<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 12, 1995
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CENTOCOR, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 0-11103 23-2117202
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(State or other juris- (Commission file (IRS Employer
diction of incorporation) number) Identification No.)
200 Great Valley Parkway, Malvern, Pennsylvania 19355
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 651-6000
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Not applicable
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(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
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On July 12, 1995, Painewebber R&D Partners, L.P. ("Painewebber") filed a
complaint in the Supreme Court of the State of New York, in and for the County
of New York, against the Registrant. In its complaint, Painewebber alleges,
among other things, that the Registrant breached certain of its obligations
under a Partnership Purchase Agreement, dated February 21, 1992, by failing to
make certain royalty payments, which Painewebber claims are due as a result of
certain payments (the "Lilly Payments") made to the Registrant by Eli Lilly and
Company ("Lilly") pursuant to certain agreements entered into between the
Registrant and Lilly in July 1992. In its complaint, Painewebber alleges that
it filed the suit as a class action on behalf of itself and all former limited
partners of Centocor Partners II, L.P. The complaint seeks an order awarding
damages, interest and costs, including plaintiff's counsel fees. A copy of the
complaint is filed as an exhibit to this Form 8-K.
On July 12, 1995, Painewebber R & D Partners II, L.P. ("Painewebber II")
filed a complaint in the Court of Chancery of the State of Delaware, in and for
New Castle County, against the Registrant and Centocor Development Corporation
III, Inc., a wholly-owned subsidiary of the Registrant ("Centocor Development").
The complaint also names Centocor Partners III, L.P. ("CP III") as a nominal
defendant. In its complaint, Painewebber II alleges that it filed the suit
derivatively on behalf of nominal defendant CP III, and further alleges, among
other things, that the defendants: (i) breached certain of their obligations
under certain agreements entered into in December 1987 among the Registrant,
Centocor Development and CP III, and (ii) breached their fiduciary duties to CP
III, by failing to make certain royalty payments, which Painewebber II claims
are due as a result of Registrant's receipt of the Lilly Payments. The
complaint seeks an order: (i) granting declaratory judgment regarding royalties
and (ii) awarding damages, interest and costs, including plaintiff's counsel
fees. A copy of the complaint is filed as an exhibit to this Form 8-K.
Item 7. Financial Statements and Exhibits.
---------------------------------
(c) Exhibits:
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(99.1) Complaint, Painewebber R&D Partners, L.P. v. Centocor, Inc.,
------------------------------------------------
95-117276, filed July 12, 1995 (N.Y. Sup. Ct., County of New
York).
(99.2) Complaint, Painewebber R & D Partners II, L.P. v. Centocor,
------------------------------------------------
Inc., et al., Case No. 14405, filed July 12, 1995 (Del. Ch.,
------------
New Castle County).
2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CENTOCOR, INC.
Registrant
Dated: July 17, 1995 By: /s/ George D. Hobbs
--------------------------------
George D. Hobbs, Vice President,
Corporate Counsel and
Secretary
3
<PAGE>
EXHIBIT 99.1
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -----------------------------------------x
PAINEWEBBER R&D PARTNERS, L.P.,
On Behalf Of Itself And :
All Others Similarly Situated,
:
Plaintiff,
:
-against- COMPLAINT
: ---------
CENTOCOR, INC.,
Defendant. :
- ---------------------------------------- x
Plaintiff, by its attorneys, Morvillo, Abramowitz,
Grand, Iason & Silberberg, P.C., for its complaint, alleges upon
knowledge as to its own acts, and upon information and belief as
to the acts of others:
PARTIES
-------
1. Plaintiff PaineWebber R&D Partners, L.P. ("PWR&D"), a
Delaware limited partnership, having its principal place of
business in New York, engages in product development programs in
a wide range of technologies. PWR&D is a former limited partner
in Centocor Partners II, L.P. ("CPII"), a Delaware limited partnership
formed by defendant Centocor, Inc. ("Centocor") to research,
develop and market a drug called Centoxin.
2. Defendant Centocor is a corporation organized
under the laws of the State of Pennsylvania, having its principal
place of business at Great Valley Parkway, Malvern, Pennsylvania,
19355-1307. Centocor is a biopharmaceutical company specializing
in the development and sale of antibody-based products.
<PAGE>
SUMMARY OF CLAIM
----------------
3. This is a breach of contract action in which PWR&D
seeks to recover, on behalf of itself and all the other former
limited partners of CPII, their share of certain payments
Centocor received from Eli Lilly and Company ("Lilly"). In 1986,
PWR&D and others purchased limited partnership interests in CPII.
