through the growth of living cells in culture, which
cells secrete the desired antibody. The production cost per unit and,
consequently, the profit margin from sales, are highly dependent upon the
antibody yields. As further described in Note 2 to the Company's Consolidated
Financial Statements, the Company is required to make certain royalty payments
based on sales of products, which payments are reflected in cost of sales.
Royalty costs represent a significant percentage of sales.
Research and development expenses decreased in 1993 as compared to 1992 due
principally to a decrease in costs associated with clinical trials of products
under development. Research and development expenses increased in 1992 as
compared to 1991 principally due to an increase in the allocation of certain
resources to research and development efforts due to a decrease in the level of
inventory production, and increased costs associated with clinical trials of
products under development. The Company expects an increased level of clinical
trial expenses in 1994 as compared to 1993.
Marketing, general and administrative expenses for the year ended December
31, 1993 decreased as compared to the year ended December 31, 1992, due
principally to reductions in sales and administrative staffs, marketing costs
and legal costs. Marketing, general and administrative expense for the year
ended December 31, 1992 decreased as compared to 1991 due principally to reduced
legal costs combined with decreased costs from selective reductions in staff
and other cost reduction efforts. The Company expects to maintain current
levels of marketing, general and administrative expenses in 1994.
OTHER INCOME AND EXPENSES
Interest income decreased in 1993 as compared to 1992 due principally to a
reduction in the Company's cash and investment balances and reduced interest
rates on investment. Interest income in future periods will depend primarily on
the level of the Company's investments and the interest rates obtained on such
investments. During 1993 and 1992, the Company recorded unrealized losses of
$2,477,000 and $2,296,000, respectively, due to the other than temporary
reduction in the market value of marketable equity investments below the
Company's cost for
19
<PAGE>
such investments. During the year ended December 31, 1992, the Company recorded
a gain of $1,170,000 from the sale of certain securities.
PER SHARE CALCULATIONS
At December 31, 1993, approximately 18,962,000 shares of the Company's
Common Stock were issuable upon exercise of outstanding options and warrants and
upon vesting of restricted stock awards. Options, warrants, and stock awards
are considered Common Stock equivalents for purposes of per share data. The
Company uses the modified treasury stock method of calculating per share data
since the number of shares of the Company's Common Stock issuable upon the
exercise of Common Stock equivalents is in excess of 20 percent of the Company's
outstanding Common Stock. Under the modified treasury stock method, the effect
of Common Stock issuable upon the exercise of Common Stock equivalents is
reflected in the per share data calculation only if the aggregate effect would
be dilutive. The 3,843,000 shares issuable upon conversion of the 7-1/4 percent
Notes and the 2,049,000 shares issuable upon conversion of the 6-3/4 percent
Debentures are not considered Common Stock equivalents and are not included in
the calculation of primary per share data but are included in the calculation of
fully diluted per share data if their effect is dilutive.
No Common Stock equivalents or shares issuable upon conversion of the 7-1/4
percent Notes and 6-3/4 percent Debentures were included in the per share
calculations for any periods presented since to do so would have been
antidilutive as the Company has recorded net losses in all periods presented.
In future periods, depending upon the market value of the Company's Common Stock
and its results of operations for such periods, the Company may be required to
include its then outstanding Common Stock equivalents as well as shares issuable
upon the conversion of the 7-1/4 percent Notes and the 6-3/4 percent Debentures
in its calculations of per share data for such periods if the effect would be
dilutive.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, 1993 1992
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 4, 7 and 18) $ 46,210 $ 28,496
Short-term investments (Notes 4, 7 and 18) 76,662 121,663
Accounts and contracts receivable 12,078 12,668
Interest receivable 471 1,777
Inventory (Note 5) 13,874 16,858
Prepaid expenses 2,392 3,642
Other current assets 1,024 2,060
-------- --------
152,711 187,164
Fixed assets (Note 7):
Land and buildings 64,284 77,426
Equipment, furniture, fixtures and
improvements 78,932 92,604
-------- --------
143,216 170,030
Less accumulated depreciation (58,533) (51,840)
-------- --------
84,683 118,190
Long-term investments (Note 4) 17,156 12,924
Intangible and other assets 26,489 30,990
-------- --------
Total assets $281,039 $349,268
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONT'D.)
(In thousands)
<TABLE>
<CAPTION>
December 31, 1993 1992
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,133 $ 4,479
Accrued expenses (Note 6) 23,127 34,557
Unearned revenues 2,690 2,837
Note payable (Note 7) 6,186 6,593
Current portion of
long-term debt (Note 7) 20,468 28,640
--------- ---------
59,604 77,106
Long-term debt (Note 7) 238,100 238,166
Other liabilities 2,023 2,772
Minority interest 506 503
Shareholders' equity (Notes 2, 8 and 18):
Preferred Stock, $.01 par value,
10,000 shares authorized, none issued - -
Common Stock, $.01 par value,
100,000 shares authorized and
43,672 and 41,192 issued and
outstanding at December 31, 1993
and 1992, respectively 437 412
Additional paid-in capital 601,138 575,072
Deficit (625,049) (550,670)
Unrealized loss on marketable
securities (635) -
Cumulative foreign currency
translation adjustments 4,915 5,907
--------- ---------
(19,194) 30,721
--------- ---------
Total liabilities and
shareholders' equity $ 281,039 $ 349,268
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
For the years ended December 31, 1993 1992 1991
--------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Sales $ 48,071 $ 58,394 $ 44,328
Contracts (including related
party revenues of: $10,109
in 1993, $16,071 in 1992 and
$4,902 in 1991) (Note 10) 27,859 67,838 8,869
--------- ---------- ----------
75,930 126,232 53,197
Costs and expenses:
Cost of sales 15,819 21,764 16,521
Research and development (including contract
revenue-related expenses of $9,414 in 1993,
$11,871 in 1992 and $4,275 in 1991) 66,113 106,633 71,701
Marketing, general and administrative (including
contract revenue-related expenses of $2,327
in 1993, $3,176 in 1992, and $1,608 in 1991) 35,864 87,438 88,782
Charge for acquired research and
development (Note 11) - - 70,147
Charges related to HA-1A inventory 3,500 64,877 -
Restructuring charges (Note 17) 9,387 15,266 -
--------- ---------- ----------
130,683 295,978 247,151
Other Income (expenses):
Litigation settlement (Note 2) - (11,245) -
Interest income 4,192 8,446 11,776
Interest expense (20,087) (19,798) (11,354)
Net loss on long-term investments (Note 12) (2,477) (1,126) -
Minority interest and other (1,254) (677) (2,023)
--------- ---------- ----------
(19,626) (24,400) (1,601)
Net loss ($74,379) ($194,146) ($195,555)
========= ========== ==========
Net loss per share ($1.79) ($4.90) ($5.72)
========= ========== ==========
Weighted average number of shares
outstanding 41,482 39,623 34,172
========= ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1993 1992 1991
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows used for operating activities:
Net loss ($74,379) ($194,146) ($195,555)
Adjustments to reconcile net loss to net cash
used for operating activities:
Charge for acquired research and development - - 70,147
Inventory and restructuring charges 7,773 80,143 -
Litigation charges (1,245) 1,245 -
Net loss on long-term investments 2,477 1,126 -
Depreciation and amortization 25,804 24,217 18,176
Amortization of deferred income (268) (39) (71)
Minority interest and other 1,157 189 1,115
Changes in assets and liabilities:
Related party receivables - - 8,015
Accounts and contracts receivables 490 1,385 (6,778)
Interest receivable 1,296 2,714 (2,349)
Inventory (591) (9,197) (41,476)
Prepaid expenses (1,606) (4,438) (3,943)
Other current assets 529 2,388 502
Intangible and other assets (1,759) 2,741 (4,438)
Accounts payable 2,753 (12,650) 5,821
Unearned revenue 152 2,837 -
Accrued expenses and other liabilities (5,157) (7,802) 13,494
Other long-term liabilities 277 (531) 301
--------- ---------- ----------
Net cash used for operating activities (42,297) (109,818) (137,039)
Cash flows from (used for) investing activities:
Net sales (purchases) of investments 35,197 87,293 (131,277)
Net purchases of fixed assets (2,008) (18,168) (31,129)
Proceeds from sale of St. Louis facility 11,913 - -
Acquisition of interests in limited partnerships - (12,375) (3,465)
Acquisition of stock of Mercia Diagnostics Limited - (8,700) -
Other - - 1,544
--------- ---------- ----------
Net cash from (used for) investing activities 45,102 48,050 (164,327)
Cash flows from financing activities:
Net proceeds from issuance of Common Stock 23,123 67,726 80,272
Proceeds from issuance of long-term debt and notes payable 2,500 15,931 251,534
Reduction of long-term debt and notes payable (9,453) (2,015) (35,745)
Distribution to minority interest - (756) (183)
--------- ---------- ----------
Net cash from financing activities 16,170 80,886 295,878
Effect of foreign currency translation (1,261) (1,508) 1,248
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 17,714 17,610 (4,240)
Beginning cash and cash equivalents 28,496 10,886 15,126
--------- ---------- ----------
Ending cash and cash equivalents $ 46,210 $ 28,496 $ 10,886
========= ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Net unrealized Cumulative
--------------- Additional loss on foreign currency
Number Par Paid in marketable translation
of Shares Value Capital Deficit securities adjustments
--------- ----- -------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 27,998 $280 $319,968 ($160,969) $ - $ 9,385
Issued upon exercise of options and
warrants or as stock grants 4,349 44 75,438 - - -
Issued to employee benefit plan 11 - 257 - - -
Vested pursuant to
restricted stock award plan 134 1 1,638 - - -
Issued upon conversion of convertible
debentures 3,132 31 23,188 - - -
Issued upon acquisition of
Tocor (Note 11) 2,057 21 68,979 - - -
Translation adjustments for the period - - - - - 1,321
Net loss - - - (195,555) - -
------ ---- -------- ---------- -------------- ----------------
Balance at December 31, 1991 37,681 377 489,468 (356,524) - 10,706
Issued to Eli Lilly and
Company (Note 3) 2,000 20 49,980 - - -
Issued upon exercise of options and
warrants or as stock grants 1,334 13 17,474 - - -
Issued to employee benefit plan 9 - 479 - - -
Warrants issued in Tocor II
transaction (Note 8) - - 14,625 - - -
Vested pursuant to
restricted stock award plan 168 2 3,046 - - -
Translation adjustments for the period - - - - - (4,799)
Net loss - - - (194,146) - -
------ ---- -------- ---------- -------------- ----------------
Balance at December 31, 1992 41,192 412 575,072 (550,670) - 5,907
Issued to Wellcome, plc (Note 3) 2,000 20 19,980 - - -
Issued upon exercise of options and
warrants or as stock grants 329 3 2,908 - - -
Issued to employee benefit plan 57 1 970 - - -
Vested pursuant to
restricted stock award plan 94 1 2,208 - - -
Translation adjustments for the period - - - - - (992)
Unrealized loss on marketable securities - - - - (635) -
Net loss - - - (74,379) - -
------ ---- -------- ---------- -------------- ----------------
Balance at December 31, 1993 43,672 $437 $601,138 ($625,049) ($635) $ 4,915
====== ==== ======== ========== ============== ================
</TABLE>
25
<PAGE>
Notes to Consolidated Financial Statements
Note 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries and joint ventures.
Investments
-----------
The Company classifies investments with original maturities of three months
or less as cash equivalents. Investments with maturities of one year or less are
classified as short-term.
Short-term marketable securities are carried at cost, which approximates
market value. Long-term debt securities which the Company has the ability and
intent to hold until maturity are carried at cost. Long-term marketable equity
securities are carried at the lower of cost or market value.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" which must be adopted by the Company beginning January 1,
1994. The Company does not expect the effect of adoption of this statement to
be material to its financial statements.
Inventory
---------
Inventory is stated at the lower of cost or market using the first-in,
first-out method for diagnostic product inventories and the average cost method
for pharmaceutical product inventories.
Inventories have various expiration dates. Reserves are provided for
inventories which are likely to expire prior to sale or are likely to be
otherwise not available for sale.
Fixed Assets and Depreciation
-----------------------------
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 31 years. Leasehold improvements are amortized over the applicable
lease period or their estimated useful lives, whichever is shorter. Maintenance
and repairs are charged to expense, and major renewals and improvements are
capitalized.
Intangible Assets
-----------------
Intangible assets are stated at cost, net of accumulated amortization.
Amortization is provided using the straight-line method over the estimated
useful lives of the assets, generally 10 to 20 years. Intangible assets at
December 31, 1993 and 1992 were $9,364,000 and
26
<PAGE>
Notes to Consolidated Financial Statements
$11,560,000, respectively, net of accumulated amortization of $3,666,000 and
$5,583,000 at December 31, 1993 and 1992, respectively.
Revenue Recognition
-------------------
For contracts under which the Company is reimbursed for expenses, revenue is
recognized as the related expenses are incurred. Non-refundable fees or
milestone payments in connection with research and development or
commercialization agreements are recognized when they are earned in accordance
with the applicable performance requirements and contractual terms. Payments
received which are related to future performance are deferred and recognized as
revenue over the specified future performance periods.
Sales revenues are recognized at the time the goods are shipped or when title
to the goods passes to the buyer.
Income Taxes
------------
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
adoption of SFAS 109 had no impact on the Company's financial statements. See
Note 13.
Per Share Data
--------------
Per share data are based upon the modified treasury stock method and are
calculated using the weighted average number of outstanding shares of Common
Stock. Common Stock issuable upon the exercise of stock options or warrants and
upon the vesting of restricted stock awards are included in the per share
calculations only to the extent their inclusion would have an aggregate
dilutive effect. Common Stock issuable upon conversion of convertible debt
securities are included only in the fully diluted per share calculations to the
extent their inclusion would have a dilutive effect.
Foreign Currency Translation
----------------------------
Assets and liabilities of subsidiaries denominated in foreign currencies are
translated at rates in effect at the appropriate year-end. The revenues and
expenses of such subsidiaries are translated at average rates for the period of
operation. The differences resulting from such translation as compared to the
equity of such subsidiaries translated at historical rates are included in
cumulative foreign currency translation adjustments, a separate component of
shareholders' equity.
27
<PAGE>
Notes to Consolidated Financial Statements
Note 2
COMMITMENTS AND CONTINGENCIES
Liquidity and Capital Resources
The Company's future financial condition is highly dependent upon the
reduction of the Company's rate of net cash outflows and, ultimately, upon the
achievement of significant and sustained levels of pharmaceutical product sales.
The Company will need to secure significant additional capital in the future
from collaborative arrangements with pharmaceutical companies or from the
capital markets until significant and sustained levels of pharmaceutical sales
are achieved. There can be no assurance that significant additional capital
will be available to the Company. There also can be no assurance that the
Company will materially reduce its current rate of net cash outflows or generate
significant and sustained levels of pharmaceutical product sales. The FDA has
not approved any of the Company's pharmaceutical products for marketing. There
can be no assurance that FDA or other regulatory approvals of any of the
Company's products will be obtained. Failure to obtain timely FDA or other
regulatory approvals of pharmaceutical products will have a material adverse
effect on the Company. The status of the Company's major pharmaceutical products
is discussed below.
The Company has been implementing a business plan employing a collaborative
strategy utilizing, among other things, alliances with established
pharmaceutical companies. The Company's ability to further reduce its current
rate of net cash outflows is also dependent upon the extent to which it can
expand collaborations with established pharmaceutical companies and achieve
milestones under such collaborative agreements. No assurance can be given that
such collaborations can be expanded or that such milestones can be achieved.
At December 31, 1993, the Company had cash, cash equivalents and investments
of $140,028,000, including equity investments of $11,230,000. During the year
ended December 31, 1993, the Company had negative cash flows from operations of
$42,297,000. The Company's total cash flows in 1993 included $30,000,000
received from Wellcome of which $20,000,000 was received for the purchase of
2,000,000 shares of the Company's Common Stock. Additionally, cash flows in 1993
included the proceeds of $11,900,000 from the sale of the Company's St. Louis
facility and the repayment of $5,800,000 of mortgage debt related to that
facility. If the Exchange Offer which is discussed in Note 18 had been
consummated as of December 31, 1993, the Company's cash and investment balance
at December 31, 1993 would have been $191,522,000.
At December 31, 1992, the Company had cash, cash equivalents, and investments
of $163,083,000, including equity investments of $12,924,000. During the year
ended December 31, 1992, the Company had negative cash flows from operations of
$109,818,000 and acquired $23,309,000 of fixed assets. Cash flows from
operations for the year ended December 31, 1992 included $50,000,000 received
from Lilly primarily for reimbursement of expenses associated with HA-1A.
Additionally, during 1992, the Company expended $12,375,000 to purchase the
limited partnership interests in
28
<PAGE>
Notes to Consolidated Financial Statements
CPII, $8,700,000 to acquire all the outstanding shares of capital stock of
Mercia, a European diagnostics manufacturing and sales company, and $10,000,000
in connection with the settlement of certain class action securities litigation.
These cash outflows were partially offset by cash inflows which included the
receipt of $50,000,000 from Lilly for the purchase of 2,000,000 shares of the
Company's Common Stock and $15,931,000 from borrowings under loan agreements.
During the year ended December 31, 1991, the Company had negative cash flows
from operations of $137,039,000 and acquired $31,129,000 of fixed assets. Also
during 1991, the Company received significant cash inflows from financing
activities, principally the net proceeds of $224,537,000 from the issuance of
the Company's 7-1/4 percent Notes and 6-3/4 percent Debentures. During the years
ended December 31, 1992 and 1991, the Company received $17,726,000 and
$80,272,000, respectively, from the exercise of warrants and options to purchase
shares of the Company's Common Stock. The extent and timing of future warrant
and option exercises, if any, are primarily dependent upon the market price of
the Company's Common Stock and general financial market conditions, as well as
the exercise prices and expiration dates of the warrants and options.
Agreements covering $20,402,000 of the Company'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. The Company has obtained waivers of certain of such covenants on the
condition that it maintain certain investments at the lending bank, which at
December 31, 1993 totalled $20,000,000. There can be no assurance that the
Company will be able to continue to collateralize such loans and, accordingly,
the Company has classified $20,402,000 of debt as short-term. Additionally,
$6,186,000 of the Company's short-term debt is secured by investments at the
lending bank of $6,375,000. If cash flows continue to be negative, the
Company's ability to service its debt may be impaired.
Status of CentoRx
The Company's therapeutic products under development include CentoRx, a
product intended to treat or prevent the formation of blood clots in the
cardiovascular system. In the first quarter of 1993, the Company completed a
randomized, double-blinded, placebo-controlled Phase III trial in high-risk
coronary angioplasty patients that enrolled 2,099 patients at 56 medical
centers. The Company filed product license applications for CentoRx in the
United States and Canada in 1993 and has filed product license applications in
several countries in Europe in 1994. There can be no assurance that CentoRx
will be approved for commercial sale in the United States, Europe or elsewhere.
See Part I Item 1 "Business - Research and Development." During the second
quarter of 1993, Lilly exercised its option to become the exclusive worldwide
distributor of CentoRx and the Company and Lilly amended their Sales and
Distribution Agreement to reflect such event. See Part I Item 1 "Business -
Marketing and Sales." Pursuant to that amendment, Lilly has assisted the
Company and will continue to assist the Company in the regulatory filings and
continued development of CentoRx for various clinical indications.
29
<PAGE>
Notes to Consolidated Financial Statements
Status of Panorex
- -----------------
Panorex, a product intended to treat colorectal cancer, 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. The Company expects to complete the filing of an
application in 1994 requesting marketing approval for Panorex in Germany. There
can be no assurance that Panorex will be approved for commercial sale in Germany
or elsewhere. During 1993, the Company and Wellcome entered into an alliance
agreement for the development and marketing of certain of the Company's
monoclonal antibody-based cancer therapeutic products, including Panorex. See
Part I Item 1 "Business - Marketing and Sales."
Status of HA-1A
HA-1A is a product intended for the treatment of patients with severe sepsis
who are dying from endotoxemia. The Company 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 the Company that there was
insufficient evidence of efficacy for approval of HA-1A at that time. In June
1992, the Company initiated a second randomized, double-blinded, placebo-
controlled, Phase III U.S. clinical trial of HA-1A in the treatment of patients
with Gram-negative bacteremia and septic shock. The Company terminated this
trial in 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. The Company 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. The Company 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.
