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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, 1997
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
CENTOCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-2117202
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
200 GREAT VALLEY PARKWAY 19355-1307
MALVERN, PA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 651-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
None Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
SERIES A PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(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 [_]
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 69,585,224 shares of voting stock held by
non-affiliates of the registrant as of February 6, 1998 was $2,787,758,037.
Common Stock outstanding at February 6, 1998: 70,178,634 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document are incorporated by reference in this
Report on Form 10-K:
Proxy Statement for the Annual Meeting of Shareholders to be held on May 13,
1998--Part III, Items 10, 11, 12 and 13.
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PART I
ITEM 1. BUSINESS
GENERAL
Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical company
the mission of which is to develop or otherwise acquire and commercialize
novel therapeutic and diagnostic products and services that solve critical
needs in human healthcare, with a primary technology focus on monoclonal
antibodies and DNA-based products.
The Company has two therapeutic products approved for sale and several
product candidates in various stages of development. ReoPro(R) (Abciximab) is
marketed by Eli Lilly and Company ("Lilly") and sold in the United States and
Europe for the reduction of acute ischemic cardiac complications in patients
undergoing percutaneous coronary intervention ("PCI") such as angioplasty
procedures, and for those patients with unstable angina who are refactory to
conventional therapy for whom PCI is planned within twenty-four hours.
Panorex(R) (Edrecolomab) is marketed by Glaxo Wellcome plc and sold in Germany
as an adjuvant therapy in the treatment of post-operative colorectal cancer.
The Company has filed a Biologics License Application ("BLA") with the Food
and Drug Administration ("FDA") for Avakine(TM) for the treatment of moderate
to severe Crohn's disease, including fistulizing Crohn's disease. The Company
also is conducting studies for Avakine in the treatment of rheumatoid
arthritis. Panorex and Avakine (Infliximab) are trademarks of Centocor. ReoPro
is a trademark of Lilly. The Company also markets several diagnostic products
for cancer in the United States, Europe and Japan and has a cardiovascular
diagnostic product candidate under development.
At December 31, 1997, Centocor had approximately 640 full-time employees. To
complement its own expertise in various fields, Centocor utilizes scientific
consultants and other 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 an office in Tokyo,
Japan.
This annual report on Form 10-K and the documents incorporated herein by
reference contain forward- looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about the company's industry, management's beliefs and certain
assumptions made by the Company's management. Investors are cautioned that
matters subject to forward-looking statements involve risks and uncertainties
including economic, competitive, governmental, technological and other factors
which may affect the Company's business and prospects. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Such risks and uncertainties
include those associated with (i) the timing, completion and outcome of
clinical trials for, regulatory approval of and market acceptance of the
Company's products; (ii) the strength of the Company's patent position; (iii)
the Company's plan to forward integrate into direct commercialization of
certain products; (iv) the Company's ability to construct and maintain
manufacturing facilities that meet regulatory requirements and satisfy the
Company's inventory needs; (v) the Company's dependence on its collaborative
partners; (vi) uncertainties regarding health care reform and reimbursement
from third party payors; (vii) changes in the competitive environment in which
the Company operates; (viii) the outcome of pending litigation and (ix) the
potential for product liability claims. Therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. Unless required by law, the Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
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COMPANY STRATEGY
The Company's strategy is to identify proprietary high value-added product
opportunities, and to commercialize those opportunities by focusing on
clinical development, manufacturing and market development. The Company seeks
to license or otherwise acquire technology and product candidates from
research institutions and other sources, in addition to conducting selected
basic research. In an effort to reach the market in an expeditious manner, and
establish itself as the market leader, the Company's clinical development and
regulatory strategy for its therapeutic products under development is to
pursue initial approval for a narrowly defined indication. The Company then
seeks to expand the indication for which the products may be marketed by
conducting additional clinical trials and providing health economic data in
support of the product's utility.
Consistent with its strategy, the Company maintains and generally seeks
strategic alliances with major pharmaceutical companies for the
commercialization and marketing of certain of its therapeutic products,
pursuant to which the Company and its respective partner jointly focus on the
continued clinical and market development for the product, while the Company's
partner primarily conducts the marketing, promotion and distribution of such
product. The Company maintains and seeks distribution agreements for its
diagnostic products with companies having established positions and
distribution networks in applicable market segments. The Company may directly
market and promote one or more products in the United States in the future.
The Company intends to undertake directly the marketing in the United States
of Avakine and its cardiovascular diagnostic candidate.
RECENT DEVELOPMENT--PENDING ACQUISITION OF RETAVASE
General. The Company has entered into a definitive agreement (the "Purchase
Agreement") with Roche Healthcare Limited ("Roche Healthcare"), a Bermuda
corporation and a subsidiary of Roche Holding Ltd., a Swiss corporation
("Roche"), to acquire the exclusive United States and Canadian product rights
for Retavase (releplase), a leading acute-care cardiovascular drug, and other
related assets (collectively, the "Retavase Assets") for $335,000,000 in cash
(the "Acquisition"). Retavase is a fibrinolytic ("clot-buster") product, which
is administered usually in the hospital emergency room, for the treatment of
acute myocardial infarction (heart attack). Retavase activates plasminogen,
which in turn cleaves fibrin, the substance which binds clots. The drug is
produced by a recombinant DNA process.
The Company has the opportunity to acquire the Retavase Assets because Roche
is expected to divest them as a condition of Roche's acquisition of Corange
Limited ("Corange"), the parent company of Boehringer Mannheim GmbH
("Boehringer Mannheim"), which currently owns the Retavase Assets. Roche owns
a majority interest in Genentech, Inc. ("Genentech"), the maker of Activase, a
competing product. Centocor is named as an approved purchaser of Retavase
Assets in a proposed consent decree submitted to the Federal Trade Commission
("FTC") by Roche (the "Consent Decree"). Consummation of the Acquisition is
dependent on FTC acceptance of the Consent Decree, completion by Roche of the
Corange transaction and satisfaction of certain other regulatory requirements
and customary closing conditions. Subject to fulfillment of these conditions,
Centocor expects the Acquisition to close late in the first quarter of 1998.
There can be no assurance, however, that the Acquisition will close during the
first quarter of 1998 or at all.
Retavase was approved by the Food and Drug Administration ("FDA") for sale
in the United States in 1996 and was launched by Boehringer Mannheim in
January 1997. Retavase has been shown in clinical trials to be comparable in
its efficacy and safety profile to Activase, the present market leader. In the
GUSTO III clinical trial, a large clinical trial in which Retavase was
compared to Activase, the overall mortality rate for Retavase was 7.43%
compared to 7.22% for Activase; the total intracrannial hemorrhage rate for
Retavase was 0.91% compared to 0.88% for Activase; and the total stroke rate
for Retavase was 1.67% and 1.83% for Activase. Retavase has the important
advantage of being administered through bolus injections rather than the more
complicated infusion administration required for Activase. Based on industry
data, Centocor believes that Retavase achieved a 12% share of the United
States fibrinolytics market in 1997, a market which is estimated to be
approximately $300,000,000 in sales. Approval for sale of the drug in Canada
was granted in 1997. The Company plans to distribute Retavase in Canada
through a partner, and currently is evaluating possible alliances.
Centocor believes that the Acquisition provides a rare strategic
opportunity. It will enhance Centocor's role in the cardiovascular field,
building on the growing use of ReoPro, Centocor's drug for preventing artery
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reclosure in conjunction with angioplasty. With Retavase, a product early in
its life cycle, Centocor would add to its portfolio a clot-busting drug
appropriate for use in the hospital emergency room.
The Acquisition also provides the Company with the opportunity to accelerate
its forward integration in the marketplace. Centocor has extended offers of
employment, conditioned on closing of the Acquisition, to many of the
Boehringer Mannheim sales personnel who have been successful in launching
Retavase and increasing its market share. The Company expects to co-promote
Retavase with DuPont Merck Pharmaceutical Company ("DuPont Merck") pursuant to
an assignment of DuPont Merck's existing agreement with Boehringer Mannheim.
Ultimately, approximately 200 Centocor employees may be involved in the
commercialization of Retavase.
Because of the complementary nature of Retavase and ReoPro in the
cardiovascular field, the Company believes the joint promotion of Retavase and
ReoPro could result in increased market penetration for ReoPro. Accordingly,
the Company has agreed in principle with Lilly to jointly promote ReoPro
following closing of the Acquisition through Lilly's existing ReoPro sales
force and the Company's Retavase sales force.
The Company believes a further advantage of the Acquisition lies in the
possibility that ReoPro and Retavase, administered in combination, will prove
to have a therapeutic advantage over monotherapy for acute myocardial
infarction patients. Two Phase II clinical trials currently are underway to
evaluate the approach of using a product such as ReoPro in conjunction with a
fibrinolytic product in the management of heart attack patients. There can be
no assurance, however, that a ReoPro/Retavase combination therapy will prove
to be safe and effective, will receive FDA approval or, even if approved,
ultimately will achieve market acceptance.
Finally, Retavase would complement the current plans of Centocor's
subsidiary, Centocor Diagnostics, Inc., to develop and commercialize a
platelet-activation diagnostic test that is intended to aid in the
identification of heart attack patients from among those presenting with chest
pains in the hospital emergency room.
Purchase Agreement. Of the $335,000,000 purchase price under the Purchase
Agreement, Centocor will pay Roche Healthcare $315,000,000 to acquire
assignments or licenses of patents and patent applications, trademarks,
product registrations, manufacturing technology and know-how, research and
development materials and various Boehringer Mannheim contracts necessary to
manufacture Retavase and to sell it in the United States and Canada. Centocor
also will acquire various tangible assets and databases used by Boehringer
Mannheim in its commercialization of the product in the United States.
Additionally, Centocor will place $20,000,000 of the purchase price in escrow
(the "Escrow Amount"), as described below. The terms of this escrow under
which the Escrow Amount will be handled are to be set forth in an arrangement
to be negotiated in good faith by Centocor and Roche Healthcare. Centocor also
will pay an agreed unit price for the existing inventory of Retavase in the
United States.
The Purchase Agreement requires that Centocor establish and qualify, either
directly or through contract manufacturers, arrangements for the manufacture
of Retavase for sale in the United States within four years of the
consummation of the Acquisition (subject to extension by the FTC for up to two
additional one year periods if it appears that the required FDA approvals are
likely to be obtained within such extended time period) (the "Transfer
Period"). Under the Purchase Agreement, Centocor will be entitled to a refund
of the Escrow Amount upon the achievement of certain manufacturing milestones.
Roche will cooperate in Centocor's establishment of manufacturing arrangements
by providing training and other assistance and has agreed to maintain assets
sufficient to supply Retavase for the Transfer Period. Centocor must be
successful in establishing such manufacturing arrangements by the end of the
Transfer Period or the Retavase Assets will revert to Roche, which must then
divest them to another party.
The FTC may terminate the Purchase Agreement and the Retavase Assets would
revert to Roche if the Company (i) voluntarily ceases for at least sixty (60)
days to sell or pursue good faith efforts to sell Retavase in the United
States at any time prior to obtaining all necessary FDA approvals to
manufacture Retavase for sale in the United States (the "FDA Approvals"); (ii)
fails to pursue good faith efforts to obtain the FDA Approvals; or (iii) fails
to obtain the FDA Approvals within four years of the date of the Consent
Decree.(subject to extension by the FTC for up to two additional one year
periods if it appears that the required FDA approvals are likely to be
obtained within such extended time period) In such events, Centocor would not
be refunded the purchase price. In addition, the FTC may withdraw its approval
after the expiration of the required 60-day public comment period. In the
event the FTC so withdraws its approval, the
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Acquisition would be unwound, and the Company would transfer back to Roche
Healthcare the Retavase Assets and Roche Healthcare would refund the purchase
price to the Company.
In the event that Centocor commercializes any product (other than Retavase)
using any of the patents included in the Retavase Assets or otherwise exploits
the rights it acquires from Roche with respect to a product other than
Retavase, the Company will be required to pay Roche a royalty based on a
percentage of the net sales of any such products or a percentage of the
royalties received by the Company in respect of such products.
The Purchase Agreement contains customary representations and warranties, as
well as indemnification provisions relating to breaches of representations and
warranties and certain other obligations of the parties.
Description of Genentech Patent Suits. In a suit filed in the United States
District Court for the District of Massachusetts, Genentech charges Boehringer
Mannheim GmbH and Boehringer Mannheim Corporation with infringement of five
patents. The Court directed the parties to address initially three of the
patents (United States Patents Nos. 4,432,832, 5,034,225 and 4,511,502),
reserving two for later disposition (United States Patents No. 5,221,619 and
5,185,259).
The defendants have denied infringement and raised various affirmative
defenses and counterclaims. Genentech seeks judgment of infringement, an
injunction, treble damages, and costs including attorney's fees. Defendants
seek a declaration of invalidity, unenforceability and non-infringement,
damages under the antitrust laws and a state statute and costs, including
attorney's fees.
The Court conducted a Markman hearing as to the first three patents in order
to construe the claims of the patents and subsequently issued an opinion and
order which has limited the construction of the claims advanced by Genentech.
Thereafter, the Court entertained argument on motions by the defendants for
summary judgment as to the same three patents, but has not yet issued an
opinion. It is not clear, therefore, whether there will be issues which must
be tried.
The patent litigation in Germany consists of a number of different
proceedings: 1) an infringement suit by Genentech and its licensee against
Boehringer Mannheim GmbH based on the European patent EP 0 093 619 and an
extension based on patents EP 0 217 379 and EP 0 228 862; 2) a nullity suit by
Boehringer Mannheim against the patent EP 0 093 619; 3) a nullity suit by
Boehringer Mannheim against the patent EP 0 217 379; and 4) an appeal by
Boehringer Mannheim from the decision of the European Patent Office arising
from Boehringer Mannheim's opposition to the patent EP 0 228 862. The nullity
suits and the opposition appeal challenge the validity of the patents in issue
or seek construction of the claims in a manner which would exclude Retavase.
The infringement suit based on the patent EP 0 093 619 has been stayed
pending the outcome of the corresponding nullity action. A hearing that was to
take place in the nullity action in February 1998 has been postponed. The
Court in the infringement action based on patents EP 0 217 379 and EP 0 228
862 has directed certain questions to an expert yet to be appointed. No report
is expected from the expert until at least the end of 1998. A July 1998
hearing date has been fixed on Boehringer Mannheim's nullity suit against the
patent EP 0 217 379 but no date has been set for or the appeal in the
opposition proceedings with regard to patent EP 0 228 862.
If any of the German patent proceedings remain pending at the date when
Centocor is no longer dependent on the supply of Retavase by Boehringer
Mannheim, the defense and risk of the remaining proceedings will revert to
Boehringer Mannheim.
Under the Purchase Agreement, Centocor will be required to assume
responsibility for Retavase-related patent infringement litigation instituted
in the United States and Germany against Boehringer Mannheim by Genentech. The
cost of such litigation will be shared equally by Roche and the Company and
Roche is committed
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to assist Centocor in the litigation by making available, at Roche's expense,
witnesses and documents. If, as a result of (i) a binding determination
(including a permanent, temporary or preliminary injunction for so long as
such injunction is not stayed or vacated) in connection with the Genentech
Patent Litigation (a "Binding Determination") or (ii) a settlement of the
Genentech Patent Litigation (a "Settlement"), the Company is unable during the
life of the relevant Genentech patents to engage in the manufacture or sale of
Retavase in the United States and Canada, Roche Healthcare would be required
to reimburse to the Company up to 100% of the purchase price under the
Purchase Agreement (excluding the Escrow Amount) depending upon the length of
the period for which the Company's manufacturing and sale activities are
prohibited. Furthermore, Roche Healthcare would be required under the Purchase
Agreement to indemnify the Company for (i) any damages (including lost
profits) and (ii) any reasonable royalty payments, for which the Company may
become liable to Genentech as a result of a Binding Determination or a
Settlement. Roche Healthcare's total purchase price reimbursement and
indemnification obligations relating to the Genentech Patent Litigation are
limited to an aggregate of 125% of the total purchase price under the Purchase
Agreement, excluding any portion of the Escrow Amount previously returned to
the Company. In the event the governance agreement between Roche and Genentech
allows Roche to control Genentech or in the event Roche obtains 100% of the
stock of Genentech, Roche will cause the patent litigation to be dismissed
with prejudice and will cause Genentech not to institute any additional
infringement litigation relating to Retavase.
In addition to the indemnification and purchase price reimbursement
arrangements relating to the pending Genentech litigation, Roche Healthcare
will indemnify Centocor against certain other future infringement claims
related to Retavase by third parties (if any), subject to certain limitations;
and Roche further agrees that it will not institute Retavase-related claims
based on any Roche patents or patent applications existing as of the closing
date.
Supply Agreement and Transition Services Agreement. During the Transfer
Period, Boehringer Mannheim will continue to supply Retavase to Centocor from
its facilities in Germany at an agreed price per unit pursuant to an agreement
to be executed and delivered at or before the closing of the Acquisition (the
"Supply Agreement"). In the Supply Agreement, Boehringer Mannheim will
represent and warrant that the products supplied to Centocor will meet FDA
approved specifications and will provide the Company with customary
indemnities, including for damages that result from the failure of the product
to meet FDA approved specifications.
In addition to the Supply Agreement, for a period of up to six months after
closing, Boehringer Mannheim will provide certain transition services to
Centocor, including accepting orders and invoices on behalf of Centocor,
collection services and customer complaints and inquiries, to facilitate the
transfer of responsibility for sale and distribution of the product.
Keep Well Agreement. Pursuant to the terms of the Purchase Agreement, Roche
will execute and deliver a keep well agreement (the "Keep Well Agreement")
with Roche Healthcare. Under the Keep Well Agreement,
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Roche will be required to own directly or indirectly all of the outstanding
shares of stock of Roche Healthcare having the right to vote for members of
the Board of Directors of Roche Healthcare. Roche also will be required to
cause Roche Healthcare to maintain a consolidated net worth of at least
$1,000,000 at all times. The Keep Well Agreement may be modified, amended or
terminated by the written agreement of Roche and Roche Healthcare; provided,
however, that no such modification, amendment or termination shall have any
adverse effect on the ability of Roche Healthcare to meet its obligations to
the Company under the indemnity provisions of the Purchase Agreement without
the written consent of the Company. The Keep Well Agreement will be governed
by the laws of Bermuda. The Keep Well Agreement will not constitute a
guarantee by Roche of the payment of any obligation, indebtedness or liability
of Roche Healthcare. The Company is not a party to the Keep Well Agreement and
will have no right to enforce the Keep Well Agreement against Roche.
Financing. Consummation of the Acquisition is not conditioned upon the
receipt by the Company of financing sufficient to fund the purchase price. The
Company has, however, received a commitment letter from a leading investment
bank pursuant to which such investment bank has committed to purchase from
Centocor securities in an amount sufficient to provide $335,000,000 of net
proceeds to the Company. The Company intends to finance the Acquisition
through the issuance of Convertible Subordinated Debentures in an unregistered
offering. See "--Unaudited Pro Forma Condensed Consolidated Financial Data."
Risks. There are specific risks associated with the Acquisition. The
transaction may not close or, even if closed, it may have to be unwound if,
after the sixty day notice and comment period following FTC acceptance of the
agreement with Roche containing the Consent Decree, the FTC withdraws its
consent. Because of competitive reasons, product acceptance, cost
reimbursement or other reasons, Retavase may not achieve and maintain sales
levels sufficient to enable Centocor to reach its financial targets with
respect to the product. While Centocor believes that the acquisition of
Retavase will strengthen its ReoPro position and sales and will permit
Centocor to realize other benefits described previously, there can be no
assurance that any such benefits will be achieved. Notwithstanding the
indemnification and cost reimbursement commitments of Roche Healthcare, there
can be no assurance that Centocor will not suffer adverse consequences on
account of the Genentech patent infringement litigation referred to above.
There can be no assurance that Centocor will be successful in transferring the
manufacture of Retavase from Boehringer Mannheim within the four year period
(and any extensions) provided in the agreement with Roche Healthcare and under
the proposed Consent Decree. In that event, the Retavase Assets would revert
to Roche, which would then have to divest them to another party. And, there
can be no assurance that the patent applications and patent application
licenses relating to Retavase to be transferred to the Company will result in
patents being issued or that the transferred patents, patent applications and
patent licenses will afford protection against competitors with similar
technology. And, there can be no assurance that third parties will not assert
intellectual property claims, in addition to the Genentech Litigation, that
could adversely affect the Company's ability to manufacture, use and sell
Retavase.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data (the
"Pro Forma Financial Data") have been derived by the application of pro forma
adjustments to the historical financial statements of the Company for 1997.
The unaudited pro forma consolidated statement of operations data for the year
ended December 31, 1997 assumes the Acquisition and the related financing had
occurred as of the beginning of the year. The unaudited pro forma condensed
consolidated balance sheet as of December 31, 1997 assumes the Acquisition and
the related financing occurred on that date.
The pro-forma adjustments are based upon certain historical unaudited
financial information of the Retavase business and on certain Company
estimates of expenses it would have incurred had the Acquisition occurred as
of the beginning of the year. The adjustments to the pro forma consolidated
statement of operations data exclude the effects of (i) the write off of
acquired in-process research and development of approximately $138,500,000 and
(ii) a tax benefit of approximately $20,000,000. The pro forma adjustments are
described in the accompanying notes.
The Pro Forma Financial Data is subject to numerous assumptions and
estimates that are subject to change and, in many cases, are beyond the
control of the Company. The Pro Forma Financial Data do not purport to
represent what the Company's results of operations would have been if the
Acquisition had occurred as of the date indicated or what results will be for
any future periods. The Pro Forma Financial Data should be read in conjunction
with the historical financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Annual Report on Form 10-K.
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CENTOCOR, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
CENTOCOR, INC. PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
-------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales........................... $196,354 $44,800 (1) $241,154
Contracts....................... 4,430 -- 4,430
-------- -------- --------
200,784 44,800 245,584
Costs and Expenses:
Costs of sales.................. 77,958 5,400 (2) 83,358
Research and development........ 68,623 3,900 (3) 72,523
Marketing, general and
administrative................. 40,917 59,600 (4) 100,517
-------- -------- --------
187,498 68,900 256,398
Other income (expenses):
Interest income................. 9,607 -- 9,607
Interest expense................ (3,938) (21,000)(5) (24,938)
Loss on sale of facility and
related business............... (4,565) -- (4,565)
Other........................... (3,260) -- (3,260)
-------- -------- --------
(2,156) (21,000) (23,156)
-------- -------- --------
Net income (loss)................. $ 11,130 $(45,100) $(33,970)
======== ======== ========
Basic earnings (loss) per share... $ 0.16 $ (0.49)
======== ========
Diluted earnings (loss) per
share............................ $ 0.16 $ (0.49)
======== ========
Weighted average number of shares
outstanding...................... 69,809 69,809
======== ========
Weighted average common and
dilutive equivalent shares
outstanding...................... 71,770 69,809 (6)
======== ========
</TABLE>
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(1) Based on historical sales information for 1997.
(2) Based on (i) the pricing structure in the Supply Agreement to be entered
into by Centocor and Boehringer Mannheim and (ii) royalty agreements
currently in place with respect to the product.
(3) Based on estimated increases in costs associated with additional quality
assurance and regulatory personnel.
(4) Adjustments to marketing, general and administrative expenses reflect the
following:
(i) $21,700 represents the estimated increase in product salesforce and
related costs.
(ii) $17,000 represents 1997 historic external marketing and promotional
costs.
(iii) $13,300 represents (a) increased amortization expense related to
$176,500 of intangible assets acquired (based on the product purchase
price of $335,000 less the $20,000 escrow deposit less an estimated
one time charge for in-process research and development of $138,500
and an average useful life of fifteen years) and (b) amortization of
$10,500 in assumed debt issuance costs over 7 years.
(iv) $6,100 represents estimated 1997 expenses based on the co-promotional
agreement currently in place with DuPont Merck.
(v) $1,500 represents estimated 1997 expenditures related to patent
litigation.
(5) Represents interest expense on $350,000 of convertible subordinated
debentures at an assumed interest rate of 6%; does not reflect any
interest expense that would be incurred upon the exercise of any over-
allotment option.
(6) The as adjusted share amount does not assume the exercise of stock options
or warrants as their effect would be antidilutive.
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CENTOCOR, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------
CENTOCOR, INC. PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
-------------- ----------- -----------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents........... $ 85,565 $ 4,500 (1) $ 90,065
Short-term investments.............. 109,108 -- 109,108
Other current assets................ 60,172 -- 60,172
-------- -------- --------
254,845 4,500 259,345
Property, plant and equipment, net.... 77,014 -- 77,014
Long-term investments................. 11,957 -- 11,957
Intangible and other assets........... 61,288 207,000 (2) 268,288
-------- -------- --------
Total Assets.......................... 405,104 211,500 616,604
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable.................... $ 15,651 -- $ 15,651
Accrued expenses and other current
liabilities........................ 70,003 -- 70,003
Notes payable....................... 5,940 -- 5,940
-------- -------- --------
91,594 -- 91,594
Long-term debt........................ 54,765 350,000 (3) 404,765
Other liabilities..................... 910 -- 910
Shareholders' equity.................. 257,835 (138,500)(4) 119,335
-------- -------- --------
Total Liabilities and Shareholders'
Equity............................... 405,104 211,500 616,604
======== ======== ========
</TABLE>
- --------
(1) Represents the cash proceeds from the issuance of $350,000 in convertible
subordinated debentures, net of estimated issuance costs of $10,500, less
the $335,000 paid under the Purchase Agreement.
(2) Represents acquired intangibles and an escrow deposit based on the product
purchase price of $335,000 less an estimated one time charge for in-process
research and development of $138,500, and debt issuance costs of $10,500.
(3) Represents the issuance of $350,000 in convertible subordinated debentures.
(4) Represents a one time charge of $138,500 for acquired in-process research
and development.
8
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PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table summarizes Centocor's products and selected product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
PRODUCT/PRODUCT CANDIDATE INDICATION STATUS (1)
------------------------- ---------- ----------
<C> <S> <C>
THERAPEUTIC:
ReoPro.............. Percutaneous Coronary Marketed (U.S., Europe)
Intervention (PCI)
High risk angioplasty Phase II (Japan)
Unstable angina (U.A.) Marketed (U.S., Europe)
when PCI planned
Acute myocardial Phase II
infarction
Adjuvant therapy with Phase III
stents
Stroke Phase II
Medical treatment of Phase III planned
U.A.
Panorex............. Adjuvant therapy for Marketed (Germany)
post-operative Phase III (U.S., Europe)
colorectal cancer
Avakine............. Moderate to severe BLA filed (U.S.)
Crohn's disease
including fistula
Chronic Crohn's disease Phase III (planned)
Phase II (Japan)
Chronic rheumatoid Phase III
arthritis
Phase II (Japan)
Corsevin M.......... Thrombosis Phase I
Gene Vaccines....... Colorectal cancer (CEA) Phase I
Prostate cancer (PSA) Phase I planned
Lung cancer (MUC-1) Phase I planned
- --------
(1) Phase III clinical trial indicates that the product is being tested in
humans for safety and efficacy in an expanded patient population at
multiple clinical sites. Phase I and Phase II clinical trials indicate
that the product is being tested in humans to evaluate safety, dosage and,
to some extent, efficacy, in a limited patient population.
<CAPTION>
PRODUCT/PRODUCT CANDIDATE INDICATION STATUS
------------------------- ---------- ------
DIAGNOSTIC:
<C> <S> <C>
CA 125 II........... Ovarian cancer
monitoring Marketed (U.S., Europe, Japan)
CA 19-9............. Pancreatic cancer
monitoring Marketed (Europe, Japan)
CA 15-3............. Breast cancer monitoring Marketed (U.S., Europe, Japan)
CA 72-4............. Gastrointestinal cancer
monitoring Marketed (Europe, Japan)
P-glycoCHEK......... Resistance to chemo- Sold for investigational use (Europe, Japan)
therapeutic drug
detection
CYFRA 21-1.......... Non-small cell lung Marketed (Europe, Japan)
cancer
P-selectin Profile.. Platelet function Clinical development
monitoring
</TABLE>
Therapeutic Products
Sales of the Company's therapeutic products were approximately $164,577,000
and $90,742,000 for the years ended December 31, 1997 and 1996, respectively.