In early 1992, Centocor exercised an option to purchase the
interests of the CPII limited partners. Pursuant to the
agreement entered into between Centocor, CPII, Centocor
Development Corporation II (the general partner of CPII) and each
of the limited partners of CPII, Centocor agreed to pay the
former limited partners of CPII 50% of any revenues Centocor
derived in the future from the licensing or sublicensing of
Centoxin. In July 1992 -- shortly after the interests of the
CPII limited partners were purchased by Centocor -- Centocor
licensed or sublicensed to Lilly the right to market Centoxin.
The former limited partners of CPII are contractually entitled to
50% of the money Centocor received for this licensing or
sublicensing of Centoxin. Centocor has claimed that most of the
money derived from the transaction with Lilly was not for
licensing or sublicensing Centoxin. That claim is false and a
mere subterfuge to avoid paying PWR&D and the class members the
substantial sums of money they are contractually entitled to
receive.
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<PAGE>
PLAINTIFF'S CLASS ALLEGATIONS
-----------------------------
4. PWR&D brings this action as a class action
pursuant to CPLR (SS) 901 on behalf of all former limited partners
of CPII whose limited partnership interests were purchased by
Centocor (the "Class"). Excluded from the Class are officers and
directors of Centocor.
5. The members of the Class are so numerous that
joinder of all members is impracticable. The number of Class
members is estimated to be approximately 950 entities or
individuals.
6. There are questions of law and fact common to the
members of the Class which predominate over any questions which
may affect only individual members in that defendant has acted on
grounds generally applicable to the entire Class. Among the
questions of law and fact common to the Class is whether Centocor
breached its contract to make payments to the former limited
partners of CPII pursuant to a Partnership Purchase Agreement
dated February 21, 1992 and entered into between, inter alia, the
----------
Class members, including PWR&D, and Centocor.
7. PWR&D's claims are typical of the claims of the
Class because all the Class members, including PWR&D, sustained
damages which arose out of the defendant's wrongful conduct
complained of herein.
8. PWR&D is a representative party who will fairly
and adequately protect the interests of the Class members. PWR&D
has retained counsel who are experienced and competent in civil
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<PAGE>
litigation including class actions. PWR&D has no interests which
are contrary to or in conflict with those of the Class it seeks
to represent.
9. A class action would be superior to other
available methods for the fair and efficient adjudication of this
controversy. PWR&D knows of no difficulty to be encountered in
the management of this action that would preclude its maintenance
as a class action.
FORMATION OF RELATIONSHIP WITH CENTOCOR
---------------------------------------
10. In 1986, Centocor formed CPII to raise money for
the research, development, and marketing of the drug called
Centoxin. The money was raised through the sale of limited
partnership interests in CPII. PWR&D purchased approximately
thirteen percent of those interests. PWR&D was the largest
single investor in CPII.
11. In December 1986, CPII entered into a number of
agreements with Centocor. Those agreements provided, among other
things, that Centocor would use its best efforts on behalf of
CPII to research and develop Centoxin. Centocor and CPII also
entered into a joint venture pursuant to which Centocor would
manufacture and market Centoxin or would sublicense those
obligations to third parties. Centocor also received the option
to purchase the limited partnership interests of the CPII
investors.
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<PAGE>
CENTOCOR PURCHASES THE CPII LIMITED PARTNERS' INTERESTS
-------------------------------------------------------
12. On February 21, 1992, Centocor exercised its
option to purchase the limited partnership interests of the CPII
investors, paying them (including PWR&D) $12,375,000. At the
time Centocor exercised that option, Centocor believed that the
rights to research, develop, and market Centoxin were extremely
valuable. Centocor had filed applications for approval to market
Centoxin in the United States and other countries, and Centoxin
had already been introduced in Europe.
13. At the time Centocor exercised its option to
purchase the limited partnership interests of the CPII investors,
Centocor agreed in writing to make additional payments to the
former limited partners of CPII. Under the Partnership Purchase
Agreement, Centocor became obligated to pay the Class (including
PWR&D) 50% of Centocor's revenues from the licensing or
sublicensing of Centoxin and 8% of Centocor's revenues from
Centoxin sales. Thus, the agreement between Centocor and the
limited partners of CPII obligates Centocor to make payments to
the former limited partners of CPII if Centocor were to license
or sublicense to third parties the right to make, have made, use
or sell Centoxin, or if Centocor were to sell or otherwise
dispose of Centoxin. The agreement further provides that
payments of "Sublicense Revenues" and "Revenues" are due on the
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<PAGE>
last business day of the calendar quarter in which they are
earned.
THE LILLY TRANSACTION
---------------------
14. Less than five months later, on July 15, 1992, Centocor
entered into three related agreements with Lilly pursuant to
which Lilly paid Centocor a total of $100 million. Centocor
allocated $50 million as payment for two million shares of
Centocor common stock and most of the remaining $50 million as
payments related to Centoxin.
15. In the Sales and Distribution Agreement entered
into between Centocor and Lilly, Centocor granted to Lilly the
exclusive right to market Centoxin. Centocor agreed to
manufacture sufficient Centoxin to meet Lilly's needs. The
agreement also granted Lilly certain rights with respect to
another Centocor product called CentoRx.