The Company is supplying HA-1A on a limited compassionate-use basis in certain
countries in Europe. There can be no assurance that any commercial sales of HA-
1A will resume in Europe.
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
sought, among other relief, an injunction against consummation of the Exchange
Offer, the
30
<PAGE>
Notes to Consolidated Financial Statements
establishment of a "truly independent" special committee and financial advisor
to consider the Exchange Offer, and an award of damages (including rescissionary
damages), costs and plaintiff's counsel fees. No injunction was, in fact,
sought, and the Exchange Offer was made and consummated. The Company believes
that the allegations set forth in the complaint are without merit and intends to
vigorously defend the suit. The Company does not expect the effect, if any, of
the outcome of this litigation to be material to the Company's financial
condition.
In January 1993, purported security holders of the Company and/or Tocor II
filed complaints in the United States District Court for the Eastern District of
Pennsylvania against the Company, Tocor II, and certain present and former
directors and/or officers of the Company 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 1993, 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 the Company 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
the Company 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 the Company
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. The Company believes that the allegations set forth in the Complaint
are without merit and intends to vigorously defend the suit. The Company does
not expect the effect, if any, of the outcome of this litigation to be material
to the Company'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 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 the Company's securities during the
period February 19, 1991 through April 20, 1992, and who sustained damages as a
result of such purchases. All claims against the Company 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, the Company made a cash
payment of $18,000,000; in settlement of the derivative action brought on behalf
of the Company, the Company received a cash payment of $8,000,000; and in
settlement of the derivative action brought on behalf of Tocor II, the Company
and Tocor II amended certain agreements between them to provide that the Company
would, over time, forego $3,000,000 of contract payments. In connection with the
settlement, the Company recorded a charge to earnings of $11,245,000 in the
fourth quarter of 1992, representing the net cost of the proposed settlement to
the Company, including legal fees. The Company does not expect the effect, if
31
<PAGE>
Notes to Consolidated Financial Statements
any, of the outcome of any litigation resulting from those who opted out of the
class to be material to the Company's financial condition.
Other Litigation
In October 1992, the Company was served with a complaint filed by Velos in the
United States District Court for the District of Maryland. The complaint
alleges, principally, that the Company breached certain provisions of a license
agreement between Velos and the Company pursuant to which the Company has
exclusive rights to U.S. Patent No. 5,057,598, which includes claims relating to
monoclonal 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 the Company place in escrow one-half of the
amounts received by the Company pursuant to its agreements with Lilly. The
complaint does not seek to terminate or rescind any of the Company's rights
under the license agreement. The Company 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, the Company
filed its Answer, Affirmative Defenses and Counterclaim for Damages and
Equitable Relief (the "Amended Answer"). In the Amended Answer, the Company
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 the Company's counterclaims and to strike certain of Centocor's
affirmative defenses. The Company has responded to that motion. The Company
believes that the allegations of Velos are without merit and intends to
vigorously defend the suit. The Company does not expect the effect, if any, of
the outcome of this litigation to be material to the Company's financial
condition.
In May 1993, the Company 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 in its
initial public offering on January 30, 1992, brought suit against Corvas and
certain of its directors, the Company, and one of the Company'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 the Company 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
32
<PAGE>
Notes to Consolidated Financial Statements
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 the Company under Section 10(b) of the
Securities Exchange Act of 1934. The Company believes the allegations which
remain are without merit and intends vigorously to defend the suit. The Company
does not expect the effect, if any, of the outcome of this litigation to be
material to the Company's financial condition.
Partnerships
- ------------
The Company has licensed certain technology related to CentoRx and Capiscint
to CPIII and performs research and development with respect to such technology
on CPIII's behalf. CPIII holds the rights to the licensed technology and
results of the research and development efforts related thereto. The Company
has the option to acquire such rights through its option to purchase the
limited partnership interests in CPIII. The Company'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
the Company's Common Stock, and future payments generally of six percent of
sales of products developed by CPIII. If the Company exercises its CPIII
purchase option, the Company expects that it would record a significant charge
to earnings representing the purchase of in-process research and development.
See Note 3 for a discussion of the option that Lilly has exercised to become
the exclusive distributor for CentoRx, a cardiovascular product being developed
by the Company for CPIII.
The Company has entered into indemnity agreements with CPIII and the former
limited partners of CCIP and CPII pursuant to which the Company would be
obligated, under certain circumstances, to compensate these parties for the fair
market value of their respective interests under any license agreements with the
Company relating to their respective products which are lost through the
exercise by the United States Government of any of its rights relating to the
licensed technology. The amount of any such loss would be determined annually
by independent appraisal.
Royalties
The Company is required to make certain future payments to the former limited
partners of CCIP and CPII based on sales of products developed by each of the
respective partnerships, including payments to the former limited partners of
CPII based on any sales of HA-1A. Upon any exercise by the Company of its
option to acquire the limited partnership interests in CPIII,
33
<PAGE>
Notes to Consolidated Financial Statements
the Company would be required to make future payments to the former limited
partners of CPIII, including payments based on any sales of CentoRx.
The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses
and/or options to license certain technology resulting from the research,
generally require the Company to pay royalties to such institutions on the
sales of any products that utilize the licensed technology. Further, the
Company has licenses under certain patents and pays the patent holders or their
licensees royalties on sales of products covered by such patents.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
Product Liability
The testing and marketing of medical products entails an inherent risk of
product liability. The Company maintains limited product liability insurance
coverage. Such insurance is becoming increasingly difficult and expensive to
obtain. The Company's business may be adversely affected by a successful
product liability claim in excess of its insurance coverage.
Under various contractual agreements, the Company has agreed to indemnify
third parties against certain losses, including losses arising from product
liability and patent infringement claims pertaining to the Company's products.
Note 3
COLLABORATIVE ARRANGEMENTS
Relationship with Eli Lilly and Company
In July 1992, the Company and Lilly entered into various agreements pursuant
to which Lilly made certain cash payments to the Company as further described
below.
During the second quarter of 1993, Lilly exercised its option to become the
exclusive worldwide distributor of CentoRx and the Company and Lilly amended
their Sales and Distribution Agreement. As part of the amendment Lilly has
assisted the Company and will continue to assist the Company in the regulatory
filings and continued development of CentoRx for various clinical indications.
Under the Sales and Distribution Agreement, the Company is principally
responsible for developing and manufacturing HA-1A and CentoRx and for securing
regulatory approvals. Lilly is principally responsible for the marketing,
selling and distribution of HA-1A and CentoRx after regulatory approvals. If
approved, the Company will sell HA-1A and CentoRx to Lilly for Lilly's further
sale to the end market. Under certain circumstances, such as acts of God,
material breach of the agreement or bankruptcy by the Company, or in the event
the Company cannot manufacture CentoRx, Lilly has the option to assume the
manufacture of CentoRx and assure the continued supply of the product, even to
the extent of acquiring the Company's related manufacturing assets at their
independently appraised values. Lilly and the
34
<PAGE>
Notes to Consolidated Financial Statements
Company are cooperating in order to maximize the commercial potential of
CentoRx. See Note 2 for a discussion of the Company's option to acquire the
rights to CentoRx through its option to acquire the limited partnership
interests in CPIII. As further described in Note 2, the Company and Lilly
suspended sales and conducted a recall of HA-1A in Europe.
Under an Investment Agreement, Lilly acquired two million newly issued shares
of the Company's Common Stock for $50 million in 1992. The Company received an
additional $50 million from Lilly primarily for reimbursement of expenses
related to HA-1A. In 1993, Lilly paid the Company $5 million for the
achievement of certain milestones related to CentoRx and may make certain future
payments based on the achievement of additional milestones. The Company 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 the Company or in the event of any governmental action or
determination which 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.
Relationship with Wellcome plc
In 1993, Centocor and Wellcome entered into 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 up to six other potential drugs
and then market and sell any approved drugs in most parts of the world.
Under an Investment Agreement, Wellcome paid Centocor $20 million in exchange
for two million newly issued shares of the Company's Common Stock. 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 the achievement of milestones and the acquisition of certain manufacturing
technologies.
Note 4
CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents and investments consist principally of U. S. Treasury
securities and bank certificates of deposit. Short-term investments at December
31, 1993 also include equity investments with carrying values of $2,800,000.
Long-term investments also include certain equity investments with carrying
values of $8,430,000 and $12,924,000 at December 31, 1993 and December 31, 1992,
respectively.
The aggregate market value of all short-term investments at December 31, 1993
and December 31, 1992 was $76,739,000 and $121,669,000, respectively. The
aggregate market value of all long-term investments at December 31, 1993 and
December 31, 1992 was $17,156,000 and $14,523,000, respectively.
35
<PAGE>
Notes to Consolidated Financial Statements
The Company has agreed to maintain investments of $26,375,000 at December 31,
1993 at certain banks as collateral for loans from those banks. See Notes 2 and
7.
Note 5
INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31 1993 1992
------- -------
<S> <C> <C>
Raw materials $ 3,791 $ 5,431
Work in process 8,388 9,675
Finished goods 1,695 1,752
------- -------
$13,874 $16,858
======= =======
</TABLE>
Inventory at December 31, 1993 and December 31, 1992 includes $5,920,000 and
$10,387,000, respectively of certain pharmaceutical products for which the
Company has not yet obtained marketing approval, including certain raw
materials to be used in the production of such inventories. See Note 2.
Inventories have various expiration dates. The Company continually evaluates
the extent of inventory reserves considered necessary based upon the future
regulatory and commercial status of such products. There can be no assurance
that reserves for inventories will not be required in the future.
Note 6
ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1993 1992
------- -------
<S> <C> <C>
Compensation $ 5,753 $ 5,824
Interest 6,506 5,254
Severance 1,158 8,038
Product recall 1,075 4,097
Other 8,635 11,344
------- -------
$23,127 $34,557
======= =======
</TABLE>
Note 7
DEBT
Note Payable
Note payable at December 31, 1993 and 1992 consists of $6,186,000 and
$6,593,000, respectively of borrowings under short-term notes at an interest
rate of 6.4 percent per annum at December 31, 1993, payable in Dutch guilders
no later than March 28, 1994. These borrowings are secured by investments at
the lending bank of $6,375,000.
36
<PAGE>
Notes to Consolidated Financial Statements
Long-term debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31 1993 1992
--------- ---------
<S> <C> <C>
7-1/4 percent Notes $106,640 $106,640
6-3/4 percent Debentures 125,000 125,000
Mortgage Debt 16,134 22,803
Long-term Note 10,794 12,363
-------- --------
258,568 266,806
Current Portion (20,468) (28,640)
-------- --------
$238,100 $238,166
======== ========
</TABLE>
7-1/4 Percent Notes
On January 28, 1991, the Company issued $106,645,000 principal amount of 7-1/4
percent Convertible Subordinated Notes (the "7-1/4 percent Notes") due February
1, 2001. The 7-1/4 percent Notes are convertible by the holders into
approximately 3,843,000 shares of the Company's Common Stock at a conversion
price of $27.75 per share at any time prior to redemption or maturity. The 7-
1/4 percent Notes are subordinated in right of payment to senior indebtedness at
December 31, 1993 of $33,114,000 and all future senior indebtedness of the
Company, and rank pari passu with the 6-3/4 percent Debentures described below.
The 7-1/4 percent Notes are redeemable by the Company for cash in whole or in
part until February 1, 2001 at amounts ranging up to 105 percent of the
principal amount of the 7-1/4 percent Notes. The Company may be required to
redeem the 7-1/4 percent Notes at their principal amount at the option of the
holders of the 7-1/4 percent Notes in certain limited circumstances, including a
change in control of the Company.
6-3/4 Percent Debentures
On October 16, 1991, the Company issued $125,000,000 principal amount of 6-3/4
percent Convertible Subordinated Debentures (the "6-3/4 percent Debentures") due
October 16, 2001. The 6-3/4 percent Debentures are convertible by the holders
into approximately 2,049,000 shares of the Company's Common Stock at a
conversion price of $61.00 per share at any time prior to redemption or
maturity. The 6-3/4 percent Debentures are subordinated in right of payment to
senior indebtedness at December 31, 1993 of $33,114,000 and all future senior
indebtedness of the Company, and rank pari passu with the 7-1/4 percent Notes.
The 6-3/4 percent Debentures are redeemable by the Company for cash in whole or
in part until October 16, 2001 at amounts ranging up to 104 percent of the
principal amount of the 6-3/4 percent Debentures, provided that prior to October
16, 1994, the 6-3/4 percent Debentures may not be redeemed unless for 30
successive trading days ending within 15 days of the date of the redemption
notice the closing price of the Company's Common Stock as reported on the NASDAQ
National Market System is at least 130 percent of the then effective conversion
price of the 6-3/4 percent Debentures. The Company may be required to redeem
the 6-3/4 percent Debentures at their principal amount at the option of the
holders of the 6-3/4 percent Debentures in certain limited circumstances,
including a change in control in the Company.
37
<PAGE>
Notes to Consolidated Financial Statements
Mortgage Debt
Mortgage loans have been used to finance a portion of the acquisition and
expansion of certain of the Company's facilities in the United States and The
Netherlands. These loans are generally secured by the related land and
buildings. In the United States, the Company has such a loan outstanding with a
balance of approximately $6,526,000 at December 31, 1993 which bears interest at
an annual rate of 10 percent through its maturity date of May 1, 1995. A
Netherlands loan, with an outstanding balance of approximately $5,515,000 at
December 31, 1993, is payable in Dutch guilders, bears interest at an annual
rate of 8-1/4 percent through its final maturity date of September 30, 2011, and
is secured by certain equipment, inventories, and accounts receivable. At
December 31, 1993, this loan is classified as short-term (see "Loan Covenants").
In July 1993, the Company completed the sale of its St. Louis facility for
$11,900,000 and in connection therewith, repaid $5,800,000 of debt related to
this facility.
Long-term Note
The Company borrowed $10,793,000 under a 9-1/2 percent long-term note which is
payable in Dutch guilders. This loan is secured by the same assets as the
Netherlands loan discussed above. At December 31, 1993, this loan is classified
as short-term (see "Loan Covenants").
Loan Covenants
Agreements covering $20,402,000 of the Company'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. The Company has obtained waivers of certain of such covenants on the
condition that it maintains certain investments at the lending bank, which at
December 31, 1993 totalled $20,000,000. There can be no assurance that the
Company will be able to continue to collateralize such loans and, accordingly,
the Company has classified $20,402,000 of debt as short-term. Additionally,
$6,186,000 of the Company's short-term debt is secured by investments at the
lending bank of $6,375,000. If cash flows continue to be negative, the
Company's ability to service its debt may be impaired.
Other
Scheduled repayments on the mortgage debt and long-term note pursuant to the
terms of the related loan agreements are $2,304,000 for 1994, $8,707,000 for
1995, $2,247,000 for 1996, $2,251,000 for 1997, $2,256,000 for 1998 and
$9,163,000 due thereafter.
The fair market value of the Company's long-term debt at December 31, 1993,
principally determined by quoted market prices, was $192,637,000 as compared to
its carrying value of $238,100,000. The carrying amount of the Company's debt
classified as short-term at December 31, 1993 approximates its fair market
value.
38
<PAGE>
Notes to Consolidated Financial Statements
Note 8
SHAREHOLDERS' EQUITY
Capital Stock
In December 1993, the Company issued 2,000,000 shares of its Common Stock
pursuant to the terms of an agreement with Wellcome as described in Note 3.
Additionally, in August 1992, the Company issued 2,000,000 shares of its Common
Stock pursuant to the terms of an Investment Agreement with Lilly as described
in Note 3. At December 31, 1993, approximately 27,901,000 shares of Common
Stock were reserved for issuance upon exercise of warrants and stock options,
pursuant to employee retirement savings and stock award plans and agreements,
and upon conversion of convertible debt securities. Additionally, at December
31, 1993, approximately 358,000 shares of preferred stock were reserved for
issuance under a shareholder rights plan which is further described below.
Further, in March 1994, the Company issued approximately 6,793,000 shares of its
Common Stock in connection with an Exchange Offer. See Note 18.
Warrants
In January 1992, the Company and Tocor II completed the sale to the public
of 2,250,000 units, each unit consisting of one share of callable common stock
of Tocor II, one Series T warrant, and one callable warrant. The net proceeds
of the offering were used by Tocor II principally to engage the Company to
conduct research and development under contract (see Notes 10 and 18). In
connection with the issuance of the Series T warrants, the Company recorded a
deferred asset in an amount equal to the value of those warrants. Such asset
was amortized over the term of the research and development contract.
39
<PAGE>
Notes to Consolidated Financial Statements
At December 31, 1993, warrants to purchase approximately 12,833,000 shares
of the Company's 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>
5,442 Through December 31, 1994 $11.25
1,475 Through February 28, 1995 $19.33
882 Through February 28, 1995 $16.66
534 Through February 28, 1996 $10.83*
2,250 January 1, 1994 through
December 31, 1996 $64.50**
2,250 January 1, 1996 through
December 31, 1997 $49.75***
</TABLE>
* The exercise price increases by $2.50 per share for the last two years of
the exercise period.
** See Note 18.
*** These warrants are callable. The exercise price may vary depending on the
closing price of the Company's Common Stock over a certain period, but shall in
no event be less then $49.75 per share. See Note 18.
Stock Option and Restricted Stock Award Plans
The Company maintains stock option plans pursuant to which options to
purchase a total of approximately 8,650,000 shares of its Common Stock have been
authorized for grant to the Company's employees and to its non-employee
directors. Under the terms of these plans, the option exercise price may not be
less than the fair market value of the underlying stock at the time the option
is granted. The options granted under these plans generally expire upon the
earlier of the termination of the optionee's employment or service or ten years
from the date of the grant. Additionally, non-qualified stock options have been
granted to certain directors and employees of, and certain consultants to, the
Company pursuant to non-qualified stock option agreements with terms similar to
those set forth in the plans. The following table summarizes the activity with
respect to the Company's stock options (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992 1991
Options Exercise Price Options Exercise Price Options Exercise price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning
of year 5,948 $ 7.38-56.00 6,126 $ 7.38-53.50 5,202 $ 7.38-23.38
Granted 2,681 $6.50-14.125 2,974 $8.375-58.50 1,438 $19.38-53.50
Exercised (304) $7.375-12.00 (420) $ 7.38-16.00 (380) $ 7.38-15.13
Canceled (2,555) $6.875-56.00 (2,732) $ 7.38-58.50 (134) $ 7.38-32.25
------ ------------ ------ ------------ ----- ------------
Outstanding,
end of year 5,770 $ 6.50-53.50 5,948 $ 7.38-56.00 6,126 $ 7.38-52.50
====== ============ ====== ============ ===== ============
</TABLE>
During 1993 and 1992, a substantial number of outstanding options were
canceled in exchange for the grant of fewer options with an exercise price equal
to the fair market value at date of grant of $7.125 per share in 1993 and
$12.625 in 1992. At December 31, 1993, options
40
<PAGE>
Notes to Consolidated Financial Statements
to purchase a total of approximately 2,726,000 shares of Common Stock were
exercisable, and approximately 3,044,000 options become exercisable as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending December 31, Shares
- ------------------------ ------
<S> <C>
1994 996
1995 1,095
1996 533
1997 420
</TABLE>
The Company maintains a Restricted Common Stock Award Plan, pursuant to which
a total of approximately 2,000,000 shares of the Company's Common Stock have
been authorized for award to eligible employees. The number of shares awarded
in each year and the terms under which such shares vest are determined by the
Board of Directors at the time of the award. Generally, a portion of the shares
awarded vests annually over a period of five years from the date of the award.
As of December 31, 1993, awards of approximately 359,000 shares of the Company's
Common Stock were outstanding and are scheduled to vest in the following periods
(in thousands):
<TABLE>
<CAPTION>
Year ending December 31, Shares
- ------------------------ ------
<S> <C>
1994 122
1995 85
1996 67
1997 46
1998 39
</TABLE>
The terms of options unexercisable as of December 31, 1993 for an aggregate of
approximately 1,515,000 shares and restricted stock awards unvested as of
December 31, 1993 for an aggregate of approximately 229,000 shares provide for
the acceleration of the exercisability of such options and the vesting of such
restricted stock awards upon the occurrence of certain events constituting a
change in control of the Company. Further, in such event, the holders of
approximately 2,808,000 options may then choose to receive cash through the
exercise of a limited stock appreciation right in lieu of exercising their
options.