9
<PAGE>
ReoPro(R) (Abciximab). ReoPro is a chimeric monoclonal antibody fragment
that binds to GP IIb/IIIa receptors on the surface of platelets, thereby
inhibiting platelet aggregation. When platelets are stimulated, a number of
different types of surface receptors are exposed that cause further platelet
aggregation, including the glycoprotein ("GP") IIb/IIIa receptors. Anti-
platelet agents such as ReoPro are used in the treatment of cardiovascular
disease to prevent blood clots. The three main markets for these agents are
PCI, unstable angina and heart attack. Effective platelet inhibiting treatment
has been shown to be effective in PCI and in unstable angina to prevent
resulting heart attacks and death. Abrupt reclosure during PCI can result in
death, myocardial infarction, the need for emergency coronary bypass surgery
or repeat PCI. Powerful agents are also needed to enhance treatment of
myocardial infarction by opening the clotted artery and preventing reocclusion
following drug therapy or PCI. ReoPro is effective in inhibiting blood
clotting by inhibiting the aggregation of platelets.
Following the successful completion of the EPIC Phase III clinical trial of
ReoPro and subsequent U.S. Food and Drug Administration approval, the Company
commenced commercial sales of ReoPro in January 1995 for patients who are at
high risk for abrupt artery closure following angioplasty. In November 1997,
the Company announced that the FDA cleared the way for the expanded use of
ReoPro. The new labeling allows physicians to use ReoPro as adjunctive therapy
to prevent cardiac ischemic complications in a broad range of patients
undergoing PCI, as well as in unstable angina patients not responding to
conventional medical therapy for whom PCI is planned within twenty-four hours.
ReoPro is currently marketed in a number of countries within North America,
South America and Europe as well as several other markets throughout the
world. Under a Sales and Distribution Agreement between Lilly and the Company,
Lilly is the exclusive worldwide distributor of ReoPro except in Japan where
the product, if approved, will be exclusively distributed by Fujisawa
Pharmaceutical Co., Ltd. ("Fujisawa"). The Company plans to jointly promote
ReoPro in the United States with Lilly. See "Recent Developments" and
"Business--Marketing and Sales." Pursuant to those agreements, Lilly is
assisting the Company in the regulatory filings and continuing development of
ReoPro for additional clinical indications and Fujisawa is assisting the
Company in the regulatory filings and development of ReoPro in Japan.
The expanded labeling for ReoPro is based on the results of two major
clinical studies, EPILOG and CAPTURE.
EPILOG (Evaluation of PTCA to Improve Long-term Outcome by c7E3 GP IIb/IIIa
Receptor Blockade), published in June 1997 in The New England Journal of
Medicine, showed that a broad range of angioplasty patients treated with
ReoPro and low-dose, weight-adjusted heparin had more than a 50% relative
reduction at 30 days in their risk of the composite endpoint of death or heart
attack compared with placebo. In the ReoPro group, 3.8% of patients suffered
one of these events, compared with 9.1% of patients in the placebo group. The
clinical benefits of ReoPro were similar, irrespective of the type of coronary
intervention used (balloon angioplasty, atherectomy, stent placement).
Results from the EPILOG trial show that bleeding, the most common side
effect associated with ReoPro therapy, can be reduced by the use of modified
dosing regimens and specific patient management techniques. In EPILOG, the
incidence of major bleeding in patients treated with ReoPro and low-dose,
weight-adjusted heparin was not significantly different from that in patients
receiving placebo.
The CAPTURE (c7E3 Fab Anti-Platelet Therapy in Unstable Refractory Angina)
study, published in May 1997 in The Lancet, showed that in patients with
unstable angina who did not respond to conventional medical therapy, an 18-24
hour infusion of ReoPro prior to PCI and concluding one hour after the
procedure reduced the risk of the composite endpoint of death, heart attack or
the need for another emergency procedure such as repeat angioplasty or bypass
surgery by nearly 30%, compared with placebo, at 30 days.
The Company and Lilly are evaluating other potential indications for ReoPro,
including the medical therapy of unstable angina, acute myocardial infarction
and thrombotic strokes. The Company is currently conducting two Phase II
trials with ReoPro in combination with thrombolytic therapy for patients
suffering acute myocardial infarction. Additionally, the Company and Lilly are
conducting the EPILOG Stent Phase III trial to evaluate the
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<PAGE>
effects of ReoPro in conjunction with stents. The Company and Fujisawa are
currently conducting Phase II clinical trials of ReoPro in Japan.
The Company estimates that in the United States there were about 500,000
angioplasties performed last year. In addition, in the United States, the
annual incidence of unstable angina is about 1 million, acute myocardial
infarction (heart attack) 1 million, stroke 500,000 and peripheral vascular
disease 500,000. All of these procedures and/or conditions are impacted by
platelet activation and as a result, ReoPro may have utility.
In addition to conducting studies to test the efficacy of ReoPro, the
Company has conducted a health economic study, based on the EPIC trial (high-
risk angioplasty), which has been cleared for promotional use by the FDA and
which indicates that the use of ReoPro is cost effective and may allow
hospitals to manage their resources more effectively and reduce the amount of
time patients spend in the hospital. In the EPILOG trial (all angioplasty),
major bleeding events in patients receiving ReoPro were at essentially the
same level as in patients receiving placebo. The decreased need for blood
transfusions may result in additional cost savings to hospitals.
Avakine (TM) (Infliximab). The Company is currently developing Avakine, also
known as cA2, a chimeric monoclonal antibody that binds to tumor necrosis
factor alpha, which is believed to be critical to the human body's reaction to
inflammation. Avakine is primarily targeted for the treatment of rheumatoid
arthritis and inflammatory bowel diseases such as Crohn's disease. Avakine
works by binding to TNF-a on the cell membrane, neutralizing TNF-a in the
blood and destroying TNF-producing cells.
In December 1997, the Company filed a Biologics License Application with the
U.S. Food and Drug Administration for Avakine for the treatment of moderate to
severe Crohn's disease, including fistulizing Crohn's disease. The Company
plans to file for regulatory approval in Europe during the first half of 1998.
Crohn's disease is a chronic and debilitating disorder characterized by
inflammation of the gastrointestinal tract, and complicated, in some patients,
by the appearance of fistulas--painful extensions that occur between the bowel
and the skin, mostly in the perianal area, causing drainage of mucous and/or
fecal material.
Clinical trial data were presented at the American College of
Gastroenterology meeting in November 1997 which showed that, following a
series of three infusions with 5 mg/kg, 68% of Avakine-treated Crohn's
patients experienced closure of at least 50% of fistulas for at least two
consecutive follow-up visits, (i.e. for at least one month) compared with 26%
of placebo patients (p=0.002). Similarly, 55% of patients treated with the
same drug regimen experienced closure of all their fistulas at one or more
follow-up visits compared with 13% of placebo patients (p=0.001). All of these
patients had previously failed standard treatment. Onset of clinical benefit
was rapid, with the vast majority of patients achieving a response within two
weeks. The average duration of closure was three months.
Previous clinical trial results among patients with moderate to severe
Crohn's disease that had failed to respond to standard treatment were
published in the October 9, 1997 edition of The New England Journal of
Medicine. These data showed that after a single infusion of 5 mg/kg of
Avakine, 82% of patients achieved statistically significant improvement
(p<0.001) in disease activity (defined as a ^70 point reduction from baseline
in the Crohn's disease activity index (CDAI) at 4 weeks) and 48% of patients
achieved disease remission (CDAI<150 at 4 weeks)(p<0.001). Following four
additional infusions, given eight weeks apart, Avakine maintained the initial
treatment response and more Avakine-treated patients achieved remission.
According to Company estimates, in the United States there are approximately
one million patients with severe rheumatoid arthritis. The Company also
believes that in the United States there are approximately 315,000 patients
with Crohn's disease in its moderate-to-severe form. Centocor intends to
continue studies for expanded indications of Crohn's disease. Studies are also
ongoing for Avakine in the treatment of rheumatoid arthritis.
The Company intends to market and distribute Avakine in the United States
through its own direct sales force. The Company has entered into a
distribution agreement with Tanabe Seiyaku Co., Ltd. ("Tanabe") under
11
<PAGE>
which Tanabe has commenced Phase II clinical testing and has the right to
distribute Avakine in Japan. Additionally, the Company is seeking to enter
into a distribution arrangement with a partner regarding Avakine for other
parts of the world.
Panorex(R). (Edrecolomab) Panorex is a monoclonal antibody that targets
metastatic colon cancer cells. The Panorex antibody binds to colon cancer
cells and destroys them using various immunologic mechanisms including
complement and/or antibody dependent cellular cytotoxicity. Both mechanisms
result in the death of the cancer cells. In patients with colorectal cancer,
it is thought that small numbers of cells break away from the primary tumor
and spread to other sites such as bone marrow, where they can be detected as
"micrometastatic cells" even after surgical removal of the primary tumor. It
is thought that the Panorex antibody binds to these "micrometastatic cells"
and destroys them, leading to the prolonged survival observed in patients
treated with Panorex. Panorex is the first monoclonal antibody product
approved for cancer. In December 1994, the Paul Ehrlich Institute, the German
regulatory body for vaccines and antibodies, granted the Company marketing
authorization for the use of Panorex as an adjuvant therapy in the treatment
of post-operative colorectal cancer. During 1993, the Company and Glaxo
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. Pursuant to that agreement Glaxo Wellcome is the
worldwide distributor of Panorex. See "Business--Marketing and Sales." The
Company commenced commercial sales of Panorex in Germany in February 1995.
In a Phase III trial conducted in Germany, Panorex showed a five-year 30%
mortality benefit and 27% reduction in tumor recurrences. Glaxo Wellcome is
conducting additional Phase III trials for Panorex, with a three-year survival
end-point, in North America, Europe and certain other countries, evaluating
patients with colorectal cancer, and also is conducting earlier stage trials
in Japan.
Corsevin M. The Company is developing Corsevin M, an anti-factor VII
chimeric monoclonal antibody product intended to be used as an anticoagulant.
Factor VII is one of the primary factors that play a role in the blood
clotting process. The Company is evaluating protocols for additional clinical
trials.
Gene Vaccines. The Company is developing genetic DNA-based products
employing commonly available methods to direct the injected DNA to its target
site. The Company has licensed GeneVax technology from a private company, in
which the Company holds a significant equity investment. Under that license,
the Company has certain rights to develop the GeneVax technology in the cancer
field. The Company has supplemented this technology license by acquiring
complementary technologies from other companies and institutions. The Company
expects to initially focus its development efforts on vaccines for prostate
and colorectal cancer. In 1997, the Company commenced Phase I clinical trials
to evaluate vaccines for colorectal cancer.
Diagnostic Products
Sales of the Company's diagnostics products were approximately $31,777,000
and $41,388,000 for the years ended December 31, 1997 and 1996, respectively.
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, and other in-vitro
diagnostic products for infectious disease. The reclassification by the FDA in
September 1996 of tumor markers used for monitoring patients with previously
diagnosed cancer may increase the likelihood and speed of approval for
products within this classification in the United States. A number of the
Company's diagnostic assays including CA 125 II, CA 15-3, CA 19-9, CA 72-4 and
CYFRA 21-1 fall under this tumor marker classification. The Company currently
manufactures and sells the following in-vitro diagnostic products:
CA 125 II Ovarian Cancer Test. CA 125 II, a second generation assay which
aids in the detection of residual epithelial ovarian cancer following first-
line therapy, is sold in the United States, certain European countries and
Japan. CA 125 II is one of only six cancer diagnostics products approved for
sale in the United States.
12
<PAGE>
CA 19-9 Pancreatic Cancer Test. CA 19-9, which aids in the monitoring of
pancreatic cancer, is sold in certain European countries and Japan.
CA 15-3 Breast Cancer Test. CA 15-3, which aids in the monitoring of breast
cancer, is sold in the United States, certain European countries and Japan.
CA 72-4 Gastric Cancer Test. CA 72-4, which aids in the monitoring of
gastrointestinal cancer, is sold in certain European countries and Japan.
P-glycoCHEK Multidrug Resistance Test. P-glycoCHEK, which detects a cellular
protein associated with resistance to chemotherapeutic drugs, is sold for
investigational use in certain European countries and Japan.
CYFRA 21-1 Non-Small Cell Lung Cancer Test. CYFRA 21-1, which aids in the
monitoring of non-small cell lung cancer, is sold in certain European
countries and Japan.
In June 1997, the Company sold a manufacturing facility in the United
Kingdom and its related infectious disease product line. Sales of this product
line were $886,000 and $3,253,000 for the six months ended June 30, 1997 and
the year ended December 31, 1996, respectively.
P-selectin Profile. In connection with the development and marketing of
ReoPro, the Company has recognized the importance of platelet function in
cardiovascular disease. Based upon its knowledge in this area, the Company is
developing assays intended to enable interventional cardiologists to assess
rapidly platelet function and to perform better risk stratification of
patients with potentially serious cardiovascular disease. Additionally, the
Company is collaborating in the development of devices which, if developed,
may permit medical experts to monitor platelet activity and the effect of
drugs such as ReoPro with the same precision with which they currently
evaluate other aspects of blood coagulation and treatment. The Company
believes that the availability of this type of monitoring may address
currently unmet medical needs in the hospital emergency room, catheterization
lab and coronary care unit. There can be no assurance that the Company will be
able to complete the development of these programs or obtain the regulatory
approvals necessary for the commercial sale of products.
The Company is currently developing a point-of-care ("POC") cardiovascular
diagnostic test, the P-selectin Profile, designed to allow emergency room
physicians to rapidly and accurately rule in for further treatment patients
suffering form Acute Coronary Syndrome ("ACS") and rule out for non-cardiac
treatment or early discharge patients not suffering ACS. The test is further
designed to determine whether patients suffering ACS are suffering a
myocardial infarction ("heart attack"), for whom immediate treatment is
critical to survival, or unstable angina ("UA"), for whom immediate or longer
term treatment is warranted. A heart attack is a condition where the heart
muscle is deprived of oxygen, usually due to the blockage of an artery,
resulting in irreversible heart muscle damage or potentially death. UA is
severe and constant pain and constriction about the heart caused by an
insufficient supply of blood to the heart. Current tests for a heart attack
include electrocardiograms ("ECG"), which initially fail to diagnose one-half
of heart attack cases, and cardiac enzymes, which begin to detect a heart
attack only after irreversible damage to the heart muscle has occurred. Based
on patient trials conducted to date, the Company believes that the P-selectin
Profile offers a unique opportunity to improve the quality of care for ACS
patients by complementing existing ECG and cardiac enzyme technologies and to
reduce the costs of unnecessary testing and admissions for patients not
suffering ACS.
MARKETING AND SALES
In the therapeutic area, the Company maintains separate arrangements with
major pharmaceutical companies for each of its two commercialized products,
pursuant to which, in each case, the Company and its respective partner
jointly focus on the continued clinical and market development for the
product, while the Company's partner primarily conducts the marketing,
promotion and distribution of the product. The Company intends to market and
distribute Avakine in the United States through its own direct sales force and
intends to enter into a
13
<PAGE>
distribution arrangement in Europe. In the diagnostics area, the Company
maintains distribution agreements with companies that have established
positions and distribution networks in relevant market segments. The Company
intends to market and distribute the P-selectin Profile directly in the United
States and to seek a distribution partner in other parts of the world. The
Company is highly dependent upon the ability of its marketing partners to
develop and expand markets for the Company's products.
Pursuant to the agreements between Lilly and the Company, Lilly is the
exclusive worldwide distributor of ReoPro except in Japan, where the product,
if approved, will be exclusively distributed by Fujisawa. The Company sells
ReoPro to Lilly for Lilly's further sale to the end market. The Company is
principally responsible for developing and manufacturing ReoPro and for
securing regulatory approvals. Lilly is principally responsible for the
marketing, selling and distribution of ReoPro, except in Japan. The Company
plans to jointly promote ReoPro in the United States with Lilly. See "Recent
Developments."
Pursuant to the Company's agreement with Fujisawa, consummated in August
1996, Fujisawa became the exclusive distributor of ReoPro in Japan. Following
approval of ReoPro for sale in Japan, if obtained, the Company will sell
ReoPro to Fujisawa for Fujisawa's further sale to the end market in Japan.
Fujisawa and the Company are co-developing ReoPro in Japan and will seek
jointly to secure regulatory approvals.
Pursuant to the Company's agreement with Glaxo Wellcome, Glaxo Wellcome is
the exclusive worldwide distributor for Panorex. The Company sells Panorex to
Glaxo Wellcome for Glaxo Wellcome's further sale to the end market. Glaxo
Wellcome is responsible for the continuing clinical development, marketing,
sales and distribution of Panorex. The Company is principally responsible for
manufacturing Panorex, providing limited clinical support and securing
regulatory approvals.
During 1997 and 1996, approximately 81% and 67%, respectively, of the
Company's total product sales were to one customer, Lilly. During 1995,
approximately 50% of the Company's total product sales were to three customers
as follows: 24% to Lilly, 11% to Glaxo Wellcome and 15% to Toray-Fuji Bionics,
Inc.
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", Note 12--Geographic and Customer Information.
The Company has no significant product backlog.
RESEARCH AND DEVELOPMENT
Centocor's research and development activities focus primarily on monoclonal
antibody technology and proprietary techniques to modify monoclonal antibodies
in search of optimal therapeutic agents. Centocor believes that there is
significant potential for using monoclonal antibodies to develop human health
care products. While the specificity of monoclonal antibodies makes them
attractive candidates for therapeutic 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. The
Company's ability to select effective hybridomas and to produce antibodies
from them is central to its business. 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.
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 that combine the
desired properties of more than one antibody, or the desired properties of
antibodies and other system-regulating biochemicals such as enzymes.
The Company has also expanded its research platform to include the field of
DNA-based products for both therapeutic and diagnostic applications.
14
<PAGE>
For the three years ended December 31, 1997, 1996 and 1995, the Company's
research and development expenses were $68,623,000, $56,787,000 and
$66,235,000, respectively.
PATENTS AND LICENSING ARRANGEMENTS
Products currently being marketed, developed or considered for development
by the Company are in the area of biotechnology, an area in which there are
extensive patent filings. The patent position of biotechnology firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. Accordingly, there can be no assurance that patent
applications owned or licensed by the Company will result in patents being
issued or that, if issued, such patents will afford protection against
competitors with similar technology. In addition, there can be no assurance
that products covered by such patents, or any other products developed by the
Company or subject to licenses acquired by the Company, will not be covered by
third party patents, in which case continued development and marketing of such
products would require a license under such patents. There can be no assurance
that such required licenses will be available to the Company or its licensees
on acceptable terms.
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. 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.
There has been substantial litigation regarding patent and other
intellectual property rights in the biotechnology industry. Litigation may be
necessary to enforce certain intellectual property rights of the Company. Any
such litigation could result in substantial cost to and diversion of effort by
the Company.
Centocor currently 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.
GOVERNMENTAL 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 therapeutic products and most of the Company's diagnostic
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. The Company believes it is currently in compliance with such
statutes and regulations. Any failure by the Company to obtain, or any delay
in obtaining, regulatory approvals could materially adversely affect the
Company and the Company's marketing partners' 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
15
<PAGE>
before proposed clinical testing can begin. Typically, clinical testing
involves a three-phase process. In Phase I, clinical trials are conducted with
a small number of subjects to determine the early safety profile and the
pattern of drug distribution and metabolism. In Phase II, clinical trials are
conducted with groups of patients afflicted with a specified disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase III, large scale, multicenter, comparative clinical trials
are conducted with patients afflicted with a target disease in order to
provide enough data to evaluate statistically the efficacy and safety of the
product, as required by the FDA. The results of the preclinical and clinical
testing of a chemical pharmaceutical product are then submitted to the FDA in
the form of a New Drug Application ("NDA"), or for a biological pharmaceutical
product in the form of a Biological License Application ("BLA"), for approval
to commence commercial sales. In responding to an NDA or BLA, 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 BLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with Good Manufacturing Practices ("GMP"). Before
approval of the BLA, 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
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
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 Company believes it is
currently in compliance with all such laws and regulations. The extent of
additional governmental regulation that might result from any legislative or
administrative action cannot be accurately predicted. Additionally, the
European Union is considering regulations which could lead to the ban of
products using certain raw materials. The Company's products currently utilize
these raw materials and such regulation, if enacted, could prevent the sale of
such products in Europe.
The levels of revenues and profitability of biopharmaceutical companies may
be affected by the continuing efforts of government 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 governmental 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 governmental
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. In addition, in both the United
States and elsewhere, sales of therapeutic and other pharmaceutical products
are dependent in part on the availability of reimbursement to the consumer
from third party payors, such as government and private insurance plans. Third
party payors are increasingly challenging the prices charged for medical
products and services. There can be no assurance that either of the
therapeutic products the Company has brought to market or any therapeutic
product candidates the Company may bring to market in the future 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 and profitable basis.
SIGNIFICANT COMPETITION AND TECHNOLOGICAL CHANGE
Monoclonal antibody, genetic vaccine, peptide technology and other
innovations in biotechnology are being examined, evaluated and practiced in
biology research laboratories throughout the United States and in many
16
<PAGE>
other countries, including laboratories of other biotechnology companies and
major pharmaceutical firms, many of which have greater resources than
Centocor.
Several established pharmaceutical companies have internal research and
development groups, and alliances with other biotechnology companies, and are
seeking to develop monoclonal antibody-based, genetic vaccine-based, peptide-
based and other biological products. In addition, a number of companies have
recently entered the biological products field, some through acquisition or
merger, and more may be expected to do so in the future. As a result, Centocor
anticipates that new biological products will be developed by others.
Centocor's management believes that its ability to compete in its targeted
markets will depend upon, among other things, its ability to develop or
acquire, 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 therapeutic products, which may include monoclonal
antibody-based, genetic vaccine-based and peptide-based products. There can be
no assurance that the activities of others will not render Centocor's products
or technologies obsolete or uncompetitive.
ITEM 2. PROPERTIES
The Company owns four buildings in Malvern, Pennsylvania, and leases one
other building 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 Company owns a biopharmaceutical manufacturing facility in Leiden, The
Netherlands, for the production of monoclonal antibody-based products using a
proprietary cell-culture system. This facility has been inspected and approved
by the FDA and the equivalent European regulatory agencies. The Company also
leases research and development laboratories and office space at this
location. The Company manufactures diagnostics products at its facilities in
Malvern, Pennsylvania. The Company's diagnostic manufacturing facility has
received ISO-9001 certification.
Each of the Company's lease agreements with respect to its leased facilities
is a triple net lease with a remaining term of at least 4 years, under which
the Company is responsible for all operating expenses of the facility.
The Company expects its total investment in property, plant and equipment to
increase in 1998 by up to approximately $100,000,000 to support its
manufacturing capacity expansion plans in Europe and the establishment of a
U.S. biopharmaceutical manufacturing facility in Malvern to support ReoPro and
Avakine production requirements.
ITEM 3. LEGAL PROCEEDINGS
In October 1992, the Company was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos") in the U.S. District Court for the
District of Maryland. The complaint primarily alleged 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, as well as various patent applications and foreign patents. The
complaint sought declaratory relief and monetary relief in excess of
$100,000,000, and requested that the Company place in escrow one-half of the
amounts received by the Company in 1992 pursuant to its agreements with Lilly.
Over the course of the litigation, plaintiff asserted eleven different claims
for relief and the Company asserted affirmative defenses and a counterclaim
against Velos with respect to the license agreement. After rulings on motions
for summary judgment filed by both sides, the majority of plaintiff's claims
were dismissed. The case proceeded to trial on February 18, 1997 on
plaintiff's four remaining claims under the license agreement and on the
Company's affirmative defenses and counterclaim. The parties agreed that
17
<PAGE>
plaintiff's claim for attorneys fees under the license agreement would be
severed to await the outcome of the trial. On March 4, 1997, the jury returned
a verdict which, had it become the final judgment of the Court, would have
rendered the Company liable to pay plaintiff approximately $4,000,000 plus
interest and fees and expenses pursuant to the license agreement. The Company
then filed post-trial motions. On September 12, 1997, the Court entered
judgment as a matter of law in Centocor's favor, notwithstanding the verdict,
with respect to one of Velos' claims that would have resulted in liability of
$2,972,806, but the Court denied the motions relating to Centocor's
affirmative defenses. The amended judgment against Centocor was in the amount
of $1,352,689. In addition, Centocor would have remained liable for future
minimum annual royalty payments under the license agreement. Both Centocor and
Velos have appealed the judgment. Subsequent to the filing of notices of
appeal, and in the fourth quarter of 1997, the parties engaged in mediation at
the request of the Court of Appeals and discussed certain terms of a possible
settlement. Since December 31, 1997, the parties have been negotiating further
the terms of a possible settlement.
In July 1995, PaineWebber Development Corporation, a wholly-owned subsidiary
of Paine Webber Group Inc., caused suits to be filed against the Company by
two research and development partnerships formed in the mid-1980s by
PaineWebber and managed by it since then. The two PaineWebber partnerships
(PaineWebber R&D Partners, L.P. and PaineWebber R&D Partners II, L.P.) were,
respectively, investors in Centocor Partners II, L.P. ("CPII") and Centocor
Partners III, L.P. ("CPIII"), research partnerships for which PaineWebber
acted as the sales agent and in other capacities. The Company purchased the
limited partners' interests in CPII in February 1992 and that partnership was
then dissolved. The Company purchased the Class A and Class C limited
partners' interests in CPIII in January 1997 and, purchased the Class B
limited partnership interest in CPIII in May 1997. See Note 7--Intangible and
other assets.
The suit by PaineWebber R&D Partners, L.P., was filed in the Supreme Court
of the State of New York, County of New York, and was brought as a class
action on behalf of all former limited partners of CPII. The complaint charges
that some portion of the $100,000,000 paid by Lilly to the Company in July
1992 constituted revenues to the Company for the licensing, sublicensing or
sale of HA-1A (Centoxin) and that the Company is obligated to pay a percentage
thereof to the former limited partners of CPII, in addition to amounts already
paid. The Company moved to dismiss the New York suit on the ground that it was
brought in an inconvenient forum and that motion was granted. The suit was
then refiled in the Delaware Superior Court. Prior to the New York action, a
similar suit was filed by another former CPII partner, Jerome J. Petrisko, in
the Court of Common Pleas of Chester County, Pennsylvania. Petrisko was
subsequently allowed to intervene in the Delaware action and the Chester
County action was dismissed. The PaineWebber and Petrisko actions have been
consolidated and the action has been certified as a class action. The Company
has filed an affirmative defense and counterclaim based on unjust enrichment
which seek a setoff on any recovery by the class. Discovery has been
completed. In November 1997, Centocor filed a motion for summary judgment as
to certain claims asserted in plaintiffs' complaint. Argument on the motion
was held on December 29, 1997. The Court has not yet ruled on the motion. A
trial in this action is scheduled to commence on March 16, 1998. The Company
believes that these actions are without merit and intends to defend them
vigorously.
The suit by PaineWebber R&D II, L.P. ("PWR&DII") was filed in the Court of
Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and Centocor Development Corporation III
("CDCIII"), a wholly owned subsidiary of the Company which acts as the general
partner of CPIII, are named as defendants against whom relief is sought. The
claim in this case is that at least $25,000,000 of the money paid by Lilly to
the Company in 1992 represented profits from the marketing of ReoPro,
obligating the Company to pay a portion thereof to CPIII, and that the Company
is obligated to pay an increased percentage of the profits from ReoPro to the
former CPIII limited partners going forward. The Company answered the
complaint in the Delaware action and filed a cross-claim against nominal
defendant CPIII and a third-party complaint against PaineWebber Group Inc. and
PaineWebber Development Corporation. The cross-claim seeks an offset against
any damages awarded the partners based on theories of unjust enrichment and
quasi contract. The third-party claims (later amended to add additional
theories of liability and to make PaineWebber, Inc. an additional third-party
defendant) seek to
18
<PAGE>
hold the PaineWebber entities liable for some or all of any alleged injury to
the partnership. On November 1, 1995, an additional suit was commenced in the
Delaware Court of Chancery by John E. Abdo, a limited partner of CPIII,
against the Company, CDCIII and certain of their officers and directors. The
complaint, filed derivatively on behalf of CPIII, asserts claims, inter alia,
for breach of contract, breach of fiduciary duty, common law fraud, and
conspiracy and aiding and abetting. The Company answered this complaint and
also filed a cross-claim against nominal defendant CPIII and a third party
complaint against PaineWebber Group Inc. and PaineWebber Development
Corporation, later amended to add additional theories of liability and to name
PaineWebber, Inc. as a further third-party defendant. Abdo moved to amend his
complaint to assert claims against the persons appointed by PaineWebber to the
CDCIII Board of Directors. That motion was granted. Motions to disqualify
PWR&DII from serving as the derivative plaintiff were filed in July 1996 by
CPIII and in August 1996 by Centocor and CDCIII. Abdo joined those motions. No
decision has been issued on those motions. The case brought by PWR&DII has
been settled, subject to final approval of the settlement by the Court. Abdo
and Pharmaceutical Partners II, L.P., a limited partnership which has
purchased CPIII limited partnership interests, objected to the settlement.