16. At the same time Lilly and Centocor entered into
an agreement entitled Reimbursement Agreement. In that
agreement, Lilly agreed to pay Centocor a sum of money for (a)
training Lilly sales personnel for a ninety-day period beginning
the day of the closing and (b) six-months' worth of promotional
materials. That agreement further provided that Lilly would
ostensibly "reimburse" Centocor for expenses Centocor had
incurred in developing a market for Centoxin and expenses
Centocor would incur in ongoing clinical development of Centoxin.
17. In the Investment Agreement entered into between
Lilly and Centocor, Lilly purchased 2 million shares of Centocor
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<PAGE>
stock, purportedly for $50 million, or $25 per share. On July
15, 1992, the market price of Centocor common stock was $15 per
share. Thus, Lilly purported to pay $10 per share above the $15
per share market price for the Centocor stock.
18. Except for (a) the $500,000 paid to Centocor by
Lilly for certain rights Lilly obtained regarding CentoRx and (b)
the value of the Centocor stock purchased by Lilly, all of the
other money Centocor received from Lilly in connection with this
transaction was for the licensing or sublicensing of Centoxin to
Lilly. Accordingly, under the agreements between Centocor and
CPII, the Class, including PWR&D, is entitled to 50% of this
money. Alternatively, this money is revenue derived by Centocor
from sales of Centoxin, and the Class, including PWR&D, is
entitled to 8% of this money.
FIRST CAUSE OF ACTION
---------------------
(BREACH OF CONTRACT)
19. PWR&D realleges and incorporates paragraphs 1
through 18 of this Complaint as if alleged in full herein.
20. Pursuant to the Partnership Purchase Agreement
entered into between Centocor, CPII, Centocor Development
Corporation II (the general partner of CPII) and each of the
limited partners of CPII at the time Centocor purchased the
limited partners' interests in CPII, Centocor owes the Class, as
former limited partners of CPII, (a) 50% of license or sublicense
revenues received by Centocor from the licensing and sublicensing
to third parties of the right to make, have made, use or sell
Centoxin, and (b) 8% of revenues received by Centocor from the
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<PAGE>
sale or other disposition of Centoxin. In a blatant subterfuge
to prevent PWR&D, and the other members of the Class, from
receiving what they are entitled to receive under the Partnership
Purchase Agreement, Centocor has taken the untenable position
that most of the payments received by Centocor from Lilly were
not for the licensing or sublicensing of Centoxin. In fact, most
of the payments received by Centocor from Lilly were for the
licensing or sublicensing of Centoxin to Lilly; alternatively,
and at a bare minimum, most of the payments were for the sale or
other disposition of Centoxin.
21. The July 15, 1992 transaction between Centocor and
Lilly was a sale of licensing or sublicensing rights to Centoxin:
a. Of the $50 million paid by Lilly to Centocor
and denominated as primarily for reimbursement of expenses
related to Centoxin, all of that payment was derived by Centocor
from licensing or sublicensing the rights of Centoxin to Lilly.
The Class members, including PWR&D, are entitled to 50% of this
payment.
b. Of the $50 million paid by Lilly to Centocor
for two million shares of Centocor common stock, at least the $20
million premium above the then current market price was payment
derived by Centocor from licensing or sublicensing the rights of
Centoxin to Lilly. The Class members, including PWR&D, are
entitled to 50% of that premium.
22. In the alternative, the transaction with Lilly was
predominately a sale or other disposition of Centoxin:
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<PAGE>
a. Of the $50 million denominated as primarily
for "reimbursement" of expenses related to Centoxin, all or most
of it was in the nature of an advance payment for Centoxin,
reducing the price that Lilly would thereafter pay Centocor for
Lilly's requirements for Centoxin.
b. Of the $50 million paid for two million
shares of Centocor common stock, at least the $20 million premium
above the then current market price was all or largely actually
advance payment for Centoxin, reducing the price that Lilly would
thereafter pay Centocor for Lilly's requirements for Centoxin.
23. The portions of these sums owing to the Class
members, including PWR&D, have been outstanding since the last
business day of September 1992, when they became due.
24. Centocor's breach of its obligation to pay the
Class members, including PWR&D, pursuant to the Partnership
Purchase Agreement has caused them damages in an amount of at
least $35 million, with the precise amount to be determined at
trial.
SECOND CAUSE OF ACTION
----------------------
(BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING)
25. PWR&D realleges and incorporates paragraphs 1
through 18 of this Complaint as if alleged in full herein.
26. This cause of action is alleged as an alternative
to the first cause of action alleged in paragraphs 19 through 24
of this Complaint.