Qualified Savings and Retirement Plan
The Company maintains a Qualified Savings and Retirement Plan for the benefit
of its employees. Employees' benefits are based solely on the employees'
discretionary contributions and the Company's discretionary matching
contributions, which the Company generally makes in its Common Stock. Employee
contributions to the Plan may be invested in various instruments, including the
Company's Common Stock, at the discretion of the employee.
Shareholder Rights Plan
The Company maintains a Shareholder Rights Plan ("Rights Plan"). Under the
Rights Plan, each common shareholder receives one-half of one Right (a "Right")
for each share of Common Stock held. Each Right entitles the holder to purchase
from the Company one one-
41
<PAGE>
Notes to Consolidated Financial Statements
hundredth of a share of Series A Preferred Stock at an exercise price of $170.
The Rights will become exercisable and will detach from the Common Stock in the
event any individual or group acquires 20 percent or more of the Common Stock,
or announces a tender or exchange offer which, if consummated, would result in
the ownership by that person or group of at least 30 percent of the Common
Stock.
If, following an acquisition of 20 percent or more of the Common Stock, the
Company is acquired by any person in a merger or other business combination
transaction or sells more than 50 percent of its assets or earning power to any
person, each Right will entitle the holder to purchase, for the exercise price,
common stock of the acquiring company with a value of twice the exercise price.
In addition, if any person acquires 30 percent or more of the Common Stock, each
Right will entitle the holder, other than an acquiring person, to purchase
Common Stock of the Company with a value of twice the exercise price. The
Rights also provide for protection against self-dealing transactions by a 20
percent shareholder.
The Company may redeem the Rights at $.02 per Right at any time until the
tenth day after the acquisition by a person or group beneficially owning 20
percent or more of its Common Stock. The Rights will expire on September 26,
1998 unless earlier redeemed.
Note 9
GEOGRAPHIC AND CUSTOMER INFORMATION
<TABLE>
<CAPTION>
Geographic Information (in thousands)
Identifiable
Year ended December 31, Revenue Loss assets
<S> <C> <C> <C>
1993
United States $ 66,655 $ (72,601) $211,411
Europe 9,275 (1,778) 69,628
-------- --------- --------
$ 75,930 $ (74,379) $281,039
======== ========= ========
1992
United States $108,181 $(184,547) $272,312
Europe 18,051 (9,599) 76,956
-------- --------- --------
$126,232 $(194,146) $349,268
======== ========= ========
1991
United States $ 45,142 $(194,625) $362,389
Europe 8,055 (930) 110,540
-------- --------- --------
$ 53,197 $(195,555) $472,929
======== ========= ========
</TABLE>
In January 1992, the Company acquired, for approximately $8,700,000 in cash,
all of the outstanding shares of Mercia. The transaction was recorded as a
purchase and resulted in $6,711,000 of goodwill which is being amortized over a
20-year period. The totals for Europe in the above table include the operations
of Mercia from January 1992.
Customer Information
Sales to three distributors of the Company's diagnostic products accounted
for 42 percent, 40 percent, and 48 percent of total product sales in 1993, 1992,
and 1991, respectively.
42
<PAGE>
Notes to Consolidated Financial Statements
Approximately 88 percent, 90 percent, and 83 percent of total product sales in
1993, 1992, and 1991, respectively, are attributable to shipments to customers
outside of the United States.
Note 10
CONTRACT REVENUES
Lilly Related
-------------
For the years ended December 31, 1993 and 1992, the Company recognized
$5,000,000 and $50,000,000, respectively, of revenues pursuant to the Company's
agreements with Lilly as further described in Note 3.
Wellcome Related
----------------
During the year ended December 31, 1993, the Company recognized $10,000,000
of revenues pursuant to the Company's agreements with Wellcome as further
described in Note 3.
Related Party Research & Development
------------------------------------
During 1992 and 1993, the Company conducted research and development under
contract with Tocor II. Under the contract, the Company received reimbursement
of its costs plus a management fee. Such revenues were recorded net of
amortization of deferred costs resulting from the issuance of warrants to Tocor
II Unitholders (see Note 8). Additionally, the Company recorded revenue of
$2,500,000 in 1992 representing a non-refundable fee from Tocor II in connection
with the license of certain technology by the Company to Tocor II. The Company
amended the contract and a services agreement between the Company and Tocor II,
in accordance with the settlement of the litigation described in Note 2, and
reduced the management fee the Company is to receive in connection with the
Tocor II research program from 10 percent to 5 percent. See Note 18 for a
discussion of an exchange offer which resulted in the termination of the
research and development contract and services agreement.
In 1991, the Company performed research and development services under
contracts with Tocor and CPII. In 1991, the Company acquired the callable
common stock of Tocor and in 1992, the limited partnership interests in CPII.
43
<PAGE>
Notes to Consolodated Financial Statements
Revenues and expenses, including general and administrative expenses, related
to the research programs of Tocor II, Tocor, and CPII were as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Revenues:
CPII $ - $ - $ 879
Tocor - - 4,023
Tocor II 10,109 16,071 -
------- ------- ------
$10,109 $16,071 $4,902
======= ======= ======
Expenses:
CPII $ - $ - $ 768
Tocor - - 5,115
Tocor II 11,741 15,047 -
------- ------- ------
$11,741 $15,047 $5,883
======= ======= ======
</TABLE>
Not included in the above table are expenses of $19,389,000,
$27,675,000, and $47,392,000, for the years ended December 31, 1993, 1992, and
1991, respectively, representing aggregate CPII, CPIII, and Tocor research costs
funded by the Company in order to continue the progress of the research
programs and to preserve the value of its purchase options (see Notes 2 and 11).
Other
The Company has entered into various commercialization agreements
under which it has recognized revenues from non-refundable fees or milestone
payments in support of its research and development efforts. Revenues recorded
under these agreements amounted to $2,750,000, $1,767,000, and $3,606,000, for
the years ended December 31, 1993, 1992, and 1991, respectively.
Note 11
CHARGE FOR ACQUIRED RESEARCH AND DEVELOPMENT
In June 1991, the Company issued approximately 2,057,000 shares of its
Common Stock as payment of the Tocor option exercise price of $69,000,000.
Additionally, the Company purchased the remaining 105,000 outstanding shares of
Tocor callable common stock for $2,520,000 from directors of Tocor who acquired
such Tocor shares through exercise of stock options granted to them under the
Tocor 1989 Directors' Non-Qualified Stock Option Plan, which was approved by
Tocor stockholders in 1990.
The cost of the above transaction has been allocated principally to
the Tocor technology acquired, and the Company recorded a charge to earnings in
the second quarter of 1991 of $70,147,000 representing the purchase of in-
process research and development.
44
<PAGE>
Notes to Consolodated Financial Statements
Note 12
OTHER INCOME (EXPENSES)
During 1992, the Company recorded a charge to earnings of $11,245,000
in connection with the settlement of certain class action securities litigation
(see Note 2). During 1993 and 1992, the Company recorded a charge to earnings
of $2,477,000 and $2,296,000, respectively, representing an unrealized loss due
to the other than temporary decline in the market value of marketable equity
investments below the Company's cost for such investments. Other income
(expenses) in 1992 include gains of $1,170,000 from sales of the Company's
investments. Other income (expenses) also includes the CPIII share of the
earnings of the joint venture between the Company and CPIII.
Note 13
INCOME TAXES
Differences between the Company's (benefit) for income taxes for 1993, 1992,
and 1991 and that computed by applying the statutory Federal income tax rate
consist of the following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
--------- ---------- ----------
<S> <C> <C> <C>
Statutory Federal income tax benefit
based upon loss before income taxes $(26,033) $(66,010) $(66,489)
Charges for acquired research and development - - 23,850
Taxes exempt on income of foreign sales corporation - - (691)
Benefit not recorded 26,033 65,116 43,246
Other items, including certain
non-deductible expenses - 894 84
-------- -------- --------
$ - $ - $ -
======== ======== ========
</TABLE>
The Company recorded a charge for acquired research and development of
$70,147,000 in 1991, which was not fully deductible for tax purposes in the year
incurred. The ultimate amount and timing of the deductions related to this
charge is uncertain; however, the Company believes that a portion of the charge
may be deductible for tax purposes over the estimated useful life of the related
technology acquired. At December 31, 1993, the tax effect of the Company's
federal net tax loss carryforwards was $117,681,000 with expiration dates
ranging from 2005 to 2008. Additionally, at December 31, 1993, the Company had
research and development tax credits of $3,576,000 with expiration dates ranging
from 1999 to 2007, and minimum tax credits of $381,000, which do not expire.
Further, the tax effect of inventory reserves that are not currently deductible
at December 31, 1993 were $20,682,000.
Realization of net deferred tax assets related to these items is dependent on
future earnings, which are uncertain. Accordingly, a valuation reserve was
recorded by the Company and, therefore, the Company had no net deferred tax
assets at December 31, 1993.
45
<PAGE>
Notes to Consolodated Financial Statements
Note 14
LEASES
The Company is lessee under various non-cancelable operating leases, covering
certain of the Company's facilities and equipment. The facility leases
generally provide for the Company to pay all taxes and operating costs
associated with the facility.
The aggregate minimum rental commitments of leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1994 $2,414,000
1995 1,945,000
1996 1,363,000
1997 1,378,000
1998 1,294,000
Thereafter 5,224,000
</TABLE>
Rent expense was $5,428,000, $9,665,000, and $6,412,000 for the years ended
December 31, 1993, 1992, and 1991, respectively.
Note 15
SUPPLEMENTAL INFORMATION ON CASH FLOWS
Interest paid, net of amounts capitalized of $800,000 in 1991, was
$19,421,000, $19,703,000, and $6,405,000, in 1993, 1992 and 1991, respectively.
Income tax payments of $46,000, $70,000 and $270,000 were made in 1993, 1992
and 1991, respectively.
Cash used for the purchases of investments as well as the cash received upon
the maturities and sales of investments were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Purchases $(168,643) $(135,603) $(273,298)
Maturities and sales 203,840 222,896 142,021
--------- --------- ---------
$ 35,197 $ 87,293 $(131,277)
========= ========= =========
</TABLE>
During 1992, the Company issued warrants to purchase 4,500,000 shares of
Common Stock, resulting in a noncash increase to additional paid-in capital of
$14,625,000. As further described in Note 11, the Company's exercise of its
option to purchase the callable common
46
<PAGE>
Notes to Consolodated Financial Statements
stock of Tocor resulted in a noncash increase to additional paid-in capital of
$68,979,000 in 1991. During 1992, the Company acquired $2,134,000 of fixed
assets by assuming the related debt obligation.
Note 16
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
In thousands except per share data
Three Months Ended March 31 June 30 September 30 December 31
- ------------------ -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1993
Total revenues $14,978 $13,753 $16,729 $30,470
Sales 11,684 10,918 12,048 13,421
Gross profit from sales 7,790 6,935 8,206 9,321
Net loss (25,529)(1) (26,022)(1) (15,804) (7,024)(2)
Net loss per share ($ .62) ($ .63) ($ .38) ($.17)
1992
Total revenues $21,722 $20,465 $50,683 $33,362
Sales 16,121 15,981 17,294 8,998
Gross profit from sales 10,227 9,493 10,692 6,218
Net loss (45,848)(2) (39,643) (18,995)(3) (89,660)(2)(3)(4)
Net loss per share ($1.20) ($1.02) ($.47) ($2.18)
</TABLE>
(1) During the first and second quarters of 1993, the Company recorded
restructuring charges of $4,273,000 and $5,114,000, respectively, representing
reserves for fixed assets no longer used or subsequently disposed in the first
quarter and severance related costs in the second quarter (See Note 17).
(2) During the first and fourth quarters of 1992 and the fourth quarter of 1993,
the Company recorded reserves of $9,000,000 and $55,877,000, and $3,500,000,
respectively, relating to HA-1A inventories (see Note 2).
(3) During the third and fourth quarters of 1992, the Company recorded
restructuring charges of $7,861,000 and $7,405,000, respectively, representing
principally severance costs.
(4) During the fourth quarter of 1992 the Company recorded a charge to earnings
of $11,245,000 in connection with the settlement of certain litigation (see Note
2).
47
<PAGE>
Notes to Consolodated Financial Statements
Note 17
RESTRUCTURING CHARGES
During 1993 and 1992, the Company recorded restructuring charges of
$9,387,000 and $15,266,000, consisting principally of severance-related costs
incurred in connection with the further downsizing of its workforce and reserves
for certain fixed assets which are no longer used or have been subsequently
disposed. As a result of the downsizing of the Company's staff and present level
of operations, the Company currently maintains idle facilities and equipment.
The Company continually evaluates the future needs for its facilities and
equipment. There can be no assurance that reserves to further reduce the
carrying value of certain fixed assets or other restructuring charges will not
be required in the future.
Note 18
SUBSEQUENT EVENT
In February 1994, the Company initiated an Exchange Offer, pursuant to
which the Company offered to exchange 3.2 shares of its Common Stock for each of
the 2,250,000 outstanding Tocor II Units tendered. Each Unit consists of one
share of callable common stock of Tocor II, one callable warrant to purchase one
share of Centocor Common Stock and one Series T warrant to purchase one share of
Centocor Common Stock (the "Warrants"). No fractional shares of Centocor Common
Stock will be issued. The expiration date of the Exchange Offer was March 11,
1994. With respect to the Tocor II Units not tendered, the Company would issue
2.88 shares of its Common Stock in exchange for the remaining Tocor II callable
common stock in a merger transaction which is expected to be completed by March
31, 1994 (the "Second-Step Transaction"). Non-tendering Tocor II Unitholders
would retain their Warrants.
On March 11, 1994, the Company accepted 94 percent of the Tocor II Units
tendered pursuant to the Exchange Offer, and the Company exchanged 3.2 shares of
its Common Stock for each Tocor II Unit tendered. As a result of the Exchange
Offer and the Second-Step Transaction, the Company will issue approximately
7,159,000 shares of its Common Stock. The transaction will be accounted for as a
purchase and the Company will allocate the excess of the consideration paid over
the net assets of Tocor II to the value of the acquired research and
development. The Company will record a charge to earnings in the first quarter
of 1994 of approximately $36,454,000 representing principally the cost of
acquired research and development. The unaudited pro forma condensed balance
sheet, assuming the Exchange Offer was consummated as of December 31, 1993, and
statement of operations data excluding the
48
<PAGE>
Notes to Consolodated Financial Statements
charge for acquired research and development assuming the Exchange Offer was
consummated as of January 1, 1993, would have been as follows:
<TABLE>
<CAPTION>
<S> <C>
(in thousands except per share data)
Balance Sheet Data December 31, 1993
- -------------------------------------- -----------------
Cash and short-term investments $174,366
Other current assets 29,735
Fixed assets, net 84,683
Long-term and other assets 34,582
--------
$323,366
========
Current liabilities $ 59,338
Long-term debt 238,100
Other long-term liabilities 2,023
Minority interest 4,901
Shareholders' equity 19,004
--------
$323,366
========
</TABLE>
<TABLE>
<CAPTION>
For the year ended
Statement of Operations Data December 31, 1993
- ---------------------------- -----------------
<S> <C>
Revenues $ 65,821
Loss $(83,143)
Loss per share $(1.72)
</TABLE>
49
<PAGE>
REPORT OF MANAGEMENT
The consolidated financial statements presented in this report have been
prepared by the Company's management in conformity with generally accepted
accounting principles from the Company's financial records. The Company's
management is responsible for all information and representations made in those
financial statements and for their integrity and objectivity. In those cases
where judgment and best estimates are necessary, appropriate consideration is
given to materiality in the preparation of the financial statements. The
Company's management has also prepared the other information in this report and
is responsible for its accuracy and consistency with the financial statements.
The Company's management has designed systems of internal accounting
controls to provide reasonable, but not absolute, assurance that assets are
safeguarded from unauthorized use or disposition, and that transactions are
recorded according to management's policies and procedures. The concept of
reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the costs of
such systems should not exceed the benefits to be derived. These systems are
continually reviewed and modified, where appropriate, to maintain such
assurance. Additionally, in connection with their annual audit, independent
auditors perform examinations in accordance with generally accepted auditing
standards, which include a review of the system of internal accounting controls
to the extent necessary in order to determine the nature, timing, and extent of
audit tests to be applied on the financial statements. The Company's management
believes that the Company's system of internal accounting controls is adequate
to accomplish the objectives discussed herein.
The selection of the Company's independent auditors, KPMG Peat Marwick, has
been approved by the Company's Board of Directors. An Audit Committee of the
Board of Directors, composed of three non-management directors, meets with, and
reviews the activities of, corporate financial management and the independent
auditors to ascertain that each is properly discharging its responsibilities.
The independent auditors also meet separately with the Audit Committee without
management present, to discuss the results of their work, the adequacy of
internal accounting controls, and the quality of financial reporting.
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, Centocor, Inc.:
We have audited the accompanying consolidated balance sheets of Centocor, Inc.
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1993. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits 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
misstatements. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Centocor, Inc. and
subsidiaries as of December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick
Philadelphia, Pennsylvania
March 11, 1994
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
DIRECTORS OF THE REGISTRANT
The following table sets forth, as of March 1, 1994, information as to the
directors of the Company, including their recent employment, positions with the
Company, other directorships and age. Directors are elected to serve one-year
terms.
<TABLE>
<CAPTION>
Name, Principal Occupations and Year First
Businesses During Last Five Years Elected
and Other Current Directorships Age Director
- ------------------------------- --- --------
<S> <C> <C>
Anthony B. Evnin........... 52 1980
General Partner of Venrock Associates,
a venture capital limited partnership.
Director, AgriDyne Technologies Inc.,
ARRIS Pharmaceutical Corporation, Athena
Neurosciences, Inc., BioSurface Technology,
Inc., Dianon Systems, Inc., Genetics
Institute, Inc., IDEXX Laboratories, Inc.,
Intelligent Surgical Lasers, Inc.,
Kopin Corporation, Opta Food Ingredients,
Inc. and Sepracor, Inc.
William F. Hamilton........ 54 1985
Landau Professor of Management and
Technology at the Wharton School of the
University of Pennsylvania. Director,
Hunt Manufacturing Co., Marlton
Technologies, Inc. and Neose
Pharmaceuticals, Inc.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Name, Principal Occupations and Year First
Businesses During Last Five Years Elected
and Other Current Directorships Age Director
- ------------------------------- --- --------
<S> <C> <C>
Antonie T. Knoppers......... 79 1986
Self-employed business consultant.
Former President, Chief Operating Officer
and Vice Chairman, Merck & Co., Inc.,
a research-based health products company.
Trustee, The Salk Institute. Director,
Agouron Pharmaceuticals, Inc.
Hubert J.P. Schoemaker...... 43 1983
Chairman of the Board since November 1987;
Chief Executive Officer of the
Company from November 1987 to
October 1992; President of the Company
from 1983 to 1987. Director, Alkermes, Inc.,
Corvas International, Inc. and Safeguard
Scientifics, Inc.
Lawrence Steinman.......... 46 1991
Professor of Neurology and Neurological
Sciences and Pediatrics, Stanford
University School of Medicine since 1991
and Associate Professor of Neurology,
Pediatrics and Genetics, Stanford University
School of Medicine from 1985 to
1991.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Name, Principal Occupations and Year First
Businesses During Last Five Years Elected
and Other Current Directorships Age Director
- ------------------------------- --- --------
<S> <C> <C>
Jean C. Tempel.............. 50 1993
Executive Vice President, Safeguard
Scientifics, Inc., an entrepreneurial
technology company, manager of Safeguard
Scientifics, Inc.'s New England
activities, and Managing Director of
Technology Leaders L.P., a venture capital
fund, since November 1993; President and
Chief Operating Officer of Safeguard
Scientifics, Inc. from January 1992 to
November 1993; Principal, Tempel
Partners, Inc., a management consulting
firm, from 1991 to January 1992;
Executive Vice President and Chief
Operations Officer, The Boston Company, a
bank trust company, from 1988 to 1990.
Director, Cambridge Technology Partners
Inc., CompuCom Systems Inc. and Safeguard
Scientifics Inc.