They were permitted to take discovery regarding the settlement and have sought
to take additional discovery. A hearing on the adequacy and fairness of the
settlement was held on September 4, 1997. No decision has been rendered. See
Note 7--Intangible and Other Assets.
On January 19, 1998, a purported class action captioned Surgener v.
Centocor, Inc. and David P. Holveck was filed in the United States District
Court for the Eastern District of Pennsylvania. Other similar suits were filed
thereafter. The complaints in these actions charge the Company and its chief
executive officer with having violated the federal securities laws. Plaintiffs
seek to represent a class of those who purchased Centocor stock between
December 2, 1997, and December 16, 1997, inclusive, and allege that defendants
made false and misleading statements in connection with earnings forecasts.
Damages in an unspecified amount are sought. The Company believes these
actions are without merit and intends to defend them vigorously.
While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
year covered by this report.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded publicly on the Nasdaq National Market
under the trading symbol CNTO. The table below sets forth the high and low
sale prices for the Company's Common Stock for the periods indicated as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Year ended December 31, 1996
First Quarter.............................................$40 $27 5/8
Second Quarter............................................ 40 7/8 28
Third Quarter............................................. 37 7/8 23
Fourth Quarter............................................ 37 3/8 25 1/2
Year ended December 31, 1997
First Quarter............................................. 41 1/4 27 1/2
Second Quarter............................................ 38 1/4 23 3/8
Third Quarter............................................. 51 1/4 29 3/4
Fourth Quarter............................................ 53 3/4 27 1/4
</TABLE>
On February 6, 1998, there were approximately 3,193 holders of record of the
Common Stock.
In June 1996, the Company and Lilly amended their Sales and Distribution
Agreement. In July 1996, in consideration of the amendment and other
activities in connection with the commercialization and market development of
ReoPro, the Company issued 920,716 shares of its common stock in a private-
placement transaction under Section 4(2) of the Securities Act of 1933.
The Company has never declared or paid any dividends on its Common Stock.
The Company does not anticipate paying any dividends in the foreseeable future
and intends to retain future earnings for the development and expansion of its
business.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Sales.................. $ 48,071 $ 39,984 $ 65,001 $ 132,130 $196,354
Contracts:
Related parties...... 10,109 1,652 -- -- --
Other................ 17,750 25,590 13,915 3,355 4,430
--------- --------- -------- --------- --------
Total revenues......... 75,930 67,226 78,916 135,485 200,784
Costs and expenses(1).... 130,683 173,290 126,219 150,815 187,498
Other income
(expenses)(2)........... (19,626) (20,594) (9,829) 1,862 (2,156)
--------- --------- -------- --------- --------
Income (loss) before
extraordinary item...... $ (74,379) $(126,658) $(57,132) $ (13,468) $ 11,130
Net gain on
extinguishment of debt.. -- -- -- 705 --
--------- --------- -------- --------- --------
Income (loss)............ $ (74,379) $(126,658) $(57,132) $ (12,763) $ 11,130
========= ========= ======== ========= ========
Basic earnings (loss) per
share................... $ (1.79) $ (2.55) $ (0.98) $ (0.19) $ 0.16
========= ========= ======== ========= ========
Diluted earnings (loss)
per share............... $ (1.79) $ (2.55) $ (0.98) $ (0.19) $ 0.16
========= ========= ======== ========= ========
Weighted average number
of shares outstanding... 41,482 49,597 58,207 66,475 69,809
Weighted average common
and dilutive equivalent
shares outstanding...... 41,482 49,597 58,207 66,475 71,770
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DA-
TA:
Cash and investments(3)........ $140,028 $184,507 $137,206 $185,817 $206,630
Total assets................... 281,039 305,915 260,284 341,121 405,104
Long-term debt................. 238,100 231,640 231,640 54,765 54,765
Shareholders' equity
(deficit)..................... (19,194) 5,278 (29,396) 235,910 257,835
</TABLE>
No dividends have been declared or paid during any of the periods presented.
- --------
(1) Costs and expenses include the following: (a) charges for acquired
research and development of $36,966 in 1994, (b) charge of $3,500 in 1993
related to HA-1A inventory, (c) restructuring charges of $9,387 and $1,642
in 1993 and 1995, respectively, (d) a royalty buyout of $17,098 in 1994
and (e) a write-down of facilities and equipment of $7,870 in 1994.
(2) Other income (expenses) include: (a) a charge of $4,565 in 1997 relating
to the loss on the sale of the Company's U.K. diagnostic manufacturing
facility and related infectious disease product line and (b) charges of
$1,275 and $3,750 in 1994 and 1995, respectively, related to the
settlement of certain litigation.
(3) Cash and investments at December 31, 1997 include equity investments
classified as available for sale of $11,957, and $7,260 of investments
maintained at certain banks as collateral for certain debt outstanding at
December 31, 1997. Cash and investments at December 31, 1996 include
equity investments classified as available for sale of $9,502, and $7,260
of investments maintained at certain banks as collateral for certain debt
outstanding at December 31, 1996.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RETAVASE TRANSACTION
On February 12, 1998, the Company announced that it has entered into the
Purchase Agreement to acquire the Retavase Assets from Roche Healthcare
Limited, an affiliate of Roche Holding Ltd., for $335,000,000 in cash. In
connection with the Acquisition, Centocor expects to record a one-time, pretax
charge of approximately $138,500,000, in the first quarter of 1998,
representing the acquisition of in-process research and development. Also
during the first quarter, the Company expects to record a one-time tax benefit
of approximately $20,000,000 from the recognition of certain deferred tax
assets. See "Recent Developments--Pending Acquisition of Retavase", and "Pro
Forma Condensed Consolidated Financial Data."
RESULTS OF OPERATIONS
General
The Company, since inception, has incurred significant operating expenses
developing therapeutic and diagnostic products. The Company has also incurred
significant special charges. Consequently, the Company had experienced
substantial operating losses. The Company's financial results progressively
improved throughout 1996 culminating with the Company achieving profitability
in the fourth quarter of 1996 and profitability in full year 1997. The Company
expects that its sales of therapeutic and diagnostic products in 1998 will
provide sufficient revenues to cover operating expenses and provide net income
for the year. The Company's results have been affected by various non-
operating events. Excluding such non-operating events, the Company reported
operating earnings per share of $.22 in 1997 versus an operating loss of $.20
per share in 1996.
The Company commenced commercial sales of two therapeutic products in 1995:
ReoPro in January 1995 and Panorex in February 1995. In November 1997, the
Company obtained regulatory approvals in the United States and Europe for the
expanded use of ReoPro.
In February 1997, the FASB issued Statement of Financial Standards No. 128,
Earnings Per Share ("Statement 128"), which was effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. This Statement establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly
held common stock or potential common stock. This Statement simplifies the
standards for computing earnings per share previously found in Accounting
Principles Board Opinion No. 15, Earnings Per Share, and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator for the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement requires restatement of all prior
period EPS data presented. The Company adopted Statement 128 in December of
1997. The adoption of Statement 128 did not have a significant effect on its
financial statements.
In June 1997, the FASB issued Statement of Financial Standards No. 130,
Reporting Comprehensive Income ("Statement 130"). This Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. This
Statement is effective for fiscal years beginning after December 15, 1997. The
Company plans to adopt this accounting standard as required. The adoption of
this standard will have no impact on the Company's earnings, financial
condition or liquidity, but will require the Company to classify items of
other comprehensive income in a financial statement and display the
accumulated balance of other comprehensive income separately in the equity
section of the balance sheet.
In June 1997, the FASB also issued Statement of Financial Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 supercedes Statement of Financial
22
<PAGE>
Standards No. 14, Financial Reporting for Segments of a Business Enterprise,
and establishes new standards for reporting information about operation
segments in annual financial statements and requires selected information
about operating segments in interim financial reports. Statement 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effective for periods
beginning after December 15, 1997. This Statement affects reporting in
financial statements only and will have no impact on the Company's results of
operations, financial condition or liquidity.
The Company has accumulated certain tax attributes such as net operating
loss carryforwards and tax credit carryforwards which are assets in the sense
that they may provide the Company with future cash flows from the reduction in
future tax payments. However, the realization of such assets is not assured as
it depends upon future taxable income. Under Statement of Financial Accounting
Standard No. 109, the Company is required to recognize all or a portion of net
deferred tax assets with corresponding increases to net income, when the
Company believes, given the weight of all available evidence, that it is more
likely than not that all or a portion of the benefits of net operating loss
carryforwards and other credits will be realized.
Centocor has approximately $301 million of deferred tax assets consisting
primarily of the future tax benefit from net operating loss carryforwards. The
Company presently has not concluded that it is more likely than not that it
will realize all, or a portion of the benefit of such tax assets. Accordingly,
the Company has recorded a 100% valuation allowance against the asset. If the
Company determines that all or a part of these deferred tax assets are more
likely than not to be realized through sufficient future profitability based
on the outcome of certain future events, then the Company will reverse all or
part of such valuation allowance and recognize a tax benefit. Until such tax
benefit is recognized, the Company's effective tax rate is reflective of the
utilization of its net operating loss carryforwards on an annual basis and
therefore such rate is expected to be substantially lower than the statutory
rate. Should all such deferred tax assets be recognized, the Company expects
that its effective tax rate in future periods will approximate the applicable
statutory rates.
The recognition of these deferred tax assets under SFAS 109 has no impact on
the Company's cash flows for income taxes despite the change in the Company's
effective tax rate. The recognition of these deferred tax assets will impact
reported EPS due to the benefit recorded to the statement of operations from
the reduction in the Company's valuation allowance.
Year ended December 31, 1997 compared to year ended December 31, 1996
The increase in sales for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 is principally due to the increase in sales
of ReoPro.
The Company is highly dependent upon the ability of its marketing partners
to develop and expand the markets for both ReoPro and Panorex. For the year
ended December 31, 1997, ReoPro sales to Lilly were $158,373,000 and Lilly's
announced sales to end-users were $254,400,000. For the year ended December
31, 1996, ReoPro sales to Lilly were $88,669,000 and Lilly's announced sales
to end-users were $149,300,000. For the year ended December 31, 1997, the
Company's sales of Panorex to Glaxo Wellcome were $5,264,000 and Glaxo
Wellcome reported to the Company that sales to end-users were approximately
$5,653,000. For the year ended December 31, 1996, the Company's sales of
Panorex to Glaxo Wellcome were $2,073,000 and Glaxo Wellcome reported to the
Company that sales to end-users were approximately $5,375,000. The level of
the Company's sales of ReoPro to Lilly and of Panorex to Glaxo Wellcome is
dependent upon the orders placed and the levels of inventory maintained by
each of these marketing partners. The Company expects ReoPro end sales to
increase in 1998 as market acceptance continues to grow. Therefore, the
Company expects its sales of ReoPro to Lilly to increase in 1998 over 1997
levels. Panorex sales to Glaxo Wellcome in 1998 are not expected to have a
significant impact on the Company's financial results.
Diagnostic product sales for the year ended December 31, 1997 were
$31,777,000 as compared to $41,388,000 for the year ended December 31, 1996.
In June of 1997, the Company completed the sale of its U.K. diagnostic
manufacturing facility and its related infectious disease product line.
Oncology diagnostic
23
<PAGE>
product sales for the year ended December 31, 1997 were $30,097,000 as
compared to $37,689,000 for the year ended December 31, 1996. This decrease
was due primarily to a reduction in the selling prices of some of the
Company's diagnostic bulk products, a reduction in component sales, lower
completed kit volumes and, to a lesser extent, the unfavorable impact of
foreign currency fluctuations. Diagnostic product sales in 1998 are expected
to be at about the same level achieved in 1997 primarily due to lower sales
prices and a shift of mix of products sold to more bulk and component products
for which the Company receives lower sales revenues.
The level of future sales of both diagnostic and therapeutic products will
be dependent upon several factors, including, but not limited to, the timing
and extent of future regulatory approvals of the Company's products, the
availability of production capacity, as well as the continued availability of
necessary raw materials and intermediate inputs into the production process,
approval and commercialization of competitive products and ultimately, the
degree of acceptance of the Company's products in the marketplace. For the
Company's diagnostic products, the level of sales is also dependent upon the
extent of and timing of bulk and component sales to marketing partners
developing new automated instruments, as well as the mix of completed
diagnostic kit sales. The Company is currently attempting to expand its
diagnostic distribution channels to include additional distributors on a non-
exclusive basis and the Company further expects that current distributors of
its completed kits may increase sales of their respective diagnostic kits
incorporating the Company's bulk antibodies or components, which the Company
expects will result in reduced revenues on certain diagnostic products. The
Company's revenues from sales of bulk antibodies and components to partners
are lower than revenues from sales of its completed diagnostic kits.
The Company is also evaluating a number of business strategies to expand and
support both its therapeutic and diagnostic products and product candidates
including, but not limited to, access to instruments primarily in the
diagnostics area, directly participating in the promotion and marketing of
certain of the Company's products and product candidates and expanding the
Company's production capabilities. In order to implement such strategies, the
Company may need to secure financing from the equity or other capital markets
or through bank relationships. There can be no assurance that such financing
will be available or that these business strategies, or any others, if
implemented will be successful in achieving increased product sales for the
Company's therapeutic and diagnostic products and product candidates.
Cost of sales increased for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 due primarily to the increased sales of
ReoPro. The Company is required to make certain royalty payments, based on
sales of products, which payments represent a significant percentage of cost
of sales. The Company expects an increase in cost of sales in 1998, the extent
of which will depend primarily on the amount and mix of products sold. The
Company's gross margin on sales for the year ended December 31, 1997 was
approximately 60% as compared to approximately 54% for the year ended December
31, 1996. Gross margin percentage in 1998 is expected to improve over 1997 as
production activities increase and further process efficiencies are realized.
Factors that can influence gross margin include, but are not limited to,
exchange rate fluctuations, unplanned production losses, cell line yields,
increases in royalty obligations, costs of raw materials and production
interruptions due to plant upgrades.
Research and development expenses for the year ended December 31, 1997
increased as compared to the year ended December 31, 1996 due principally to
increased clinical trial activities to expand the indications for ReoPro and
the continued development of Avakine. The level of the Company's total
research and development expenses in future periods will be dependent upon the
extent of clinical trial-related activities. Research and development expenses
are expected to increase in 1998 as compared to 1997 due to clinical trial
activities in connection with the continued expansion of ReoPro use for
additional indications including, but not limited to, acute myocardial
infarction and in stroke. In addition, clinical trial activities for Avakine,
primarily phase III trials for the Crohn's and severe rheumatoid arthritis
indications are expected to continue into 1998.
Marketing, general and administrative expenses for the year ended December
31, 1997 increased as compared to the year ended December 31, 1996 due
principally to ReoPro and Avakine market development efforts. The levels of
the Company's marketing, general and administrative expenses are expected to
increase in
24
<PAGE>
future periods as compared to 1997 levels as the Company expands its market
development activities in connection with sales of therapeutic and diagnostic
products and directly undertakes the promotion, marketing and sale of any of
its therapeutic or diagnostic products. Marketing, general and administrative
expenses are expected to increase in 1998 as compared to 1997 due primarily to
the Company's increased investment in the direct promotion and sale of
Avakine.
Interest income decreased for the year ended December 31, 1997 as compared
to the year ended December 31, 1996 due principally to a decrease in the
interest rates obtained on the Company's cash and investment balances.
Interest income in future periods will depend primarily on the level of the
Company's investments and the rates of return obtained on such investments.
Interest expense decreased for the year ended December 31, 1997 as compared
to the year ended December 31, 1996 due principally to the conversion of the
Company's 7 1/4% Convertible Notes due February 1, 2001 into the Company's
Common Stock, the purchase of $70,235,000 of the Company's 6 3/4% Convertible
Debentures and the repayment of mortgage loans in Europe. Interest expense in
future periods will depend upon the level of debt outstanding.
Other expenses increased for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 due to an increase in Centocor's equity in
the losses of a company in which Centocor has invested. Centocor does not
expect the future equity in the income or losses of this investee company to
have a material impact on the Company.
The Company did not record a provision for income tax for the year ended
December 31, 1997 or December 31, 1996. Although the Company reported net
income in 1997 for book purposes, after accounting for temporary and permanent
differences between reported net income and taxable income, Centocor did not
achieve taxable income in 1997. Therefore, no tax provision was recorded in
the financial statements.
Year ended December 31, 1996 compared to year ended December 31, 1995
The increase in sales for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 is principally due to the increase in sales
of ReoPro. ReoPro sales commenced in January 1995.
For the year ended December 31, 1996, ReoPro sales to Lilly were $88,669,000
and Lilly's announced sales to end-users were $149,300,000. For the year ended
December 31, 1995 sales to Lilly were $15,545,000 and Lilly's announced sales
to end-users were $22,800,000. For the year ended December 31, 1996, the
Company's sales of Panorex to Glaxo Wellcome were $2,073,000 and Glaxo
Wellcome reported to the Company that sales to end-users were approximately
$5,375,000. For the year ended December 31, 1995 sales to Glaxo Wellcome were
$6,531,000 and Glaxo Wellcome reported to the Company that sales to end-users
were approximately $3,400,000. The level of the Company's sales of ReoPro to
Lilly and of Panorex to Glaxo Wellcome is dependent upon the orders placed and
the levels of inventory maintained by each of these marketing partners, which
in 1995 included initial launch period quantities.
Diagnostic product sales for the year ended December 31, 1996 were
$41,388,000 as compared to $42,859,000 for the same period in 1995. This
decrease was due primarily to a one-time $2,176,000 1995 stocking order of
reagents to a new customer and the reduction in the percentage of end-user
sales that the Company received from the sale of reagents in 1996 due to a
change in certain exclusive arrangements to non-exclusive in an effort to
allow the Company to increase its market penetration.
The decrease in contract revenues for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 was primarily due to the
achievement of certain milestones in 1995 pursuant to the Company's agreements
with Lilly. Contract revenues for the year ended December 31, 1995 included
$10,000,000 recognized pursuant to the Company's agreements with Lilly as a
result of the Company's achievement of milestones in the development of
ReoPro.
25
<PAGE>
Cost of sales increased for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 due primarily to the increased sales of
ReoPro. The Company is required to make certain royalty payments, based on
sales of products, which payments represent a significant percentage of cost
of sales. The Company's gross margin on sales for the year ended December 31,
1996 was approximately 54% as compared to approximately 55% for the year ended
December 31, 1995. Factors that can influence gross margin include, but are
not limited to, exchange rate fluctuations, unplanned production losses, cell
line yields, increases in royalty obligations, costs of raw materials and
production interruptions due to plant upgrades.
Research and development expenses for the year ended December 31, 1996
decreased as compared to the year ended December 31, 1995 due principally to
the capitalization as inventory in 1996 of certain costs associated with the
manufacture of ReoPro. In 1995, such costs were not associated with the
production of inventory and therefore were expensed as research and
development expenses.
Marketing, general and administrative expenses for the year ended December
31, 1996 increased as compared to the year ended December 31, 1995 due
principally to ReoPro market development efforts and ongoing litigation.
Interest income increased for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 due principally to an increase in the
Company's average cash and investment balances.
Interest expense decreased for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 due principally to the conversion of the
Company's 7 1/4% Convertible Notes due February 1, 2001 into the Company's
Common Stock, the purchase of $70,235,000 of the Company's 6 3/4% Convertible
Debentures and the repayment of mortgage loans in Europe.
Other income (expenses) increased for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 due to an increase in Centocor's
equity in the losses of a company in which Centocor has invested.
Other income (expenses) also includes a charge to operations of $3,750,000
for the year ended December 31, 1995 relating to the settlement of certain
class action securities litigation. The results of operations for the year
ended December 31, 1995 also included a charge to costs and expenses of
$1,642,000 for severance costs related to a reduction in the level of the
Company's personnel in 1995.
26
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited consolidated statement of
operations data for the three years ended December 31, 1997 (in thousands
except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Total revenues......................... $23,995 $ 20,754 $ 19,155 $ 15,012
Cost and expenses:
Cost of sales........................ 8,625 8,071 7,271 5,199
Research and development............. 13,501 17,008 18,376 17,350
Marketing, general and
administrative...................... 7,494 7,120 7,643 6,919
Special charges...................... -- -- -- 1,642
------- -------- -------- --------
Total costs and expenses............... 29,620 32,199 33,290 31,110
Other income (expenses)................ (2,617) (5,864) 1,980 (3,328)
------- -------- -------- --------
Net loss............................... $(8,242) $(17,309) $(12,155) $(19,426)
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30 SEPT. 30, DEC. 31,
1996 1996 1996 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Total revenues.......................... $ 21,882 $ 30,586 $ 39,179 $ 43,838
Cost and expenses:
Cost of sales......................... 10,554 14,554 17,652 18,334
Research and development.............. 12,548 13,296 15,174 15,769
Marketing, general and
administrative....................... 7,403 7,882 8,537 9,112
-------- -------- -------- --------
Total costs and expenses................ 30,505 35,732 41,363 43,215
Net gain on extinguishment of debt...... -- 705 -- --
Other income (expenses)................. (1,075) 118 549 2,270
-------- -------- -------- --------
Net income (loss)....................... $ (9,698)$ (4,323) $ (1,635) $ 2,893
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Total revenues........................... $45,036 $53,643 $51,401 $50,704
Cost and expenses:
Cost of sales.......................... 17,806 22,183 18,307 19,662
Research and development............... 14,337 17,292 18,821 18,173
Marketing, general and administrative.. 9,796 9,588 10,310 11,223
------- ------- ------- -------
Total costs and expenses................. 41,939 49,063 47,438 49,058
Other income (expenses).................. 244 (3,840) 678 762
Provision for income taxes............... 70 20 200 (290)
------- ------- ------- -------
Net income............................... $ 3,271 $ 720 $ 4,441 $ 2,698
======= ======= ======= =======
</TABLE>
The Company's results, as a percentage of total revenues, have fluctuated on
a quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. Quarterly results can fluctuate as a result of a number of
factors, including the timing of research and development expenses, the level
of product sales, the completion or commencement of significant contracts, a
reduction in the valuation allowance relating to the Company's deferred tax
assets and foreign exchange fluctuations.
27
<PAGE>
PER SHARE CALCULATIONS
At December 31, 1997, approximately 3,971,115 shares of the Company's Common
Stock were issuable upon exercise of outstanding options and warrants and upon
vesting of restricted stock awards. The Company uses the weighted average
number of shares outstanding in calculating basic per share data. When
dilutive, options and warrants are included as share equivalents using the
treasury stock method and are included in the calculation of diluted per share
data. The approximately 898,000 shares issuable upon conversion of the 6 3/4%
Convertible Debentures are not considered Common Stock equivalents and are not
included in the calculation of basic or diluted per share data but would be
included in the calculation of diluted per share data if their effect is
dilutive.
No Common Stock equivalents or shares issuable upon conversion of the 6 3/4%
Convertible Debentures were included in the per share calculations for any
year presented since to do so would have been antidilutive. In March 1996, the
Company completed a public offering of 4,025,000 shares. In April 1996, the
Company issued 3,450,000 shares as a result of the conversion of the Company's
7 1/4% Convertible Notes. In July 1996, the Company issued 920,716 shares in
connection with its agreements with Lilly. These shares have been included in
the per share calculations and, 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 6 3/4%
Convertible Debentures in its calculations of per share data for such periods
if the effect would be dilutive.
LIQUIDITY AND CAPITAL RESOURCES
The Company, since inception, has incurred significant operating expenses
attempting to develop therapeutic and diagnostic products. The Company has
also incurred significant special charges. Consequently, the Company had
experienced substantial net cash outflows, which have been only partially
offset by significant contract revenues received through collaborative
alliances with pharmaceutical companies and the Company's financing
activities. The Company's financial results have progressively improved
throughout 1996 culminating with the Company achieving profitability in the
fourth quarter of 1996 and for the full year 1997.
The Company's total cash, cash equivalents and investments increased by
$20,813,000 from December 31, 1996, principally as a result of cash received
from operations and the exercise of options as discussed below, partially
offset by investments in fixed assets. The Company's future financial
condition is dependent upon the Company's rate of net cash inflows and,
ultimately, upon the achievement of significant and sustained levels of
therapeutic product sales. Under the Company's strategy of entering into
collaborative alliances with established pharmaceutical companies, the Company
generally shares sales revenues from products covered by such arrangements
with its partners. The level of future sales of both diagnostic and
therapeutic products will be dependent upon several factors, including, but
not limited to, the timing and extent of future regulatory approvals of the
Company's products, approval and commercialization of competitive products and
the degree of acceptance of the Company's products in the marketplace. There
can be no assurance that FDA or other regulatory approvals expanding the
authorized use of ReoPro and other products or permitting the commercial sale
of any of the Company's product candidates under development will be obtained.
Failure to obtain additional timely FDA or other regulatory approvals for the
use of ReoPro or other product candidates, including Avakine, will have a
material adverse effect on the Company.
At December 31, 1997, the Company had cash, cash equivalents and investments
of $206,630,000, including equity investments of $11,957,000. For the year
ended December 31, 1997, the Company had cash flows from operations of
$33,715,000. The Company's total cash flows for the year ended December 31,
1997 included the receipt of $8,996,000 from the exercise of options to
purchase shares of the Company's Common Stock. The extent and timing of future
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 options. In the first quarter of
1996, the Company completed a public equity offering of 4,025,000 shares of
common stock. The net proceeds to the Company from the offering were
$125,916,000.
28
<PAGE>
Upon completion of the offering, the Company initiated redemption of the
remaining 7 1/4% Convertible Notes due February 2001 most of which were
converted into common stock in the second quarter of 1996. Also in the second
quarter of 1996, the Company purchased $70,235,000 of the 6 3/4% Convertible
Debentures. In the third quarter of 1996, the Company received $15,000,000 in
connection with its agreements with Fujisawa. Additionally, in the fourth
quarter 1996, the Company repaid both its mortgage debt and long-term note
related to its Leiden facility in the amount of $15,141,000. At December 31,
1997, $54,765,000 of the 6 3/4% Convertible Debentures remain outstanding. At
December 31, 1997, the Company has a note payable of $5,940,000 which is
secured by investments at the lending bank of $7,260,000. The Company believes
that its cash, cash equivalents and investments will be sufficient to fund its
operations through at least the end of 1998.
Inventory at December 31, 1997 increased as compared to December 31, 1996
due primarily to increased production of ReoPro.
Gross property, plant and equipment at December 31, 1997 increased compared
to December 31, 1996, principally due to the investment of $23,570,000 for the
purchase of property and equipment partially offset by the impact of exchange
rates on property and equipment denominated in foreign currencies and the sale
of the Company's U.K. manufacturing facility and related infectious disease
product line in the second quarter of 1997. The Company expects its total
investments in property, plant and equipment to increase in 1998 by an amount
up to approximately $100,000,000 for its manufacturing capacity expansion
plans in Europe and the establishment of a U.S. biopharmaceutical
manufacturing facility in Malvern to support ReoPro and Avakine production
requirements.
Long-term investments at December 31, 1997 increased as compared to December
31, 1996 principally due to an increase in the carrying value of an investment
classified as available for sale. In 1996 the Company acquired an investment,
ChromaVision Medical Systems Inc., as compensation for its prior research and
commercialization efforts and the exchange of a commercialization license. The
Company's historical basis in this investment was $770,000 and was valued at
$8,665,000 at December 31,1997. Unrealized gains and losses on securities
classified as available for sale are carried as a separate component of
shareholders' equity.
Intangible and other assets at December 31, 1997 increased as compared to
December 31, 1996 resulting primarily from the advance payment of
approximately $13,600,000 to the former limited partners of CPIII in January
1997 in connection with the exercise of the Company's option to purchase the
limited partnership interest in CPIII. In June 1997, the Company announced
that it reached an agreement to settle the litigation brought by PaineWebber
R&D Partners II, L.P. on behalf of CPIII, against Centocor arising out of
Centocor's sales and distribution agreement with Lilly with respect to ReoPro.
The settlement is conditional on Delaware Chancery Court approval. The
agreement provides, among other things, for Centocor to pay the former CPIII
limited partners $10,800,000 from which attorney's fees and expenses will be
deducted, an additional $5,000,000, if and when cumulative world-wide sales of
ReoPro exceed $600 million and a revision to the royalties payable to the
former CPIII limited partners. The Company expects to pay $15,800,000 in 1998.
The Company has recorded these probable payments to the former CPIII limited
partners as a prepaid royalty, a component of Intangible and other assets in
the second quarter of 1997.