27. Pursuant to the Partnership Purchase Agreement
entered into between Centocor, CPII, Centocor Development
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<PAGE>
Corporation II (the general partner of CPII) and each of the
limited partners of CPII at the time Centocor purchased the
limited partners' interests in CPII, Centocor owes PWR&D, and the
other members of the Class, as former limited partners of CPII, a
duty of good faith and fair dealing.
28. In entering into this contract with Centocor
pursuant to which Centocor purchased the limited partners'
interest in CPII, PWR&D and the other members of the Class
bargained for and secured the contractual right to receive future
payments if Centocor were to license or sublicense to third
parties the right to make, have made, use or sell Centoxin, or if
Centocor were to sell or otherwise dispose of Centoxin. By
structuring the arrangements with Lilly in the manner in which it
did, Centocor acted in bad faith in order to deprive PWR&D, and
the other members of the Class, of the benefit of the bargain
they achieved when they entered into the Partnership Purchase
Agreement with Centocor -- namely, the right to receive payments
for the licensing or sublicensing or sale or other disposition of
Centoxin.
29. By reason of the foregoing, Centocor breached the
duty of good faith and fair dealing which is an implied term in
every contract. PWR&D and the other members of the Class have
suffered damages by this breach in an amount of at least $35
million, with the precise amount to be determined at trial.
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<PAGE>
THIRD CAUSE OF ACTION
---------------------
(BREACH OF CONTRACT FOR SALES OF CENTOXIN)
30. PWR&D realleges and incorporates paragraphs 1
through 18 of this complaint as if alleged in full herein.
31. Centocor made sales of Centoxin during the period
July 31, 1992 through the first quarter of 1993 in an amount in
excess of $4 million.
32. Pursuant to the Partnership Purchase Agreement,
Centocor owes the Class, as former limited partners of CPII, 8%
of any revenues received by Centocor from the sale or other
disposition of Centoxin.
33. No part of the revenues from these sales of
Centoxin was paid to the Class even though 8% of such revenues
was due on the last business day of the calendar quarter in which
they were earned.
34. Centocor's breach of its obligation pursuant to
the Partnership Purchase Agreement to pay the Class members,
including PWR&D, revenues from these sales of Centoxin has caused
the Class damages in an amount of at least $320,000.
WHEREFORE, PWR&D asks this Court for a judgment:
a. awarding the Class, including PWR&D, all damages
suffered;
b. awarding the Class, including PWR&D, interest on the
money the Class, including PWR&D, is entitled to receive;
-11-
<PAGE>
c. awarding the Class, including PWR&D, all expenses,
including reasonable attorneys, fees in connection with this
matter; and
d. granting the Class, including PWR&D, such other and
further relief as the Court may deem just and proper.
Dated: July 12, 1995
MORVILLO, ABRAMOWITZ, GRAND,
IASON & SILBERBERG, P.C.
565 Fifth Avenue
New York,, New York 10017
Telephone: (212) 856-9600
Telecopier: (212) 856-9494
Attorneys for Plaintiff
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<PAGE>
EXHIBIT 99.2
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
PAINEWEBBER R & D PARTNERS II, L. P. )
in the right and on behalf of )
Centocor Partners III, L.P., )
)
Plaintiff, )
)
v. ) Case No. 14405
)
CENTOCOR, INC. and CENTOCOR )
DEVELOPMENT CORPORATION III, INC., )
)
Defendants, )
)
and )
)
CENTOCOR PARTNERS III, L.P., )
)
Nominal Defendant. )
COMPLAINT
---------
Plaintiff, PaineWebber R & D Partners II, L.P.
("PW R&D II"), by and through its undersigned counsel,
alleges for its complaint based on knowledge as to its own
conduct and upon information and belief as to the conduct
of others, as follows:
Preliminary Statement
---------------------
1. Plaintiff brings this action derivatively on
behalf of nominal defendant Centocor Partners III, L.P. ("CP
III"), in response to a series of actions taken by defend-
ants Centocor, Inc. ("Centocor") and Centocor Development
Corporation III ("Centocor Development"), which is both the
wholly owned subsidiary of Centocor and the General Partner
<PAGE>
of CP III. CP III is a limited partnership which provided
investment capital for the development by Centocor of a drug
known as CentoRx (subsequently named ReoPro), which is
designed to treat the formation of blood clots in the
cardiovascular system.
2. On or about approximately July 15, 1992, Cen-
tocor entered into a series of agreements (the "Lilly Agree-
ments") with Eli Lilly & Company ("Lilly"), relating to the
marketing of CentoRx and another drug, Centoxin, which was a
completely different Centocor product in which CP III has no
financial interest
3. Under the Lilly Agreements, Lilly paid
Centocor at least $100 million. Centocor and Lilly
allocated $50 million as payment for two million shares of
Centocor common stock and they allocated most of the other
$50 million as a payment relating to Centoxin. Purportedly
in return for a $500,000 portion of the latter $50 million,
Lilly was provided an option to acquire exclusive marketing
rights to CentoRX, exercisable without further payment if
the FDA failed to approve Centoxin by January 1, 1994.