</TABLE>
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the officers and directors of a corporation, such as the Company,
that has a class of equity securities registered under Section 12 of the
Exchange Act, file reports of their ownership of such securities, as well as
monthly statements of changes in such ownership, with the Securities and
Exchange Commission (the "Commission") and the National Association of
Securities Dealers, Inc. Based upon written representations received by the
Company from its officers and directors, and the Company's review of the monthly
statements of changes filed with the Commission by its officers and directors
during 1993, the Company believes that following Ms. Tempel's election as a
director of the Company, the Company did not timely file a Form 3 on her behalf.
54
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who are elected to serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David P. Holveck 48 President and Chief Executive
Officer
Stephen D. Hayter 55 Executive Vice President -
Diagnostics Division
Bobba Venkatadri 50 Executive Vice President -
Pharmaceutical Division
Timothy P. Cost 34 Senior Vice President - Investor
Relations and Strategic Operations
Martin R. Page 49 Senior Vice President - Worldwide
Regulatory Affairs
James N. Woody 51 Senior Vice President, Chief
Scientific Officer and Director -
Research and Development Division
</TABLE>
Mr. Holveck has been associated with Centocor since June 1983, as President
and Chief Executive Officer since November 1992, as President and Chief
Operating Officer from April 1992 to October 1992, as Executive Vice President
and President - Diagnostics Division from December 1988 to April 1992, and as
Executive Vice President - In Vitro Diagnostic Products from April 1987 to
December 1988.
Mr. Hayter has been associated with Centocor since February 1993 as
Executive Vice President - Diagnostics Division. Previously, Mr. Hayter was
Executive Vice President and General Manager for the Americas and Far East for
the Diagnostics Division of Cambridge Biotech, Inc., a biotechnology company,
from January 1991 to January 1993, and President of ADI Diagnostics, Inc., an
in-vitro diagnostics company, from June 1987 to January 1991.
Mr. Venkatadri has been associated with Centocor since March 1992, as
Executive Vice President - Pharmaceutical Division since August 1992, and as
Vice President - Pharmaceutical Manufacturing from March 1992 to August 1992.
Previously, Mr. Venkatadri was Senior Director of Pharmaceutical Operations for
Warner-Lambert Puerto Rico, Inc., a division of Warner-Lambert Company, from
October 1990 to February 1992, and President and Director
55
<PAGE>
of P. T. Warner-Lambert Indonesia, an affiliate of Warner-Lambert Company, from
March 1988 to October 1990.
Mr. Cost has been associated with Centocor since January 1994, as Senior
Vice President - Investor Relations and Strategic Operations. Previously, Mr.
Cost was Director of Investor Relations for Eastman Kodak Company from October
1991 to December 1993, and Director of Strategic Planning for Worldwide
Manufacturing for Eastman Kodak Company from June 1989 to October 1991.
Mr. Page has been associated with Centocor since September 1987, as Senior
Vice President - Worldwide Regulatory Affairs since August 1992, as Vice
President - Worldwide Regulatory Affairs from June 1990 to August 1992, and as
Vice President - International Regulatory Affairs from September 1987 to June
1990.
Dr. Woody has been associated with Centocor since August 1991, as Chief
Scientific Officer since August 1992, and as Senior Vice President and Director
- - Research and Development since August 1991. Previously, Dr. Woody served as
Commanding Officer of the U.S. Navy Medical Research and Development Command
from 1988 to 1991 and Director and Commanding Officer of the U.S. Navy Medical
Research Unit No. 3, Cairo, Egypt from 1985 to 1988.
56
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth, for the fiscal years ended December 31,
1993, 1992 and 1991, the cash compensation paid by the Company, as well as
certain other compensation paid with respect to those years, to each of the five
most highly compensated key policy-making executive officers of the Company in
all capacities in which they served. Cash bonuses are stated in the year for
which they are awarded, whether paid or accrued.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Restricted Underlying
Name and Annual Stock Options/ LTIP All Other
Principal Compensa- Award(s) SARs Payouts Compensation
Position Year Salary($) Bonus($) tion ($) ($)(1) (#)(2) ($) ($)(3)
--------- --- --------- -------- ---------- ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David P. Holveck 1993 $279,000 $50,000 $ 80,000 174,000 $6,146
President and Chief 1992 $238,000 - - $220,000 50,000 $5,829
Executive Officer 1991 $179,000 $65,000 - $294,750 50,000 $2,543
Stephen D. Hayter(4) 1993 $151,000 $30,000 $79,491(8) $125,000 70,000 $5,101
Executive Vice President 1992 - - - - - -
Diagnostics Division 1991 - - - - - -
Bobba Venkatadri(5) 1993 $200,000 $30,000 - $ 40,000 60,000 $4,832
Executive Vice President 1992 $135,000 $10,000 - $ 65,000 70,000(7) $4,553
Pharmaceutical Division 1991 - - - - - -
Martin R. Page 1993 $183,000 $12,500 - $ 40,000 40,000 $4,660
Senior Vice President, 1992 $178,000 - - - 25,200(7) $4,682
Worldwide Regulatory 1991 $160,000 $16,000 - $326,125 - -
Affairs
James N. Woody(6) 1993 $241,000 $20,000 - $ 80,000 110,000 $5,657
Senior Vice President, 1992 $213,000 - - $165,000 20,000 $5,148
Chief Scientific Officer 1991 $ 75,000 $50,000 - $488,750 120,000 $2,044
and Director - Research
and Development Division
</TABLE>
57
<PAGE>
(1) The 35,000 shares awarded to Mr. Holveck under the Company's 1983
Restricted Common Stock Award Plan (the "1983 Award Plan") during the three
fiscal years ended December 31, 1993 vest 20% each year for five consecutive
years after the award. At December 31, 1993, Mr. Holveck held unvested awards
under the 1983 Award Plan for an aggregate of 36,200 shares with a market value
of $429,875.
The 15,000 shares awarded to Mr. Hayter under the 1983 Award Plan during
the fiscal year ended December 31, 1993 vest 20% each year for five consecutive
years after the award. At December 31, 1993, Mr. Hayter held unvested awards
under the 1983 Award Plan for an aggregate of 15,000 shares with a market value
of $178,125.
The 10,000 shares awarded to Mr. Venkatadri under the 1983 Award Plan
during the two fiscal years ended December 31, 1993 vest 20% each year for five
consecutive years after the award. At December 31, 1993, Mr. Venkatadri held
unvested awards under the 1983 Award Plan for an aggregate of 9,000 shares with
a market value of $106,875.
The 12,500 shares awarded to Mr. Page under the 1983 Award Plan during the
three fiscal years ended December 31, 1993 vest 20% each year for five
consecutive years after the award. At December 31, 1993, Mr. Page held unvested
awards under the 1983 Award Plan for an aggregate of 13,100 shares with a market
value of $155,565.
The 32,000 shares awarded to Dr. Woody under the 1983 Award Plan during the
three fiscal years ended December 31, 1993 vest 20% each year for five
consecutive years after the award. At December 31, 1993, Dr. Woody held
unvested awards under the 1983 Award Plan for an aggregate of 25,600 shares with
a market value of $304,000.
The vesting of all of the foregoing unvested shares may be accelerated
under certain events constituting a change in control of the Company.
The Company has not paid any dividends on its Common Stock and does not
expect to pay any dividends in the foreseeable future.
(2) All of the options granted to Mr. Holveck, Mr. Hayter and Dr. Woody in the
three fiscal years ended December 31, 1993, the 60,000 options granted to Mr.
Venkatadri in 1993, and the 40,000 options granted to Mr. Page in 1993, were
granted in tandem with limited stock appreciation rights.
(3) All of such amounts constitute contributions made by the Company to the
Company's Qualified Savings and Retirement Plan for the accounts of the named
executive officers.
(4) Mr. Hayter joined the Company on February 16, 1993.
(5) Mr. Venkatadri joined the Company on March 2, 1992.
58
<PAGE>
(6) Dr. Woody joined the Company on August 1, 1991.
(7) Although Mr. Venkatadri was granted an aggregate of 110,000 options during
1992, 30,000 of such options were granted in exchange for 40,000 options at a
higher exercise price which were surrendered pursuant to an Option Exchange
Program (the "1992 Exchange Program"). The 40,000 options surrendered pursuant
to the 1992 Exchange Program were granted to Mr. Venkatadri in 1992. While such
1992 Exchange Program was not offered to executive officers of the Company, Mr.
Venkatadri was permitted to participate since he was not an executive officer at
the time such 1992 Exchange Program was offered.
Although Mr. Page was granted an aggregate of 33,200 options during 1992,
5,200 of such options were granted in exchange for 8,000 options at a higher
exercise price which were surrendered pursuant to the 1992 Exchange Program. The
8,000 options surrendered pursuant to the 1992 Exchange Program were granted to
Mr. Page in 1992. While such 1992 Exchange Program was not offered to executive
officers of the Company, Mr. Page was permitted to participate since he was not
an executive officer at the time such 1992 Exchange Program was offered.
(8) Of such amount, $68,202 and $11,289 constituted relocation expenses and an
automobile allowance, respectively.
59
<PAGE>
Stock Options and Stock Appreciation Rights
The following table sets forth information concerning the grant of stock
options and tandem limited stock appreciation rights under the Company's 1987
Non-Qualified Stock Option Plan to the executive officers named in the Summary
Compensation Table during the fiscal year ended December 31, 1993:
Option/LSAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Potential Realizable Value
Securities % of Total at Assumed Annual Rates of
Underlying Options/LSARs Stock Price Appreciation for
Options/LSARs Granted Expira- Option Term
Granted to Employees Exercise tion ---------------------------
Name (#)(1)(5) in Fiscal Year(2) Price ($/Sh)(3) Date(4) 5% ($) 10% ($)
---- ------------- ----------------- --------------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
David P. Holveck 4,000(6) .2% $7.625 7/28/03 $ 19,200 $ 48,600
150,000(7) 5.8% $7.125 5/13/03 $672,100 $1,703,300
20,000(8) .8% $6.875 3/3/03 $ 86,500 $ 219,100
Stephen D. Hayter 30,000(7) 1.2% $7.125 5/13/03 $134,400 $ 340,700
40,000(9) 1.5% $ 6.50 2/16/03 $163,500 $ 414,400
Bobba Venkatadri 40,000(7) 1.5% $7.125 5/13/03 $179,200 $ 454,200
20,000(8) .8% $6.875 3/3/03 $ 86,500 $ 219,100
Martin R. Page 30,000(7) 1.2% $7.125 5/13/03 $134,400 $ 340,700
10,000(8) .4% $6.875 3/3/03 $ 43,200 $ 109,600
James N. Woody 50,000(7) 1.9% $7.125 5/13/03 $224,000 $ 567,800
60,000(8) 2.3% $6.875 3/3/03 $259,400 $ 657,400
</TABLE>
(1) The exercisability of all of the options will accelerate upon the occurrence
of certain events constituting a change in control of the Company.
(2) 670,406 of the options granted to employees in 1993 were granted in exchange
for 791,377 options at higher exercise prices which were surrendered pursuant to
a 1993 Option Exchange Program.
(3) The price payable upon exercise of options may be paid in cash, property,
services rendered, or, under certain circumstances, in shares of the Company's
Common Stock having a fair market value equal on the date of exercise to the
exercise price, or any combination thereof.
(4) Each of the options generally expires upon the earlier of six months after
the employee's termination of employment or the expiration date noted above.
60
<PAGE>
(5) All of the options were granted in tandem with limited stock appreciation
rights ("LSARs"). LSARs may be exercised only upon the occurrence of certain
events constituting a change in control of the Company, only during the 30-day
period following shareholder approval of any such event (but may not in any
event be exercised for six months after the date of grant of the LSAR), and will
be exercisable only if and to the extent that the options to which they relate
are exercisable. For each share for which an LSAR is exercised, the optionee
will receive an amount in cash equal to the difference between (1) the exercise
price per share of the option to which the LSAR relates and (2) the fair market
value per share of the Common Stock issuable upon exercise of the option on the
date the LSAR is exercised.
(6) Such options first become exercisable as to one-half of the option shares
on July 28, 1995, one-quarter of the option shares on July 28, 1996, and one-
quarter of the option shares on July 28, 1997.
(7) Such options first become exercisable as to one-half of the option shares
on May 13, 1995, one-quarter of the option shares on May 13, 1996, and one-
quarter of the option shares on May 13, 1997.
(8) Such options first become exercisable as to one-half of the option shares
on March 3, 1995, one-quarter of the option shares on March 3, 1996, and one-
quarter of the option shares on March 3, 1997.
(9) Such options first become exercisable as to one-half of the option shares
on February 16, 1995, one-quarter of the option shares on February 16, 1996, and
one-quarter of the option shares on February 16, 1997.
Aggregated Option/LSAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/LSAR Values
None of the executive officers named in the Summary Compensation Table
exercised any options during the fiscal year ended December 31, 1993. The
following table sets forth
61
<PAGE>
information with respect to the unexercised options and LSARs held by each of
those executive officers as of the end of such fiscal year:
Aggregated FY-End Option/LSAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Options/LSARs Value of Unexercised In-the-Money
at FY-End (#) Options/LSARs at FY End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
David P. Holveck 212,500(1) 211,500(1) $380,300 $832,950
Stephen D. Hayter -- 70,000(1) -- $357,500
Bobba Venkatadri 19,000 111,000(2) $ 26,125 $291,375
Martin R. Page 87,000 46,200(3) $197,125 $193,875
James N. Woody 79,000(1) 171,000(1) $ 26,125 $538,875
</TABLE>
(1) All of such options were granted in tandem with LSARs.
(2) 60,000 of such options were granted in tandem with LSARs.
(3) 40,000 of such options were granted in tandem with LSARs.
BOARD OF DIRECTORS
- ------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors maintains a standing Compensation Committee,
currently consisting of Dr. Evnin, Dr. Hamilton, and Dr. Knoppers. The
Compensation Committee is responsible for reviewing matters pertaining to the
compensation of the executive officers of the Company.
No member of the Compensation Committee is, or was at any time, a member of
the Company's management. During the fiscal year ended December 31, 1993, no
executive officer of the Company served on the Compensation Committee (or other
board committee performing equivalent functions) of any other entity, one of
whose executive officers is a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION OF DIRECTORS
Each director who was not an employee of the Company was compensated in the
amount of $2,000 for each of five Board of Directors' meetings attended at the
Company's Malvern, Pennsylvania offices, $3,000 for one Board of Directors'
meeting attended at the Company's facility in Leiden, The Netherlands, and
$1,000 for three telephonic Board of Directors' meetings attended during 1993.
Each director who was not an employee of the Company was also granted options to
purchase 15,000 shares of the Company's Common Stock during 1993.
62
<PAGE>
In addition, upon joining the Board of Directors in 1993, Ms. Tempel was granted
additional options to purchase 1,250 shares of the Company's Common Stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------------------------------------------------------------
MANAGEMENT
----------
The following table sets forth, as of March 1, 1994, information as to the
number of shares of the Company's Common Stock owned by each director, each
executive officer named in the Summary Compensation Table in this Annual Report,
and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned as
of March 1, 1994
---------------------
Percent of
Shares of Total if
Common Greater
Stock(1) than 1%
----------- ----------
<S> <C> <C>
Anthony B. Evnin 152,202 --
William F. Hamilton 100,974 --
Antonie T. Knoppers 71,832 --
Hubert J.P. Schoemaker 804,023 1.8%
Lawrence Steinman 16,600 --
Jean C. Tempel 2,975 --
David P. Holveck 270,577 --
Stephen D. Hayter 5,800 --
Bobba Venkatadri 35,756 --
James N. Woody 84,933 --
Martin R. Page 103,051 --
All directors and
current executive
officers as a group 1,648,723 3.7%
</TABLE>
63
<PAGE>
(1) Includes shares with respect to which such persons have the right to acquire
beneficial ownership within 60 days of March 1, 1994.
As indicated on a copy of Schedule 13G furnished to the Company under the
Securities Exchange Act of 1934 (the "1934 Act") by Ardsley Advisory Partners
("Ardsley"), an investment advisor, 646 Steamboat Road, Greenwich, CT 06830, as
of March 1, 1994 Ardsley shared dispositive and voting power with respect to
3,589,200 shares of the Company's Common Stock, or 8.2% of such shares
outstanding at the time. Ardley shares the power to vote or direct the vote of
such shares and the power to dispose or direct the disposition of such shares
with various of its clients for whom the share were purchased.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
TRANSACTIONS INVOLVING MANAGEMENT
At various times in 1993, various executive officers were awarded or vested
in shares awarded pursuant to the 1983 Award Plan and were granted options
pursuant to the 1987 Option Plan.
The Company has arrangements with all executive officers other than Mr.
Holveck pursuant to which each will receive severance payments of twelve months
compensation in certain cases in the event of termination of his or her
employment by the Company. The Company has an arrangement with Mr. Holveck
pursuant to which he will receive a lump-sum payment of twelve months
compensation in certain cases in the event of termination of his employment by
the Company.
The terms of options unexercisable as of March 1, 1994, for an aggregate of
1,617,835 shares and restricted common stock awards unvested as of March 1,
1994 for an aggregate of 235,985 shares granted to all executive officers and
certain other employees of the Company provide for the acceleration of the
exercisability of such options and the vesting of such common stock awards upon
the occurrence of certain events constituting a change in control of the
Company.
In 1993, the Company made a research grant of approximately $37,500 to Dr.
Steinman's laboratory at Stanford University to support research of Dr. Steinman
and others. Dr. Steinman also provides consulting services to the Company under
a consulting agreement. The Company pays Dr. Steinman $60,000 per year for
services rendered under such agreement.
In 1993, the Company loaned Mr. Hayter $115,000 to cover certain expenses
he incurred in relocating to join the Company. Mr. Hayter fully repaid such
loan in 1993.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- --------------------------------------------------------------
ON FORM 8-K
-----------
(a) Documents filed as part of the Report:
(1) (i) Financial Statements of Centocor Partners III, L.P.:
Balance Sheets, December 31, 1993 and 1992.
64
<PAGE>
Statements of Operations for the Years Ended December 31,
1993, 1992 and 1991.
Statements of Cash Flows for the Years Ended December 31,
1993, 1992 and 1991.
Statements of Partners' Capital for the Years Ended
December 31, 1993, 1992 and 1991.
Notes to Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedules:
Schedule I - Marketable Securities - Other Investments.
Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees other than Related Parties.
Schedule V - Property, Plant and Equipment.
Schedule VI - Accumulated Depreciation, Depletion, and Amortization of
Property, Plant and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement Information.
Schedules, other than those listed above, have been omitted because of
the absence of conditions under which they are required or because the
required information is included in the financial statements or the
notes thereto.
(3) Exhibits:
3.1 Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to Form S-1 Registration Statement, File No. 2-
80098).
3.2 Statement of Reduction of Authorized Shares filed September 19,
1983 (incorporated by reference to Exhibit 3.2 to Registrant's
65
<PAGE>
Annual Report on Form 10-K for the year ended December 31, 1986).
3.3 Statement of Reduction of Authorized Shares filed January 19,
1984 (incorporated by reference to Exhibit 3.3 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1986).
3.4 Articles of Amendment filed April 18, 1984 (incorporated by
reference to Exhibit 3.4 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1986).
3.5 Statement of Reduction of Authorized Shares filed February 25,
1985 (incorporated by reference to Exhibit 3.5 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1986).
3.6 Statement of Reduction of Authorized Shares filed May 6, 1985
(incorporated by reference to Exhibit 3.6 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1986).
3.7 Statement of Reduction of Authorized Shares filed October 23,
1985 (incorporated by reference to Exhibit 3.7 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1986).
3.8 Articles of Amendment filed April 16, 1987 (incorporated by
reference to Exhibit 3.8 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987).
3.9 Articles of Amendment filed April 21, 1988 (incorporated by
reference to Exhibit 3.9 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1988).
3.10 Articles of Amendment filed April 26, 1988 (incorporated by
reference to Exhibit 3.10 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1988).
3.11 Statement Re Series A Preferred Stock filed October 11, 1988
(incorporated by reference to Exhibit 3.11 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988).
66
<PAGE>
3.12 Articles of Amendment filed April 13, 1990 (incorporated by
reference to Exhibit 3.12 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1990).