The Company has entered into indemnity agreements with the former limited
partners of CCIP, CPII and CPIII 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 U.S. government of any of its rights relating to the
licensed technology. The amount of any such loss would be determined annually
by independent appraisal.
In October 1997, the Company announced that its subsidiary, Centocor
Diagnostics, had filed a registration statement with the Securities and
Exchange Commission relating to a proposed initial public offering by Centocor
Diagnostics of shares of its Class A Common Stock. The Company will not sell
any shares of Centocor Diagnostics stock in the offering. The proceeds of the
offering were to be used for capital expenditures related
29
<PAGE>
principally to Centocor Diagnostics' cardiovascular diagnostic program,
working capital, product research and development, and other general corporate
purposes. In December 1997, the Company announced that the initial public
offering of Centocor Diagnostics, Inc. has been postponed due to market
conditions.
LEGAL PROCEEDINGS
The Company is subject to certain litigation, as more fully described under
Part I, Item 3 "Legal Proceedings." While it is not possible to predict with
certainty the eventual outcome of these matters, the Company believes that
such legal proceedings will not have a material adverse effect on the Company.
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. Pursuant to the exercise by the Company of its
option to acquire the limited partnership interests in CPIII in January 1997,
the Company is required to make future payments to the former limited partners
of CPIII which will include payments based on future sales of ReoPro.
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, patent applications and technology
and pays the licensors or their licensees royalties under such agreements.
The Company has entered into indemnity agreements with the former limited
partners of CCIP, CPII and CPIII 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 U.S. government of any of its rights relating to the
licensed technology. The amount of any such loss would be determined annually
by independent appraisal.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
PRODUCT LIABILITY AND PRODUCT RECALL
The testing and marketing of medical products entails an inherent risk of
product liability. There is also a risk that circumstances might develop
requiring a product recall. The Company maintains limited product liability
insurance coverage. Centocor's business may be materially adversely affected
by a successful product liability claim in excess of any insurance coverage.
There can be no assurance that product liability insurance coverage will
continue to be available to Centocor in the future on reasonable terms or at
all.
FOREIGN CURRENCY
Certain of the Company's sales are denominated in currencies other than the
U.S. dollar. Additionally, the Company conducts operations in countries other
than the United States, primarily its manufacturing facility in Leiden, The
Netherlands. The Company's consolidated financial statements are denominated
in U.S. dollars, and, accordingly, changes in the exchange rate between
foreign currencies and the U.S. dollar will affect the translation of
financial results of foreign subsidiaries into U.S. dollars for purposes of
reporting the Company's consolidated financial results. To date, exchange rate
fluctuations have not had a material net effect on the Company's financial
results. The Company does not currently engage in any derivatives transactions
as a hedge against foreign currency fluctuations.
30
<PAGE>
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive; virtually every computer operation may be affected in
some way by the rollover of the two digit year value to 00. The risk is that
computer systems will not properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous date or cause a system to fail, resulting
in business interruption.
The Year 2000 issue is expected to affect the systems of various entities
with which the Company interacts, including the Company's marketing partners,
suppliers, and various vendors, and the Company is coordinating its efforts to
address the Year 2000 issue with those entities. However, there can be no
assurances that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another
company, or a conversation that is incompatible with the Company's systems,
would not have material adverse effect on the Company.
With respect to its own computer systems, the Company is upgrading,
generally, in order to meet the demands of its expanding business. In the
process the Company is taking steps to identify, correct or reprogram and test
its existing systems for Year 2000 compliance. It is anticipated that all new
system upgrades or reprogramming efforts will be completed by mid 1999,
allowing adequate time for testing. The Company presently believes that with
modification to existing software and conversations to new software, the Year
2000 issue can be mitigated. However, given the complexity of the Year 2000
issue, there can be no assurances that the Company will be able to address the
problem without costs and uncertainties that might affect future financial
results or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition.
Since the Company currently plans to upgrade the majority of its systems
regardless of the Year 2000 problem, management has not separately assessed
the Year 2000 compliance expense and related potential effect on the Company's
earnings.
The mid-1999 date by which the Company plans to complete its upgrades and
Year 2000 modifications is management's best estimate, which was derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurances that this estimate will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
INFLATION
The Company believes the effects of inflation generally do not have a
material adverse impact on its operations or financial condition.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 5 and 9)................. $ 85,565 $ 55,953
Short-term investments (Notes 5 and 9).................... 109,108 120,362
Accounts and contracts receivable......................... 26,459 27,440
Interest receivable....................................... 1,394 2,147
Inventory (Note 6)........................................ 27,777 23,815
Prepaid expenses.......................................... 3,053 4,279
Other current assets...................................... 1,489 752
-------- --------
254,845 234,748
PROPERTY, PLANT AND EQUIPMENT (NOTE 9):
Land...................................................... 6,044 6,176
Buildings................................................. 62,913 65,431
Equipment, furniture, fixtures and improvements........... 62,869 68,403
Construction in progress.................................. 24,614 1,481
-------- --------
156,440 141,491
Less accumulated depreciation............................. (79,426) (79,954)
-------- --------
77,014 61,537
LONG-TERM INVESTMENTS (NOTE 5).............................. 11,957 9,502
INTANGIBLE AND OTHER ASSETS (NOTE 7)........................ 61,288 35,334
-------- --------
Total assets............................................ $405,104 $341,121
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D.)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 15,651 $ 9,543
Accrued expenses (Note 8).................. 54,203 28,940
Unearned revenues.......................... -- 100
Notes payable (Note 9)..................... 5,940 6,897
Other current liabilities
(Note 10)................................. 15,800 --
---------- ----------
91,594 45,480
LONG-TERM DEBT (NOTE 9)...................... 54,765 54,765
OTHER LIABILITIES............................ 910 1,127
MINORITY INTEREST............................ -- 3,839
SHAREHOLDERS' EQUITY (NOTES 2, 5 AND 11):
Preferred Stock, $.01 par value,
10,000 shares authorized, none issued..... -- --
Common Stock, $.01 par value, 100,000
shares authorized and 70,146 and
69,177 issued and outstanding at
December 31, 1997 and 1996,
respectively............................... 701 692
Additional paid-in
capital.................................... 1,060,158 1,050,062
Deficit..................................... (810,472) (821,602)
Unrealized gain on
marketable securities...................... 7,894 2,342
Cumulative foreign currency
translation adjustments.................... (446) 4,416
---------- ----------
257,835 235,910
---------- ----------
Total liabilities and
shareholders' equity..................... $ 405,104 $ 341,121
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
REVENUES:
Sales................................... $ 196,354 $ 132,130 $ 65,001
Contracts............................... 4,430 3,355 13,915
---------- ---------- ----------
200,784 135,485 78,916
COSTS AND EXPENSES:
Cost of sales........................... 77,958 61,094 29,166
Research and development................ 68,623 56,787 66,235
Marketing, general and administrative... 40,917 32,934 29,176
Other charges (Note 14)................. -- -- 1,642
---------- ---------- ----------
187,498 150,815 126,219
OTHER INCOME (EXPENSES):
Interest income......................... 9,607 10,276 10,126
Interest expense........................ (3,938) (8,351) (17,001)
Loss on sale of facility and related
business (Note 14)..................... (4,565) -- --
Litigation settlement (Note 14)......... -- -- (3,750)
Other................................... (3,260) (63) 796
---------- ---------- ----------
(2,156) 1,862 (9,829)
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... $ 11,130 $ (13,468) $ (57,132)
---------- ---------- ----------
EXTRAORDINARY ITEM:
Net gain on extinguishment of debt (Note
9)..................................... -- 705 --
---------- ---------- ----------
NET INCOME (LOSS)......................... $ 11,130 $ (12,763) $ (57,132)
========== ========== ==========
BASIC EARNINGS (LOSS) PER SHARE:
Before extraordinary item............... $ 0.16 $ (0.20) $ (0.98)
Extraordinary item...................... $ -- $ 0.01 $ --
---------- ---------- ----------
Net income (loss) per share............. $ 0.16 $ (0.19) $ (0.98)
========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE:
Before extraordinary item............... $ 0.16 $ (0.20) $ (0.98)
Extraordinary item...................... $ -- $ 0.01 $ --
---------- ---------- ----------
Net income (loss) per share............. $ 0.16 $ (0.19) $ (0.98)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING.............................. 69,809 66,475 58,207
========== ========== ==========
WEIGHTED AVERAGE COMMON AND DILUTIVE
EQUIVALENT SHARES OUTSTANDING............ 71,770 66,475 58,207
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from (used for) operating activi-
ties:
Net income (loss)............................. $ 11,130 $ (12,763) $ (57,132)
Adjustments to reconcile net income (loss) to
net cash from (used for) operating
activities:
Loss on sale of facility and related
business.................................... 4,565 -- --
Net gain on extinguishment of debt........... -- (705) --
Provisions for depreciation and
amortization................................ 14,617 14,004 16,394
Amortization of deferred income.............. (100) (83) (1,616)
Share of loss in equity investee............. 3,664 919 204
Changes in assets and liabilities:
Accounts and contracts receivable.......... (1,136) (16,044) 378
Interest receivable........................ 745 (512) (542)
Inventory.................................. (4,561) (4,096) (4,519)
Prepaid expenses........................... (2,621) (4,409) (3,568)
Other current assets....................... (825) (110) 462
Intangible and other assets................ (19,345) (127) (1,456)
Accounts payable........................... 450 5,537 (2,425)
Unearned revenue........................... -- -- 46
Accrued expenses and other liabilities..... 27,349 5,706 (2,941)
Other long-term liabilities................ (217) (155) 164
-------- --------- ---------
Net cash from (used for) operating
activities.................................. 33,715 (12,838) (56,551)
Cash flows used for investing activities:
Purchases of investments...................... (97,649) (115,577) (147,381)
Sales of investments.......................... 106,065 110,650 136,490
Sale of facility and related business......... 2,835 -- --
Purchases of fixed assets..................... (23,570) (4,674) (4,845)
-------- --------- ---------
Net cash used for investing activities....... (12,319) (9,601) (15,736)
Cash flows from financing activities:
Net proceeds from issuance of Common Stock
relating to public offering.................. -- 125,916 --
Net proceeds from other issuances of Common
Stock........................................ 8,996 20,791 18,557
Reduction of long-term debt and notes pay-
able......................................... -- (84,537) (9,615)
-------- --------- ---------
Net cash from financing activities........... 8,996 62,170 8,942
Effect of foreign currency translation......... (780) 220 422
-------- --------- ---------
Net increase (decrease) in cash and cash equiv-
alents........................................ 29,612 39,951 (62,923)
Beginning cash and cash equivalents............ 55,953 16,002 78,925
-------- --------- ---------
Ending cash and cash equivalents............... $ 85,565 $ 55,953 $ 16,002
======== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
NET UNREALIZED CUMULATIVE
GAIN ON FOREIGN CURRENCY
NUMBER OF ADDITIONAL MARKETABLE TRANSLATION
SHARES PAR VALUE PAID IN CAPITAL DEFICIT SECURITIES ADJUSTMENTS
--------- --------- --------------- --------- -------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 57,081 $571 $ 750,175 $(751,707) $ -- $6,239
Issued upon exercise of
options and warrants... 1,388 14 18,323 -- -- --
Issued to employee
benefit plan........... 31 -- 511 -- -- --
Vested pursuant to
restricted stock award
plan................... 38 -- 1,059 -- -- --
Translation
adjustments............ -- -- -- -- -- 209
Carrying value
adjustments............ -- -- -- -- 2,342 --
Net loss................ -- -- -- (57,132) -- --
------ ---- ---------- --------- ------ ------
BALANCE AT DECEMBER 31,
1995................... 58,538 585 770,068 (808,839) 2,342 6,448
Issued upon exercise of
options and warrants... 1,596 16 18,015 -- -- --
Issued to employee
benefit plan........... 71 1 379 -- -- --
Issued upon stock
offering............... 4,025 40 125,916 -- -- --
Issued upon conversion
of debt................ 3,831 38 106,302 -- -- --
Amendment to Sales and
Distribution Agreement
with Lilly............. 921 9 26,991 -- -- --
Vested pursuant to
restricted stock award
plan................... 60 1 760 -- -- --
Warrants retired
pursuant to Tocor II
exchange offer......... 135 2 1,631 -- -- --
Translation
adjustments............ -- -- -- -- -- (2,032)
Net loss................ -- -- -- (12,763) -- --
------ ---- ---------- --------- ------ ------
BALANCE AT DECEMBER 31,
1996................... 69,177 692 1,050,062 (821,602) 2,342 4,416
Issued upon exercise of
options and warrants... 876 9 8,989 -- -- --
Issued to employee
benefit plan........... 9 -- 320 -- -- --
Vested pursuant to
restricted stock award
plan................... 84 -- 787 -- -- --
Translation
adjustments............ -- -- -- -- -- (4,862)
Carrying value
adjustments............ -- -- -- -- 5,552 --
Net income.............. -- -- -- 11,130 -- --
------ ---- ---------- --------- ------ ------
BALANCE AT DECEMBER 31,
1997................... 70,146 $701 $1,060,158 $(810,472) $7,894 $ (446)
====== ==== ========== ========= ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
DESCRIPTION OF BUSINESS
Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical company
the mission of which is to develop or otherwise acquire and commercialize
novel therapeutic and disgnostic products and services that solve critical
needs in human healthcare, with a primary technological focus on monoclonal
antibodies and DNA-based products.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 amortized cost. The equity
investments classified as available for sale are carried at estimated fair
value with unrealized gains and losses recorded as a component of
shareholders' equity. The Company also classifies certain investments as
trading securities which are carried at fair value with the unrealized gains
and losses reported in earnings.
Inventory
Inventory is stated at the lower of cost or market value using the first-in,
first-out method for diagnostic and 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
otherwise not be available for sale.
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets,
the depreciable lives are as follows:
<TABLE>
<S> <C>
Equipment, furniture and fixtures................................ 3-5 years
Land improvements................................................ 10 years
Leasehold improvements........................................... 10 years
Building and building improvements............................... 31.5 years
</TABLE>
37
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 and Other Assets
Intangible and other assets are stated at cost, net of accumulated
amortization. Amortization is provided using either the straight-line method
or more applicable methods over the estimated useful lives of the assets,
generally 3 to 20 years. Intangable and other assets are reviewed for
impairment whenever events or circumstances provide evidence that suggest that
the carrying amount of the asset may not be recoverable. Impairment is
evaluated by using identified or expected cash flows.
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. For certain bulk reagents, sales
revenues are recognized upon confirmation from the Company's customers that
product has been shipped to the final end user.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
Company has net operating loss carryforwards for tax purposes that begin to
expire in 2005. Since realization of the tax benefit associated with these
carryforwards is not assured, a valuation allowance was recorded against this
tax benefit. In addition, pursuant to the Tax Reform Act of 1986, the annual
utilization of these losses may be limited. The Company believes that any such
limitation will not have a material impact on the utilization of these
carryforwards.
Per Share Data
The Company uses the weighted average number of shares outstanding in
calculating basic per share data. When dilutive, options and warrants are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. Common Stock issuable upon
conversion of convertible debt securities are included in the calculation of
diluted per share data if their effect is dilutive.
Foreign Currency Translation
Assets and liabilities of subsidiaries denominated in foreign currencies are
translated at rates in effect at the appropriate year-end. Revenues and
expenses of such subsidiaries are translated at average rates of exchange 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. The Company believes that the aggregate
foreign currency transaction gains/losses do not have a significant effect on
its financial statements.
38
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The FASB issued Statement of Financial Accounting Standards No.107,
Disclosures About Fair Value of Financial Instruments, which defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. Cash and cash
equivalents, short term investments, accounts and contracts receivable,
prepaid expenses, interest receivable, other current assets, accounts payable
and accrued expenses reported in the consolidated balance sheets equal or
approximate fair value due to their short maturities. See Note 9 for
information regarding the fair value of the Company's long-term debt and notes
payable.
NOTE 3
COMMITMENTS AND CONTINGENCIES
Liquidity and Capital Resources
The Company, since inception, has incurred significant operating expenses
attempting to develop therapeutic and diagnostic products. The Company has
also incurred significant special charges. Consequently, the Company had
experienced substantial net cash outflows, which have been only partially
offset by significant contract revenues received through collaborative
alliances with pharmaceutical companies and the Company's financing
activities. The Company's financial results have progressively improved
throughout 1996 culminating with the Company achieving profitability in the
fourth quarter of 1996 and for the full year 1997.
The Company's total cash, cash equivalents and investments increased by
$20,813,000 from December 31, 1996, principally as a result of cash received
from operations and the exercise of options as discussed below, partially
offset by investments in fixed assets. The Company's future financial
condition is dependent upon the Company's rate of net cash inflows and,
ultimately, upon the achievement of significant and sustained levels of
therapeutic product sales. Under the Company's strategy of entering into
collaborative alliances with established pharmaceutical companies, the Company
generally shares sales revenues from products covered by such arrangements
with its partners. The level of future sales of both diagnostic and
therapeutic products will be dependent upon several factors, including, but
not limited to, the timing and extent of future regulatory approvals of the
Company's products, approval and commercialization of competitive products and
the degree of acceptance of the Company's products in the marketplace. There
can be no assurance that FDA or other regulatory approvals expanding the
authorized use of ReoPro and other products or permitting the commercial sale
of any of the Company's product candidates under development will be obtained.
Failure to obtain additional timely FDA or other regulatory approvals for the
use of ReoPro or other product candidates, including Avakine, will have a
material adverse effect on the Company.
Legal Proceedings
In October 1992, the Company was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos") in the U.S. District Court for the
District of Maryland. The complaint primarily alleged 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, as well as various patent applications and foreign patents. The
complaint sought declaratory relief and monetary relief in excess of
$100,000,000, and requested that the Company place in escrow one-half of the
amounts received by the Company in 1992 pursuant to its agreements with Lilly.
Over the course of the litigation, plaintiff asserted eleven different claims
for relief and the Company asserted affirmative defenses and a counterclaim
against Velos with respect to the license agreement. After rulings on motions
for summary judgment filed by both sides, the majority of plaintiff's claims
were dismissed. The case proceeded to trial on February 18, 1997 on
plaintiff's four remaining claims under the
39
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
license agreement and on the Company's affirmative defenses and counterclaim.
The parties agreed that plaintiff's claim for attorneys fees under the license
agreement would be severed to await the outcome of the trial. On March 4,
1997, the jury returned a verdict which, had it become the final judgment of
the Court, would have rendered the Company liable to pay plaintiff
approximately $4,000,000 plus interest and fees and expenses pursuant to the
license agreement. The Company then filed post-trial motions. On September 12,
1997, the Court entered judgment as a matter of law in Centocor's favor,
notwithstanding the verdict, with respect to one of Velos' claims that would
have resulted in liability of $2,972,806, but the Court denied the motions
relating to Centocor's affirmative defenses. The amended judgment against
Centocor was in the amount of $1,352,689. In addition, Centocor would have
remained liable for future minimum annual royalty payments under the license
agreement. Both Centocor and Velos have appealed the judgment. Subsequent to
the filing of notices of appeal, and in the fourth quarter of 1997, the
parties engaged in mediation at the request of the Court of Appeals and
discussed certain terms of a possible settlement. Since December 31, 1997, the
parties have been negotiating further the terms of a possible settlement.
In July 1995, PaineWebber Development Corporation, a wholly-owned subsidiary
of Paine Webber Group Inc., caused suits to be filed against the Company by
two research and development partnerships formed in the mid-1980s by
PaineWebber and managed by it since then. The two PaineWebber partnerships
(PaineWebber R&D Partners, L.P. and PaineWebber R&D Partners II, L.P.) were,
respectively, investors in Centocor Partners II, L.P. ("CPII") and Centocor
Partners III, L.P. ("CPIII"), research partnerships for which PaineWebber
acted as the sales agent and in other capacities. The Company purchased the
limited partners' interests in CPII in February 1992 and that partnership was
then dissolved. The Company purchased the Class A and Class C limited
partners' interests in CPIII in January 1997 and, purchased the Class B
limited partnership interest in CPIII in May 1997. See Note 7--Intangible and
other assets.
The suit by PaineWebber R&D Partners, L.P., was filed in the Supreme Court
of the State of New York, County of New York, and was brought as a class
action on behalf of all former limited partners of CPII. The complaint charges
that some portion of the $100,000,000 paid by Lilly to the Company in July
1992 constituted revenues to the Company for the licensing, sublicensing or
sale of HA-1A (Centoxin) and that the Company is obligated to pay a percentage
thereof to the former limited partners of CPII, in addition to amounts already
paid. The Company moved to dismiss the New York suit on the ground that it was
brought in an inconvenient forum and that motion was granted. The suit was
then refiled in the Delaware Superior Court. Prior to the New York action, a
similar suit was filed by another former CPII partner, Jerome J. Petrisko, in
the Court of Common Pleas of Chester County, Pennsylvania. Petrisko was
subsequently allowed to intervene in the Delaware action and the Chester
County action was dismissed. The PaineWebber and Petrisko actions have been
consolidated and the action has been certified as a class action. The Company
has filed an affirmative defense and counterclaim based on unjust enrichment
which seek a setoff on any recovery by the class. Discovery has been
completed. In November 1997, Centocor filed a motion for summary judgment as
to certain claims asserted in plaintiffs' complaint. Argument on the motion
was held on December 29, 1997. The Court has not yet ruled on the motion. A
trial in this action is scheduled to commence on March 16, 1998. The Company
believes that the these actions are without merit and intends to defend them
vigorously.
The suit by PaineWebber R&D II, L.P. ("PWR&DII") was filed in the Court of
Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and Centocor Development Corporation III
("CDCIII"), a wholly owned subsidiary of the Company which acts as the general
partner of CPIII, are named as defendants against whom relief is sought. The
claim in this case is that at least $25,000,000 of the money paid by Lilly to
the Company in 1992 represented profits from the marketing of ReoPro,
obligating the Company to pay a portion thereof to CPIII, and that the Company
is obligated to pay an increased percentage of the profits from ReoPro to the
former CPIII limited partners going forward. The Company answered the
complaint in the Delaware action
40
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and filed a cross-claim against nominal defendant CPIII and a third-party
complaint against PaineWebber Group Inc. and PaineWebber Development
Corporation. The cross-claim seeks an offset against any damages awarded the
partners based on theories of unjust enrichment and quasi contract. The third-
party claims (later amended to add additional theories of liability and to
make PaineWebber, Inc. an additional third-party defendant) seek to hold the
PaineWebber entities liable for some or all of any alleged injury to the
partnership. On November 1, 1995, an additional suit was commenced in the
Delaware Court of Chancery by John E. Abdo, a limited partner of CPIII,
against the Company, CDCIII and certain of their officers and directors. The
complaint, filed derivatively on behalf of CPIII, asserts claims, inter alia,
for breach of contract, breach of fiduciary duty, common law fraud, and
conspiracy and aiding and abetting. The Company answered this complaint and
also filed a cross-claim against nominal defendant CPIII and a third party
complaint against PaineWebber Group Inc. and PaineWebber Development
Corporation, later amended to add additional theories of liability and to name
PaineWebber, Inc. as a further third-party defendant. Abdo moved to amend his
complaint to assert claims against the persons appointed by PaineWebber to the
CDCIII Board of Directors. That motion was granted. Motions to disqualify
PWR&DII from serving as the derivative plaintiff were filed in July 1996 by
CPIII and in August 1996 by Centocor and CDCIII. Abdo joined those motions. No
decision has been issued on those motions. The case brought by PWR&DII has
been settled, subject to final approval of the settlement by the Court. Abdo
and Pharmaceutical Partners II, L.P., a limited partnership which has
purchased CPIII limited partnership interests, objected to the settlement.
They were permitted to take discovery regarding the settlement and have sought
to take additional discovery. A hearing on the adequacy and fairness of the
settlement was held on September 4, 1997. No decision has been rendered. See
Note 7--Intangible and Other Assets.
On January 19, 1998, a purported class action captioned Surgener v.
Centocor, Inc. and David P. Holveck was filed in the United States District
Court for the Eastern District of Pennsylvania. Other similar suits were filed
thereafter. The complaints in these actions charge the Company and its chief
executive officer with having violated the federal securities laws. Plaintiffs
seek to represent a class of those who purchased Centocor stock between
December 2, 1997, and December 16, 1997, inclusive, and allege that defendants
made false and misleading statements in connection with earnings forecasts.
Damages in an unspecified amount are sought. The Company believes these
actions are without merit and intends to defend them vigorously.
While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not
have a material adverse effect on the Company.
Royalties
In January 1997, the Company exercised its option to acquire the limited
partnership interests in CPIII and made an advance payment of approximately
$13,598,000 in cash to the Class A and Class C limited partners of CPIII. The
Company recorded this payment as a prepaid royalty in January 1997. In
addition, the Company is required to make future royalty payments to the
former limited partners of CPIII based upon future sales of ReoPro.
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, patent applications and technology
and pays the licensors or their licensees royalties under such agreements.
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, patent applications and technology
and pays the licensors or their licensees royalties under such agreements
41
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has entered into indemnity agreements with the former limited
partners of CCIP, CPII and CPIII 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 U.S. government of any of its rights relating to the
licensed technology. The amount of any such loss would be determined annually
by independent appraisal.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
Product Liability and Product Recall
The testing and marketing of medical products entails an inherent risk of
product liability. There is also a risk that circumstances might develop
requiring a product recall. The Company maintains limited product liability
insurance coverage. Centocor's business may be materially adversely affected
by a successful product liability claim in excess of any insurance coverage.
There can be no assurance that product liability insurance coverage will
continue to be available to Centocor in the future on reasonable terms or at
all.
NOTE 4
COLLABORATIVE ARRANGEMENTS
Relationship with Eli Lilly and Company
In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement later amended in June 1993. Under that Agreement, as amended in June
1993, Centocor is principally responsible for developing and manufacturing
ReoPro, and Lilly will assist Centocor in the regulatory filings and continued
development of ReoPro for various clinical indications. Also, in the event
Centocor cannot manufacture ReoPro or under certain other circumstances, such
as material breach of the agreement by or the bankruptcy of Centocor, Lilly
has the option to assume the manufacture of ReoPro and assure the continued
supply of the product, even to the extent of acquiring Centocor's related
manufacturing assets at their independently appraised values.
In June 1996, the Company and Lilly amended the Sales and Distribution
Agreement. Under the amendment, Lilly no longer has the right to buy ReoPro
for resale in Japan; however, Lilly will maintain its exclusive right to buy
and resell ReoPro in the rest of the world. In July 1996, in consideration of
the amendment and other activities in connection with the commercialization
and market development of ReoPro, the Company issued 920,716 shares of its
Common Stock to Lilly.
Relationship with Fujisawa Pharmaceutical Co., Ltd.
In August 1996, Centocor entered into an agreement with Fujisawa
Pharmaceutical Co., Ltd., appointing Fujisawa as the exclusive distributor of
ReoPro in Japan. As compensation for its appointment as exclusive distributor
in Japan, Fujisawa made a nonrefundable $15,000,000 payment to the Company,
and may make future milestone payments.
The Company and Fujisawa will co-develop ReoPro in Japan and jointly file
for Japanese product approval. Fujisawa shall bear all external costs
associated with the clinical development of ReoPro in Japan.
42
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Relationship with Glaxo Wellcome plc
In November 1993, Centocor and Glaxo Wellcome entered into an alliance
agreement for the development and marketing of certain of Centocor's
monoclonal antibody-based cancer therapeutic products, including Panorex. In
November 1994, Centocor and Glaxo Wellcome amended their alliance agreement
and Glaxo Wellcome became the exclusive worldwide distributor for Panorex.
Under the agreement, Glaxo Wellcome is responsible principally for the
continuing clinical development of Panorex, and Centocor is responsible
principally for manufacturing Panorex and securing regulatory approvals.
NOTE 5
CASH EQUIVALENTS AND INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that the Company has both
the intent and ability to hold to maturity are carried at amortized cost.
Securities that the Company does not intend to hold to maturity are classified
either as "available for sale" or as "trading" and are carried at fair value.
Unrealized gains and losses on securities classified as available for sale are
reported as a separate component of shareholders' equity. Unrealized gains and
losses on specific securities classified as trading are reported in earnings.
At December 31, 1997, securities classified as trading, available for sale
and held to maturity are summarized below (in thousands).
<TABLE>
<CAPTION>
UNREALIZED
--------------
ADJUSTED FAIR
COST GAINS (LOSSES) VALUE
-------- ----- -------- -------
<S> <C> <C> <C> <C>
Trading securities:
Securities and obligations of the U.S.