4. The $500,000 option price bore no relation to
the true market value of the rights to market CentoRx. The
purported allocation of the $100 million price was false and
was designed, at least in part, to avoid paying CP III the
fair and full value of the portion of the $100 million that
was owed to CP III as a result of the transfer to Lilly of
marketing rights to CentoRx. Indeed, in the Lilly Agree-
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<PAGE>
ments, Lilly and Centocor established a $25 million exercise
price for the marketing rights to CentoRx if the FDA did
approve Centoxin. Thus, Centocor and Lilly recognized that,
if the success or failure of Centoxin was disregarded, the
value of the right to market CentoRx in accordance with the
other terms of the Lilly agreements was at least $25
million. Stated differently, Centocor effectively agreed to
reduce the price for CentoRx by $25 million if the FDA
refused to approve Centoxin. In doing so, Centocor treated
the investors in CentoRx as if they were somehow
interchangeable with the Centoxin investors, which they are
not. Except for a share of the $500,000, CP III was not
paid any portion of the $100 million Lilly paid to Centocor.
5. In addition, in consummating the Lilly Agree-
ments, Centocor breached its contractual agreements with CP
III and breached and continues to breach, and caused Cento-
cor Development to breach and to continue to breach,
fiduciary duties owed to CP III. Centocor lacked the right
or power to enter into the Lilly Agreements because CP III
possessed exclusive marketing rights to CentoRx. Centocor
and Centocor Development were obligated to, but did not
maximize the value to CP III investors of the marketing
rights to CentoRx. Instead, Centocor entered into to the
Lilly Agreements and, pursuant to those agreements, Centocor
purported to allocate a large portion of the revenues and
profits to be derived from the sale of CentoRx to Lilly and
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<PAGE>
thereby substantially and improperly reduce the profits and
revenues to be received by CP III investors.
The Parties
-----------
6. Plaintiff PW R&D II is a limited partnership
organized under the laws of the State of Delaware, having a
registered office in Delaware and its principal place of
business in New York, New York. PW R&D II is, and at the
time of the Lilly Agreements and at all other relevant times
was, a limited partner in CP III.
7. Defendant Centocor in a Pennsylvania corpora-
tion with its principal place of business in Malvern, Penn-
sylvania.
8. Defendant Centocor Development is a Delaware
corporation, with its principal place of business in
Malvern, Pennsylvania. Centocor Development is both a
wholly owned subsidiary of defendant Centocor and the
general partner of CP III. At all relevant times, Centocor
treated Centocor Development as an instrumentality of
Centocor, and Centocor Development did not act in any
independent fashion or exercise any business judgment in
connection with the Lilly Agreements. Centocor Development
does not have any separate employees from those of Centocor,
and the Centocor officers who are also officers and
directors of Centocor Development completely controlled
Centocor Development and caused it not to take any action
with respect to the Lilly Agreements. The directors of
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<PAGE>
Centocor Development who are not Centocor officers were not
even consulted about the Lilly Agreements when those
agreements were entered into, and the concerns they later
expressed about the Lilly Agreements were disregarded by
Centocor Development's Centocor insiders.
9. CP III, which is named as a nominal defendant
in this derivative action, is a limited partnership
organized under the laws of the State of Delaware, and has a
registered office in Delaware and its principal place of
business in Malvern, Pennsylvania.
Factual Allegations
-------------------
10. On December 9, 1987, CP III was established
as a limited partnership to raise capital for the develop-
ment of CentoRx. The rights and duties of the partners in
CP III were established by an agreement of limited partner-
ship ("Limited Partnership Agreement").
11. PW R&D II invested in CP III. PW R&D II's
capital contribution was approximately $12 million, or
roughly 22% of the approximate $54.2 million aggregate
contribution of all of the limited partners of CP III.
12. Paragraph 7.5 of the Limited Partnership
Agreement provides, in pertinent part, that Centocor
Development, as the general partner of CP III, "shall manage
and control the affairs of CP III to the best of its
ability, and the General Partner shall use its best efforts
--------------------------
to carry out the purposes of CP III for the benefit of all
- ----------------------------------------------------------
-5-
<PAGE>
of the partners." (Emphasis added). Paragraph 7.5 further
- ----------------
provides that "[i]n exercising its power, the General Part-
-----------------
ner recognizes its fiduciary responsibility to CP III."
- ------------------------------------------------------
(Emphasis added).
13. As the general partner of CP III, Centocor
Development's power to enter into contracts, agreements,
licenses or other instruments with respect to the develop-
ment and marketing of CentoRx, as set forth in Paragraph
7.1(i) of the Limited Partnership Agreement, is subject to
Paragraph 7.4(d) of the same, which states that such power
is subject to the agreements listed in Schedule B thereof,
including the Cross License, Development and Joint Venture
Agreements detailed below.