3.13 Articles of Amendment filed April 26, 1991 (incorporated by
reference to Exhibit 3.13 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1991).
3.14 Statement of Correction filed October 16, 1991 to Articles of
Amendment filed April 26, 1991 (incorporated by reference to
Exhibit 3.14 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991).
3.15 By-Laws of Registrant, as amended October 30, 1992 (incorporated
by reference to Exhibit 3.15 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
4.1 Specimen Certificate for Common Stock (incorporated by reference
to Exhibit 4 to Amendment No. 1 to Form S-1 Registration
Statement, File No. 2-80098).
4.2 Form of Warrant Issued to Purchasers of Limited Partnership
Interests in CPIII (incorporated by reference to Exhibit 4.5 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
4.3 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 8-K dated September 26, 1988).
4.4 Form of Warrant Issued to Purchasers of Units, each Unit
consisting of one share of Tocor Callable Common Stock and one
warrant to purchase one share of Centocor Common Stock
67
<PAGE>
(incorporated by reference to Exhibit 4.6 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989).
4.5 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).
4.6 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).
4.7 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).
4.8 Form of Debenture Issued to Purchasers of 6-3/4% Convertible
Subordinated Debentures Due October 16, 2001 (included in Exhibit
4.9) (incorporated by reference to Exhibit 4.3 to Form S-3
Registration Statement, Reg. No. 33-44231).
4.9 Form of Series T Warrant Issued to Purchasers of Units, each Unit
consisting of one share of Tocor II 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 (incorporated by reference to Exhibit 4.2 to Amendment No.
4 to Form S-1/S-3 Registration Statement of Tocor II and
Centocor, Reg. No. 33-44072).
4.10 Form of Callable Warrant Issued to Purchasers of Units, each Unit
consisting of one share of Tocor II 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 (incorporated by reference to Exhibit 4.3 to Amendment No.
4 to Form S-1/S-3 Registration Statement of Tocor II and
Centocor, Reg. No. 33-44072).
10.1* Form of Non-Qualified Stock Option Agreement (incorporated by
reference to Exhibit 10.01 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987).
68
<PAGE>
10.2* Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.03 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1986).
10.3* 1983 Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.04 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1986).
10.4* 1983 Restricted Common Stock Award Plan, as amended and restated.
10.5* 1987 Non-Qualified Stock Option Plan, as amended and restated
(incorporated by reference to Exhibit 10.05 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990).
10.6* 1989 Non-Employee Directors' Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.06 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.7 Lease Agreement for property located at Great Valley Parkway,
Malvern, PA 19355 (incorporated by reference to Exhibit 10.07 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.8 Partnership Purchase Option Agreement among Centocor, Inc., CCIP,
Centocor Development Corporation I, each Class A limited partner
and the Class B limited partner, dated September 12, 1985
(incorporated by reference to Exhibit 10.53 to Registrant's Post
Effective Amendment No. 1 to Form S-1 Registration Statement,
File No. 2-95057).
10.9 Indemnity Agreement between Centocor, Inc. and CCIP, dated
September 12, 1985 (incorporated by reference to Exhibit 10.71 to
Registrant's Post Effective Amendment No. 1 to Form S-1
Registration Statement, File No. 2-95057).
10.10 Qualified Savings and Retirement Plan, as amended and restated
(incorporated by reference to Exhibit 10.14 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.11 Partnership Purchase Option Agreement among Centocor, Inc., CPII,
Centocor Development Corporation II, each Class A limited
69
<PAGE>
partner and the Class B limited partner, dated December 17, 1986
(incorporated by reference to Exhibit 10.23 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1986)
10.12 Indemnity Agreement between Centocor, Inc. and CPII, dated
December 17, 1986 (incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1986).
10.13 Consent Decree of Permanent Injunction in U.S. v. Centocor, Inc.
et al., Civil Action No. 85-5613, in the United States District
Court for the Eastern District of Pennsylvania (incorporated by
reference to Exhibit 10.60 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1985).
10.14 CPIII Agreement of Limited Partnership, dated December 23, 1987
as amended and restated on January 15, 1988 and March 23, 1988
(incorporated by reference to Exhibit 10.26 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988).
10.15 Cross License Agreement between CPIII and Centocor, Inc., dated
December 23, 1987 (incorporated by reference to Exhibit 10.38 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.16 Amendment dated March 23, 1988 to Cross License Agreement between
CPIII and Centocor, Inc. dated December 23, 1987 (incorporated by
reference to Exhibit 10.28 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1988).
10.17 Development Agreement between CPIII and Centocor, Inc., dated
December 23, 1987 (incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.18 Amendment dated March 23, 1988 to Development Agreement between
CPIII and Centocor, Inc. dated December 23, 1987 (incorporated by
reference to Exhibit 10.30 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1988).
10.19 Joint Venture Agreement between CPIII and Centocor, Inc., dated
December 23, 1987 (incorporated by reference to Exhibit 10.40 to
70
<PAGE>
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.20 Amendment dated March 23, 1988 to Joint Venture Agreement between
CPIII and Centocor, Inc. dated December 23, 1987 (incorporated by
reference to Exhibit 10.32 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1988).
10.21 Indemnity Agreement between CPIII and Centocor, Inc., dated
December 23, 1987 (incorporated by reference to Exhibit 10.41 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.22 Inducement Agreement among Centocor, Inc., CPIII, Centocor
Development Corporation III, PaineWebber Development Corporation,
PaineWebber, Inc. and PaineWebber R&D Partners II, L.P., dated
December 23, 1987 (incorporated by reference to Exhibit 10.42 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.23 Amendment dated March 23, 1988 to Inducement Agreement among
Centocor, Inc., CPIII, Centocor Development Corporation III,
PaineWebber Development Corporation, PaineWebber, Inc. and
PaineWebber R&D Partners II, L.P. dated December 23, 1987
(incorporated by reference to Exhibit 10.35 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988).
10.24 Partnership Purchase Option Agreement among Centocor, Inc.,
CPIII, Centocor Development Corporation III, and the Class C
limited partner, dated December 23, 1987 (incorporated by
reference to Exhibit 10.43 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987).
10.25 Amendment dated March 23, 1988 to Partnership Purchase Option
Agreement among Centocor, Inc., CPIII, Centocor Development
Corporation III and the Class C limited partner dated December
23, 1987 (incorporated by reference to Exhibit 10.37 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988).
10.26 Technology License Agreement between Centocor, Inc. and Tocor II,
Inc. dated January 21, 1992 (incorporated by reference to Exhibit
10.1 to Amendment No. 2 to Form S-1/S-3 Registration Statement of
Tocor II and Centocor, Reg. No. 33-44072).
71
<PAGE>
10.27 Research and Development Agreement between Centocor, Inc. and
Tocor II, Inc., dated January 21, 1992 (incorporated by
reference to Exhibit 10.2 to Amendment No. 2 to Form S-1/S-3
Registration Statement of Tocor II and Centocor, Reg. No. 33-
44072).
10.28 Purchase Option Agreement by and among Centocor, Inc.,
PaineWebber Incorporated, The First Boston Corporation, Hambrecht
& Quist Incorporated and J. P. Morgan Securities Inc. dated
January 21, 1992 (incorporated by reference to Exhibit 10.3 to
Amendment No. 5 to Form S-1/S-3 Registration Statement of Tocor
II and Centocor, Reg. No. 33-44072).
10.29 Services Agreement between Centocor B.V. and Tocor II, Inc. dated
January 21, 1992 (incorporated by reference to Exhibit 10.4 to
Amendment No. 2 to Form S-1/S-3 Registration Statement of Tocor
II and Centocor, Reg. No. 33-44072).
10.30 Administrative Agreement between Centocor, Inc. and Tocor II,
Inc. dated January 21, 1992 (incorporated by reference to Exhibit
10.5 to Form S-1/S-3 Registration Statement of Tocor II and
Centocor, Reg. No. 33-44072).
10.31 Series E, F and G Preferred Stock Purchase Agreement dated as of
November 20, 1991 between Centocor Delaware, Inc. and Corvas
International, Inc. (incorporated by reference to Exhibit 10.28
to Form S-1 Registration Statement of Corvas International, Inc.
Reg. No. 33-44555).
10.32 Sales and Distribution Agreement between Centocor, Inc. and Eli
Lilly and Company dated July 15, 1992. (The Registrant has
requested confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.) (incorporated by
reference to Exhibit 10.32 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
10.33 Reimbursement Agreement between Centocor, Inc. and Eli Lilly and
Company dated July 15, 1992. (The Registrant has requested
confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.) (incorporated by
reference to Exhibit 10.33 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
10.34 Investment Agreement between Centocor, Inc. and Eli Lilly and
Company dated July 15, 1992. (The Registrant has requested
confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.) (incorporated by
reference to Exhibit 10.34 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
72
<PAGE>
10.35 Amendment to Sales and Distribution Agreement among Centocor,
Inc., Centocor B.V. and Eli Lilly and Company dated June 27,
1993. (The Registrant has requested confidential treatment from
the Securities and Exchange Commission for portions of this
Agreement.)
10.36 Option Agreement between Centocor B.V. and Eli Lilly Nederland
B.V. dated August 20, 1993. (The Registrant has requested
confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.)
10.37 Deed of Mortgage from Centocor B.V. to Eli Lilly Nederland B.V.
dated August 26, 1993.
10.38 Deed of Pledge from Centocor B.V. to Eli Lilly Nederland B.V.
dated August 26, 1993.
10.39 Stock Purchase Agreement made as of December 16, 1993 by and
between the Registrant and The Wellcome Foundation Limited
(incorporated by reference to Exhibit 10(a) to the Registrant's
Current Report on Form 8-K dated December 16, 1993).
10.40 Supply, Distribution and Sales Agreement dated December 16, 1993
by and among the Registrant, Centocor B.V., The Wellcome
Foundation Limited and Burroughs Wellcome Co. (The Registrant
has requested confidential treatment from the Securities and
Exchange Commission for portions of this Agreement.)
(incorporated by reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K dated December 16, 1993).
10.41 Clinical and Regulatory Development Agreement dated December 16,
1993 among the Registrant, Centocor B.V., The Wellcome Foundation
Limited and Burroughs Wellcome Co. (The Registrant has requested
confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.) (incorporated by
reference to Exhibit 10(c) to the Registrant's Current Report on
Form 8-K dated December 16, 1993).
10.42 Manufacturing Technology Option Agreement dated as of December
16, 1993 among the Registrant, Centocor B.V., The Wellcome
Foundation Limited and Burroughs Wellcome Co. (The Registrant
has requested confidential treatment from the Securities and
Exchange Commission for portions of this Agreement.)
73
<PAGE>
(incorporated by reference to Exhibit 10(d) to the Registrant's
Current Report on Form 8-K dated December 16, 1993).
10.43 Centocor Technology License Agreement dated as of December 16,
1993 among the Registrant, Centocor B.V., The Wellcome Foundation
Limited and Burroughs Wellcome Co. (The Registrant has requested
confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.) (incorporated by
reference to Exhibit 10(e) to the Registrant's Current Report on
Form 8-K dated December 16, 1993).
10.44 Relicense Agreement dated as of December 16, 1993 among the
Registrant, Centocor B.V., The Wellcome Foundation Limited and
Burroughs Wellcome Co. (incorporated by reference to Exhibit
10(f) to the Registrant's Current Report on Form 8-K dated
December 16, 1993).
10.45 Appendix A - Glossary of Terms to each of the Agreements dated as
of December 16, 1993 by and between the Registrant, Centocor
B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co.
(The Registrant has requested confidential treatment from the
Securities and Exchange Commission for portions of this
Agreement.) (incorporated by reference to Exhibit 10(g) to the
Registrant's Current Report on Form 8-K dated December 16, 1993).
12 Statement re Computation of Ratios.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
*These exhibits constitute compensatory plans.
(b) The Registrant has filed the following reports on Form 8-K since the
beginning of the quarter ended December 31, 1993:
Date of Report Item Covered
-------------- ------------
December 16, 1993 5,7
December 23, 1993 5,7
March 11, 1994 2,7
74
<PAGE>
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form S-8,
Nos. 2-86486, 33-16285, 33-00167, 33-35731, 33-23480, 33-16284, and 33-35730.
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 Securities Act
of 1933 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.
75
<PAGE>
Centocor Partners III, L.P.
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1993 1992
---- ----
<S> <C> <C>
Assets
Investment in joint venture (Note 5) $ 507,140 $ 503,765
=========== ===========
Liabilities and partners' capital
Current liabilities:
Accounts payable and accrued expenses $ 37,907 $ 36,907
Due to Centocor, Inc. (Note 6) 4,134,126 6,595,790
----------- -----------
4,172,033 6,632,697
Partners' capital (Note 4) (3,664,893) (6,128,932)
----------- -----------
Total liabilities and partners' capital $ 507,140 $ 503,765
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
76
<PAGE>
Centocor Partners III, L.P.
Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended December 31,
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues:
Interest income $ - $ - $ 18,915
Equity in earnings of
joint venture (Note 5) 3,375 128,571 68
------------ ------------ ------------
3,375 128,571 18,983
Costs and Expenses:
Research and development (Note 6) 19,875,000 28,366,000 17,716,000
Interest - - 547,665
Amortization - 115,705 220,716
General and administrative 7,336 6,090 49,769
------------ ------------ ------------
19,882,336 28,487,795 18,534,150
------------ ------------ ------------
Loss $(19,878,961) $(28,359,224) $(18,515,167)
============ ============ ============
</TABLE>
See accompanying Notes to Financial Statements.
77
<PAGE>
Centocor Partners III, L.P.
Statements of Partners' Capital
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
----------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1990 $1,480,774 $ (989,773) $ 491,001
Contributions - 16,232,000 16,232,000
Distributions (71,942) (727) (72,669)
Loss (791,175) (17,723,992) (18,515,167)
---------- ------------ ------------
Balance, December 31, 1991 617,657 (2,482,492) (1,864,835)
Contributions - 24,246,634 24,246,634
Distributions (149,992) (1,515) (151,507)
Earnings (Loss) 6,708 (28,365,932) (28,359,224)
---------- ------------ ------------
Balance, December 31, 1992 474,373 (6,603,305) (6,128,932)
Contributions - 22,343,000 22,343,000
Loss (3,921) (19,875,040) (19,878,961)
---------- ------------ ------------
Balance, December 31, 1993 $ 470,452 $ (4,135,345) $ (3,664,893)
========== ============ ============
</TABLE>
See accompanying Notes to Financial Statements.
78
<PAGE>
Centocor Partners III, L.P.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31,
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows used for operating activities:
Loss $(19,878,961) $(28,359,224) $(18,515,167)
Amortization - 115,705 220,716
Change in interest receivable - - 7,591
Change in due to Centocor, Inc. (2,461,664) 4,050,042 (3,514,875)
Change in accounts payable and accrued expenses 1,000 (65,184) 26,347
Equity in earnings of joint venture (3,375) (3,304) (68)
------------ ------------ ------------
Net cash used for operating activities (22,343,000) (24,261,965) (21,775,456)
Cash flows from investing activities:
Maturities of short-term investments - - 390,000
------------ ------------ ------------
Net cash from investing activities - - 390,000
Cash flows from financing activities:
Collections on notes receivable from partners - - 13,226,772
General partner capital contributions 22,343,000 24,246,634 16,232,000
Distributions to partners - (151,507) (72,669)
Repayment of note payable to joint venture - - (500,000)
Repayment of long-term debt - - ( 7,388,889)
------------ ------------ ------------
Net cash from financing activities 22,343,000 24,095,127 21,497,214
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents - (166,838) 111,758
Cash and cash equivalents at beginning of year - 166,838 55,080
------------ ------------ ------------
Cash and cash equivalents at end of year $ - $ - $ 166,838
============ ============ ============
</TABLE>
See accompanying Notes to Financial Statements.
79
<PAGE>
Centocor Partners III, L.P.
Notes to Financial Statements
- -----------------------------
1. Organization and Business Operations
------------------------------------
Centocor Partners III, L.P. (the "Partnership"), was formed in December
1987, and is managed by its general partner, Centocor Development Corporation
III, a wholly owned subsidiary of Centocor, Inc. ("Centocor"), a Pennsylvania
corporation, which is subject to the reporting requirements of the Securities
and Exchange Act of 1934. The Partnership was organized to develop and derive
income from the sale of one therapeutic product (CentoRx) and one imaging
product (Capiscint) which are expected to be used in the treatment and
diagnosis, respectively, of two different types of cardiovascular disease.
In 1987 and 1988, the Partnership and Centocor sold (a) 542.25 units,
consisting of 111 Class C limited partnership interests and 431.25 Class A
limited partnership interests each together with warrants to purchase shares of
Centocor common stock, and (b) one Class B limited partnership interest together
with warrants to purchase shares of Centocor common stock. The purchase prices
were $90,000 for the Class C interests, $100,000 for the Class A interests and
$150,000 for the Class B interest.
The net proceeds from the sale of limited partnership interests were used
primarily to pay expenses incurred under the Partnership's agreement with
Centocor (the "Development Agreement") to perform research and development for
the Partnership (see Note 6).
The Partnership also entered into a Cross License Agreement pursuant to
which Centocor granted to the Partnership an exclusive license to use all patent
rights, know-how, technical information and biological materials owned or
controlled by Centocor within the Partnership's field of activity. Under the
Cross License Agreement, the Partnership agreed to grant to Centocor an
exclusive royalty-free license to all patent rights, know-how, technical
information and biological materials arising from research and development
conducted under the Development Agreement for all purposes outside of the
Partnership's field of activity.
The profits and losses of the Partnership are generally allocated 1 percent
to the general partner and 99 percent to the limited partners. Research and
development costs in excess of the limited partners' capital contributions are
allocated to the general partner. The general partner is permitted but not
required to make additional capital contributions for the working capital of the
partnership (see Note 6).
80
<PAGE>
2. Summary of Significant Accounting Policies
------------------------------------------
Investment in Joint Venture
---------------------------
The Partnership accounts for its investment in the joint venture (see Note
5) under the equity method of accounting.
Income Taxes
------------
Income or loss credited to the partners' capital accounts is reportable for
income tax purposes by the partners; therefore, no provision for income taxes
has been made in the accompanying financial statements. The Partnership's tax
returns are subject to examination by federal and state taxing authorities.
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, certain amounts may be
subject to change at a later date upon final determination by the respective
taxing authorities.
3. Bank Debt
---------
In 1987, the Partnership borrowed $9,500,000 to fund certain syndication
and organization costs and to make a working capital contribution to the joint
venture. The outstanding balance of the loan was repaid on September 30, 1991.
Interest paid in 1991 was $547,665.
4. Partnership Purchase Option
---------------------------
Centocor has entered into a Partnership Purchase Option Agreement with each
of the limited partners. Under its terms, Centocor has the option to purchase
each limited partnership interest upon the earlier of (a) the limited partners
having received distributions from the joint venture (see Note 5) equal to 15
percent of their capital contributions to the Partnership and the expiration of
at least 24 months after the first commercial sale of products by the joint
venture or (b) the expiration of at least 48 months after the first commercial
sale of products by the joint venture; but, in any event, not prior to the
expiration of the then applicable long-term capital gains holding period after
the expenditure by Centocor of all funds paid to it pursuant to the Development
Agreement. There have not been any sales of the Partnership's products. The
ability of Centocor to exercise this option is highly dependent upon the future
financial condition of Centocor.
If Centocor exercises the Partnership Purchase Option, each limited partner
will enter into a Partnership Purchase Agreement with Centocor which sets forth
the terms by which Centocor will purchase the limited partnership interests.
Under the terms of the Partnership Purchase Agreement, the aggregate purchase
price for the limited partnership interests would be payable as follows: (a) an
advance payment of $13,598,000 in cash (or, at Centocor's option, $15,229,000 in
Centocor common stock), and (b) quarterly payments equal to certain
81
<PAGE>
percentages of revenue to Centocor from sales of the Partnership's products, or
products of Centocor or its affiliates which are competitive, or sold in
combination, with the Partnership's products. Beginning with the 12th calendar
quarter after the calendar quarter in which the advance payment is made,
Centocor's payment to the limited partners will be reduced by 25 percent of the
amount which the limited partners would otherwise have received until Centocor
has recouped the amount of the advance payment.