Treasury and other U.S. government
agencies.................................... $26,986 $ 98 $ (1) $27,083
Other short-term obligations................. 6,126 -- -- 6,126
Corporate bonds and commercial paper......... 4,035 3 (3) 4,035
------- ---- ---- -------
$37,147 $101 $ (4) $37,244
======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
ADJUSTED --------------- CARRYING
COST GAINS (LOSSES) VALUE
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Investments available for sale:
Equity securities.......................... $ 4,063 $7,894 $ -- $ 11,957
======== ====== ===== ========
<CAPTION>
UNREALIZED
ADJUSTED --------------- FAIR
COST GAINS (LOSSES) VALUE
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Investments held to maturity:
Securities and obligations of the U.S.
Treasury and other U.S. government
agencies.................................. $108,048 $ 13 $ (45) $108,016
Certificates of deposit.................... 7,550 -- -- 7,550
-------- ------ ----- --------
$115,598 $ 13 $ (45) $115,566
======== ====== ===== ========
</TABLE>
43
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, these securities were classified as follows (in
thousands):
<TABLE>
<S> <C>
Cash equivalents.................................................. $ 43,734
Short-term investments............................................ 109,108
Long-term investments............................................. 11,957
--------
$164,799
========
</TABLE>
The Company has agreed to maintain investments with fair values of $7,260,000
as of December 31, 1997 at certain banks as collateral for loans from those
banks. See Note 9--Debt.
At December 31, 1996, securities classified as trading, available for sale
and held to maturity are summarized below (in thousands).
<TABLE>
<CAPTION>
UNREALIZED
ADJUSTED ---------------- FAIR
COST GAINS (LOSSES) VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Trading securities:
Securities and obligations of the U.S.
Treasury and other U.S. government
agencies................................. $20,058 $ 20 $(18) $20,060
Other short-term obligations.............. 1,024 -- -- 1,024
Corporate bonds and commercial paper...... 3,875 6 (3) 3,878
------- ------- ---- -------
$24,957 $ 26 $(21) $24,962
======= ======= ==== =======
<CAPTION>
UNREALIZED
ADJUSTED ---------------- CARRYING
COST GAINS (LOSSES) VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Investments available for sale:
Equity securities......................... $ 7,160 $ 2,342 $-- $ 9,502
======= ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CARRYING -------------- FAIR
VALUE GAINS (LOSSES) VALUE
-------- ----- -------- --------
<S> <C> <C> <C> <C>
Investments held to maturity:
Securities and obligations of the U.S.
Treasury and other U.S. government
agencies................................... $111,488 $ 46 $(117) $111,417
Certificates of deposit..................... 8,603 -- -- 8,603
Corporate bonds and commercial paper........ 7,872 8 (4) 7,876
-------- ---- ----- --------
$127,963 $ 54 $(121) $127,896
======== ==== ===== ========
</TABLE>
At December 31, 1996, these securities were classified as follows (in
thousands):
<TABLE>
<S> <C>
Cash equivalents.................................................. $ 32,563
Short-term investments............................................ 120,362
Long-term investments............................................. 9,502
--------
$162,427
========
</TABLE>
44
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6
INVENTORY
Inventory, net of reserves, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................... $ 4,646 $ 5,824
Work in process............................................. 12,850 7,948
Finished goods.............................................. 10,281 10,043
------- -------
$27,777 $23,815
======= =======
</TABLE>
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 additional reserves for inventories will not be required in the future.
NOTE 7
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following, net of accumulated
amortization of $16,311,000 and $10,804,000 at December 31, 1997 and 1996,
respectively, (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Licenses................................................... $ 5,339 $ 5,378
Goodwill................................................... -- 5,158
Prepaid royalties related to CPIII......................... 29,398 --
Debt issuance costs........................................ 598 755
Deferred charges........................................... 23,084 23,026
Other...................................................... 2,869 1,017
------- -------
$61,288 $35,334
======= =======
</TABLE>
Prepaid royalties related to CPIII at December 31, 1997 represent an advance
payment of approximately $13,600,000 in cash paid to the former limited
partners of CPIII in connection with the purchase of the limited partnership
interests in CPIII and an additional $15,800,000 payable to the former limited
partners of CPIII in connection with the revision of future royalties. See
Note 3--Commitments and Contingencies.
Deferred charges at December 31, 1997 and 1996 include a prepayment of
certain future royalties and a prepayment associated with the
commercialization and market development of ReoPro.
In June 1997, the Company sold its U.K. diagnostic manufacturing facility
and its related infectious disease product line. In connection with the
transaction the Company recorded a one-time charge to earnings of $4,565,000
in the second quarter of 1997, a component of which was the write-off of
goodwill on the facility and related business.
Licensing agreements and other assets are reviewed for impairment whenever
events or circumstances provide evidence that suggest that the carrying amount
of the asset may not be recoverable. Impairment is evaluated by using
identified or expected cash flows.
45
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8
ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
------------ ------- -------
<S> <C> <C>
Compensation................................................ $10,177 $ 7,320
Interest.................................................... 824 823
Research.................................................... 17,541 5,496
Royalties................................................... 17,561 7,973
Other....................................................... 8,100 7,328
------- -------
$54,203 $28,940
======= =======
</TABLE>
NOTE 9
DEBT
Notes Payable
Notes payable at December 31, 1997 and 1996 consists of $5,940,000 and
$6,897,000, respectively, of borrowings under short-term notes at an interest
rate of 3.9 and 3.2 percent per annum at December 31, 1997 and 1996,
respectively, payable in Dutch guilders no later than March 28, 1998. These
borrowings are secured by investments at the lending bank of $7,260,000.
Long-term debt
On October 16, 1991, the Company issued $125,000,000 principal amount of 6
3/4% Convertible Debentures due October 16, 2001. The 6 3/4% Convertible
Debentures were initially 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% Convertible
Debentures are redeemable by the Company for cash in whole or in part until
October 16, 2001 at amounts ranging up to 102 percent of the principal amount
of the 6 3/4% Convertible Debentures. The Company may be required to redeem
the 6 3/4% Convertible Debentures at their principal amount at the option of
the holders of the 6 3/4% Convertible Debentures in certain limited
circumstances, including a change in control of the Company.
In the second quarter of 1996, the Company purchased $70,235,000 of its 6
3/4% Convertible Debentures which were subsequently retired. At December 31,
1997 and 1996, $54,765,000 of the 6 3/4% Convertible Debentures remain
outstanding and are convertible into approximately 898,000 shares of the
Company's Common Stock.
The fair value of the Company's long-term debt at December 31, 1997
(consisting of the Company's 6 3/4% Convertible Debentures outstanding),
principally determined by quoted market prices, was $54,765,000 as compared to
its carrying value of $54,765,000. The carrying amount of the Company's notes
payable at December 31, 1997 approximates their fair value.
7 1/4% Percent Notes
In March 1996, the Company called for redemption of 7 1/4% Convertible Notes
at a redemption price of 103.222 percent of the outstanding principal amount.
The outstanding principal amount of the 7 1/4% Convertible
46
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes was $106,640,000 at December 31, 1995. The Company issued approximately
3,831,000 shares of Common Stock upon conversion of approximately $106,302,000
principal amount of the 7 1/4% Convertible Notes and paid $338,000 in cash to
redeem the remaining 7 1/4% Convertible Notes outstanding which were not
converted.
NOTE 10
OTHER CURRENT LIABILITIES
In June 1997, the Company announced that it has reached an agreement to
settle the litigation brought by PaineWebber R&D Partners II, L.P. on behalf
of CPIII, against Centocor arising out of Centocor's sales and distribution
agreement with Lilly with respect to ReoPro (See Note 3). The settlement is
conditional on Delaware Chancery Court approval. The agreement provides, among
other things, for Centocor to pay the former limited partners of CPIII
$10,800,000 from which attorney's fees and expenses will be deducted, an
additional $5,000,000, if and when cumulative world-wide sales of ReoPro
exceed $600 million and a revision to the royalties payable to the former
limited partners of CPIII. At December 31, 1997 the Company has recorded a
current liability for the $15,800,000 for these probable payments to the
former limited partners of CPIII.
NOTE 11
SHAREHOLDERS' EQUITY
Capital Stock
In 1997, the Company issued 876,000 shares of its Common Stock par value
$.01 per share in connection with the exercise of options. In 1996 and 1995,
respectively, the Company issued 1,596,000 and 1,388,000 shares of its Common
Stock in connection with the exercise of options and warrants. In March 1996,
the Company completed a public offering of 4,025,000 shares, and in April 1996
the Company issued 3,450,000 shares as a result of conversion of the Company's
7 1/4% Convertible Notes. Additionally, in July 1996, the Company issued
920,716 shares in connection with its agreements with Lilly. At December 31,
1997, approximately 6,661,000 shares of Common Stock were reserved for
issuance upon exercise of stock options, pursuant to employee retirement
savings and stock award plans and agreements, and upon conversion of
convertible debt securities. Additionally, at December 31, 1997 and 1996,
respectively, approximately 385,000 shares of preferred stock were reserved
for issuance under a shareholder rights plan which is further described below.
Warrants
At December 31, 1996, warrants to purchase approximately 127,000 shares of
the Company's Common Stock were outstanding at an exercise price of $49.75,
exercisable to December 31, 1997. At December 31, 1997 the warrants lapsed
without exercise.
Stock Option and Restricted Stock Award Plans
The Company maintains stock option plans pursuant to which options to
purchase a total of approximately 9,050,000 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.
47
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the activity with respect to the Company's
stock options (in thousands except per share amounts):
<TABLE>
<CAPTION>
EXERCISE PRICE
OPTIONS PER SHARE
------- --------------
<S> <C> <C>
Outstanding, December 31, 1994......................... 4,958 $ 6.500-53.500
Granted................................................ 713 $ 9.875-24.000
Lapsed or canceled..................................... (678) $ 6.875-31.750
Exercised.............................................. (336) $ 6.500-53.500
------ --------------
Outstanding, December 31, 1995......................... 4,657 $ 6.875-51.750
Granted................................................ 749 $14.125-39.375
Lapsed or canceled..................................... (278) $ 6.875-51.750
Exercised.............................................. (1,162) $ 6.875-22.625
------ --------------
Outstanding, December 31, 1996......................... 3,966 $ 6.875-51.750
Granted................................................ 766 $23.750-52.500
Lapsed or canceled..................................... (74) $ 7.125-51.000
Exercised.............................................. (876) $ 6.875-38.310
------ --------------
Outstanding, December 31, 1997......................... 3,782 $ 6.875-52.500
====== ==============
</TABLE>
At December 31, 1997, the weighted-average remaining contractual life of
outstanding options was 6.73 years. The weighted-average exercise price of the
options outstanding as of December 31, 1997 and 1996 was $22.57 and $17.50,
respectively.
At December 31, 1997, options to purchase a total of approximately 2,112,000
shares of Common Stock were exercisable, and approximately 1,670,000 options
become exercisable as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, SHARES
------------------------- ------
<S> <C>
1998............................................................... 617
1999............................................................... 489
2000............................................................... 390
2001............................................................... 174
</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, 1997, awards of approximately 188,000 shares of
the Company's Common Stock were outstanding and are scheduled to vest in the
following periods (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, SHARES
------------------------- ------
<S> <C>
1998............................................................... 87
1999............................................................... 64
2000............................................................... 37
</TABLE>
The terms of options unexercisable as of December 31, 1997 for an aggregate
of approximately 1,143,000 shares and restricted stock awards unvested as of
December 31, 1997 for an aggregate of approximately 172,000 shares provide for
the acceleration of the exercisability of such options and the vesting of such
restricted stock
48
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
awards upon the occurrence of certain events constituting a change in control
of the Company. Further, in such event, the holders of approximately 2,342,000
options may then choose to receive cash through the exercise of a limited
stock appreciation right in lieu of exercising their options.
The Company has adopted Statement of Financial Accounting Standards No. 123,
Accounting For Stock-Based Compensation ("Statement 123"), which was issued in
October 1995 and is effective for transactions entered into in fiscal years
beginning after December 15, 1995. In accordance with the provisions of
Statement 123, which allows the Company to apply Accounting Principles Board
Opinion No. 25 and related interpretations
in accounting for its stock option plans, the Company does not recognize
compensation cost for options granted. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by Statement 123, net income (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated in the table
below (in thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Net income (loss)--as reported............................ $11,130 $(12,763)
Net income (loss)--pro forma.............................. $ 5,980 $(17,791)
Diluted earnings (loss) per share--as reported............ $ 0.16 $ (0.19)
Diluted earnings (loss) per share--pro forma.............. $ 0.08 $ (0.27)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following average assumptions
for the years ended December 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk free interest rate.......................................... 6.1% 5.6%
Expected life of option (years).................................. 9.1 9.2
Expected dividend of option(1)................................... -- --
Volatility of stock price........................................ 67.3% 70.3%
</TABLE>
- --------
(1) The Company has never declared or paid any dividends on its Common Stock.
The Company does not anticipate paying any dividends in the foreseeable
future and intends to retain future earnings for the development and
expansion of its business.
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, for the years ended December 31, 1997 and 1996
totaled $875,000 and $551,000, respectively. The Company generally makes its
discretionary matching contributions 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-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.
49
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 12
GEOGRAPHIC AND CUSTOMER INFORMATION
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION (IN THOUSANDS)
-------------------------------------------
INCOME IDENTIFIABLE
YEARS ENDED DECEMBER 31, REVENUE (LOSS) ASSETS
- ------------------------ ------------ ------------ ----------------
<S> <C> <C> <C>
1997
United States....................... $ 138,223 $ 14,166 $ 306,980
Europe.............................. 52,693 (1,419) 97,715
Other............................... 9,868 (1,617) 409
------------ ------------ ------------
$ 200,784 $ 11,130 $ 405,104
============ ============ ============
1996
United States....................... $ 86,743 $ (23,125) $ 243,182
Europe.............................. 36,194 10,333 97,450
Other............................... 12,548 29 489
------------ ------------ ------------
$ 135,485 $ (12,763) $ 341,121
============ ============ ============
1995
United States....................... $ 35,272 $ (61,208) $ 160,094
Europe.............................. 43,466 4,076 100,190
Other............................... 178 -- --
------------ ------------ ------------
$ 78,916 $ (57,132) $ 260,284
============ ============ ============
</TABLE>
Revenues from unaffiliated customers is based on the location of the
customers. Income (loss) by geographic area consists of the related income
(loss) of the Company's subsidiaries based upon the location of their
respective operations. Identifiable assets by geographic area are those assets
used in the Company's operations in those areas.
Customer Information
During 1997, approximately 81% of the Company's total product sales were
sales of ReoPro to one customer, Lilly. During 1996, approximately 67% of the
Company's total product sales were sales of ReoPro to one customer, Lilly.
During 1995, approximately 50% of the Company's total product sales were to
three customers, as follows: 24% to Lilly, 11% to Glaxo Wellcome and 15% to
Toray-Fuji Bionics, Inc.
50
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13
CONTRACT REVENUES
Pursuant to the Company's agreements with Lilly, the Company recognized
revenues of $10,000,000 for the year ended December 31, 1995 related to the
achievement of ReoPro milestones.
The Company incurred expenses of approximately $1,486,000, $29,121,000 and
$29,900,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, representing aggregate CPIII research costs funded by the
Company in order to continue the progress of the research program and to
preserve the value of its purchase option which it exercised in January 1997.
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 $4,430,000, $3,355,000 and $13,915,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 14
SPECIAL CHARGES
In June 1997, the Company sold its U.K. diagnostic manufacturing facility
and its related infectious disease product line. In connection with the
transaction the Company recorded a one-time charge to earnings of $4,565,000
in the second quarter of 1997. The Company recorded a charge to earnings of
$3,750,000 for the years ended December 31, 1995 in connection with the
settlement of certain litigation. Other income (expenses) also includes the
Company's equity share of the gain and/or losses of an investee company.
In 1995, the Company recorded a charge of $1,642,000 representing severance
costs in connection with the downsizing of its workforce.
NOTE 15
INCOME TAXES
The components of the deferred tax assets are as follows as of December 31,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tax credits............................................ $ 10,822 $ 7,216
Loss carryforwards..................................... 246,737 237,401
Acquired research...................................... 23,206 25,499
Deferred R&D expense................................... 9,689 16,385
Capital loss carryforwards............................. 5,536 --
Facilities and equipment............................... 2,088 2,207
Compensation and benefits.............................. 1,359 --
Litigation............................................. 479 --
Depreciation........................................... 1,138 1,050
Asset impairment....................................... 350 1,553
--------- ---------
Total.................................................. 301,404 291,311
Valuation reserve...................................... (301,404) (291,311)
--------- ---------
Net deferred tax assets................................ $ -- $ --
========= =========
</TABLE>
51
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, the Company had research and development, orphan drug
and other tax credits of approximately $10,440,000, substantially all with
expiration dates ranging from 1999 to 2012, and minimum tax credits of
approximately $381,000 which do not expire.
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, 1997.
Of the $301 million valuation allowance at December 31, 1997, approximately
$25 million relating to deductions for non-qualified stock options will be
credited to paid-in-capital if realized. Included in loss carryforwards at
December 31, 1997 are unused foreign tax subsidies that may be used to offset
foreign taxable income of approximately $20 million. The Company had net
operating loss carryforwards available in the United States for federal income
tax purposes of approximately $634 million which will begin to expire at
various dates from the year 2005 to 2012. Net operating loss carryforwards may
also be subject to various annual and other limitations on the amounts to be
utilized.
NOTE 16
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:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998............................................................... 2,000,000
1999............................................................... 1,377,000
2000............................................................... 320,000
2001............................................................... 164,000
2002............................................................... 149,000
Thereafter......................................................... --
</TABLE>
Rent expense was $2,913,000, $3,162,000 and $3,308,000, for the years ended
December 31, 1997, 1996 and 1995, respectively.
NOTE 17
SUPPLEMENTAL INFORMATION ON CASH FLOWS
Interest paid was $3,910,000, $12,615,000 and $18,358,000, in 1997, 1996,
and 1995, respectively.
Income tax payments of $131,000, $13,000 and $9,000 were made in 1997, 1996
and 1995, respectively.
In 1996, in consideration of the amendment to the Sales and Distribution
Agreement and other activities in connection with commercialization and market
development of ReoPro, Centocor issued 920,716 common shares to Lilly.
In 1997, the Company had unrealized gains on its equity investments of
$7,894,000. In 1996 and 1995, the Company had unrealized gains on its equity
investments of $2,342,000.
52
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997
Total revenues...................... $45,036 $53,643 $51,401 $50,704
Sales............................... 44,936 51,007 50,171 50,240
Gross profit from sales............. 27,130 28,824 31,864 30,578
Net income(1)....................... 3,271 720 4,441 2,698
Basic earnings per share(2)......... $ .05 $ .01 $ .06 $ .04
Diluted earnings per share(2)....... $ .05 $ .01 $ .06 $ .04
Operating earnings per share(3)..... $ .05 $ .07 $ .06 $ .04
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Total revenues.................... $21,882 $30,586 $39,179 $43,838
Sales............................. 21,710 29,526 38,309 42,585
Gross profit from sales........... 11,156 14,972 20,657 24,251
Net income (loss)(1).............. (9,698) (4,323) (1,635) 2,893
Basic earnings (loss) per
share(2)......................... $ (.16) $ (.06) $ (.02) $ .04
Diluted earnings (loss) per
share(2)......................... $ (.16) $ (.06) $ (.02) $ .04
Operating earnings per share(3)... $ (.16) $ (.07) $ (.02) $ .04
</TABLE>
- --------
(1) During the second quarter of 1997, the Company sold its U.K. diagnostic
manufacturing facility and its related infectious disease product line. In
connection with the transaction the Company recorded a one-time charge to
earnings of $4,565,000. During the second quarter of 1996, the Company
recorded a net gain on the extinguishment of debt of $705,000.
(2) The computation of earnings or loss per share in each period is based on
the weighted average number of common shares outstanding. When dilutive,
stock options and warrants are included as share equivalents using the
treasury stock method, for diluted earnings per share.
(3) Operating earnings (loss) per share represents diluted earnings (loss) per
share without the effects of non-operating activities noted in footnote 1.
NOTE 19
EARNINGS PER SHARE
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("Statement 128"), which was effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. This Statement establishes standards for computing
and presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously found in
Accounting Principles Board Opinion No. 15, Earnings Per Share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator for the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This Statement requires
restatement of all prior period EPS data presented. The Company adopted
Statement 128 in December of 1997. The adoption of Statement 128 did not have
a significant effect on its financial statements.
53
<PAGE>
CENTOCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997
-----------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS................................ $11,130 69,809 $0.16
Incremental shares from assumed exercise
of dilutive options and warrants........ -- 1,961
------- ------
Diluted EPS.............................. $11,130 71,770 $0.16
======= ======
</TABLE>
For the years ended December 31, 1996 and 1995 no exercise of options and
warrants is assumed since their effect is antidilutive.
NOTE 20
SUBSEQUENT EVENT (UNAUDITED)
On February 12, 1998, the Company entered into a definitive agreement with
Roche Healthcare Limited, a Bermuda corporation and a subsidiary of Roche
Holding Ltd., a Swiss corporation, to acquire the exclusive United States and
Canadian product rights for Retavase, a leading acute-care cardiovascular
drug, and other related assets for $335,000,000 in cash (the "Acquisition").
Retavase is a fibrinolytic ("clot-buster") product, which is administered
usually in the hospital emergency room, for the treatment of acute myocardial
infarction (heart attack). In connection with the Acquisition, Centocor
expects to record a one-time, pretax charge of approximately $138,500,000 in
the first quarter of 1998, representing the acquisition of in-process research
and development.
Consummation of the Acquisition is not conditioned upon the receipt by the
Company of financing sufficient to fund the purchase price. The Company has,
however, received a commitment letter from a leading investment bank pursuant
to which such investment bank has committed to purchase from Centocor
securities in an amount sufficient to provide $335,000,000 of net proceeds to
the Company. The Company intends to finance the Acquisition through the
issuance of convertible subordinated debentures in an unregistered offering.
54
<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 LLP,
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.
55
<PAGE>
INDEPENDENT AUDITOR'S 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, 1997 and 1996, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the years in the three-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Centocor,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
January 28, 1998
56
<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
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3), the information called for by
Items 10, 11, 12 and 13 of Part III are incorporated herein by reference from
the Company's definitive Proxy Statement for the Centocor Annual Meeting of
Shareholders to be held on May 13, 1998, which definitive Proxy Statement will
be filed with the Securities and Exchange Commission pursuant to Regulation
14A.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
a. Documents filed as part of the Report:
i. Not applicable
ii. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
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.
iii. Exhibits:
<TABLE>
<C> <S>
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
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).
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).
</TABLE>
58
<PAGE>
<TABLE>
<C> <S>
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 Centocor, Inc. 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).
3.16 By-laws of Centocor, Inc. as amended December 10, 1997.
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 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).
4.3 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).
4.4 Form of Debenture Issued to Purchasers of 6 3/4% Convertible
Subordinated Debentures Due October 16, 2001 (incorporated by
reference to Exhibit 4.3 to Form S-3 Registration Statement, Reg.
No. 33-44231).
4.5 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).
4.6 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).
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
(incorporated by reference to Exhibit 10.04 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993).
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).
</TABLE>
59
<PAGE>
<TABLE>
<C> <S>
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 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 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
</TABLE>
60
<PAGE>
<TABLE>
<C> <S>
10.19 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).
10.20 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.) (Incorporated by reference to Exhibit 10.35 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.21 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.) (Incorporated by
reference to Exhibit 10.36 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10.22 Deed of Mortgage from Centocor B.V. to Eli Lilly Nederland B.V.
dated August 26, 1993 (incorporated by reference to Exhibit 10.37
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.23 Deed of Pledge from Centocor B.V. to Eli Lilly Nederland B.V.
dated August 26, 1993 (incorporated by reference to Exhibit 10.38
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.24 Amendment to Sales and Distribution Agreement among Centocor,
Inc., Centocor B.V. and Eli Lilly and Company dated July 26,
1996. (The Registrant has requested confidential treatment from
the Securities and Exchange Commission for portions of this
Agreement.) (Incorporated by reference to Exhibit 10.24 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.25 Stock Purchase Agreement made as of December 16, 1993 by and
between Centocor, Inc. 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).
10.26 Supply, Distribution and Sales Agreement dated December 16, 1993
by and among Centocor, Inc., 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).
10.27 Clinical and Regulatory Development Agreement dated December 16,
1993 among Centocor, Inc., 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).
10.28 Centocor Technology License Agreement dated as of December 16,
1993 among Centocor, Inc., 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).
</TABLE>
61
<PAGE>
<TABLE>
<C> <S>
10.29 Relicense Agreement dated as of December 16, 1993 among Centocor,
Inc., 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).
10.30 Appendix A--Glossary of Terms to each of the Agreements dated as
of December 16, 1993 by and among Centocor, Inc., 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).
10.31 First Supplemental Agreement dated as of November 15, 1994 among
Centocor, Inc., 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(a) to the Registrant's Current Report on
Form 8-K dated November 15, 1994).
10.32 Wellcome Clinical Development Agreement dated as of November 15,
1994 among Centocor, Inc., 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 November 15, 1994).
10.33 Distribution Agreement between Centocor, Inc. and Fujisawa
Pharmaceutical Co. Ltd dated August 15, 1996. (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, 1996).
10.34 Asset Purchase Agreement dated February 11, 1998 between Roche
Healthcare Limited and Centocor, Inc. (The Registrant has
requested confidential treatment from the Securities and Exchange
Commission for portions of this Agreement.)
11 Computation of Earnings (Loss) per Common Share.
12 Statement re: Computation of Ratios.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
--------
* 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, 1997:
<TABLE>
<CAPTION>
DATE OF REPORT ITEMS COVERED
-------------- -------------
<S> <C>
January 21, 1998 5, 7
February 13, 1998 5, 7
</TABLE>
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.
62
<PAGE>
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.
63
<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.
February 13, 1998
By: /s/ David P. Holveck
-------------------------------
DAVID P. HOLVECK,
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 February 13, 1998
- ------------------------------------- of the Board
HUBERT J. P. SCHOEMAKER
/s/ David P. Holveck Chief Executive February 13, 1998
- ------------------------------------- Officer, and
DAVID P. HOLVECK Director (principal
executive officer)
/s/ Dominic J. Caruso Senior Vice February 13, 1998
- ------------------------------------- President and Chief
DOMINIC J. CARUSO Financial Officer
(principal
financial and
accounting officer)
/s/ Anthony B. Evnin Director February 13, 1998
- -------------------------------------
ANTHONY B. EVNIN
/s/ William F. Hamilton Director February 13, 1998
- -------------------------------------
WILLIAM F. HAMILTON
/s/ Antonie T. Knoppers Director February 13, 1998
- -------------------------------------
ANTONIE T. KNOPPERS
<PAGE>
SIGNATURE TITLE DATE
--------- ------ ----
/s/ Ronald A. Matricaria Director February 13, 1998
- -------------------------------------
RONALD A. MATRICARIA
/s/ Richard D. Spizzirri Director February 13, 1998
- -------------------------------------
RICHARD D. SPIZZIRRI
/s/ Lawrence Steinman Director February 13, 1998
- -------------------------------------
LAWRENCE STEINMAN
/s/ Jean C. Tempel Director February 13, 1998
- -------------------------------------
JEAN C. TEMPEL
<PAGE>
SCHEDULE II
CENTOCOR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED CHARGED CHARGED
BALANCE TO COSTS BALANCE TO COSTS BALANCE TO COSTS BALANCE
AT AND AT AND AT AND AT
LASSIFICATIONC 12/31/94 EXPENSES DEDUCTIONS 12/31/95 EXPENSES DEDUCTIONS 12/31/96 EXPENSES DEDUCTIONS 12/31/97
- -------------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inventory Reserves....... $14,880 $2,094 ($15,938) $1,036 $662 ($357) $1,341 $8,484 ($5,317) $4,508
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3.16 By-laws of Centocor, Inc., as amended December 10, 1997
10.34 Asset Purchase Agreement dated February 11, 1998 between Roche
Healthcare Limited and Centocor, Inc. (The Registrant has requested
confidential treatment from the Securities and Exchange Commission for
portions of this Agreement.)
11 Computation of Earnings Per Common Share
12 Statement re: Computation of Ratios
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.16
CENTOCOR, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office of CENTOCOR,
-----------------
INC. (the "Corporation") in the Commonwealth of Pennsylvania shall be as
specified in the Articles of Incorporation of the Corporation as they may from
time to time be amended (the "Articles") or at such other place as the Board of
Directors of the Corporation (the "Board") may specify in a statement of change
of registered office filed with the Department of State of the Commonwealth of
Pennsylvania.