14. On or about December 23, 1987, Centocor and
CP III entered into a Cross License Agreement, a
Development Agreement and a Joint Venture Agreement.
15. Section 2.01 of the Cross License Agreement
grants CP III a "royalty-free ... exclusive (even as to Cen-
tocor and its Affiliates), fully paid-up right and license"
to use Centocor-developed technology for the development and
sale of CentoRx.
16. Sections 2.01, 3.01 and 3.02 of the
Development Agreement requires Centocor to use its best
efforts on behalf of CP III to research and develop CentoRx.
17. The Joint Venture Agreement provides that the
business of the Joint Venture is to manufacture and market
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<PAGE>
and to sublicense third parties to manufacture and market
CentoRx.
18. Section 5.03 of the Joint Venture Agreement
provides that "all decisions . . . affecting or arising out
of the conduct of the business of the Venture shall be made
by the Managing Venturer . . . ".
19. Under the terms of the Joint Venture Agree-
ment, Centocor Development, in its capacity as CP III's
general partner, became Managing Venturer. (Joint Venture
Agreement (P) 5.01.)
20. Section 3.01(a) of the Joint Venture Agree-
ment provides that the parties "shall share profits and
losses in the proportion of 74.97% to Centocor and 25.03% to
[CP III]."
21. Pursuant to the Partnership Purchase Agree-
ment between and among Centocor, Centocor Development and CP
III, in the event that Centocor purchases the limited
partnership interests of the investors in CP III and the
Joint Venture is thereby terminated, those investors are
thereafter entitled to specified percentages of future
revenues from CentoRx.
22. Section 5.06 of the Joint Venture Agreement
provides that both parties may undertake separate ventures
apart from "Venture Business," provided that "such ventures
shall not relate to the design, development, manufacture,
sale, licensing or other disposition, or sublicensing to
third parties the manufacture, use and sale [of CentoRx]."
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<PAGE>
23. Section 5.14 of the Joint Venture Agreement
requires, in pertinent part, that, for each year the Joint
Venture is in existence, 12-month marketing and distribution
plans for CentoRx must be approved by a unanimous vote of
the board of directors of Centocor Development.
Furthermore, Section 5.14 provides that the goal of any
marketing and distribution arrangement or plan of CentoRx
must be to "maximize distributions of the Venture to [CP
III]" and that before approval of any plan of marketing and
distribution that is different than the method of marketing
as described in the Private Placement Memorandum for CP III
(the "Original Plan") "the anticipated economic
consequences" of any such new plan and the anticipated
economic return to CP III must be compared to the
anticipated consequences and economic return from the
Original Plan. Still further, Section 5.14 requires that
the share of profit and losses that CP III will receive from
the Joint Venture's revenue must be adjusted to take account
of any changes in the plan of marketing and distribution.
24. On or about July 15, 1992, Centocor entered
into a series of agreements with Lilly, referred to herein
as the Lilly Agreements.
25. Pursuant to the Lilly Agreements, Lilly paid
Centocor $100 million. Purportedly, one half of one percent
of that payment (i.e., $500,000) was for an option to
acquire the exclusive marketing rights to CentoRx,
exercisable without any further payment by Lilly if the FDA
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did not approve a separate Centocor product known as
---
Centoxin by January 1, 1994.
26. The FDA did not approve Centoxin by January
1, 1994 and Centocor has ceased its efforts to develop and
market that product.
27. Sometime prior to June 1993, Lilly and Cento-
cor concluded that Centoxin would never be approved by the
FDA. Subsequently, Lilly purported to exercise its option
to market CentoRx. Because of the lack of FDA approval of
Centoxin, Lilly paid no additional monies to Centocor in
connection with the exercise of its option. Pursuant to
further agreements, Lilly has made additional payments to
Centocor in connection with CentoRx. CP III has not been
paid any portion of those additional payments.
28. By its actions, Centocor has affirmed, and is
estopped from denying, that the marketing rights to CentoRx
at the time of the Lilly agreements were worth at least $25
million.
29. The marketing and distribution plan embodied
in the Lilly Agreements substantially reduced the revenues
to be received by the Joint Venture and substantially
reduced the profits from CentoRx to be received by CP III
and the limited partners. Pursuant to Section 5.14 of the
Joint Venture Agreement, approval of the Lilly Agreements by
a unanimous vote of the board of directors of Centocor
Development was required. Yet, to date, defendants Centocor
and Centocor Development have not sought, much less obtained
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a unanimous vote of the board of directors of Centocor
Development approving the Lilly Agreements. In addition,
Centocor and Centocor Development have never presented to
the board of directors of Centocor Development the
comparison, required by Section 5.14 of the Joint Venture
Agreement, of the consequences and return to CP III from the
Original Plan with the return to CP III from the new plan
embodied in the Lilly Agreements. Still further, despite
the requirement in Section 5.14 of the Joint Venture Agree-
ment for an adjustment in the percentage of the profits CP
III will receive, no such adjustment has ever been proposed
and considered, much less been made.