5. Joint Venture
-------------
The Partnership and Centocor have formed a joint venture for the purpose of
commercializing any products developed within the Partnership's field of
activity. The joint venture agreement provides that Centocor shall manufacture
the products on behalf of the joint venture for its actual costs of
manufacturing. Under the joint venture agreement, Centocor also provides
marketing services for the joint venture for a commission of 17 percent of joint
venture sales and receives 10 percent of joint venture sales as reimbursement
for its management and administrative services. The profits and losses of the
joint venture are to be allocated 75 percent to Centocor and 25 percent to the
Partnership.
The joint venture will terminate upon the occurrence of certain events,
principally related to the exercise or expiration of the purchase option granted
to Centocor (see Note 4).
On July 15, 1992, Centocor and Eli Lilly and Company ("Lilly") entered into
a Sales and Distribution Agreement, pursuant to which, Lilly has the option to
be the exclusive distributor for CentoRx world-wide. Pursuant to the Agreement,
the Joint Venture recognized $500,000 of revenue in 1992 related to the CentoRx
option. During the second quarter of 1993, Lilly exercised its option to become
the exclusive worldwide distributor for CentoRx and Centocor and Lilly amended
their Sales and Distribution Agreement. As part of the amendment, Lilly
assisted Centocor and will continue to assist Centocor in the regulatory filings
and continue development of CentoRx for various clinical indications.
Status of CentoRx
------------------
CentoRx is a product intended to treat or prevent the formation of blood
clots in the cardiovascular system. In the first quarter of 1993, Centocor
completed a randomized, double-blinded, placebo-controlled Phase III trial in
high-risk coronary angioplasty patients that enrolled 2,099 patients at 56
medical centers. Centocor filed product license applications for CentoRx in the
United States and Canada in 1993 and has filed product license applications in
several countries in Europe in 1994. There can be no assurance that CentoRx
will be approved for commercial sale in the United States, Europe or elsewhere.
6. Research Funding
----------------
The initial funding by the limited partners for the Partnership's
research program pursuant to the Development Agreement with Centocor was
exhausted in 1990. In order to
82
<PAGE>
continue the research program, the Partnership extended the terms of the
Development Agreement with Centocor. Approximately $64,166,000 of the
Partnership's research costs through December 31, 1993 were funded by the
general partner. At December 31, 1993 and December 31, 1992, approximately
$4,134,000 and $6,596,000, respectively, was due to Centocor for expenditures
under the Development Agreement. The general partner may continue to provide
funding but is under no obligation to do so. The ability of the general partner
to continue to fund, and the ability of Centocor to perform under, the
Development Agreement is highly dependent upon the future financial condition of
Centocor.
83
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of Centocor Partners III, L.P.:
We have audited the accompanying balance sheets of Centocor Partners III, L.P.
as of December 31, 1993 and 1992, and the related statements of operations,
partners' capital and cash flows for each of the years in the three-year period
ended December 31, 1993. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 audits provide 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 Centocor Partners III, L.P. at
December 31, 1993 and 1992, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles.
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. See Note 6 to the financial
statements.
KPMG Peat Marwick
Philadelphia, Pennsylvania
March 11, 1994
84
<PAGE>
SCHEDULE I
CENTOCOR, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES - OTHER INVESTMENTS
DECEMBER 31, 1993
(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 $62,490 $61,787 $61,795 $61,795
Corporate obligations $ 7,000 $ 7,105 $ 7,113 $ 7,113
Commercial paper $ 5,000 $ 4,947 $ 4,954 $ 4,954
Other short-term investments 5,882 $ 2,900 $ 2,800 $ 2,800
------- ------- ------- -------
$76,739 $76,662 $76,662
======= ======= =======
Long-term investments
U.S. Government obligations $ 8,700 $ 8,726 $ 8,726 $ 8,726
Equity investments (1):
Corvas International Inc.
common stock (2) 1,269 $ 5,712 $ 6,347 $ 5,712
Other equity investments 4,000 $ 2,718 $ 2,718 $ 2,718
------- ------- ------- -------
$17,156 $17,791 $17,156
======= ======= =======
</TABLE>
(1) With respect to securities with no quoted market prices on December 31,
1993 market value is based on the determination of fair value made in good
faith by management.
(2) At December 31,1993, the Company recorded an unrealized loss of $2,380,000
due to the decline in market value of these securities.
85
<PAGE>
SCHEDULE II
CENTOCOR, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Centocor
Cardiovascular
Imaging Centocor Centocor Stephen D.
Partners, L.P. Partners II, L.P. Partners III, L.P. Tocor, Inc. Hayter (2)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $ 7 ($81) $5,531 $4,847 $-
Additions - 879 2,061 5,879
Collections (7) (798) (7,592) (8,406)
Other (2,320)(1)
---- ----- ------- ------ -----
Balance, December 31, 1991 - - - - -
Additions
Collections
Other
---- ----- ------- ------ -----
Balance, December 31, 1992 - - - - -
Additions $ 115
Collections (115)
Other
---- ----- ------- ------- -----
Balance, December 31, 1993 - - - - -
==== ===== ======= ======= =====
</TABLE>
(1) In June 1991, the Company exercised its option to acquire all the callable
common stock of Tocor, Inc., which thereafter became a consolidated
subsidiary.
(2) Stephen D. Hayter is an executive vice president of the Company. The
amounts loaned by the Company were done so in connection with his
relocation and employment by the Company.
86
<PAGE>
SCHEDULE V
CENTOCOR, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance Additions Foreign Balance Additions Foreign
at at Retire- Currency at at Retire- Currency
Classification 12/31/90 Cost (2) ments Effect Other(1) 12/31/91 Cost(3) ments Effect Other(1)
- -------------- -------- --------- ------- -------- -------- -------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land and buildings $45,354 $ 5,039 $ - ($298) $ 7,790 $ 57,885 $11,835 ($ 511) ($1,561) $ 9,778
Equipment, furniture,
fixtures, and
improvements 58,920 12,465 - 321 11,439 83,145 11,319 (2,971) (2,180) 3,291
Construction in
progress 18,985 14,952 (1,328) (389) (19,229) 12,991 155 - (77) (13,069)
-------- ------- ------- ----- ------- -------- ------- -------- ------- --------
$123,259 $32,456 ($1,328) ($366) $ - $154,021 $23,309 ($3,482) ($3,818) $ -
======== ======= ======= ===== ======= ======== ======= ======= ======= ========
<CAPTION>
Balance Additions Foreign Balance
at at Retire- Currency at
12/31/92 Cost(3) ments(4) Effect 12/31/93
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Land and buildings $ 77,426 $ 806 ($13,300) ($ 648) $ 64,284
Equipment, furniture,
fixtures, and
improvements 92,604 1,202 (11,746) (3,128) 78,932
Construction in
progress - - - - -
-------- ------ -------- ------- --------
$170,030 $2,008 ($25,046) ($3,776) $143,216
======== ====== ======== ======= ========
</TABLE>
(1) Amounts relate to the transfer of cost of completed assets to active
assets.
(2) Land and building acquisitions include $4,268,000 related to the purchase
of the Company's St. Louis manufacturing facility. Construction in
progress and equipment, furniture, fixtures and improvements include
additions to the Company's manufacturing and office facilities in Malvern,
St. Louis and Leiden locations.
(3) Land and building acquisitions include $11,151,000 related to
manufacturing and administrative facilities at the Company's Leiden and
St. Louis locations, including $2,134,000 acquired by assuming the related
debt obligation. Equipment, furniture, fixtures and improvements include
$904,000 of assets added by the acquisition of Mercia Diagnostics, Ltd. in
January, 1992.
(4) Retirements include the sale of the Company's St. Louis facility in 1993
for approximately $12,000,000 in addition to write-down of fixed asset
balances to previously established reserves, the sale of certain
equipment, and the retirement of fully depreciated assets which in the
aggregate total $13,500,000.
87
<PAGE>
SCHEDULE VI
CENTOCOR, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance Depre- Foreign Balance Depre- Foreign Balance Depre-
at ciation Retire- Currency at ciation Retire- Currency at ciation
Classification 12/31/90 Expense ments Effect 12/31/91 Expense ments Effect 12/31/92 Expense
- --------------- -------- ------- ----- -------- -------- ------- ----- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Buildings $ 4,257 $ 1,949 $ 0 $ 0 $ 6,206 $ 2,670 ($4) ($79) $ 8,793 $ 3,287
Equipment, furniture,
fixtures, and
improvements 20,033 10,455 (268) 296 30,516 14,029 (387) (1,111) 43,047 12,304
------- ------- ----- ---- ------- ------- ----- ------- ------- -------
$24,290 $12,404 ($268) $296 $36,722 $16,699 ($391) ($1,190) $51,840 $15,591
======= ======= ===== ==== ======= ======= ===== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Foreign Balance
Retire- Currency at
ments Effect 12/31/93
------- ------- --------
<S> <C> <C> <C>
Buildings ($1,484) ($505) ($10,091)
Equipment, furniture,
fixtures, and
improvements (5,793) (1,116) 48,442
------- ------- -------
($7,277) ($1,621) $58,533
======= ======= =======
</TABLE>
88
<PAGE>
SCHEDULE VIII
CENTOCOR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions Additions Additions
Balance Charged to Balance Charged to Balance Charged to Balance
at Costs and at Costs and at Costs and at
Classification 12/31/90 Expenses Deductions 12/31/91 Expenses Deductions 12/31/92 Expenses Deductions 12/31/93
- -------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------
Inventory Reserves $3,758 $7,069 - $10,827 $68,144(1) ($10,665) $68,306 $3,500(1) ($7,063) $64,743
======== ========== ========== ======== ========== ========= ======= ======== ========= =======
</TABLE>
(1) The Company recorded reserves for HA-1A inventories of $3,500,000 and
$64,877,000 in 1993 and 1992, due to the uncertainties regarding future
HA-1A sales resulting from the current regulatory and commercial status of
HA-1A.
89
<PAGE>
SCHEDULE IX
CENTOCOR, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Maximum Average Weighted
Amount Amount Average
Balance Weighted Outstanding Outstanding Interest Rate
Category of aggregate at end of Average During the During the During the
short-term borrowing Period interest rate Period Period (2) Period(3)
- ------------------------------- --------- ------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Notes Payable to Bank (1) - - $13,100 $6,886 9.34%
Year ended December 31, 1992:
Notes Payable to Bank (1) $6,593 9.17% $7,595 $5,302 9.82%
Year ended December 31, 1993:
Notes Payable to Bank (1) $6,186 6.43% $6,667 $6,383 7.80%
</TABLE>
(1) Notes Payable to Bank represent borrowings under lines of credit
arrangements which are subject to annual review.
(2) The average amount outstanding is a weighted average calculation based upon
the amount of daily debt outstanding.
(3) The weighted average interest rate was computed by dividing actual interest
expense by the average short-term debt outstanding.
90
<PAGE>
SCHEDULE X
CENTOCOR, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repairs $3,242 $ 5,161 $ 5,446
Advertising costs 1,563 14,385 19,121
Amortization of intangible
assets and similar deferrals 6,094 5,591 3,089
Royalties (1) 3,836 4,964 3,603
</TABLE>
(1) Included within cost of sales.
91
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CENTOCOR, INC.
March 31, 1994 By:/s/David P. Holveck
----------------------
David P. Holveck
(President and Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Hubert J.P. Schoemaker Director, Chairman of March 31, 1994
- ------------------------- the Board
Hubert J. P. Schoemaker
/s/ Dominic J. Caruso Vice President, March 31, 1994
- ------------------------- Corporate Controller
Dominic J. Caruso and Chief Accounting
Officer (Principal
Accounting and Financial
Officer)
/s/Anthony B. Evnin Director March 31, 1994
- -------------------------
Anthony B. Evnin
/s/William F. Hamilton Director March 31, 1994
- -------------------------
William F. Hamilton
92
<PAGE>
/s/Antonie T. Knoppers Director March 31, 1994
- ---------------------------
Antonie T. Knoppers
/s/Lawrence Steinman Director March 31, 1994
- ---------------------------
Lawrence Steinman
/s/Jean C. Tempel Director March 31, 1994
- ---------------------------
Jean C. Tempel
93
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR
CERTAIN PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE
BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT THE PLACES
INDICATED BY DOUBLE ASTERISKS (**); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT
Centocor, Inc., a Pennsylvania corporation, Centocor B.V., a Netherlands
corporation (collectively "Centocor"), and Eli Lilly and Company, an
Indiana corporation ("Lilly"), hereby agree as of June 27, 1993 as
follows:
1. Definitions. Centocor, Inc., and Lilly are parties to a "Sales and
-----------
Distribution Agreement" made as of July 15, 1992 ("the Agreement").
Except to the extent modified by this Amendment, terms defined in the
Agreement have the same meaning in this Amendment, and the Agreement
remains in full force and effect. The provisions of the Agreement apply to
this Amendment.
2. Exercise of option. Option II contained in section 13.2 of the Agreement
------------------
is validly exercised and the Agreement now applies to CentoRx as a Product.
3.(a). Centocor B.V. All references in the Agreement or this Amendment
-------------
to "Centocor" shall include and refer to Centocor B.V., a Netherlands
Corporation, and Centocor B.V. accepts and shall be bound by all the terms
and conditions of the Agreement to the same extent as Centocor, Inc.
Insolvency of, or filing of a petition with respect to, either Centocor, B.V. or
Centocor, Inc. shall create the right of termination provided by Section 9.3
of the Agreement.
(b). Security for performance by Centocor. As security for Centocor's
------------------------------------
performance under the Agreement and this Amendment and as security
against the occurrence of a Trigger Event, Centocor, B.V. will enter into an
option agreement with Eli Lilly Nederland, B.V., a Netherlands corporation,
in the form attached as Exhibit D and shall grant to Eli Lilly Nederland, B.V.
a right of mortgage in the form attached as Exhibit E on the manufacturing
facility and all related licenses and intellectual property owned or licensed
by Centocor, B.V. The parties agree that an actual or threatened
interruption of supply caused by a Trigger Event would cause damage to
Lilly in the amount of at least (**) United States dollars.
(c). Additional documents. Concurrent with this Amendment, Centocor is
--------------------
furnishing to Lilly an opinion of Netherlands counsel acceptable to Lilly
that the option and mortgage right will be enforceable according to their
terms under the law of the Netherlands upon completion of appropriate steps
<PAGE>
to record the mortgage in compliance with Netherlands law. Centocor
represents and warrants that (1) all appropriate steps will be accomplished to
render the mortgage enforceable according to its terms within 15 days after
the date of this Amendment and (2) that each of the representations and
warranties contained in this Agreement or in Exhibit D or in Exhibit E is true
as of the date of this Amendment and as of the date on which all such steps
have been completed, except as disclosed in the Agreement or in Exhibit F.
Not later than 15 days after the date of this Amendment, Centocor shall
furnish to Lilly an opinion of Netherlands counsel acceptable to Lilly that
the option and mortgage right are enforceable according to their terms under
the law of the Netherlands and that all such steps have been accomplished.
4. Funding. Lilly will pay to Centocor, Inc. to fund a portion of Centocor's
-------
future research and development of CentoRx the amounts set forth below for
each of the calendar quarters beginning with the 4th quarter of 1993,
provided that as of the last date in the preceding calendar quarter (a) all of
the milestones called for by that date according to the following schedule
have been achieved and (b) Centocor is not in material breach of a covenant
contained in the Agreement and (c) each of Centocor's warranties and
representations contained in the Agreement or Exhibit D or Exhibit E is true
and (d) neither party has terminated the payments. The payment for each
quarter shall be on the later of (a) the last day of the preceding calendar
quarter and (b) receipt by Lilly of a certificate executed no earlier than the
ten days before the first day of the quarter from Centocor that the conditions
contained in this paragraph for the payment for that quarter are met as of the
date of the certificate.
<TABLE>
<CAPTION>
Calendar Quarter Milestones to be achieved in that Amount to be
- --------------- --------------------------------- ------------
Quarter funded for next
------- ---------------
quarter
-------
<S> <C> <C>
(**)
</TABLE>
<PAGE>
(**)
5. Failure to achieve milestones. In the event a Critical Milestone is not
-----------------------------
achieved within 60 days after the end of the quarter required by the schedule
set forth in paragraph 4, Lilly, after thirty days notice given at any time more
than 30 days after the end of that quarter, may assume control of the research
and development effort. If Lilly exercises that right, (a) Centocor shall
cooperate with Lilly in the orderly completion of the research and development
of CentoRx according to such plan as Lilly may adopt, revise or design from
time to time, including assignment of such rights, licenses, applications, or
other documents or interests as are reasonably necessary to that completion by
Lilly and (b) expenses in devising or implementing that plan incurred by Lilly
in any calendar quarter shall be treated for purposes of paragraph 8 of this
Amendment as payments for research or development by Lilly on the 15th day of
the second month of that quarter.
-3-
<PAGE>
6. Termination of funding. Centocor, Inc. or Lilly may terminate the
----------------------
development payments on thirty days notice to the other and thereafter (a) no
further payments shall be made pursuant to paragraph 4 of this Amendment, and
(b) all other provisions of the Agreement and this Amendment shall be
unaffected.
7. Records. Centocor shall maintain complete records of all amounts paid by
-------
Centocor related to the research and development activities contemplated by
paragraph 4, and shall provide Lilly within thirty days after the end of each
calendar year in which research or development activities were conducted with a
report stating the dollar amount of funds supplied by Lilly expended on those
activities, including a separate itemization for those activities conducted
within the United States, with such detail as Lilly may reasonably request.
8. Development royalties. Development royalties shall be paid by Centocor
---------------------
to Lilly for each calendar quarter at the rate of (**) of Net Sales of CentoRx
during the quarter, provided that (a) no Development Royalties shall be owed on
Net Sales below (**) in any calendar year and (b) at such time as the
Maximum Aggregate Development Royalty as of that time has been paid, no further
Development Royalties shall be owing. Within 45 days after the close of each
calendar quarter until the Maximum Aggregate Development Royalty has been paid,
each party shall provide the other with a statement of Net Sales by that party
and all Affiliates of that party for that quarter. Development Royalties shall
be paid within 90 days after the end of each calendar quarter to which the
payment relates. The Maximum Aggregate Development Royalty, at any given time,
shall be the sum of (a) each payment by Lilly for research or development
pursuant to paragraph 4 or 5 of this Amendment, adjusted for time, plus (b) each
payment by Lilly subsequent to the date of this Amendment to acquire rights to
CentoRx, adjusted for time, minus (c) each Development Royalty payment by
Centocor, adjusted for time. "Adjusted for time" as to any payment means
compounded at an annual simple rate of (**) from the date the payment was
made to the date as of which the adjustment is measured.
-4-
<PAGE>
9. Initial Centocor selling price. The initial Centocor Selling Price shall be
------------------------------
set by the Oversight Committee.
IN WITNESS WHEREOF, and intending to be legally bound, Centocor and Lilly have
caused this Amendment to be executed by their duly authorized representatives
as of the date first written above.
Eli Lilly and Company Centocor, Inc. Centocor B.V.
by /s/ Sidney Taurel /s/ David Holveck /s/ Hubert Schoemaker
-------------------- ------------------ ----------------------
-5-
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR
CERTAIN PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE
BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT THE PLACES
INDICATED BY DOUBLE ASTERISKS (**); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
OPTION AGREEMENT
----------------
1. CENTOCOR, B.V., a company incorporated under the laws
of the Netherlands, with principal place of business
in Leiden, the Netherlands, hereinafter referred to as
"Centocor";
and
2. ELI LILLY NEDERLAND B.V., a company incorporated under
the laws of the Netherlands, hereinafter referred to as
"Lilly";
WHEREAS on 29 June 1993 Centocor, together with its parent
company Centocor, Inc., has entered an agreement ("the
Amendment") with Eli Lilly and Company (the ultimate parent
company of Lilly), forming an amendment to a Sales and
Distribution Agreement of 12 July 1992 ("the Agreement")
between Centocor Inc. and Eli Lilly and Company;
WHEREAS pursuant to paragraph 3 of the Amendment on 29 June
1993 Centocor and Lilly entered into an option agreement
under which option agreement Centocor has granted to Lilly
an option to purchase Centocor's research and manufacturing
facilities situated at Einsteinweg 101 in Leiden ("the
Facility") in the event of an occurrence of a trigger event
as defined in the Agreement ("Trigger Event");
WHEREAS Centocor has further agreed in the Amendment and the
option agreement mentioned before, to grant to Lilly a
(second) right of mortgage on the Facility to secure
Centocor's performance under the option agreement;
<PAGE>
WHEREAS the parties to the Amendment in the meantime have
further agreed that Centocor shall grant to Lilly an option
to purchase Centocor's equipment, inventory, tools and
documentation required to continue the production of CentoRx
as carried out in the Facility and that Centocor shall
establish a right of pledge over such assets on behalf of
Lilly to secure Centocor's performance of such option;
WHEREAS Centocor and Lilly wish to amend the option agree-
ment mentioned before and make some additions to such option
agreement;
NOW, THEREFORE, PARTIES HAVE AGREED AS FOLLOWS:
- ----------------------------------------------
1. On 29 June 1993 Centocor granted to Lilly an option
right ("the Facility Option") to purchase the Facility
in accordance with and subject to the terms and
conditions set forth herein, which Facility Option was
accepted by Lilly on that date.