Section 1.2. Other Offices. The Corporation may also have an office
-------------
or offices at such other place or places either within or without the
Commonwealth of Pennsylvania as the Board may from time to time determine or the
business of the Corporation requires.
ARTICLE II
MEETINGS OF THE SHAREHOLDERS
Section 2.1. Place. All meetings of the shareholders shall be held
-----
at the principal executive office of the Corporation or at such other places,
within or without the Commonwealth of Pennsylvania, as the Board may from time
to time
<PAGE>
determine.
Section 2.2. Annual Meeting. A meeting of the shareholders for the
--------------
election of directors and the transaction of such other business as may properly
be brought before the meeting shall be held once each calendar year on the
second Wednesday of April or, if that be a legal holiday, on the first day
thereafter that is not a legal holiday, or on such other date as the Board shall
determine. If the annual meeting is not called and held within six months after
the designated time for such meeting, any shareholder may call the meeting at
any time after the expiration of such six-month period.
Section 2.3. Business to Be Conducted at the Annual Meeting. At an
----------------------------------------------
annual meeting of the shareholders, only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been brought before the
meeting (i) pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board or (iii) by any shareholder of the Corporation who is a
shareholder of record at the time of giving the notice provided for in these
Bylaws, who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Section. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or mailed to, postage
prepaid, and received at the principal executive offices of the Corporation not
less than 90
-2-
<PAGE>
days nor more than 120 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
meeting is changed by more than 30 days from such anniversary date, notice by
the shareholder to be timely must be received no later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure of the date was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting (1) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (2) a representation that the shareholder is a
holder of record of shares of the Corporation's capital stock entitled to vote
at such meeting and intends to appear in person or by proxy to bring such matter
before the meeting, (3) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (4) the class and number of shares of the Corporation which are owned
beneficially and of record by such shareholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made, (5) any material interest
of such shareholder of record and the beneficial owner, if any, on whose behalf
the proposal is made in such business and (6) a description of all arrangements
and understandings between the shareholder of record and the beneficial owner,
if any, on
-3-
<PAGE>
whose behalf the proposal is made and any other person or persons (naming such
person or persons) pursuant to which the proposal is to be made.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted, and no proposal shall be acted upon, at an annual meeting
except in accordance with the procedures set forth in this Section. The
presiding officer of the meeting shall, if the facts warrant, determine and
declare to the meeting that business or a proposal was not properly brought
before the meeting in accordance with the procedures prescribed by these Bylaws,
and if he should so determine, he shall so declare to the meeting and any such
business or proposal not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section, a
shareholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this Section.
Section 2.4. Written Ballot. Unless required by a vote of the
--------------
shareholders entitled to vote in the election of directors held before the
voting for the election of directors begins, elections of directors need not be
by ballot.
Section 2.5. Special Meetings. Special meetings of the shareholders,
----------------
for any purpose or purposes, may be called at any time by the Chief Executive
Officer or by the Board, upon written request delivered to the Secretary of the
Corporation.
-4-
<PAGE>
The Board, by written request delivered to the Secretary of the Corporation,
shall call a special meeting of shareholders for the purpose of considering the
voting rights to be accorded to "control shares" if the "acquiring person" (as
such terms are defined in Section 2562 of the Pennsylvania Business Corporation
Law of 1988 as it may from time to time be amended (the "1988 BCL")) of such
shares complies with the requirements of Section 2565 of the 1988 BCL. In
addition, an "interested shareholder" (as defined in Section 2553 of the 1988
BCL) may, upon written request delivered to the Secretary of the Corporation,
call a special meeting for the purpose of approving a business combination under
either subsection (3) or (4) of Section 2555 of the 1988 BCL. Any request to the
Secretary of the Corporation for a special meeting of shareholders shall state
the purpose or purposes of the proposed meeting. Upon receipt of any such
request, it shall be the duty of the Secretary of the Corporation to give
notice, in a manner consistent with Section 2.7 of these Bylaws, of a special
meeting of the shareholders to be held at such time as the Secretary of the
Corporation may fix, which time may not be, if the meeting is called pursuant to
a statutory right, more than sixty (60) days, or such lesser time as may be
required by Section 2565 of the 1988 BCL, after receipt of the request. If the
Secretary of the Corporation shall neglect or refuse to fix the date of the
meeting and give notice thereof, the person or persons calling the meeting may
do so.
Section 2.6. Scope of Special Meetings. Business
-------------------------
-5-
<PAGE>
transacted at any special meeting of shareholders shall be confined to the
business stated in the notice.
Section 2.7. Form of Notice. Written notice of every meeting of the
--------------
shareholders, stating the place, the date and hour thereof and the matters to be
acted on at such meeting, shall be given in a manner consistent with the
applicable provisions of Section 14 of the Exchange Act and the rules and
regulations thereunder by, or at the direction of, the Secretary of the
Corporation or, in the absence of the Secretary of the Corporation, any
Assistant Secretary of the Corporation, at least twenty (20) days prior to the
day designated for a meeting, to each shareholder entitled to vote thereat on
the date fixed as a record date in accordance with Section 7.l of these Bylaws
or, if no record date be fixed, then of record at the close of business on the
89th day next preceding the day of the meeting, at such address as appears on
the transfer books of the Corporation. Each notice of a meeting of shareholders
shall state that, for purposes of any meeting that has been previously adjourned
for one or more periods aggregating at least fifteen (15) days because of an
absence of a quorum, the shareholders entitled to vote who attend such a
meeting, although less than a quorum pursuant to Section 2.8 of these Bylaws,
shall nevertheless constitute a quorum for the purpose of acting upon any matter
set forth in the original notice of the meeting that was so adjourned
Section 2.8. Quorum. The shareholders present in person or by proxy,
------
entitled to cast at least a majority of the
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votes that all shareholders are entitled to cast on any particular matter to be
acted upon at the meeting, shall constitute a quorum for the purposes of
consideration of, and action on, such matter. Shares of the Corporation owned by
it, directly or indirectly, shall not be counted in determining the total number
of outstanding shares for quorum purposes. The shareholders present in person or
by proxy and entitled to vote at a duly organized meeting can continue to do
business until the adjournment thereof notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. If a meeting cannot be organized
because a quorum has not attended, the shareholders present in person or by
proxy may, except as otherwise provided by the 1988 BCL and subject to the
provisions of Section 2.9 of these Bylaws, adjourn the meeting to such time and
place as they may determine.
Section 2.9. Adjournment. Any meeting of the share holders,
-----------
including one at which directors are to be elected, may be adjourned for such
period as the shareholders present in person or by proxy and entitled to vote
shall direct. Other than as provided in the last sentence of Section 2.7 of
these Bylaws, notice of the adjourned meeting or the business to be transacted
thereat need not be given, other than announcement at the meeting at which
adjournment is taken, unless the Board fixes a new record date for the adjourned
meeting. At any adjourned meeting at which a quorum is present, any business
may be transacted that might have been transacted at the meeting as originally
noticed.
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Unless otherwise provided in a bylaw adopted by the shareholders,
those shareholders entitled to vote present in person or by proxy, although less
than a quorum pursuant to Section 2.8 of these Bylaws, shall nevertheless
constitute a quorum for the purpose of (i) electing directors at a meeting
called for the election of directors that has been previously adjourned for lack
of a quorum, and (ii) acting, at a meeting that has been adjourned for one or
more periods aggregating at least fifteen (15) days because of an absence of a
quorum, upon any matter set forth in the original notice of such adjourned
meeting, provided that such original notice shall have complied with the last
sentence of Section 2.7 of these Bylaws.
Section 2.10. Majority Voting. Except as provided in Section 2.11 of
---------------
these Bylaws with respect to the election of directors, any matter brought
before a duly organized meeting for a vote of the shareholders shall be decided
by a majority of the votes cast at such meeting by the shareholders present in
person or by proxy and entitled to vote thereon, unless the matter is one for
which a different vote is required by express provision of the 1988 BCL, the
Articles or a bylaw adopted by the shareholders, in any of which case(s) such
express provision shall govern and control the decision on such matter. Any
provision in these Bylaws requiring a vote other than a majority of the votes
cast for the taking of any action by the shareholders shall not be amended or
repealed by any lesser number or percentage of votes.
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Section 2.11. Voting Rights. Except as otherwise provided in the
-------------
Articles or in the next paragraph of this Section 2.11, at every meeting of the
shareholders, every shareholder entitled to vote shall have the right to one
vote for each share having voting power standing in his or her name on the books
of the Corporation. Shares of the Corporation owned by it, directly or
indirectly, shall not be voted.
In each election of directors, every shareholder entitled to vote
shall have the right to multiply the number of votes to which such shareholder
is entitled by the number of directors to be elected in the same election by the
holders of the class or classes of shares of which such shareholder's shares are
a part, and may cast all of the votes so accumulated for one candidate or may
distribute them among any two or more candidates. The candidates receiving the
highest number of votes from each class or group of classes, if any, entitled to
elect directors separately up to the number of directors to be elected by the
class or group of classes shall be elected.
Section 2.12. Proxies. Every shareholder entitled to vote at a
-------
meeting of the shareholders may authorize another person to act for him or her
by proxy. The presence of, or vote or other action at a meeting of
shareholders, by a proxy of a shareholder, shall constitute the presence of, or
vote or action by, the shareholder. Every proxy shall be executed in writing by
the shareholder or by the shareholder's duly authorized attorney in fact and
filed with the Secretary of the Corporation. A
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proxy, unless coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until written
notice of revocation has been given to the Secretary of the Corporation. No
unrevoked proxy shall be valid after three (3) years from the date of its
execution, unless a longer time is expressly provided therein. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted, written notice of such death or incapacity is given to the Secretary of
the Corporation.
Section 2.13. Voting Lists. The officer or agent having charge of
------------
the transfer books for securities of the Corporation shall make a complete list
of the shareholders entitled to vote at a meeting of the shareholders, arranged
in alphabetical order, with the address of and the number of shares held by each
shareholder. The list shall be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. If the Corporation has five thousand (5000) or more
shareholders, it may make such information available at the meeting of
shareholders by any other means.
Section 2.14. Judges of Election. In advance of any meeting of the
------------------
shareholders, the Board may appoint judges of election, who need not be
shareholders, to act at such meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of any such meeting may,
and on
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the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three, as determined by the Board to be
appropriate under the circumstances. No person who is a candidate for any office
to be filled at the meeting shall act as a judge at the meeting. The judges of
election shall do all such acts as may be proper to conduct the election or vote
with fairness to all shareholders, and shall make a written report of any matter
determined by them and execute a certificate of any fact found by them, if
requested by the presiding officer of the meeting or any shareholder or the
proxy of any shareholder. If there are three judges of election, the decision,
act or certificate of a majority shall be effective in all respects as the
decision, act or certificate of all.
Section 2.15. Participation by Conference Call. No shareholder may
--------------------------------
participate in any meeting of shareholders by means of conference telephone or
similar communications equipment.
ARTICLE III
DIRECTORS
Section 3.1. Number and Qualifications. The business and affairs of
-------------------------
the Corporation shall be managed by the Board, which shall consist of no more
than eleven (11) nor fewer then five (5) members as determined from time to time
by the Board. Directors shall be natural persons of full age and need not be
residents of the Commonwealth of Pennsylvania or shareholders of
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the Corporation.
Section 3.2. Election and Term of Office. Except as provided in
---------------------------
Section 3.4 of these Bylaws in the case of vacancies, each director shall be
elected by the shareholders to serve a term of one year and until a successor is
selected and qualified or until the director's earlier death, resignation or
removal.
Section 3.3. Nominations of Directors. Subject to the rights of
------------------------
holders of any series of preferred stock or any other class of capital stock of
the Corporation (other than Common Stock) then outstanding, only persons who are
nominated in accordance with the procedures set forth in this Section shall be
eligible to serve as directors. Nominations of persons for election to the
Board of the Corporation may be made at a meeting of shareholders, (i) by or at
the direction of the Board, (ii) by or at the direction of a committee of the
Board to which the Board has delegated the authority to make such nominations
("Nominating Committee") or (iii) by any shareholder of the Corporation who is a
shareholder of record at the time of giving of notice provided for in this
Section, who shall be entitled to vote for the election of directors at the
meeting and who complies with the procedures set forth in this Section. The
Board or the Nominating Committee, as the case may be, will consider written
recommendations from shareholders for nominees for election to the Board,
provided any such recommendation, together with (i) the information set forth in
the next paragraph in this Section regarding each proposed nominee, the
shareholder
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recommending each proposed nominee and any beneficial owner of shares on whose
behalf a nomination is made, and (ii) the consent of each nominee to serve as a
director of the Corporation if so elected, is received by the Secretary of the
Corporation, in the case of an annual meeting of shareholders, not later than
the date specified in the most recent proxy statement of the Corporation as the
date by which shareholder proposals for consideration at the next annual meeting
of shareholders must be received (provided, however, that in the event the date
of the annual meeting is changed by more than 30 days from the date contemplated
at the time of the previous year's proxy statement, notice by the shareholder
must be received not later than the close of business on the 10th day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the date was made), and, in the case of a special meeting
of shareholders, not later than the close of business on the 10th day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the date was made. If the Board or Nominating Committee, as
the case may be, accepts any such recommendation, the nomination shall be made
by or at the direction of the Board or the Nominating Committee.
Nominations by shareholders, other than those made by or at the
direction of the Board or the Nominating Committee, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's
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notice shall be delivered to or mailed to, postage prepaid, and received at the
principal executive offices of the Corporation (a) in the case of an annual
meeting of shareholders, not less than 90 days or more than 120 days prior to
the first anniversary of the preceding year's annual meeting (provided, however,
that in the event that the date of the annual meeting is changed by more than 30
days from such anniversary date, notice by the shareholder to be timely must be
so received not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the date was made), and (b) in the case of a special
meeting at which directors are to be elected, not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure of the date was made. Such
shareholder's notice shall set forth (1) as to each person whom the shareholder
proposes to nominate for election as a director, (A) all information relating to
such proposed nominee that is required to be disclosed in solicitations of
proxies for election of directors pursuant to Regulation 14A under the Exchange
Act and (B) the written consent of the proposed nominee to serve as a director
of the Corporation if so elected; (2) as to the shareholder giving the notice
(A) the name and address, as they appear on the Corporation's books, of such
shareholder, (B) a representation that the shareholder is a holder of record of
shares of the Corporation's capital stock entitled to vote at
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such meeting and intends to appear in person or by proxy at the meeting to
nominate the proposed nominee or nominees specified in the notice and (C) the
class and number of shares of the Corporation which are beneficially owned by
such shareholder and also which are owned of record by such shareholder; and (3)
as to the beneficial owner, if any, on whose behalf the nomination is made, (A)
the name and address of such person and (B) the class and number of shares of
the Corporation which are beneficially owned by such person. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation.
No person shall be eligible to serve as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section.
The presiding officer of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section, a shareholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this
Section.
Section 3.4. Vacancies. Vacancies in the Board, including vacancies
---------
resulting from an increase in the number of
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directors, shall be filled by a majority vote of the remaining members of the
Board, even though less than a quorum, or by a sole remaining director. Each
director elected to fill a vacancy shall serve until the next annual meeting of
shareholders and until his successor is elected and qualified. If one or more
directors resign from the Board effective at a future date, the directors then
in office, including those who have resigned, shall have the power to fill the
vacancies by a majority vote, the vote thereon to take effect when the
resignations become effective.
Section 3.5. Place of Board Meetings. Meetings of the Board may be
-----------------------
held at such places within or without the Commonwealth of Pennsylvania as the
Board may from time to time appoint or as may be designated in the notice of the
meeting.
Section 3.6. First Meeting of Newly Elected Board. The first meeting
------------------------------------
of each newly elected Board may be held at the same place and as soon as
practicable after the meeting at which such directors were elected and no notice
shall be required other than announcement at such meeting. If such first meeting
of the newly elected Board is not so held, notice of such meeting shall be given
in the same manner as set forth in Section 3.8 of these Bylaws with respect to
notice of regular meetings of the Board.
Section 3.7. Chairman of the Board. At the first meeting of the
---------------------
newly elected Board, the Board shall elect one of its members to serve as
Chairman at the pleasure of the Board. The Chairman of the Board shall preside
at all meetings of the
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shareholders and of the Board and shall, in general, perform all other duties
incident to the office of the Chairman. He or she shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
Section 3.8. Regular Board Meetings; Notice. Regular meetings of the
------------------------------
Board may be held at such times and places as shall be determined from time to
time by resolution of at least a majority of the whole Board at a duly convened
meeting, or by unanimous written consent. Notice of each regular meeting of the
Board shall specify the purpose, date, place and hour of the meeting and shall
be given to each director, not later than the second day immediately preceding
the day of such meeting in the case of notice by mail, telegram or courier
service, and not later than the day immediately preceding the day of such
meeting in the case of notice delivered personally or by telephone, telex TWX or
facsimile transmission. Notice shall be given in a manner consistent with
Section 11.4 of these Bylaws.
Section 3.9. Special Board Meetings; Notice. Special meetings of
------------------------------
the Board may be called by the Chairman or the Chief Executive Officer on notice
to each director, specifying the purpose, date, place and hour of the meeting
and given within the same time and in the same manner provided for notice of
regular meetings of the Board in Section 3.8 of these Bylaws. Special meetings
of the Board shall be called by the Secretary of the Corporation in like manner
and on like notice on the written request of a majority of directors.
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<PAGE>
Section 3.10. Quorum of the Board. At all meetings of the Board, the
-------------------
presence of a majority of the directors in office shall constitute a quorum for
the transaction of business, and the acts of a majority of the directors present
and voting at a meeting at which a quorum is present shall be the acts of the
Board.
Section 3.11. Committees of Directors.
-----------------------
(a) The Board may, by resolution adopted by a majority of the
directors in office, establish one or more committees, each committee to consist
of one or more of the directors, and may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee or for the purposes of any written action
by the committee. Any such committee, to the extent provided in such resolution
of the Board or in these Bylaws, shall have and may exercise all of the powers
and authority of the Board; provided, however, that no such committee shall have
any power or authority to (i) submit to the shareholders any action requiring
approval of the shareholders under the 1988 BCL, (ii) create or fill vacancies
on the Board, (iii) amend or repeal these Bylaws or adopt new Bylaws, (iv) amend
or repeal any resolution of the Board that by its terms is amendable or
repealable only by the Board, (v) act on any matter committed by these Bylaws or
by resolution of the Board to another committee of the Board, (vi) amend the
Articles or adopt a resolution proposing an amendment to the Articles, or (vii)
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adopt a plan or an agreement of merger or consolidation. In the absence or
disqualification of a member or alternate member or members of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not a quorum is present, may unanimously appoint another
director to act at the meeting in the place of any absent or disqualified
member.
(b) A majority of the directors appointed to a committee shall
constitute a quorum for the transaction of business, and the acts of a majority
of the directors appointed to a committee present at a meeting of the committee
at which a quorum is present shall be the acts of the committee.
(c) A committee may, by resolution, fix regular meeting dates of
which no notice need be given to the members of the committee. Special meetings
of a committee may be held at the call of the chairman of the committee upon
such notice as is provided in Section 3.8 of these Bylaws for meetings of the
Board of Directors.
(d) Minutes of all meetings of any committee of the Board shall be
kept by the person designated by such committee to keep such minutes. Copies of
such minutes and any writing setting forth an action taken by written consent
without a meeting shall be distributed to each member of the Board promptly
after such meeting is held or such action is taken. Each committee of the of
the Board shall serve at the pleasure of the Board.
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Section 3.12. Participation in Board Meetings by Telephone. One or
--------------------------------------------
more directors may participate in a meeting of the Board or of a committee of
the Board by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and all directors so participating shall be deemed present at the meeting.
Section 3.13. Action by Consent of Directors. Any action required or
------------------------------
permitted to be taken at a meeting of the Board or of a committee of the Board
may be taken without a meeting if, prior or subsequent to the action, a consent
or consents in writing setting forth the action so taken shall be signed by all
of the directors in office or all of the members of the committee, as the case
may be, and filed with the Secretary of the Corporation.
Section 3.14. Compensation of Directors. Directors may be reimbursed
-------------------------
for their expenses in attending Board and committee meetings. The Board may, by
resolution, fix the compensation of directors for their services as directors.
A director may also serve the Corporation in any other capacity and receive
compensation therefor.
Section 3.15. Liability of Directors. A director of the Corporation
----------------------
shall not be personally liable for monetary damages for any action taken, or any
failure to take any action, on or after January 27, 1987 unless he has breached
or failed to perform the duties of his office as provided for under Section
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1712 of the 1988 BCL and the breach or failure to perform constitutes self
dealing, willful misconduct or recklessness. Any repeal, amendment, or
modification of this Paragraph shall be prospective only and shall not increase,
but may decrease, the liability of a director with respect to actions or
failures to act occurring prior to such change.
Section 3.16. Inapplicability of Section 3.15. The limitation on a
-------------------------------
director's liability provided by Section 3.15 of those Bylaws shall not apply to
any liability pursuant to any criminal statute or for the payment of taxes
pursuant to local, state or federal law.
ARTICLE IV
OFFICERS
Section 4.1. Number. The officers of the Corporation shall be a
------
Chief Executive Officer, a President, a Secretary and a Treasurer and in
addition may include one or more Vice Presidents and such other officers and
assistant officers as the Board may elect. Any two or more offices may be held
by the same person. None of the officers need be a member of the Board.
Section 4.2. Election; Term of Office. The officers and assistant
------------------------
officers shall be elected by the Board at its annual meeting, and shall hold
office until their successors are elected and qualified or until their death,
resignation or removal by the Board. Vacancies in any office shall be filled by
the Board. Any officer or agent may be removed by the Board with
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or without cause, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. The election or appointment of an
officer or agent shall not of itself create any contract rights.
Section 4.3. Compensation. The compensation of all officers of the
------------
Corporation shall be fixed by the Board.
Section 4.4. Chief Executive Officer. The Chief Executive Officer
-----------------------
shall have such responsibilities and authority as are normally held by the chief
executive officer of a corporation and shall see that all orders and resolutions
of the Board are carried out. Subject to the direction of the Board, he or she
shall provide leadership in determining the strategic direction, annual budgets
and organizational alignment of the Corporation, with the objective of building
shareholder value. He or she shall have the final decisional authority with
respect to all regulation filings. He or she shall also insure that the
Corporation's Code of Legal and Ethical Conduct is implemented and observed.
The Chief Executive Officer is authorized to sign all contracts and other
documents of the Corporation. In the absence or disability of the Chairman of
the Board, he or she shall preside at all meetings of the shareholders and of
the Board and shall otherwise perform the duties and exercise the powers of the
Chairman.
Section 4.5. President. The President shall be the chief operating
---------
officer of the Corporation. He or she will report to the Chief Executive
Officer and shall perform such
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duties and have such other powers as the Board and the Chief Executive shall
from time to time prescribe. In the event the Chief Executive Officer shall be
disabled, the President shall serve as the Acting Chief Executive Officer and
during the period of the Chief Executive Officer's disability, the President
shall perform the duties and exercise the powers of the Chief Executive Officer.
Section 4.6. Vice Presidents. The Board may elect one or more
---------------
persons to serve as Executive Vice Presidents, Senior Vice Presidents or Vice
Presidents and each shall perform such duties and have such other powers as the
Board may from time to time prescribe or the Chief Executive Officer may
delegate. One of the Executive Vice Presidents, Senior Vice Presidents or Vice
Presidents shall be the Chief Financial Officer of the Corporation. He or she
shall have charge and custody of, and be responsible for, the books and records
of the corporation. He or she shall render to the Chief Executive Officer and
the Board, upon request, an account of the financial condition and results of
operations of the Corporation.
Section 4.7. Secretary. The Secretary shall be custodian of the
---------
books and records of the Corporation other than those in the custody of the
Chief Financial Officer or the Treasurer. The Secretary shall be custodian of
the corporate seal and is authorized to affix the seal to all documents, the
execution and delivery of which are duly authorized. The Secretary shall record
the minutes of all meetings of
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shareholders and of the Board and shall be responsible for the giving of all
notices of such meetings in accordance with these Bylaws. The Secretary shall,
in general, perform such other duties as are incident to the office of Secretary
and as may be assigned to the Secretary by the Board or by the Chief Executive
Officer.
Section 4.8. Treasurer. The Treasurer shall have charge and custody
---------
of, and be responsible for, all funds of the Corporation and the investment
thereof and shall deposit all such funds in the name of the Corporation in
depositories selected by the Board and shall perform such other duties as are
incident to the office of Treasurer and as may be assigned to him by the Board,
by the Chief Executive Officer or by the Chief Financial Officer. He or she
shall report to the Chief Financial Officer. In the event of the disability of
the Chief Financial Officer, the Treasurer shall serve as the Acting Chief
Financial Officer of the Corporation and during the period of the Chief
Financial Officer's disability, he or she shall perform the duties and exercise
the powers of the Chief Financial Officer.
Section 4.9. Bonds. If required by the Board, any officer shall
-----
give the Corporation a bond in such sum, and with such surety or sureties as may
be satisfactory to the Board, for the faithful discharge of the duties of his or
her office and for the restoration to the Corporation, in the case of his or her
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever
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kind in his or her possession or under his or her control belonging to the
Corporation.
ARTICLE V
CERTIFICATES FOR SHARES
Section 5.1. Share Certificates. The certificates representing
------------------
shares of the Corporation shall be numbered and registered in a share register
as they are issued. The share register shall exhibit the names and addresses of
all registered holders and the number and class of shares and the series, if
any, held by each.
Each share certificate shall state that the Corporation is
incorporated under the laws of the Commonwealth of Pennsylvania, the name of the
registered holder and the number and class of shares and the series, if any,
represented thereby. If, under its Articles, the Corporation is authorized to
issue shares of more than one class or series, each share certificate shall set
forth, or shall contain a statement that the Corporation will furnish to any
shareholder upon request and without charge, a full or summary statement of the
designations, voting rights, preferences, limitations and special rights of the
shares of each class or series authorized to be issued so far as they have been
fixed and determined and the authority of the Board to fix and determine such
rights.
Section 5.2. Execution of Certificates. Every share certificate
-------------------------
shall be executed, by facsimile or otherwise, by or
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on behalf of the Corporation, by the Chairman, by the Chief Executive Officer,
by the President, by any Vice-President, or by the Secretary. In case any
officer who has signed or whose facsimile signature has been placed upon any
share certificate shall have ceased to be such officer, because of death,
resignation or otherwise, before the share certificate is issued, it may be
issued by the Corporation with the same effect as if the officer had not ceased
to be such at the time of issue.
ARTICLE VI
TRANSFER OF SHARES
Section 6.l. Transfer; Duty of Inquiry. Upon presentment to the
-------------------------
Corporation or its transfer agent of a share certificate endorsed by the
appropriate person or accompanied by proper evidence of succession, assignment
or authority to transfer, a new certificate shall be issued to the person
entitled thereto and the old certificate cancelled and the transfer registered
upon the books of the Corporation, unless the Corporation or its transfer agent
has a duty to inquire as to adverse claims with respect to such transfer, which
duty has not been discharged. The Corporation shall have no duty to inquire into
adverse claims with respect to transfers of its securities or the rightfulness
thereof unless (a) the Corporation has received written notification of an
adverse claim at a time and in a manner which affords the Corporation a
reasonable opportunity to act on it before the issuance of a new, reissued
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or re-registered share certificate and the notification identifies the claimant,
the registered owner and the issue of which the share or shares are a part and
provides an address for communications directed to the claimant; or (b) the
Corporation has required and obtained, with respect to a fiduciary, a copy of a
will, trust, indenture, articles of co-partnership, bylaws or other controlling
instruments, for a purpose other than to obtain appropriate evidence of the
appointment or incumbency of the fiduciary, and such documents indicate, upon
reasonable inspection, the existence of an adverse claim.
Section 6.2. Discharging Duty of Inquiry. The Corporation may
---------------------------
discharge any duty of inquiry by any reasonable means, including notifying an
adverse claimant by registered or certified mail at the address furnished by the
claimant or, if there is no such address, at the claimant's residence or regular
place of business, that the security has been presented for registration of
transfer by a named person, and that the transfer will be registered unless
within thirty (30) days from the date of mailing the notification, either (a) an
appropriate restraining order, injunction or other process issues from a court
of competent jurisdiction or (b) an indemnity bond, sufficient in the
Corporation's judgment to protect the Corporation and any transfer agent,
registrar or other agent of the Corporation involved from any loss which it or
they may suffer by complying with the adverse claim, is filed with the
Corporation.