30. Due to Centocor's domination and control of
CP III's general partner, Centocor Development, and the
following facts, any effort to demand that the general
partner bring this action would be futile:
(i) Centocor Development, which is the
general partner of CP III, is a defendant herein,
has been actively involved in the various breaches
of contract and fiduciary duty charged in this
complaint, and is both dominated and controlled by
Centocor, which treats Centocor Development as an
instrumentality of Centocor, without regard for
Centocor Development's separate corporate
existence.
(ii) The board of directors of Centocor
Development consists of four persons, two of whom
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are officers of Centocor. In particular, they are
Hubert Shoemaker, Centocor's Chairman, and David
P. Holveck, Centocor's President and Chief
Executive Officer. Both Shoemaker and Holveck
receive substantial compensation from Centocor,
and neither of them can be expected to cast an
independent and disinterested vote on the question
of whether to bring suit against Centocor and/or
Centocor Development. Most recently, in a June
28, 1993 letter sent to a limited partner in CP
III, Mr. Holveck, in his capacity as President and
CEO of Centocor, denied that the rights of the
investors in CP III had been violated by
Centocor's entering into the Lilly Agreements or
that there in any basis for the claims asserted in
this complaint.
(iii) At all relevant times, the officers
of Centocor Development, who have been in control
of Centocor Development's activities and actions,
were officers of Centocor. The present officers
of Centocor Development are Mr. Shoemaker and
George C. Hobbs, who is Corporate Counsel of
Centocor;
(iv) The officers of Centocor, who caused
Centocor to enter into the Lilly Agreements and
engage in the activities challenged in this com-
plaint, remain in control of Centocor Development;
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(v) Centocor and its officers have at all
relevant times consistently caused Centocor
Development not to take any action opposing or
inconsistent with or independent of Centocor's
actions in question with the Lilly Agreements and
the actions alleged in this complaint;
(vi) Centocor and its officers understood
that Centocor could not lawfully enter into the
Lilly Agreements without obtaining the agreement
of Centocor Development, and yet did not obtain or
even seek such agreement prior to entering into
the Lilly Agreements;
(vii) After Centocor entered into the
Lilly Agreements, an outside director of Centocor
Development, who was not an officer or employee of
Centocor, questioned the conflict between the
rights of the parties with the legal and benefi-
cial interests in the profits from the sale of
Centoxin and the sale of CentoRx that had not been
properly dealt with in connection with the Lilly
Agreements. The officers and directors of
Centocor Development in control of its activities,
who were also officers of Centocor, refused to
take any action to deal with the concerns
expressed by the outside board member;
(viii) In 1993, the officers of Centocor,
who were also officers and directors of Centocor
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Development, created minutes of an April 29, 1993
meeting of the board of directors of Centocor
Development, which falsely state that the board
"endorsed the Lilly Agreement," when, in fact, no
such endorsement occurred; and
(ix) In 1993 and 1994, Centocor's counsel was
approached on several occasions by representatives
of PW R&D II and of the holders of the beneficial
interest in the profits from Centoxin, concerning
the matters alleged in this complaint. The same
counsel representing Centocor also represent
Centocor Development in connection with those
matters. After being informed of the substance of
the allegations set forth in this complaint, those
attorneys have consistently taken the position
that there were no improprieties, breaches of
contract or breaches of fiduciary duty as a result
of Centocor entering into the Lilly Agreements and
have denied that there is any basis for the claims
asserted in this complaint.
First Cause of Action: Breach of Contract
------------------------------------------
31. Plaintiff restates and realleges the allega-
tions of Paragraphs 1 to 30 as if fully set forth herein.
32. Centocor entered into the Lilly Agreements in
violation of the exclusivity provisions of Paragraph 2.01 of
the Cross License Agreement.
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<PAGE>
33. Centocor entered into the Lilly Agreements in
violation of Paragraph 5.03 of the Joint Venture Agreement,
which provides that only the Managing Partner of the Joint
Venture, which is Centocor Development, has the power to
enter into contracts, agreements, and licenses on behalf of
the Joint Venture.
34. Centocor breached the provisions of the
Development Agreement, which require Centocor to use its
best efforts to market CentoRx and to maximize the profits
from CentoRx to be paid to CP III, by sacrificing CentoRx
and the interests of its investors in order to raise money
in connection with Centoxin.
35. The Joint Venture Agreement provides that the
parties "shall share profits and losses in the proportion of
74.97% to Centocor and 25.03% to [CP III]." Thus, based on
the Joint Venture Agreement, CP III is entitled to 25.03% of
all profits from the manufacturing or marketing of CentoRx.