Centocor herewith grants to Lilly an option right
("the Production Assets Option") to purchase all of
Centocor's equipment, inventory, tools, documentation
and all other assets required at any time to continue
the production of CentoRx carried out in the Facility
by Centocor (the "Production Assets"). Within one week
after the execution of this Option Agreement, Centocor
shall prepare and submit to Lilly two original copies
of a list describing the Production Assets as complete
and accurate as possible which list shall be signed on
behalf of Centocor. The Production Assets shall
include but shall not be limited to the assets men-
tioned on such lists. After the lists have been
approved by Lilly and signed on behalf of Lilly, one
copy thereof shall be attached to this Option Agree-
ment as exhibit F. The Facility Option and the Produc-
tion Assets Option are collectively hereafter referred
-2-
<PAGE>
to as "the Option". The Facility Option and the
Production Assets Option can only be exercised simul-
taneously and as a whole.
2. The Option shall be dependent on the existence and
validity of the Agreement and the Amendment and shall
lapse upon the termination thereof, irrespective the
reason therefore, except for termination pursuant to
section 9.2 (a) or 9.3 of the Agreement. The Option
shall also lapse in the event that Centocor, Inc.
achieves shareholders' equity in excess of US$
(**) or on 3 June 1999, whichever shall first
occur.
3. The Option can be exercised upon the occurrence of a
Trigger Event by Lilly giving written notice to
Centocor by registered letter within one month follo-
wing such Trigger Event. The occurrence of a Trigger
Event shall be established in accordance with the
relevant provisions of the Agreement.
4. The price for which Lilly can buy and acquire the
facility and the Production assets pursuant to the
Option shall be the fair market value of the Facility
and the Production Assets at the time the Option is
exercised, to be appraised by three reputable indepen-
dent expert appraisers. Centocor and Lilly shall each
appoint an appraiser within 14 days following Lilly's
notice of exercise of the Option, and the third
appraiser shall be appointed by the two appointed
appraisers jointly within two weeks following their
appointment.
The appraisers shall jointly determine the fair market
value of the Facility and the Production Assets and
issue their report to both Centocor and Lilly within
one month following the appointment of the third
-3-
<PAGE>
appraiser (and his acceptance of such appointment).
In the event that the appraisers shall fail to reach
agreement of the fair market value of the Facility
and/or the Production Assets within the aforesaid time
period, the appraiser appointed by the two appointed
appraisers jointly, shall determine the fair market
value thereof, which determination shall be binding on
the parties hereto.
5. The sale and transfer of legal title of the leasehold
ownership to the Facility to Lilly shall be provided
for in a notarial deed, to be executed within two weeks
after determination of the price, mentioned in
paragraph 4 hereof. The notarial deed shall contain
all terms and conditions including representations and
warranties as are customary in the Netherlands for the
type of property such as the Facility and such deed
shall be prepared and executed before civil law notary
Mr. P.A.W. van Buren in Amsterdam, or such other notary
as Lilly shall choose at that time.
Title of leasehold ownership to the property shall pass
to Lilly free and clear of any mortgage, atta-
chment, judicial arrest or other encumbrances, except
for such easements, covenants and obligations as shall
appear from the Land Register ("Kadaster") and/or
resulting from the deed by which Centocor acquired the
leasehold ownership.
The sale and transfer of the Production Assets shall
take place immediately after the execution of the
notarial deed of transfer of the Facility. Such sale
and transfer shall be recorded in a private deed, which
shall contain all terms and conditions including
representations and warranties as are customary in the
Netherlands for the type of assets such as the Produc-
tion Assets. Such deed shall be drafted by a lawyer to
-4-
<PAGE>
be designated by Lilly. The Production Assets shall be
transferred to Lilly free and clear of any attachment,
judicial arrest or other encumbrances.
All costs and expenses connected to the transfer of the
Facility and the Production Assets to Lilly shall be
for Lilly's account.
6. Lilly shall pay to the civil law notary mentioned sub
5 the purchase price of the Facility and the Produc-
tion Assets, increased by any and all costs and expen-
ses connected to the transfer thereof and decreased by
any amount owed by Centocor to Lilly, pursuant to this
Agreement and the Amendment, including but not limited
to the amount for which Centocor may become indebted
to Lilly pursuant to paragraph 8 hereof. The aforesaid
payment shall be made by Lilly with the instruction
that upon the execution of the notarial deed of sale
and transfer of the Facility and the private deed of
sale and transfer of the Production Assets, the civil
law notary shall pay out of the aforesaid amount (i)
the notarial fees and the transfer tax and any other
expenses due with respect to the transfer of the
Facility to the civil law notary and the tax author-
ities respectively, and (ii) the amount of indebted-
ness under the facilities, for which the first mort-
gage on the leasehold ownership referred to below
under 9 a was vested, to the mortgagee thereof and
(iii) the amount of indebtedness for which a feasible
higher ranking right of pledge on the Production Assets
is a security and (iv) the remaining amount to
Centocor as net purchase price for the Facility.
7. Centocor irrevocably agrees and undertakes to co-
operate to the sale and transfer of the Facility and
the Production Assets pursuant to the Option and to do
everything necessary and to sign and execute all
-5-
<PAGE>
deeds, instruments and documents to effect and com-
plete such sale and transfer.
As integral part of what has been agreed in this
Option Agreement between Centocor and Lilly, Centocor
hereby grants to Lilly an irrevocable power of
attorney, with the right of substitution, for and on
behalf of Centocor:
a. to transfer the legal ownership of the Facility
and the Production Assets as provided above,
subject to the terms and conditions of this
Agreement;
b. to encumber the facilities and the Production
Assets with a right of mortgage and/or pledge as
the case may be, according to the Deed of Mort-
gage and the Deed of Pledge attached hereto as
Exhibit G and H respectively;
c. in general to fulfil all obligations undertaken by
Centocor towards Lilly according to the terms and
conditions of this Agreement, the Deed of Mortgage
and the Deed of Pledge.
With respect to the aforementioned irrevocable power of
attorney the following will apply:
i the irrevocable power of attorney will operate
externally so that revocation will therefore have
no legal effect whatsoever;
ii the irrevocable power of attorney will continue in
effect after the dissolution or liquidation of
Centocor;
iii the power of authority shall lapse upon the
termination of the Option.
8. In the event Centocor would fail to duly and timely
honour and perform its obligation pursuant to this
Option Agreement it shall be obliged to indemnify
Lilly for any and all damage, cost and expenses which
Lilly and its affiliates will suffer as a result of
-6-
<PAGE>
such failure and it shall forfeit an immediately
payable penalty to Lilly for reason of such failure,
the aggregate amount of such indemnity and penalty for
purposes of this Option Agreement shall be fixed at
Dfl. (**) , notwithstanding Lilly's right to
claim any actual damage suffered in excess thereof and
not withstanding Lilly's right to demand proper
fulfillment of the obligations of Centocor pursuant to
this Option Agreement.
9. As security for the due and punctual performance of
its obligation pursuant to this Option Agreement,
Centocor agrees to grant to Lilly:
a. a (second) right of mortgage on the Facility,
which shall be provided for in a notarial deed of
mortgage substantially in the form of Exhibit G
hereto to be executed before notary Mr. P.A.W. van
Buren in Amsterdam;
b. a (second) right of pledge on the Production
Assets, but only to the extent that Centocor can
pledge such Production Assets. Centocor under-
takes that it shall make all efforts which may be
reasonably required from Centocor to obtain the
consent of third parties necessary to establish
the right of pledge of one or more of the Produc-
tion Assets, which shall be provided for in a
deed of pledge substantially in the form of
Exhibit H.
Furthermore Centocor agrees neither to grant any other
right of mortgage on the Facility nor to grant any
other right of pledge on the Production Assets, nor to
grant any lien, encumbrance, usufruct or other right
in rem with respect to the Facility and the Production
Assets, without the prior written consent of Lilly,
which shall not be unreasonably withheld.
-7-
<PAGE>
10. Centocor hereby represents and warrants to Lilly that:
a. it has all necessary power and authority to enter
into and perform its obligations pursuant to this
Option Agreement;
b. all necessary corporate and shareholder's actions
have been taken to authorize the entering into,
execution and performance by Centocor of this
Option Agreement and its obligations thereunder;
c. it has obtained all necessary approvals, permits,
licenses and consents as are necessary to enter
into, execute and perform this Option Agreement;
d. it has full title of leasehold ownership to the
Facility (as provided in a notarial deed executed
on 8 August 1985 by Mr. R. Gaarlandt-Meiners,
civil law notary in Leiden, a copy of which is
attached as Exhibit X) and full title of the
Production Assets;
e. the leasehold ownership of the Facility is free
and clear of any mortgage, attachment or other
encumbrances, except for a first mortgage in
favour of ABN AMRO Bank for an amount of
Dfl. 17.500.000,- and except for such easements,
covenants and obligations, as are mentioned in
the notarial deed of referred to in paragraph d
above;
f. the Production Assets are free and clear of any
right of pledge, attachment or other encumbrance,
except for a first right of pledge vested in
favour of ABN-AMRO Bank N.V.;
-8-
<PAGE>
g. it shall not sell, lease or dispose of the lease-
hold ownership of the Facility without prior
consent of Lilly, nor shall it sell, lease or
dispose of any of the Production Assets unless
provided otherwise in the Deed of Pledge;
h. ABN AMRO Bank consented to the mortgage and the
right of pledge, referred to sub 9, being estab-
lished, which is evidenced by a letter, a copy of
which is hereto attached as Exhibit J;
i. the entering into, execution and performance of
this Option Agreement does not breach or conflict
with or result in the default of any agreement,
commitment, undertaking, option or obligation to
which Centocor is a party or to which it is
bound.
Where in this paragraph 10 reference is made of the
Option Agreement, this shall include the Deed of
Mortgage and the Deed of Pledge, attached hereto as
Exhibit G and H respectively.
11. This Option Agreement supersedes the option agreement
dated 29 June 1993, mentioned in the heading of this
deed.
12. This agreement has been construed in accordance with
and shall be governed by the laws of the Netherlands.
Any dispute, arising out or in connection with this
agreement or the performance thereof, shall be referred
to the District Court of Amsterdam.
-9-
<PAGE>
Done and executed in Amsterdam on August 20, 1993
/s/ Mark P. Moran /s/ John J. Kaiser
-------------------- ------------------------
CENTOCOR B.V. ELI LILLY NEDERLAND B.V.
by: Mark P. Moran, by: J. Kaiser
managing director Director of Pharmaceuticals
/s/ R. Quik
------------------------
ELI LILLY NEDERLAND B.V.
by: R. Quik
Medical Director
-10-
<PAGE>
English translation of
----------------------
D E E D O F M O R T G A G E
-----------------------------
(Dutch version executed on August 26, 1993)
Today, the twenty-sixth of August nineteen hundred and
ninety-three, appeared before me, Peter Anton Willem van
Buren, civil law notary in Amsterdam:------------------
1. Mark Patrick Moran, manager, residing in 1012 NG
Amsterdam, Nieuwe Nieuwstraat 71, born in Dublin,
(Ireland), on the sixteenth of April nineteen hun-
dred and sixty-two, married, acting in this matter
in his capacity of managing director of CENTOCOR
B.V., a closed company with limited liability with
statutory seat in Leiden and offices in 2333 CB
Leiden, EinsteinWeg 101, and as such representing
this company, -----------------------------------
hereinafter to be referred to as: "Centocor"------
2. Jan Bouwe de Snayer, assistant civil law notary,
residing at Amsterdam, Van Woustraat 68, born at
Dirksland on the twenty-first of May nineteen
hundred and sixty, unmarried, acting in this matter
as proxy of ELI LILLY NEDERLAND B.V., a closed
company with limited liability with statutory seat
in Nieuwegein and offices at 3431 HA Nieuwegein,
Raadstede 15, and as such representing this com-
pany, hereinafter referred to as: "Lilly". --------
The appearers, acting in their aforementioned capacities,
declare:------------------------------------------------
Option Agreement.---------------------------------------
- ----------------
On twenty-sixth of August nineteen hundred and ninety-
three Centocor and Lilly concluded an Option Agreement
("the Option Agreement"), pursuant to which among other
things:-------------------------------------------------
a. Centocor has agreed to grant to Lilly an option to
purchase the research and manufacturing facilities
<PAGE>
of Centocor B.V., situated at Einsteinweg 101 in
Leiden;--------------------------------------------
b. as security for the due and punctual performance of
Centocor's obligations under the Option Agreement,
Centocor and Lilly have agreed that Lilly shall
acquire a (second) right of mortgage on such
research and manufacturing facilities.-------------
Grant of mortgage and right of pledge.------------------
- -------------------------------------
Pursuant to the Option Agreement, Centocor grants to
Lilly a right of mortgage up to an amount of ten million
Netherlands guilders (NLG 10,000,000), which right of
mortgage Lilly accepts, on the leasehold property situ-
ated at Einsteinweg 101 in Leiden, registered in the
cadaster of the municipality of Leiden under section X
number 3879, measuring twelve centiares and number 3880
measuring eighty-nine ares and twenty-five centieares,
including all rights of Centocor with respect to the
buildings on the land, comprising a research and manu-
facturing facility, locally known as Einsteinweg 101 in
Leiden. Such leasehold property was acquired by Centocor
(at the time of acquisition named: Centocor Europe B.V.)
by deed of establishment of a leasehold property right
dated the ninth of August nineteen hundred and eighty-
five, and registered at the Governmental offices of the
Land Register and Public Register in The Hague on the
twelfth of August nineteen hundred and eighty-five in
section 7194, number 67. --------------------------------
The leasehold property mentioned in the preceding sen-
tence is not encumbered with any mortgage other than a
mortgage in favour of ABN AMRO Bank N.V. up to an amount
of seventeen million five hundred thousand Netherlands
guilders (NLG 17,500,000).------------------------------
Centocor herewith establishes on behalf of Lilly a right
of pledge on all assets which are destined to serve
durably the leasehold property and all machinery or
tools destined to be used in carrying out the production
of CentoRx by Centocor in the leasehold property, as
-2-
<PAGE>
referred to in article 2:254 of the Netherlands Civil
Code, which right of pledge Lilly accepts.---------------
Purpose of mortgage and pledge.--------------------------
- ------------------------------
The right of mortgage and right of pledge are a security
for the due and punctual performance by Centocor of its
obligations pursuant to the Option Agreement.------------
Terms and conditions.------------------------------------
- --------------------
The mortgage mentioned above is granted subject to the
following terms and conditions:-------------------------
1. Without the express written consent of Lilly,
Centocor may not encumber the leasehold property
with a further mortgage.---------------------------
2. If Centocor seriously fails in performing its
obligations to Lilly, Lilly shall be entitled to
take over the administration of the leasehold
property with the authorization of the President of
the District Court of The Hague. Lilly shall be
entitled to take possession of the property if
necessary or urgently desirable for purposes of
execution (foreclosure) of the rights of mortgage.-
3. Centocor hereby waives its rights, mentioned in
article 3:266 of the Netherlands Civil Code.-------
4. Without the express written consent of Lilly the
leasehold property may not be let and no advance
payments or rent installments may be contracted or
accepted, and the right to rents may not be aliena-
ted, pledged or encumbered otherwise.--------------
5. Without the express consent of Lilly the furnis-
hing, appearance and use of the leasehold property
may not be changed;--------------------------------
6. The cost of this mortgage deed shall be for the
account of Centocor.-------------------------------
7. For the implementation of this deed parties hereto
chose as their domicile the office of the civil law
notary executing this deed.------------------------
The proxy of Lilly to the appearer mentioned sub 2 of the
head of this deed is evidenced by a non notarial
-3-
<PAGE>
instrument which is attached to this deed.---------------
The existence of such proxy is evidenced sufficiently to
me, notary.----------------------------------------------
This deed is executed in Amsterdam at the time shown at
the head hereof.-----------------------------------------
After the substance of this deed has been stated to the
appearers, they unanimously declared to have noted the
contents thereof and not to insist on it being read out
in full. Immediately after those parts of the deed that
the law requires to be read out have been read out, this
deed is signed by the appearers, who are known to me,
notary, and by me, notary, at seventeen hundred hours,
fifteen minutes.-----------------------------------------
/s/ M.P. Moran /s/ J.B. de Snayer
- ------------------- ------------------------
ISSUED FOR TRUE COPY:
---------------------
/s/ P.A.W. van Buren
---------------------
The undersigned, Peter Anton Willem Van Buren, civil law
notary in Amsterdam, herewith on behalf of the Mortgagee
in the above mentioned deed declares to issue the state-
ments on behalf of a mortgage by a civil law notary
referred to in a notarial deed, deposited at the clerk's
office of the district Court in the Hague on December
20, 1991, number 175/1991.
Amsterdam, September 10, 1993.
/s/ P.A.W. van Buren
- --------------------
This document is a fair and accurate English translation
of a Deed of Mortgage which was written and executed in
Dutch.
Centocor, Inc.