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ARTICLE VII
RECORD DATE; IDENTITY OF SHAREHOLDERS
Section 7.1. Record Date. The Board may fix a time, prior to the
-----------
date of any meeting of the shareholders, as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall not be more than ninety
(90) days prior to the date of the meeting. Except as otherwise provided in
Section 7.2 of these Bylaws, only the shareholders of record at the close of
business on the date so fixed shall be entitled to notice of, or to vote at,
such meeting, notwithstanding any transfer of securities on the books of the
Corporation after any record date so fixed. The Board may similarly fix a
record date for the determination of shareholders for any other purpose. When a
determination of shareholders of record has been made as herein provided for
purposes of a meeting, the determination shall apply to any adjournment thereof
unless the Board fixes a new record date for the adjourned meeting.
Section 7.2. Certification of Nominee. The Board may adopt a
------------------------
procedure whereby a shareholder may certify in writing to the Secretary of the
Corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. The
Board, in adopting such procedure, may specify (i) the classification of
shareholder who may certify, (ii) the purpose or purposes for which the
certification may be made, (iii) the form of certification and
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the information to be contained therein, (iv) as to certifications with respect
to a record date, the date after the record date by which the certification must
be received by the Secretary of the Corporation, and (v) such other provisions
with respect to the procedure as the Board deems necessary or desirable. Upon
receipt by the Secretary of the Corporation of a certification complying with
the procedure, the persons specified in the certification shall be deemed, for
the purpose or purposes set forth in the certification, to be the holders of
record of the number of shares specified instead of the persons making the
certification.
ARTICLE VIII
REGISTERED SHAREHOLDERS
Section 8.1. Registered Shareholders. Before due presentment for
-----------------------
transfer of any shares, the Corporation shall treat the registered owner thereof
as the person exclusively entitled to vote, to receive notifications and
otherwise to exercise all the rights and powers of an owner, and shall not be
bound to recognize any equitable or other claim or interest in such securities,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the Commonwealth of Pennsylvania or Section
7.2 of these Bylaws.
ARTICLE IX
LOST CERTIFICATES
Section 9.1. Lost Certificates. If the owner of a
-----------------
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<PAGE>
share certificate claims that it has been lost, destroyed, or wrongfully taken,
the Corporation shall issue a new certificate in place of the original
certificate if the owner so requests before the Corporation has notice that the
certificate has been acquired by a bona fide purchaser, and if the owner has
filed with the Corporation an indemnity bond and an affidavit of the facts
satisfactory to the Board or its designated agent, and has complied with such
other reasonable requirements, if any, as the Board may deem appropriate.
ARTICLE X
DISTRIBUTIONS
Section 10.1. Distributions. Distributions upon the shares of the
-------------
Corporation, whether by dividend, purchase or redemption or other acquisition of
its shares, subject to any provisions of the Articles related thereto, may be
authorized by the Board at any regular or special meeting of the Board and may
be paid directly or indirectly in cash, in property or by the incurrence of
indebtedness by the Corporation.
Section 10.2. Reserves. Before the making of any distributions,
--------
there may be set aside out of any funds of the Corporation available for
distributions such sum or sums as the Board from time to time, in its absolute
discretion, deems proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall deem
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<PAGE>
conducive to the interests of the Corporation, and the Board may abolish any
such reserve in the manner in which it was created.
Section 10.3. Stock Dividends/Splits. Stock dividends or splits or
----------------------
reverse stock splits upon the shares of the Corporation, subject to any
provisions of the Articles related thereto, may be authorized by the Board at
any regular or special meeting of the Board.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1. Checks and Notes. All checks or demands for money and
----------------
notes of the Corporation shall be signed by such officer or officers as the
Board may from time to time designate.
Section 11.2. Fiscal Year. The fiscal year of the Corporation shall
-----------
be as determined by the Board.
Section 11.3. Seal. The corporate seal shall have inscribed thereon
----
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Pennsylvania." Such seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced. The
affixation of the corporate seal shall not be necessary to the valid execution,
assignment or endorsement of any instrument or other document by the
Corporation.
Section 11.4. Notices. Except as provided in Section 2.7 of these
-------
Bylaws, whenever, under the provisions of the 1988
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<PAGE>
BCL or of the Articles or of these Bylaws or otherwise, written notice is
required to be given to any person, it may be given to such person either
personally or by sending a copy thereof by first class or express mail, postage
prepaid, telegram (with messenger service specified), telex, TWX (with
answerback received), courier service (with charges prepaid) or facsimile
transmission to his or her address, (or to his or her telex, TWX or facsimile
number), appearing on the books of the Corporation or, in the case of directors,
supplied by the director to the Corporation for the purpose of notice. If the
notice is sent by mail, telegraph or courier service, it shall be deemed to have
been given to the person entitled thereto when deposited in the United States
mail or with a telegraph office or courier service for delivery to that person.
A notice given by telex or TWX or facsimile shall be deemed to have been given
when dispatched.
Section 11.5. Waiver of Notice. Whenever any notice is required to
----------------
be given by the 1988 BCL or by the Articles or these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to the notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, the
meeting need be specified in the waiver of notice of the meeting. Attendance of
a person at any meeting shall constitute a waiver of notice of the meeting,
except where any person attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting was not
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<PAGE>
lawfully called or convened, and the person so objects at the beginning of the
meeting.
ARTICLE XII
AMENDMENTS
Section 12.1. Amendments. These Bylaws may be amended or repealed,
----------
and new bylaws adopted, by the shareholders at any regular or special meeting
duly convened or, except for a bylaw on a subject expressly committed to the
shareholders by the 1988 BCL, by the Board at any regular or special meeting
duly convened, subject always to the power of the shareholders to change such
action by the Board. In the case of a meeting of shareholders, written notice
shall be given to each shareholder that the purpose, or one of the purposes, of
the meeting is to consider the amendment or repeal of these Bylaws or the
adoption of new Bylaws. There shall be included in, or enclosed with the notice,
a copy of the proposed amendment or a summary of the changes to be effected
thereby. Any change in the Bylaws shall take effect when adopted unless
otherwise provided in the resolution effecting the change.
ARTICLE XIII
INDEMNIFICATION
Section 13.1. Officers and Directors - Direct Actions. The
---------------------------------------
Corporation shall indemnify, to the extent permitted under these Bylaws, any
person who was or is a party (other than a party plaintiff suing on his or her
own behalf), or who is
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<PAGE>
threatened to be made such a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation)
arising out of, or in connection with, any actual or alleged act or omission or
by reason of the fact that he or she is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another domestic or foreign corporation
for profit or not-for-profit, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she met the standard of
conduct of (i) acting in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation and,
(ii) with respect to any criminal proceeding, having no reasonable cause to
believe his or her conduct was unlawful. The termination of any action or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner that he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation and,
with respect to any criminal proceeding, had reasonable cause to believe that
his or her conduct was unlawful.
Section 13.2. Officers and Directions - Derivative
------------------------------------
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<PAGE>
Actions. The Corporation shall indemnify, to the extent permitted under these
- -------
Bylaws, any person who was or is a party (other than a party suing in the right
of the Corporation), or is threatened to be made a party, to any threatened,
pending or completed action by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) and
amounts paid in settlement without any admission of liability actually and
reasonably incurred by him or her in connection with the defense or settlement
of the action if he or she met the standard of conduct of acting in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Corporation. Indemnification shall not be made under this
Section 13.2 in respect of any claim, issue or matter as to which the person has
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Common Pleas of the judicial district embracing the county in which
the registered office of the Corporation is located or the court in which the
action was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for the expenses that the Court
-35-
<PAGE>
of Common Pleas or other court deems proper.
Section 13.3. Employees and Agents. The Corporation may indemnify,
--------------------
to the extent permitted under these Bylaws, any person who is or was an employee
or agent of the Corporation, other than an officer or director of the
Corporation, or is or was serving at the request of the Corporation as an
officer, director, employee or agent of another domestic or foreign corporation
for profit or not-for-profit, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the defense or settlement of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including actions by or in right of the Corporation to procure a judgment in
its favor), arising out of, or in connection with, any actual or alleged act or
omission or by reason of his service on behalf of the Corporation, provided such
person has met the applicable standards of conduct as set forth in Section 13.2
with respect to actions by or in right of the Corporation and as set forth in
Section 13.1 with respect to all other actions.
Section 13.4. Mandatory Indemnification. To the extent that a
-------------------------
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action or proceeding referred to in
Sections 13.1, 13.2 or 13.3, or in defense of any claim, issue or matter
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<PAGE>
therein, he or she shall be indemnified by the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 13.5. Advancing Expenses. Expenses (including attorneys'
------------------
fees) incurred by an officer, director, employee or agent in defending any
action or proceeding referred to in this Article XIII may be paid by the
Corporation in advance of the final disposition of the action or proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it is ultimately determined that he or she is not entitled to be indemnified by
the Corporation as authorized in this Article XIII.
Section 13.6. Procedure.
---------
(a) Unless ordered by a court, any indemnification under Section
13.1, 13.2 or 13.3 shall be made by the Corporation only as authorized in a
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Section 13.1, 13.2 or 13.3.
(b) Expenses shall be advanced by the Corporation to a director or officer of
the Corporation upon a determination that such person has met the applicable
standard of conduct set forth in Section 13.1 or 13.2 and has satisfied the
terms set forth in Section 13.5 of this Article XIII.
(c) Expenses may be advanced to an employee or
-37-
<PAGE>
agent of the Corporation, other than an officer or director of the Corporation,
upon a determination that such employee or agent has satisfied the terms of
Section 13.3 and 13.5 and, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to advancement of expenses.
(d) All determinations under this Section 13.6
shall be made:
(1) With respect to indemnification under Section 13.3 and
advancement of expenses under Section 13.6(c), by the Board.
(2) With respect to indemnification under Section 13.1 or
13.2 and advancement of expenses under Section 13.6(b),
(A) By the Board by a majority vote of a quorum
consisting of directors who were not parties to such action or proceeding, or
(B) If such a quorum is not obtainable, or, if
obtainable and if a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or
(C) By the shareholders.
Section 13.7. Nonexclusivity of Indemnification.
---------------------------------
(a) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article XIII shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be
-38-
<PAGE>
entitled under any Bylaw, statute, agreement, vote of shareholders or
disinterested directors or otherwise, both as to actions in his or her official
capacity and as to actions in another capacity while holding that office.
Sections 1728 (relating to interested directors; quorum) and 2538 (relating to
interested shareholders) of the 1988 BCL shall be applicable to any Bylaw,
contract or transaction authorized by the Board under this Section 13.7. The
Corporation may create a fund of any nature, which may, but need not be, under
the control of a trustee, or otherwise secure or insure in any manner its
indemnification obligations, whether arising under or pursuant to this Article
XIII or otherwise.
(b) Indemnification pursuant to Section 13.7(a) shall
not be made in any case where the act or failure to act giving rise to the claim
for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
(c) Indemnification pursuant to Section 13.7(a) under
any Bylaw, statute, agreement, vote of shareholders or directors or otherwise,
may be granted for any action taken or any failure to take any action and may be
made whether or not the Corporation would have the power to indemnify the person
under any other provision of law except as provided in this Section 13.7 and
whether or not the indemnified liability arises or arose from any threatened or
pending or completed action by or in the right of the Corporation.
Section 13.8. Insurance. The Corporation shall have
---------
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<PAGE>
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against that liability under the
provisions of this Article XIII or the 1988 BCL.
Section 13.9. Past Officers, Directors, Employees and Agents. The
----------------------------------------------
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article XIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent of the Corporation and shall inure to the benefit of the heirs and
personal representatives of that person.
Section 13.10. Employee Benefit Plans. For purposes of this Article
----------------------
XIII, (1) references to an "other enterprise" shall include employee benefit
plans of the Corporation or any of its subsidiaries or affiliates; (2) the
Corporation shall be deemed to have requested a director, officer, employee or
agent of the Corporation to serve as a fiduciary with respect to an employee
benefit plan where the performance by such person of duties to the Corporation
also imposes duties on, or otherwise
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<PAGE>
involves services by, such person as a fiduciary with respect to the plan; (3)
excise taxes assessed on a person with respect to an employee benefit plan shall
be deemed "fines"; and (4) actions taken or omitted in good faith by such person
with respect to an employee benefit plan in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of the plan
shall be deemed to be action that is not opposed to the best interests of the
Corporation.
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<PAGE>
EXHIBIT 10.34
ASSET PURCHASE AGREEMENT
dated February 11, 1998
between
ROCHE HEALTHCARE LIMITED
and
CENTOCOR, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS............................................................................2
2. ASSETS BEING SOLD......................................................................6
2.1. Patents.......................................................................6
2.2. Licenced Patents..............................................................7
2.3. Patent Applications...........................................................7
2.4. Fujisawa Patent Licence.......................................................8
2.5. Trademarks....................................................................8
2.6. Registrations.................................................................8
2.7. Manufacturing Technology and Know-How.........................................9
2.8. Research and Development Materials............................................9
2.9. Clinical Data................................................................10
2.10. World-wide Safety Reports....................................................10
2.11. Marketing and Promotional Documents..........................................10
2.12. Inventory....................................................................10
2.13. Assumed Agreements...........................................................11
2.14. Other Assets.................................................................11
2.15. Tangible Assets..............................................................11
2.16. Non-exclusive Licences.......................................................11
2.17. Limitation of Sale of Assets.................................................12
3. PURCHASE PRICE........................................................................12
3.1. Purchase Price...............................................................12
3.2. Allocation of Purchase Price.................................................12
3.3. Payment for Inventory........................................................12
3.4. Refund of Purchase Price.....................................................13
3.5. Royalty Payments.............................................................14
4. REPRESENTATIONS AND WARRANTIES OF PARENT..............................................17
4.1. Organisation.................................................................17
4.2. Authority....................................................................17
4.3. No Violation or Conflict.....................................................17
4.4. No Government Restrictions...................................................17
4.5. Title to Assets..............................................................17
4.6. Patents......................................................................18
4.7. Trademarks...................................................................18
4.8. Registrations................................................................18
4.9. Know-How and Know-How Licence................................................19
4.10. Inventory....................................................................19
4.11. Taxes........................................................................19
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.12. Absence of Certain Changes...................................................19
4.13. Violations of Law............................................................19
4.14. Financial Information........................................................19
4.15. Litigation...................................................................20
4.16. Sufficiency of Assets........................................................20
4.17. Conduct of Business..........................................................20
4.18. Retavase Business............................................................21
5. REPRESENTATIONS AND WARRANTIES OF BUYER...............................................21
5.1. Organisation.................................................................21
5.2. Authority....................................................................21
5.3. No Violation or Conflict.....................................................21
5.4. No Government Restrictions...................................................21
5.5. Litigation...................................................................21
5.6. Financing....................................................................22
5.7. Assets.......................................................................22
6. PARENT'S COVENANTS....................................................................22
6.1. Maintenance of Assets/Conduct of Business....................................22
6.2. Compliance with Laws.........................................................23
6.3. Access.......................................................................23
6.4. Patent Maintenance and Defence...............................................23
6.5. Sale of Retavase by the Roche Group..........................................24
6.6. Sales Force..................................................................24
6.7. Further Assurances...........................................................24
6.8. Nonassertion.................................................................25
6.9. Genentech Disclosure.........................................................25
6.10. Control of Genentech, Inc....................................................25
6.11. Keep Well Agreement..........................................................26
7. BUYER'S COVENANTS.....................................................................26
7.1. Approvals and Registrations for Transfer of Distribution of
Products.....................................................................26
7.2. Labelling....................................................................26
7.3. References to Parent.........................................................27
7.4. Further Assurances...........................................................27
7.5. Financing....................................................................27
7.6. Notification.................................................................27
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
8. COVENANTS BY BUYER AND PARENT.........................................................28
8.1. Assignment of Patents and Trademarks.........................................28
8.2. Assignment of Registrations..................................................28
8.3. Clinical Studies Transfer....................................................29
8.4. Access to Information........................................................29
8.5. Press Releases...............................................................29
8.6. Customer Information.........................................................30
8.7. Hospital and Other Purchasing Contracts......................................30
8.8. Reconciliation with the Agreement Containing Consent
Order; Canadian Filings......................................................30
8.9. Genentech Patent Suits.......................................................30
8.10. Transition Services..........................................................32
8.11. Returns......................................................................32
8.12. Chargebacks and Rebates......................................................32
8.13. Confidentiality..............................................................32
8.14. Consents.....................................................................32
8.15. Cooperation on Safety Reports................................................32
8.16. Manufacturing Improvements...................................................32
8.17. Importation..................................................................33
8.18. Product Recall; Product Liability............................................33
9. MANUFACTURING.........................................................................33
9.1. Supply Agreement.............................................................33
9.2. Parent's Representations and Warranties for its Supplies.....................33
9.3. Technology Transfer..........................................................34
9.4. Approvals....................................................................34
10. CONDITIONS PRECEDENT TO CLOSING.......................................................35
10.1. Conditions to Obligations of Buyer and Parent................................35
10.2. Conditions to Obligations of Buyer...........................................36
10.3. Conditions to Obligations of Parent..........................................36
11. THE CLOSING...........................................................................37
11.1. The Closing..................................................................37
11.2. Deliveries by Parent.........................................................37
11.3. Deliveries by Buyer..........................................................38
11.4. Effects of Closing...........................................................38
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
12. TERMINATION...........................................................................39
12.1. Termination..................................................................39
12.2. Effect of Termination........................................................40
12.3. Termination by the FTC.......................................................40
13. SURVIVAL; REMEDIES; CLAIMS; INDEMNIFICATION...........................................41
13.1. Remedy for Breach............................................................41
13.2. Indemnification by Parent....................................................41
13.3. Indemnification by Buyer.....................................................42
13.4. Notice.......................................................................42
13.5. Participation in Defence.....................................................42
13.6. Settlements..................................................................43
13.7. Other Claims.................................................................43
14. NOTICES...............................................................................44
15. ARBITRATION AND GOVERNING LAW.........................................................45
16. ADDITIONAL TERMS......................................................................45
16.1. Brokers......................................................................45
16.2. Expenses, Taxes and Fees.....................................................46
16.3. Entire Agreement.............................................................46
16.4. Successors and Assigns.......................................................46
16.5. Amendments; No Waiver........................................................46
16.6. Counterparts.................................................................46
16.7. Captions.....................................................................46
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into on February 11, 1998 by and between Roche Healthcare Limited, Hamilton,
Bermuda ("Parent") and Centocor, Inc., a Pennsylvania corporation
("Buyer").
Whereas Parent entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated 24 May 1997 with the owners of Corange Limited,
Hamilton, Bermuda ("Corange") providing for the acquisition by Parent of all
shares of Corange (the "Corange Transaction"), which among other things owns the
BM Group (as hereinafter defined);
Whereas, pursuant to an Agreement Containing Consent Order to be
entered into by Parent with the Federal Trade Commission (the "FTC") in order to
permit consummation of the Corange Transaction, a copy of which will be provided
to Buyer as soon as accepted by the FTC, Parent will be required to cause BM
Group companies to divest RETAVASE in the United States and Canada;
Whereas the Corange Transaction is further subject to the approval of
other merger control authorities, including the Director of Investigation and
Research in Canada (the "Director") appointed under the Competition Act (Canada)
as well as approval under the Investment Canada Act, if required;
Whereas, Buyer desires to purchase the Assets (as defined below) from
the BM Group companies and Parent desires to cause Sellers (as hereinafter
defined) to sell the Assets to Buyer, upon the terms and subject to the
conditions hereinafter set forth;
Now, therefore, in consideration of the foregoing and of the mutual
promises, covenants, representations, warranties and agreements contained
herein, and intending to be legally bound, the parties hereto agree as follows:
<PAGE>
1. DEFINITIONS
1.1. "Active Ingredient" means recombinant reteplase; (rPA), a
recombinant, nonglycosylated plasminogen activator, containing amino
acids 1-3 and 176-527 of the amino acid sequence of the tissue-type
plasminogen activator.
1.2. "Affiliate" of an entity means any corporation or other
business entity controlled by, controlling or under common control
with, such entity. For this purpose "control" shall mean direct or
indirect beneficial ownership of more than fifty percent (50%) of the
voting or income interest in such corporation or other business entity;
provided, however, Genentech, Inc. and its subsidiaries shall not be
considered an Affiliate of Parent.
1.3. "Assets" has the meaning ascribed to such term in
Section 2.
1.4. "Assumed Agreements" has the meaning ascribed to such
term in Section 2.13.
1.5. "best of Parent's knowledge" means the best knowledge of
Parent and Sellers.
1.6. "BM" means Boehringer Mannheim GmbH, Mannheim, Germany.
1.7. "BMC" means Boehringer Mannheim Corporation, Indianapolis,
Indiana, USA.
1.8. "BM Canada" means Boehringer Mannheim Ltd., Laval, Quebec,
Canada.
1.9. "BM Group" means BM, BMC and BM Canada and any Affiliates
of such companies, and any other company in the Boehringer Mannheim
group involved in the Business.
1.10. "BM Labelling" means the printed labels, labelling and
packaging materials, including printed carton, container label and
package inserts, as currently used by BMC or its Affiliates or
promotion partners for the Product in the Territory.
1.11. "BM Monthly Sales Statements" means the BM Net Sales by
Product (including units) in the Territory in local currency, on a
monthly
2
<PAGE>
basis for each month beginning with January 1997 until the end of the
month in which Closing occurs.
1.12. "BM Net Sales" means gross sales of BMC of the Product in
the Territory after deduction of returns, sales rebates (price
reduction) and volume (quantity) discount as well as sales taxes (e.g.,
value added taxes) and other taxes directly linked to the sales (e.g.,
excise taxes).
1.13. "Business" means the business as conducted at the Closing
Date by Sellers with respect to the Product, whether approved for sale
or in research or development, in the Territory. "Retavase Business"
means the business with respect to each presentation of any
pharmaceutical preparation (including future formulation changes and
production intermediates) containing the Active Ingredient, whether
approved for sale or in research or development in the Territory.
1.14. "Clinical Data" has the meaning ascribed to such term in
Section 2.9.
1.15. "Closing" has the meaning ascribed to such term in
Section 11.1.
1.16. "Closing Date" has the meaning ascribed to such term in
Section 11.1.
1.17. "Damages" has the meaning ascribed to such term in Section
13.2.1.
1.18. "DHC" means Department of Health Canada.
1.19. "Disclosure Schedule" means the disclosure schedule
delivered as of the date hereof to Buyer by Parent in connection with
this Agreement. The sections of the Disclosure Schedule correspond to
the sections of this Agreement, but information disclosed in any
section of the Disclosure Schedule shall be deemed to be disclosed as
to all relevant sections thereof, except as otherwise specifically
provided herein.
1.20. "DPM Agreement" has the meaning ascribed to such term in
Section 2.13.
1.21. "FDA" means the United States Food and Drug Administration.
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1.22. "FTC" means the United States Federal Trade Commission.
1.23. "Genentech Patent Suits" means (a) with respect to the
United States the patent infringement suit against BM filed by
Genentech, Inc. in the United States District Court for the District of
Massachusetts (Judge Saris) based on the Genentech patents USP
5,221,619 (Itakura), USP 4,342,832 (Goeddel and Heyneker), USP
4,511,502 (Builder), USP 5,185,259 (Goeddel, Kohr) and USP 5,034,225
(Bennett); and (b) with respect to Germany (i) the patent infringement
suit versus BM filed by Genentech, Inc. and Boehringer Ingelheim
International GmbH in the District Court (Landgericht) of Dusseldorf
([docket number] 4 O 178/96) in May 1996 based on the patent EP 0 093
619 (Goeddel Patent) and (ii) the extension filed versus BM by
Genentech, Inc. and Boehringer Ingelheim International GmbH in the
District Court (Landgericht) of Dusseldorf ([docket number] 4 O 25/97)
in November 1996 including the patent EP 0 217 379 (Mochida Patent) and
the patent EP 0 228 862 (Bennett Patent), (iii) the nullity suit versus
the patent EP 0 093 619 (Goeddel Patent) filed by BM in October 1996 in
the German Federal Patent Court in Munich, (iv) the nullity suit versus
the patent EP 0 217 379 (Mochida Patent) filed by BM in the German
Federal Patent Court in January 1997 and (v) the appeal of BM filed 7
September 1995 versus the decision of the European Patent Agency (EPA)
on BM's opposition against the European Patent 0 228 862 (Bennett).
1.24. "HSR Act" means the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended.
1.25. "Indemnifiable Claims" has the meaning ascribed to such
term in Section 13.2.1 and 13.3.
1.26. "Indemnified Party" has the meaning ascribed to such term
in Section 13.4.
1.27. "Indemnifying Party" has the meaning ascribed to such term
in Section 13.4.
1.28. "Inventory" has the meaning ascribed to such term in
Section 2.12.
1.29. "Keep Well" has the meaning ascribed to such term in
Section 6.11.
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1.30. "Know-How" and "Know-How Licence" have the meanings
ascribed to such terms in Section 2.7.
1.31. "Licenced Patent Applications" has the meaning ascribed to
such term in Section 2.3.
1.32. "Licenced Patents" has the meaning ascribed to such term
in Section 2.2.
1.33. "Marketing and Promotional Documents" has the meaning
ascribed to such term in Section 2.11.
1.34. "Material Adverse Effect" means a material adverse effect
on the Assets and the Business taken as a whole.
1.35. "Morgan Stanley" has the meaning ascribed to such term in
Section 5.6.
1.36. "Patents" has the meaning ascribed to such term in
Section 2.1.
1.37. "PCI Agreement" has the meaning ascribed to such term in
Section 2.13.
1.38. "Product" means each presentation of any pharmaceutical
preparation (including formulation changes and production
intermediates) containing the Active Ingredient, whether registered,
marketed or in development by Sellers, as of the Closing Date.
1.39. "Purchase Price" means such term as used in Section 3.
1.40. "Registrations" has the meaning ascribed to such term in
Section 2.6.
1.41. "Research and Development Materials Licence" has the
meaning ascribed to such term in Section 2.8.
1.42. "Roche Group" means Roche Holding Ltd, a Swiss
corporation, and its Affiliates (excluding Genentech, Inc. and
subsidiaries thereof).
1.43. "Supply Agreement" means the agreement referred to in
Section 9.1.
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1.44. "Territory" means the United States of America and Canada
and their respective possessions or territories.
1.45. "Trademarks" has the meaning ascribed to such term in
Section 2.5.
1.46. "Transition Services Agreement" has the meaning ascribed
to such term in Section 8.10.
1.47. "World-wide Safety Reports" has the meaning ascribed to
such term in Section 2.10.
2. ASSETS BEING SOLD
Subject to Section 2.17 and the other terms and conditions of
this Agreement, at Closing, Parent shall cause the relevant companies
of the BM Group to be designated (collectively, the "Sellers") to sell,
transfer, assign, licence or sublicence, as specified below, to Buyer
and to deliver to Buyer the assets listed below (the "Assets"), and
Buyer shall assume all the rights, titles and interest in the Assets
and all obligations and responsibilities associated therewith as stated
in this Agreement; provided, however, that except as specifically
stated herein, Buyer shall not assume any liabilities, contingent or
otherwise, arising out of or related to the conduct of the Business
prior to the Closing Date.
It is intended by the parties that the sale, transfer, assignment,
conveyance, delivery or licence or sublicence to Buyer pursuant to this
Agreement of all assets and rights of Sellers relating to the Business
shall, together with the Supply Agreement, the Transition Services
Agreement and Buyer's own resources, permit Buyer as of the Closing
Date to conduct the Retavase Business in the same manner as is
currently conducted by Sellers.
Prior to Closing, Buyer may designate one or more Affiliates of
Buyer to which the Assets shall be transferred at Closing by Sellers.
At Closing, Parent shall cause the following to occur:
2.1. Patents. Sellers shall sell, transfer, assign, convey and
deliver to Buyer all of Sellers' rights, title and interest in the
patents and patent rights set forth in Schedule 2.1 hereto (the
"Patents"), and patents of addition, re-examinations, reissues,
extensions, granted supplementary
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protection certificates, substitutions, confirmations, registrations,
revalidations, revisions, additions and the like, of or to said patents
and patent rights and any and all continuations and
continuations-in-part.
2.2. Licenced Patents. Sellers shall grant and deliver to Buyer
a perpetual, paid-up, irrevocable, royalty-free, unlimited (other than
as provided in this Agreement) licence for the Territory under the
patents set forth in Schedule 2.2 hereto (the "Licenced Patents"), with
the right to sublicence; such licence (and any sublicence thereunder)
shall be exclusive for use in the Retavase Business (or outside the
Territory solely and exclusively with respect to the manufacture of, or
research, development, or the conduct of clinical trials with respect
to, the Active Ingredient or the Product for sale in the Territory),
and the Roche Group (including without limitation the BM Group
companies) shall not retain any right to use or licence such Licenced
Patents for use in the Retavase Business. Except for use in the
Retavase Business and as set forth in Section 2.16, the Roche Group
(including without limitation the BM Group companies) retains, and is
not transferring hereunder, the exclusive right to use or to licence
such patents for use with any other products in or outside the
Territory as well as for the Active Ingredient or the Product outside
the Territory.