Any compensation paid to Centocor for the option or right to
market CentoRx, constitutes such profits. Pursuant to the
Lilly Agreements Centocor was paid at least $100 million and
effectively recognized that the value of the rights to
market CentoRx, apart from any consideration of Centoxin,
was at least $25 million. The purported allocation of the
$100 million was false and designed to avoid paying CP III
its fair and full share of profits from the marketing of
CentoRx. Centocor paid CP III no portion of the $100
million beyond a share of the purported $500,000 option
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<PAGE>
price. Centocor's failure to distribute profits from the
Lilly Agreements to CP III and/or its investors constitutes
a breach of the Joint Venture Agreement.
36. Centocor entered into the Lilly Agreements in
violation of Section 5.14 of the Joint Venture Agreement.
37. Accordingly, Centocor has breached, and has
caused its subsidiary, Centocor Development, to breach the
Limited Partnership Agreement, the Development Agreement,
the Cross License Agreement and the Joint Venture Agreement.
Second Cause of Action: Declaratory Judgment
---------------------------------------------
38. Plaintiff restates and realleges the allega-
tions of Paragraphs 1 to 37 as if fully set forth herein.
39. Centocor has asserted that the profits to be
received by CP III from the sale of CentoRx are to be deter-
mined on the basis of Lilly receiving substantial revenues
and profits from the sale of CentoRx and Centocor and CP III
receiving their percentages of the profits derived from sub-
stantially less than the total sales revenues from CentoRx.
CP III is entitled to its fair share of profits from the
sale of CentoRx calculated on the basis of 100% of CentoRx
sales. In the event their limited partnership interests are
purchased by Centocor pursuant to the Partnership Purchase
Agreement, and the Joint Venture is thereby terminated, the
investors in CP III will be entitled to their share of 100%
of the revenues from CentoRx as specified in the Partnership
Purchase Agreement. Moreover, Centocor has asserted rights
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to a 17% Commission on CentoRx sales for "marketing
services" when Lilly is providing such services. Centocor
is providing no such services to the Joint Venture and is
not entitled to such a commission. Still further, Centocor
Development is asserting rights to a 10% commission on such
sales for management and administrative costs that it is not
incurring and it is not entitled to such a commission.
40. A justiciable controversy exists as to the
rights of CP III to share in the profits to be derived from
all the revenues from the sale of CentoRx, as to the rights
of the limited partners to share in their fair share of 100%
of the revenues derived from the sale of CentoRx after the
termination of the Joint Venture and an to the defendants'
claims to receive commission for services they are not pro-
viding.
Third Cause of Action: Breach of Fiduciary Duty
------------------------------------------------
41. Plaintiff restates and realleges the allega-
tions of Paragraphs 1 to 40 as if fully set forth herein.
42. Centocor wholly owns Centocor Development and
directs and controls its activities. As the general partner
of CP III, Centocor Development owes a fiduciary duty to the
limited partnership. Centocor is also a joint venturer with
CP III. By virtue of the foregoing relationships between
and among the parties, both Centocor and Centocor
Development owe fiduciary duties to CP III.
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<PAGE>
43. In breach of the fiduciary duties owed to CP
III, Centocor gave up and Centocor Development allowed
Centocor to give up the marketing rights to CentoRx at a
purported price that bore no relationship to their true
value in order to induce Lilly to enter into a transaction
concerning Centoxin, in which CP III has no interest.
44. Centocor and Centocor Development breached
and continue to breach their fiduciary duties to CP III by
not using their best efforts to market CentoRx and maximize
profits to CP III and by not adjusting the percentage of
profits from the sale of CentoRx to be received by CP III.
WHEREFORE, Plaintiff demands the following relief
against Centocor and Centocor Development:
(a) awarding CP III compensatory damages of
25.03% of $25 million or such greater amount as the proof
will show and its fair share of all other profits related to
CentoRx as set forth above;
(b) awarding CP III compensatory damages for
defendants' continuing breach of their fiduciary duties;
(c) granting CP III a judgment declaring that it
is entitled to its percentage of profits and revenues, as
set forth in the Joint Venture Agreement and the Partnership
Purchase Agreement, from all sales of CentoRx calculated
without regard to, and with no reduction caused by, revenues
and costs allocated to Lilly an a result, of the Lilly
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Agreements and with no commissions being paid to the
defendants;
(d) awarding plaintiff its costs, including its
attorneys' fees; and
(e) such other and further relief as the Court
may deem just and proper.
YOUNG, CONAWAY, STARGATT & TAYLOR
/s/ Bruce L. Silverstein
-------------------------------
Bruce L. Silverstein
Matthew P. Denn
llth Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Attorneys for Plaintiff
OF COUNSEL:
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue
New York, New York 10022
(212) 326-3939
Dated: July 12, 1995
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