By: /s/ George D. Hobbs
---------------------
George D. Hobbs
Vice President, Secretary
and Corporate Counsel
-4-
<PAGE>
English Translation of
----------------------
D E E D O F P L E D G E
-------------------------
(Dutch Version executed on Augsut 26, 1993)
Today, the twenty-sixth of August nineteen hundred and
ninety-three, appeared before me, Peter Anton Willem van
Buren, civil law notary in Amsterdam:---------------------
1. Mark Patrick Moran, manager, residing in 1012 NG
Amsterdam, Nieuwe Nieuwstraat 71, born in Dublin,
Ireland, on the sixteenth of April nineteen hundred
and sixty-two, married, acting in this matter in his
capacity of managing director of CENTOCOR B.V., a
closed company with limited liability with statutory
seat in Leiden and offices in 2333 CB Leiden, Ein-
steinweg 101, and as such representing this company,
hereinafter to be referred to as: "Centocor";---------
2. Jan Bouwe de Snayer, assistant civil law notary,
residing at Amsterdam, Van Woustraat 68, born at
Dirksland on the twenty-first of May nineteen hundred
and sixty, unmarried, acting in this matter as proxy
of ELI LILLY NEDERLAND B.V., a closed company with
limited liability with statutory seat in Nieuwegein
and offices at 3431 HA Nieuwegein, Raadstede 15, and
as such representing this company, hereinafter
referred to as: "Lilly". -----------------------------
The appearers, acting in their aforementioned capacities,
consider that on the twenty-sixth of August nineteen
- --------
hundred and ninety-three Centocor and Lilly concluded an
Option Agreement ("the Option Agreement"), pursuant to
which among other things:--------------------------------
a. Centocor agreed to grant Lilly an option to purchase
the research and manufacturing facilities of Centoc-
or B.V., situated at Einsteinweg 101 in Leiden ("the
Facility);--------------------------------------------
b. Centocor granted to Lilly an option right to purchase
all of Centocor's equipment, inventory, tools, docu-
<PAGE>
mentation and all other assets required at any time
to continue the production of CentoRx carried out in
the Facility by Centocor (the "Production Assets"),
including but not limited to the assets which shall be
described in Exhibit F, mentioned sub 1 here-
after;------------------------------------------------
c. Centocor agreed to grant Lilly a (second) right of
pledge on the Production Assets, to the extent that
the nature of such assets so permits,-----------------
and declare that Centocor and Lilly agree:-----------------
-------
1. Centocor herewith establishes a right of pledge in
favor of Lilly according to the provisions of article
3:237 Netherlands Civil Code on all of Centocor's
equipment, inventory, tools, documentation and all
other assets required at any time to continue the
production of CentoRx carried out in the Facility by
Centocor. Such right of pledge is established on all
Production Assets presently owned by Centocor as well
as all Production Assets which Centocor shall acquire
at any time in the future. Within one week after the
execution of this Deed of Pledge Centocor shall
prepare and submit to Lilly two original copies of a
list describing the Production Assets as complete and
accurate as possible, which list shall be signed on
behalf of Centocor. The Produciton Assets shall
include but shall not be limited to the assets
mentioned on such lists. After the lists have been
approved by Lilly and signed on behalf of Lilly, one
copy thereof shall be attached to the Option Agree-
ment as Exhibit F, and the other copy shall be
registered pursuant to the provisions sub 2 and 3.--
2. Upon the request of Lilly, Centocor shall provide
Lilly with an updated list of all production Assets
that are subject to the right of pledge as per a date
not earlier than one month before the date of Lilly's
request. Failure to include any Production Assets on
such updated list shall not affect the right of
-2-
<PAGE>
pledge created by this Deed on such assets.-----------
3. The updated list mentioned sub 2 shall be registered
with reference to this Deed with the Netherlands Tax
Authorities (in Dutch: zal worden geregistreerd) by
Centocor or Lilly, as the case may be.----------------
4. Centocor hereby represents and warrants to Lilly
that:-------------------------------------------------
a. Centocor is authorized to establish the right
of pledge over the Production Assets;-----------
b. none of the Production Assets is subject to any
other right in rem, except a first right of
pledge established on behalf of ABN AMRO Bank
N.V.-------------------------------------------
5. The right of pledge over the Production Assets,
referred to sub 1, is granted as further security for
the due and punctual performance by Centocor of all
its obligations pursuant to the Option Agreement.-----
6. Centocor is authorized to use the pledged Production
Assets, provided such use is within the normal course
of business of Centocor.-----------------------------
7. Centocor shall carefully use and maintain the pledged
Production Assets and shall keep such Assets in good
order.-----------------------------------------------
All costs relating to the use and maintenance of the
Production Assets are for the account of Centocor. If
Centocor is in default with its obligations to proper-
ly maintain the Production Assets, Lilly is author-
ized to take care of this for the account of
Centocor.---------------------------------------------
8. Centocor shall be authorized to dispose of the pledged
Production Assets, provided such disposal is within
the normal course of Centocor's business.------------
9. Centocor undertakes towards Lilly to properly insure
the Production Assets and to keep such Assets
insured. Centocor shall forthwith inform Lilly of the
terms and conditions of such insurance.---------------
If Centocor is in default with its obligations to
-3-
<PAGE>
insure the Production Assets or to continue such
insurance Lilly is entitled thereto itself for the
account of Centocor.--------------------------------
The insurance documents shall be handed over to
Lilly. Upon a request of Lilly to that effect,
Centocor shall provide Lilly with a copy of the
documents evidencing payment of the insurance pre-
miums.-----------------------------------------------
Centocor hereby establishes in favor of Lilly a right
of pledge of all of Centocor's rights pursuant to the
insurance agreements concluded with respect to the
Production Assets.----------------------------------
10. Centocor is obliged to allow a representative of
Lilly to enter the premises of Centocor to inspect the
Production Assets.
Such inspection shall be made
upon a two days notice unless there are urgent
circumstances which, in Lilly's opinion, justify
immediate access.-----------------------------------
11. If Centocor is in default with its obligations pursu-
ant to this deed of pledge or the Option Agreement,
or if Lilly has good reason to fear that a situation
of default will exist, Lilly is authorized to demand
that the pledged Production Assets shall be brought
under the control of Lilly or of a third person to be
designated by Lilly, subject to the provisions of
article 3:237 Netherlands Civil Code.-----------------
12. Centocor shall forthwith provide Lilly with all
information concerning third parties claims with
respect to the Production Assets. Centocor hereby
grants to Lilly an irrevocable power of attorney
authorizing Lilly to undertake any action necessary
with respect to the creation and continuation of the
right of second pledge contemplated herein on
Centocor's behalf including but not limited to an
authorization to register this right of second pledge
on Centocor's behalf and in favor of Lilly with any
governmental or non-governmental authority.---------
-4-
<PAGE>
13. The costs of this deed shall be for the account of
Centocor.--------------------------------------------
14. The agreement laid down in this deed has been con-
trued in accordance with and shall be governed by the
laws of the Netherlands. Any dispute, arising out
or in connection with this agreement or the perform-
ance thereof, shall be referred to the District Court
of Amsterdam.---------------------------------------
The proxy of Lilly to the appearer mentioned sub 2 of the
head of this deed is evidenced by a non notarial instru-
ment which is attached to a deed of mortgage executed this
day before me, notary.------------------------------------
The existence of such proxy is evidenced sufficiently to
me, notary.------------------------------------------------
This deed is executed in Amsterdam at the time shown at
the head hereof.------------------------------------------
After the substance of this deed has been stated to the
appearers, they unanimously declared to have noted the
contents thereof and not to insist on it being read out in
full. Immediately after those parts of the deed that the
law requires to be read out have been read out, this deed
is signed by the appearers, who are known to me, notary,
and by me, notary, on seventeenhundred hours and twenty
minutes.---------------------------------------------------
ISSUED FOR TRUE COPY:
---------------------
/s/ M.P. Moran
----------------------
/s/ J.B. de Snayer
----------------------
/s/ P. A. W. van Buren
----------------------
This document is a fair and accurate English translation of
a Deed of Pledge which was written and executed in Dutch.
Centocor, Inc.
By: /s/ George D. Hobbs
-------------------
George D. Hobbs
Vice President, Secretary
and Corporate Coundsel
-5-
<PAGE>
CENTOCOR, INC.
1983 RESTRICTED COMMON STOCK AWARD PLAN
(as amended December 15, 1993)
1. Purpose. The purpose of this 1983 Restricted Common Stock Award Plan (the
-------
"Plan") is to reward selected eligible employees of Centocor, Inc. (the
"Company") and its majority-owned subsidiaries ("Subsidiaries") for their past
services and to provide an incentive for their continued service to the Company
and its Subsidiaries by awarding them shares of Common Stock, par value $0.01
per share, of the Company (the "Shares").
2. Eligibility. Eligible participants shall be limited to employees of the
-----------
Company or any of its Subsidiaries who have been regularly and continuously
employed on a full-time basis by the Company or any Subsidiary of the Company
for at least four months immediately prior to the date of the award.
3. Shares. No more than one million (1,000,000) Shares may be issued under
------
the Plan. This number shall be adjusted if the number of outstanding Shares of
the Company is increased or reduced by split-up, reclassification, stock
dividend or the like. Shares which have been forfeited pursuant to the terms of
this Plan may again be awarded pursuant to the Plan.
4. Awards; Forfeiture. The Board is authorized to award shares to selected
------------------
eligible employees pursuant to this Plan. Such Shares will be subject to
forfeiture, in whole or in part, if the recipient of the award ceases to be an
employee of the Company or any of its Subsidiaries within certain specified
periods of time. The number of Shares, if any, awarded in each year, the
eligible employees to whom awards are made, the number of Shares awarded to
each eligible employee and the terms under which such Shares will be forfeited
to the Company shall be wholly within the discretion of the Board of Directors,
subject to the overall limit prescribed in Section 3 and further subject to the
requirement that the total number of Shares awarded under the Plan during any
fiscal year may not exceed one percent of the number of Shares then
outstanding. Members of the Board who are eligible to participate in the Plan
may vote on matters affecting the administration of the Plan, except that no
such member shall act upon the award of Shares under the Plan to himself, but
any member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the award of
Shares to him. No award may be made to an employee who is a director of the
Company unless a majority of
<PAGE>
the Board of Directors and a majority of the directors acting in the matter are
not, and have not within one year prior thereto been, eligible for an award
under the Plan.
5. Award Terms. Subject to the limitations prescribed in Section 4 above, an
-----------
award made under this Plan shall be on the terms stated in clauses (a) through
(c) below. The Board may specify additional terms not inconsistent with this
Plan by rules of general application or by specific direction in connection
with a particular award or group of awards.
(a) The award of Shares pursuant to this Plan shall be evidenced by a Common
Stock Award Certificate in the form attached as Exhibit A to this Plan.
(b) The Common Stock Award Certificate will specify the number of Shares
awarded pursuant to the Plan and the date or dates on which such Shares, or
portions thereof, will cease to be subject to forfeiture. If a person ceases to
be an employee of the Company or any of its Subsidiaries for any reason,
including without limitation, death, disability or termination of employment,
with or without cause, all Shares that remain subject to forfeiture will be
forfeited to the Company. If a person continues to be regularly employed by the
Company or any of its Subsidiaries on a date specified in such person's Common
Stock Award Certificate as a date on which Shares will cease to be subject to
forfeiture, a stock certificate or stock certificates representing the
designated number of shares shall be issued and registered in the name of the
recipient or, if previously issued and registered in the name of the recipient
and held in escrow pursuant to Section 6 below, shall be released from escrow
and delivered to the recipient.
(c) In the event that the Company is succeeded by another company in a
reorganization, merger, consolidation or acquisition of substantially all the
assets or capital stock, the successor company shall assume the Company's
obligations with respect to Shares remaining subject to forfeiture with only
such modification as may be necessary so that the securities, cash or other
property received in such reorganization, merger, consolidation or acquisition
of property or stock by holders of Shares not subject to forfeiture shall be
issued to the recipient on the same terms as the Shares.
6. Escrow Option. Each recipient of an award pursuant to this Plan shall have
-------------
the option of having a stock certificate or stock certificates representing the
Shares so awarded issued and registered in his name at the time of the award,
provided that the award shall be subject to the recipient's execution of an
escrow agreement, in form and
2
<PAGE>
substance satisfactory to the Company, which provides that the stock
certificate or stock certificates representing Shares awarded under the Plan
will be held in escrow by the Company or by an escrow agent designated by the
Board of Directors of the Company for so long as such Shares are subject to
forfeiture pursuant to the terms of this Plan and the Common Stock Award
Certificate. On the dates set forth in each individual Common Stock Award
Certificate on which the designated number of Shares cease to be subject to
forfeiture, such Shares shall be released from escrow. In the event that the
Company is succeeded by another company in a reorganization, merger,
consolidation or acquisition of substantially all the assets or capital stock,
the successor company shall assume the Company's obligations with respect to
Shares being held in escrow pursuant hereto with only such modification as may
be necessary so that the securities, cash or other property received in such
reorganization, merger, consolidation or acquisition of property or stock by
holders of Shares not subject to forfeiture shall be held in escrow on the same
terms as the Shares.
7. Common Stock Subject to Award. The Shares awarded under this Plan may be
-----------------------------
unissued shares or treasury shares, including Shares bought on the open market.
Shares awarded pursuant to the Plan shall be validly issued, fully paid and
nonassessable.
8. Nonassignment. Any award made hereunder, the rights and privileges
-------------
conferred hereby and any Shares issued pursuant to an award hereunder for so
long as such Shares remain subject to forfeiture pursuant to the terms of this
Plan and the Common Stock Award Certificate shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such
award, right or privilege or Shares subject to forfeiture contrary to the
provisions hereof, or upon the levy of any attachment or similar process
thereon, such award and the rights and privileges conferred hereby shall
immediately terminate and the Shares subject to forfeiture at such time shall
be immediately forfeited to the Company.
9. Rights of Employee in Shares. A participating employee shall not be deemed
----------------------------
to be the holder of, or to have the rights of a holder with respect to, any
Shares awarded hereunder unless and until such Shares are issued to him and he
has received a certificate therefor. As long as a participating employee
continues to be regularly employed by the Company or any Subsidiary of the
Company, he shall be deemed to be the holder of, and may exercise all of the
rights of a record owner of the
3
<PAGE>
Shares awarded to him which are being held in escrow (other than the right to
transfer, convey, alienate or encumber the Shares, except in a connection with
a transaction described in, and subject to the provisions of, Section 5(c)
hereof) including, without limitation, the right to vote such Shares and the
right to receive all cash dividends on the Shares; provided, however, that upon
adoption by the shareholders of the Company of a plan of dissolution or
liquidation of the Company, the Shares then held in escrow pursuant hereto
shall be forfeited to the Company and the employee shall have no right to
participate in any distribution in connection with such dissolution or
liquidation and shall have no further rights in respect of the Shares. In the
event of a dividend or distribution payable in stock or other property or a
reclassification or split-up, the shares or other property issued or declared
on account of Shares held in escrow shall be subject to the same terms and
conditions relating to forfeiture and escrow as the Shares to which they
relate.
10. Income Taxes. The Company anticipates that participation in the Plan will
------------
have the following Federal income tax consequences. Because the Shares awarded
under the Plan are subject to forfeiture, receipt of the award should not be a
taxable event to the employee for Federal income tax purposes. Rather, the
employee should be deemed to receive compensation taxable as ordinary income on
the date forfeiture provisions lapse in an amount equal to the fair market
value of the Shares on such date.
Alternatively, an employee who elects to have the Shares awarded under the
Plan held in escrow pursuant to Section 6 above until the forfeiture provisions
lapse should be able to elect under Internal Revenue Code Section 83(b) to
include the value of the Shares in his income at the time the shares are
issued. If such an election is properly made, any subsequent appreciation in
the value of the Shares should not be taxable as compensation to the employee
for Federal income tax purposes, but instead should be taxable as capital gain
when and if the Shares are sold.
The Company shall have the right to reduce the number of Shares otherwise
required to be issued when such Shares cease to be subject to forfeiture, or
alternatively to accept tenders of Shares issued and held in escrow as
permitted hereby, in an amount which would have a fair market value on the date
such Shares cease to be subject to forfeiture, or on the date of award if the
employee has filed an election under Section 83(b) of the Internal Revenue Code
to have the Shares taxed at the time of such award, equal to all Federal,
state, city or other taxes as shall be required to be withheld by the Company
pursuant to any statute or other governmental regulation or ruling. In
4
<PAGE>
connection with such withholding, the Company may make any such arrangements as
are consistent with the Plan as it may deem appropriate.
11. Plan and Award Not to Affect Employment. Neither this Plan nor any award
---------------------------------------
hereunder shall confer upon any eligible employee any right to continue in the
employ of the Company or any of its Subsidiaries.
12. Amendment of Plan. The Board of Directors may make any amendments to the
-----------------
Plan which it deems necessary or advisable, provided that the Board of
Directors may seek shareholder approval of an amendment if determined to be
required by or advisable under regulations of the Securities and Exchange
Commission or the Internal Revenue Services, the rules of any stock exchange or
system on which the Company's Stock is listed or other applicable law or
regulation.
13. Notices. Any notice required or permitted hereunder shall be sufficiently
-------
given only if sent by registered or certified mail, postage prepaid, addressed
to the Company, 244 Great Valley Parkway, Malvern, Pennsylvania 19355, and to
the participating employee at the address on file with the Company on the date
an award is made hereunder, or to such other address as either party may
hereafter designate in writing by notice similarly given by one party to the
other.
14. Successors. The Plan shall be binding upon and inure to the benefit of
----------
any successor, successors or assigns of the Company.
15. Severability. If any part of this Plan shall be determined to be invalid
------------
or void in any respect, such determination shall not affect, impair, invalidate
or nullify the remaining provisions of this Plan which shall continue in full
force and effect.
16. Termination of the Plan. The Board of Directors may terminate this Plan
-----------------------
at any time; otherwise the Plan shall terminate on December 5, 2003.
Termination of the Plan shall not deprive employees of their rights under
awards previously made. No award shall be made after the date of termination of
this Plan.
17. Additional Terms. The Board of Directors may impose such additional terms
----------------
and conditions upon the award of Shares under this Plan as the Board determines
at the time it authorizes such awards.
5
<PAGE>
18. Administration of Plan. This Plan shall be administered by the Board of
----------------------
Directors. The Board may make such rules and establish such procedures as it
deems appropriate for the administration of the Plan. In the event of any
disagreement as to the interpretation of the Plan or any rule or procedure
thereunder, the decision of the Board shall be final and binding upon all
persons in interest.
6
<PAGE>
CENTOCOR, INC.
COMMON STOCK AWARD CERTIFICATE
This certifies that, pursuant to the 1983 Restricted Common Stock Award
Plan of Centocor, Inc., the Board of Directors has awarded shares of Common
Stock of Centocor, Inc. as follows:
Name and Address Position of
of Employee: Employee:
Number of Shares: Date on which forfeiture
provisions lapse:
The award is subject to all the terms and conditions of the
aforementioned Plan, a copy of which is attached to this certificate.
Dated:
---------------------
CENTOCOR, INC.
By:
------------------------
7
<PAGE>
EXHIBIT 12
CENTOCOR, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIOS
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS (LOSS):
Pretax income (loss) ($74,379) ($194,146) ($195,555) ($134,380) $ 256
PLUS:
Fixed charges (below) 22,820 24,046 14,893 3,254 2,114
LESS:
Interest capitalized - - 800 380 -
-- -- --- --- --
ADJUSTED EARNINGS (LOSS) ($51,559) ($170,100) ($181,462) ($131,506) $2,370
======== ========= ========= ========= ======
FIXED CHARGES:
Rent expense deemed interest $ 1,987 $ 3,537 $ 2,347 $1,019 $ 563
Interest expense 20,087 19,798 11,354 1,855 1,551
Amortization of debt issuance cost 746 711 392 - -
Interest capitalized - - 800 380 -
-- -- --- --- --
TOTAL FIXED CHARGES $22,820 $24,046 $14,893 $3,254 $2,114
======= ======= ======= ====== ======
RATIO * * * * 1.12
== == == == ====
</TABLE>
* Adjusted earnings did not cover fixed charges for the years ended December 31,
1993, 1992, 1991, and 1990 by $74,379,000, $194,146,000, $196,355,000 and
$134,760,000, respectively.
<PAGE>
EXHIBIT 21
CENTOCOR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
Subsidiaries of the Registrant or Organization
------------------------------ ---------------
<S> <C> <C>
1. Centocor B.V. The Netherlands
2. Centocor Delaware, Inc. Delaware
3. Centocor Development Corporation I Delaware
4. Centocor Development Corporation II Delaware
5. Centocor Development Corporation III Delaware
6. Centocor FSC, Ltd. U.S. Virgin Islands
7. Centocor Property Management Corp. Delaware
8. Centocor Property Management Corp. II Delaware
9. Centocor Property Management Corp. III Delaware
10. Centocor Ventures III Delaware
11. First Valley Insurance Company Vermont
12. Centocor U.K. Limited United Kingdom
13. Nippon Centocor K.K. Japan
14. Tocor, Inc. Delaware
15. Centocor (BVI), Inc. British Virgin Islands
</TABLE>
<PAGE>
Exhibit 23
Consent of Independent Auditors
-------------------------------
The Board of Directors
Centocor, Inc.:
We consent to incorporation by reference in Registration Nos. 33-35729,
33-38110, 33-16286, 33-7311, 33-23481, 33-28975, 33-26810, 33-44231, 33-44072,
and 33-29141 on Form S-3 in Registration Statement No. 33-51421 on Form S-4, and
in Registration Statement Nos. 33-35731, 2-86486, 33-35730, 33-00167, 33-16285,
33-16284 and 33-23480 on Form S-8 of Centocor, Inc. of our report dated March
11, 1994, relating to the consolidated balance sheets of Centocor, Inc. and
subsidiaries as December 31, 1993 and 1992 and the related consolidated
statements of operations, shareholders' equity and cash flows and related
consolidated financial statement schedules for each of the years in the three-
year period ended December 31, 1993, which report appears in the December 31,
1993 annual report on Form 10-K of Centocor, Inc.; and of our report dated March
11, 1994 relating to the balance sheets of Centocor Partners III, L.P. as of
December 31, 1993 and 1992 and the related statements of operations, partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 1993, which report appears in the December 31, 1993 annual report
on Form 10-K of Centocor, Inc. and which report 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.
/s/ KPMG Peat Marwick
Philadelphia, Pennsylvania
March 28, 1994