2.3. Patent Applications.
2.3.1. Sellers shall grant and deliver to Buyer a perpetual, paid-
up, irrevocable, royalty-free, unlimited (other than as provided in
this Agreement) licence for the Territory under the patent applications
set forth in Schedule 2.3 hereto (the "Licenced Patent Applications"),
and any and all divisions, continuations and continuations-in-part,
with the right to sublicence, such licence (and any sublicence
thereunder) shall be exclusive for use in the Retavase Business (or
outside the Territory solely and exclusively with respect to the
manufacture of, or research, development or the conduct of clinical
trials with respect to, the Active Ingredient or the Product for sale
in the Territory), and the Roche Group (including without limitation
the BM Group companies) shall not retain any right to use or licence
such Licenced Patent Applications for use in the Retavase Business.
Except for use in the Retavase Business and as set forth in Section
2.16, the Roche Group (including without limitation the BM Group
companies) retains, and is not transferring hereunder, the exclusive
right to use or to licence such patent applications and patents that
may result therefrom for use with any other products in or outside the
Territory as well as for the Active Ingredient or the Product outside
the Territory.
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2.3.2. If based on a Licenced Patent Application a patent should
issue which is solely used in the Retavase Business, Parent shall
inform Buyer when a notice of allowance is issued and such patent shall
be assigned to and assumed by Buyer in accordance with the principles
set forth in Section 8.1 below.
2.4. Fujisawa Patent Licence. BM shall assign or sublicence to
Buyer the Licence Agreement between Fujisawa Pharmaceutical Co., Ltd.,
Osaka, Japan, and Boehringer Mannheim GmbH, Mannheim, Germany, dated 9
September 1997/15 September 1997, relating to the Business ("Fujisawa
Patent Licence") and Buyer shall, in the event of an assignment, assume
the Fujisawa Patent Licence. In the event that after good faith
negotiations among Parent, Buyer and Fujisawa, the parties agree that
Buyer, upon assumption of the Fujisawa Patent Licence, will pay a
licence fee in excess of 3%, Parent agrees that it will pay for any
such fee in excess of 3%. In connection with the payment by Parent of
any fee pursuant to this provision, Parent shall ensure that it does
not obtain any confidential information from Buyer.
2.5. Trademarks. Sellers shall sell, transfer, assign, convey
and deliver to Buyer all of Sellers' rights, title and interest in the
trademark/service mark applications for the Business, which are set
forth on Schedule 2.5 (the "Trademarks"), together with the pertaining
documents, such as registration and renewal confirmations, trademark
agreements and consent letters, etc. "Trademarks" also includes any
copyrights and any unregistered trade dress that are owned by Sellers
which are associated solely with the Business and (only as to trade
dress) currently used on or in association with the Business.
"Trademarks" shall not include copyrights and trade dress associated
with the divisions, companies or corporate entities of Parent, BM Group
or their Affiliates or distributors. "Trademarks" also does not include
copyrights and trade dress associated with the Product and also
associated with products not being transferred to Buyer.
2.6. Registrations. Sellers shall sell, transfer, assign,
convey and deliver to Buyer all of Sellers' rights, title and interest
in the regulatory files and approvals, registrations and governmental
authorisations, PLAs (product licence applications), DINs, compliance
notices, licences and permits, and any applications to the FDA or the
comparable Canadian body or bodies pending at the Closing Date,
contractual rights, materials and information relating to FDA and other
government or regulatory approvals, all of which relate to the Business
and that are held by Sellers,
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which are set forth on Schedule 2.6 as well as the information contained
therein (the "Registrations").
2.7. Manufacturing Technology and Know-How. Sellers shall sell,
transfer and deliver to Buyer the ownership and beneficial interest of BM in
all BM manufacturing technology and know-how and trade secrets that is
solely and exclusively used in the Business, all as set forth in Schedule
2.7 (the "Know-How"); and a perpetual, paid-up, irrevocable, royalty-free
licence, with right to sub-licence, to use any manufacturing technology and
know-how that are used in the Retavase Business (or outside the Territory
solely and exclusively with respect to the manufacture of the Active
Ingredient or the Product (or a future formulation of the Product) for sale
in the Territory) (but not exclusively used thereto or usable for other
purposes as well) (the "Know-How Licence"); such licence (and any sublicence
thereunder) shall be exclusive for use in the Retavase Business, and the
Roche Group (including without limitation the BM Group companies) shall not
retain any right to use or licence such know-how for use in the Retavase
Business. Except as set forth in Section 2.16, the Roche Group (including
without limitation the BM Group companies) retains, and is not transferring
hereunder, the exclusive right to use or to licence such licenced
manufacturing technology and know-how for use with any other products in or
outside the Territory as well as for the Active Ingredient or the Product
outside the Territory. The parties hereby acknowledge and agree that Know-
How shall not include, and any limitation in the Know-How Licence shall not
be binding on Buyer as to, any information Buyer can demonstrate (i) was in
the public domain prior to the date of this Agreement or thereafter enters
the public domain through no fault of Buyer, its affiliates or their
respective representatives, (ii) was available to Buyer on a non-
confidential basis prior to its disclosure to Buyer by Parent, Sellers,
their affiliates or their respective representatives, (iii) is later
lawfully acquired by Buyer from sources other than Parent, Sellers, their
affiliates or their respective representatives who are not, to the best of
knowledge of Buyer, subject to any legally binding obligation to keep such
information confidential, or (iv) independently developed by Buyer without
reference to the Know-How or Know-How Licence.
2.8. Research and Development Materials. Sellers shall sell, transfer
and deliver to Buyer copies of all the BM research and development reports
existing as of the Closing Date which relate to the Business, a list of
which is set forth on Schedule 2.8, and shall grant and deliver to Buyer a
perpetual, paid-up, irrevocable, royalty-free licence, with a right to sub-
licence, to use any such materials in the Retavase
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Business (the "Research and Development Materials Licence"). Such licence
shall be exclusive for use in the Retavase Business (or outside the
Territory solely and exclusively with respect to the manufacture of, or the
conduct of clinical trials with respect to, the Active Ingredient or the
Product in the Territory), and the Roche Group (including without limitation
the BM Group companies) shall not retain any right to use or licence such
materials for use in the Retavase Business. Except as set forth under
Section 2.16, the Roche Group (including without limitation the BM Group
companies) retains, and is not transferring hereunder, the exclusive right
to use or to licence such materials for use with any other products in or
outside the Territory as well as for the Active Ingredient or the Product
outside the Territory.
2.9. Clinical Data. Sellers shall sell, transfer and deliver to Buyer a
copy of all Clinical Data contained in Seller's clinical databases referring
to the Active Ingredient or the Product in the form of the SAS data sets
(the "Clinical Data").
2.10. World-wide Safety Reports. Sellers shall sell, transfer and
deliver to Buyer a hard copy and an electronic copy in the form existing as
of the Closing Date of all world-wide safety reports of BM and its
Affiliates with respect to the Active Ingredient or the Product existing as
of the Closing Date (the "World-wide Safety Reports").
2.11. Marketing and Promotional Documents. Sellers shall sell, transfer
and deliver to Buyer all hard copies and electronic copies existing as of
the Closing Date of the marketing and promotional documents owned by
Sellers, such as customer lists, marketing and promotional plans, documents
and materials, field force training manuals and materials, and placebo or
demonstration kits that are exclusively used in the Business (the "Marketing
and Promotional Documents"). All such documents shall be shipped FOB
Sellers' location. To the extent documents exist which contain marketing and
promotional materials relating both to the Product in the Territory and to
other products or the Product outside the Territory, Sellers shall transfer
and not retain all portions of such documents relating to the Product in the
Territory to Buyer.
2.12. Inventory. Sellers shall sell, transfer and deliver to Buyer all
inventory consisting of Product (including samples and placebo kits), that
are owned by Sellers for the Territory and that have been approved or are
subsequently approved as meeting specifications, have a minimum of 12 months
of expiration dating and are otherwise saleable in the ordinary and normal
course of business as of the Closing Date (the "Inventory"), the
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prices of which are set forth on Schedule 2.12(a) hereto; the location of
which are set forth on Schedule 2.12(b); the quantity of which shall be set
forth in a document delivered by Parent at Closing.
2.13. Assumed Agreements. Subject to consent of the other parties to
such agreements, Parent agrees to cause to be assigned, and Buyer agrees to
assume, all rights and obligations of Sellers, under the Agreements listed
below (the "Assumed Agreements").
2.13.1. DPM Agreement. The Copromotion Agreement between BMC and The
DuPont Merck Pharmaceutical Company, Philadelphia, dated 20 December, 1996
for the copromotion of the Product in the United States of America (the "DPM
Agreement").
2.13.2. PCI Agreement. The Packaging Agreement between BMC and Packaging
Coordinators, Inc., Philadelphia, dated 29th June, 1995 for the assembling
and packaging of the kits as defined in that agreement (the "PCI
Agreement").
2.13.3. Other Agreements. The agreements set forth on Schedule 2.13.3.
2.14. Other Assets. Sellers shall sell, transfer and deliver to Buyer
(i) trade secrets, customer and supplier lists of Sellers to the extent
related to the Business and (ii) files of Sellers to the extent related to
the Genentech Patent Suits.
2.15. Tangible Assets. Sellers shall sell, transfer and deliver to Buyer
certain tangible assets related solely to the Business as agreed by the
parties in good faith prior to the Closing Date to be selected from the list
set forth on Schedule 2.15, provided that Sellers shall not be obligated to
transfer any such assets not owned by Sellers.
2.16. Non-exclusive Licences. Subject to Section 3.5, Sellers shall
grant and deliver to Buyer a non-exclusive, perpetual, paid-up, irrevocable,
unlimited (except as provided in this Agreement) licence in the Territory
under the Licenced Patents, the Licenced Patent Applications (and any and
all divisions, continuations and continuations-in-part), the Know-How
Licence and the Research and Development Materials Licence, with the right
to sublicence, for use in the human pharmaceutical field.
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2.17. Limitation of Sale of Assets. Buyer expressly acknowledges that
the Roche Group is retaining certain information identical to that contained
in the Patents, Registrations, Know-How, Research and Development Materials
Licence, Clinical Data, World-wide Safety Reports, Marketing and Promotional
Documents and the other assets pursuant to Section 2 which is relevant for
the research, development, manufacture, control, packaging or release,
marketing or sale of products similar or identical to the Active Ingredient
or the Product outside the Territory for their own and/or authorised third
parties' use outside the Territory. Buyer further expressly acknowledges
that except as provided in Section 2.16 the Roche Group is retaining (and
are not transferring hereunder) any and all assets used solely in the
research, development, manufacture, control, packaging or release, marketing
or sale of other products or projects in the Territory or outside the
Territory and may use, licence or dispose of such assets in their discretion
and Buyer shall not have any right to any such assets.
3. PURCHASE PRICE
3.1. Purchase Price. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties, covenants and
agreements of Parent contained herein and the representations and warranties
of Sellers to be made to Buyer at Closing, and in consideration of the sale,
conveyance, assignment, transfer and delivery of the Assets provided for in
Section 2 hereof, Buyer will deliver at Closing in full payment for the
aforesaid sale, conveyance, assignment, transfer and delivery, the Purchase
Price of US $335 million; US $315 million of which shall be paid to Sellers,
by bank wire transfer at such banking institutions as have been designated
by Parent not less than five (5) days prior to Closing and US$ 20 million of
which shall be deposited in an escrow account pursuant to arrangements to be
negotiated in good faith by Parent and Buyer prior to the Closing Date. This
amount (together with interest thereon) shall be returned to Buyer upon the
meeting of manufacturing milestones consistent with the manufacturing
arrangements set forth in Section 9.4. In the event such manufacturing
milestones are not met by Buyer, such amount shall be paid to Sellers.
3.2. Allocation of Purchase Price. The parties shall negotiate in good
faith an allocation of the Purchase Price.
3.3. Payment for Inventory. In addition to the Purchase Price according
to Section 3.1 above, Buyer shall pay to Parent, acting on behalf of
Sellers, in US dollars for the Inventory, based on the quantity document
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delivered pursuant to Section 2.12 by Parent at Closing; provided that, at
the request of Parent, any such payment may be made directly to the relevant
Seller. Buyer shall effect such payment by bank wire transfer so that Parent
or relevant Seller shall receive it in its designated bank account within 10
(ten) days from Closing.
3.4. Refund of Purchase Price. (a) In the event Buyer, without any
breach of this Agreement, as a result of (i) a binding determination
(including a permanent, temporary or preliminary injunction for so long as
such injunction is not stayed or vacated) in connection with the Genentech
Patent Suits or (ii) a settlement of the Genentech Patent Suits; provided
that such settlement is commercially reasonable for Buyer under the
circumstances in absence of Parent's reimbursement obligations pursuant to
this Section 3.4:
(A) becomes unable during the life of the relevant Genentech patents
to engage in the manufacture or sale of the Product in the Territory,
Parent, acting on behalf of Sellers, shall (1) in the event Buyer's
inability to engage in the manufacture or sale of the Product in the
Territory continues for a period of three months or less, reimburse
Buyer for lost profits during such period in an amount not to exceed
the Purchase Price (not including the escrow amount), (2) in the event
Buyer's inability to engage in the manufacture or sale of the Product
in the Territory continues for a period of greater than three months
but less than or equal to six months, Parent shall refund 25% of the
Purchase Price (not including the escrow amount) to Buyer, (3) in the
event Buyer's inability to engage in the manufacture or sale of the
Product in the Territory continues for a period of greater than six
months but less than or equal to 12 months, Parent shall reimburse 75%
of the Purchase Price (not including the escrow amount) to Buyer and
(4) in the event Buyer's inability to engage in the manufacture or sale
of the Product in the Territory continues for a period of greater than
12 months, Parent shall reimburse 100% of the Purchase Price (not
including the escrow amount) to Buyer, in each case net of payments to
Buyer made pursuant to the clauses (1), (2) and (3), as the case may
be; provided that in the event a binding determination occurs within
six months prior to the expiration of the relevant Genentech patent or
patents, Parent shall have no obligation to make a further refund of
the Purchase Price to Buyer;
(B) becomes obligated to make payments to Genentech, Inc. or an
affiliate thereof (1) for damages (including lost profits) or (2)
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for a reasonable royalty, in either case by reason of any award or
agreement, Parent shall refund to Buyer any such payments actually made
by Buyer;
(C) it being understood that the total payments to Buyer pursuant to
paragraphs (A) and (B) above shall in no event exceed 125% of the
Purchase Price (and in no event shall include any portion of the escrow
amount that has already been returned to Buyer).
(b) Parent, acting on behalf of Sellers, shall pay 50% of all reasonable
fees and expenses of attorneys (who are not employees of Buyer) and fees
paid to agents, experts and courts incurred in connection with the defence
(including counterclaims, nullity actions, opposition proceedings and
appeals) of the Genentech Patent Suits, subject to audit of such fees and
expenses by a nationally recognised independent auditor to be mutually
agreed to by Parent and Buyer. The statements that are provided by such
auditor to Parent setting forth the fees and expenses due shall not reveal
any detailed confidential information regarding Buyer's conduct of, or
strategy with respect to, the Genentech Patent Suits. Any expenses relating
to in-house attorneys shall be paid by the party incurring such expenses.
(c) Buyer agrees to pursue vigorously the defence of the Genentech Patent
Suits, including, subject to applicable law, to pursue in good faith any
appeal of an adverse determination thereof.
3.5. Royalty Payments.
3.5.1. Buyer shall be required to make royalty payments and other
arrangements under the circumstances described below for products other than
the Product (and for the Product in the circumstance described in subsection
(D)(x) of this Section 3.5.1), if following the Closing Date Buyer
(i) commercialises any product (other than the Product or a future
formulation of the Product) using any of the Licenced Patents, the
Licenced Patent Applications (and any and all divisions, continuations
and continuations-in-part), the Know-How Licence or the Research and
Development Materials Licence; or
(ii) sublicences or cross-licences any of the Licenced Patents, the
Licenced Patent Applications (and any and all divisions,
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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 ASTERICKS (*); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
continuations and continuations-in-part), the Know-How Licence or the
Research and Development Materials Licence, then the Roche Group shall
receive value for such commercialisation, sublicencing or cross-
licencing arrangements in accordance with the following principles:
(A) if Buyer commercialises a product (other than the Product or a
future formulation of the Product) that uses any of the Licenced
Patents, the Licenced Patent Applications (and any and all
divisions, continuations and continuations-in-part), the Know-How
Licence or the Research and Development Materials Licence Buyer
shall pay to the Roche Group an aggregate royalty of [*] of the
net sales of such product;
(B) if Buyer sublicences any of the Licenced Patents, the Licenced
Patent Applications (and any and all divisions, continuations and
continuations-in-part), the Know-How Licence or the Research and
Development Materials Licence to a third party in return for a
royalty payment, Buyer shall pay to the Roche Group [*] of such
royalty payment;
(C) if Buyer cross-licences any of the Licenced Patents, the
Licenced Patent Applications (and any and all divisions,
continuations and continuations-in-part), the Know-How Licence or
the Research and Development Materials Licence to a third party
and receives any right to such third party's products or products
in development, and Buyer commercialises such products, then Buyer
shall pay to the Roche Group an aggregate royalty of [*] of the
net sales of such products;
(D) if Buyer cross-licences to a third party any of the Licenced
Patents, the Licenced Patent Applications (and any and all
divisions, continuations and continuations-in- part), the Know-How
Licence or the Research and Development Materials Licence and
receives the right to use any of such third party's manufacturing
technology, then if such manufacturing technology is
(x) specifically applicable to the Product (or a future
formulation of the Product) and Buyer obtains a
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Confidential Treatment Requested
<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 ASTERICKS (*); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
worldwide sublicence therefor, Buyer shall grant to the Roche
Group a non-exclusive, perpetual, paid-up, irrevocable,
royalty-free licence for use in the manufacture of the
Product (or a future formulation of the Product) outside the
Territory;
(y) applicable to products other than the Product (or a
future formulation of the Product) and Buyer obtains a
worldwide licence therefor, the Roche Group shall have the
option to receive (1) a non-exclusive, perpetual, paid-up,
irrevocable, royalty-free sublicence to such manufacturing
technology for use in the manufacture of any such products or
(2) [*] of the gross margin benefit achieved by Buyer as a
result of Buyer's application of such manufacturing
technology to any such products; or
(z) applicable to products other than the Product (or a
future formulation of the Product) and Buyer obtains a
licence therefor limited to the Territory, the Roche Group
shall receive [*] of the gross margin benefit achieved by
Buyer as a result of Buyer's application of such
manufacturing technology to any such products;
(E) if Buyer enters into any sublicence or cross-licence
arrangement in connection with any of the Licenced Patents, the
Licenced Patent Applications (and any and all divisions,
continuations and continuations-in-part), the Know-How Licence or
the Research and Development Materials Licence not specifically
described in clauses (A) through (D), Parent and Buyer agree to
negotiate in good faith an arrangement based upon the principles
set forth above.
3.5.2. If the Roche Group is entitled to receive payments pursuant to
Section 3.5.1, Buyer shall promptly inform the Roche Group of its
entitlement to such payments and an independent auditor may, upon the
request of the Roche Group, be appointed to verify the amount of any such
payment properly due to the Roche Group and the Roche Group and Buyer shall
implement procedures to ensure that no confidential information is shared
between the parties in connection with the calculation or verification of
such payments.
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Confidential Treatment Requested
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4. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants as follows:
4.1. Organisation. Parent is a corporation duly organised, validly
existing and in good standing under the laws of Bermuda, with full
corporate power and authority to consummate the transactions contemplated
hereby.
4.2. Authority. The execution, delivery and performance of this
Agreement by Parent have been duly and validly authorised by all necessary
corporate proceedings, and this Agreement has been duly authorised,
executed, and delivered by Parent and, assuming the enforceability against
Buyer, will constitute the legal, valid and binding obligation of Parent,
enforceable in accordance with its terms.
4.3. No Violation or Conflict. The execution, delivery and performance
of this Agreement by Parent (a) do not and will not conflict with, violate
or constitute or result in a default under any law, judgement, order,
decree, the memorandum of association of Parent or any contract or
agreement to which Parent or Sellers are a party or by which Parent or
Sellers are bound or (b) will not result in the creation or imposition of
any lien, charge, mortgage, claim, pledge, security interest, restriction
or encumbrance of any kind on, or liability with respect to, the Assets
except as otherwise provided herein or otherwise disclosed on the
Disclosure Schedule.
4.4. No Government Restrictions. Except as required pursuant to the HSR
Act or as otherwise contemplated by this Agreement, no consent, approval,
order or authorisation of, or registration, declaration or filing with, any
governmental agency is required to be obtained or made by or with respect
to Parent in connection with the execution, delivery and performance of
this Agreement by Parent.
4.5. Title to Assets. Except as set forth in Section 4.5 of the
Disclosure Schedule, Sellers have good and marketable title to all the
Assets and will, subject to other provisions of this Agreement and the
Disclosure Schedule, convey good and marketable title at Closing, free and
clear of any and all liens, encumbrances, charges, claims, restrictions,
pledges, security interests, or impositions of any kind (including those of
secured parties). Except as set forth in Section 4.5 of the Disclosure
Schedule, Sellers beneficially own all of the rights, title or other
interests
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to be transferred to Buyer with respect to all the Assets and none of the
Assets is leased, rented, licenced, or otherwise not owned by Sellers.
Parent also represents that the Roche Group will not retain any copies of
customer lists exclusively used in the Business.
4.6. Patents. The Patents and the patents underlying the Licenced
Patents and the patent applications underlying the Licenced Patent
Applications have been applied for by and/or granted to BM. Except as
disclosed on Section 4.6 of the Disclosure Schedule, to the best of
Parent's knowledge (i) the manufacture, use or sale of the Product does not
infringe on any other patent in any material respect which would prohibit
the manufacture of the Product in the Territory or in Germany or the use or
sale of the Product in the Territory; (ii) there are no claims, demands or
proceedings instituted, pending or seriously threatened by any third party
pertaining to or challenging BM's rights to any Patents or patents
underlying the Licenced Patents or any patent application underlying the
Licenced Patent Applications; (iii) Parent and Sellers are not aware of any
facts which would render any of the Patents or patents underlying the
Licenced Patents or any patent application underlying the Licenced Patent
Applications, invalid or unenforceable. It is understood that a disclosure
made in any section of the Disclosure Schedule is made solely for the
purpose of this Agreement and does not imply any acknowledgment of Parent
or Sellers that any third party rights exist or that the Product infringes
any third party right.
4.7. Trademarks. Sellers own the Trademarks set forth in Schedule 2.5
which are formally registered or applied. All Trademark applications set
forth in Schedule 2.5 have been duly filed and maintained. Except as
disclosed on Section 4.7 of the Disclosure Schedule, to the best of
Parent's knowledge (i) the use of the Trademarks for the Product in the
Territory does not infringe on any other trademark in any material respect
which would prohibit the use of the Trademarks for the Product in the
Territory, and (ii) there are no claims, demands or proceedings instituted,
pending or seriously threatened by any third party pertaining to or
challenging Sellers' rights to any Trademark in the Territory.
4.8. Registrations. All Registrations held by Sellers in the Territory
are listed on Schedule 2.6. The Registrations (a) are in the name of
Sellers, (b) constitute all licences, permits, approvals, qualifications,
and governmental specifications, authorisations or requirements which
Sellers have in connection with the marketing and sale of the Product in
the Territory, and (c) to the best of Parent's knowledge, constitute all
such licences, permits, approvals, qualifications, and governmental
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specifications, authorisations, and requirements necessary for the
marketing and sale of the Product in the Territory as currently conducted
by Sellers.
4.9. Know-How and Know-How Licence. The Know-How and Know-How Licence
together with the Buyer's own resources will be sufficient to permit Buyer
(or a third party designated by Buyer) to manufacture, control, package or
release (as applicable) the Active Ingredient or the Product to the same
standards as Sellers currently enjoy or will enjoy as of the termination of
the Supply Agreement.
4.10. Inventory. As of the Closing, the Inventory shall meet the
specifications therefor as set forth in the manufacturing documentation and
Registrations for such Product with the competent authorities in the
country concerned of the Territory. The Inventory will be in good
condition, properly stored, having a minimum of 12 months of expiration
dating from the Closing Date and in compliance with applicable laws, usable
and saleable in the ordinary course of business.
4.11. Taxes. As of the date hereof, there are no liens for taxes upon
the Assets except for liens for current taxes not yet due and payable.
4.12. Absence of Certain Changes. As of the date hereof and as of the
Closing Date and except as set forth on Section 4.12 of the Disclosure
Schedule, there has not been any material adverse change in the Assets or
the Business and Parent and Sellers are not aware of any facts or
circumstances that would have a Material Adverse Effect after Closing.
4.13. Violations of Law. Except as set forth in Section 4.13 of the
Disclosure Schedule or otherwise in this Agreement and the Disclosure
Schedule, to the best of Parent's knowledge, the utilisation of the Assets
and the conduct of the Business by Sellers (i) does not violate or conflict
with any law, governmental specification, authorisation, or requirement, or
any decree, judgement, order, or similar restriction in any material
respect, or (ii) has not been the subject of an investigation or inquiry by
any governmental agency or authority regarding violations or alleged
violations, or found by any such agency or authority to be in violation, of
any law, other than investigations, inquiries or findings that have not
had, or are reasonably likely not to have, a Material Adverse Effect.
4.14. Financial Information.
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4.14.1. The BM Monthly Sales Statements have been and will be accurate
and complete in all material respects, reflect only actual bona fide
transactions, are consistent with the accounting records of the BM Group
legal entities, contain or will be made to contain information to enable
Buyer to determine the nature and amounts of all deductions from gross
sales necessary to calculate BM Net Sales, and were and will be prepared in
a manner consistent with principles applied under U.S. generally accepted
accounting principles (GAAP) consistently applied.
4.14.2. None of Sellers and their Affiliates have any material
liabilities, contingent, absolute, accrued or otherwise, relating to the
Assets.
4.15. Litigation. Except as set forth on Section 4.15 of the
Disclosure Schedule or otherwise in this Agreement and the Disclosure
Schedule, to the best of Parent's knowledge, the Assets are not the subject
of (i) any outstanding judgement, order, writ, injunction or decree of any
arbitrator or administrative or governmental authority or agency, limiting,
restricting or affecting the Assets in a way that would have a Material
Adverse Effect, (ii) any pending or, to the best of Parent's knowledge,
seriously threatened claim, suit, proceeding, charge, inquiry,
investigation or action of any kind, and (iii) any court suits filed with
respect to the Assets since 1 January 1996. Subject to other provisions of
this Agreement, to the best of Parent's knowledge, there are no claims,
actions, suits, proceedings or investigations pending or threatened by or
against Sellers or Parent with respect to the transactions contemplated
hereby, at law or in equity or before or by any federal, state, municipal
or other governmental department, commission, board, agency,
instrumentality or authority that would have a Material Adverse Effect.
4.16. Sufficiency of Assets. The Patents, Licenced Patents, Licenced
Patent Applications, Registrations, Know-How and Know-How Licence being
transferred to Buyer are all of the patents, licenced patents, licenced
patent applications, registrations, know-how and know-how licences
necessary to enable Buyer to produce the Product in the Territory.
4.17. Conduct of Business. Subject to applicable laws and regulations
and the Stock Purchase Agreement, Sellers have conducted the Business in
accordance with customary business practices and the 1997 marketing plan or
the 1998 marketing plan, as applicable, and have taken all reasonable steps
to maintain the Business, including reasonable incentives to maintain the
marketing and sales personnel relating to sales of the Product in the
United States.
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4.18. Retavase Business. Nothing in this Section 4 shall be construed as
a representation or warranty by Parent with respect to the Retavase
Business as conducted by Buyer following the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants as follows:
5.1. Organisation. Buyer is a corporation duly organised, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, has all corporate powers and material governmental licences,
authorisations, permits, consents and approvals required to carry on its
business as currently conducted and has full corporate power and authority
to consummate the transactions contemplated hereby.
5.2. Authority. The execution, delivery and performance of this
Agreement by Buyer have been duly and validly authorised by all necessary
corporate proceedings, and this Agreement has been duly authorised,
executed, and delivered by Buyer and, assuming the enforceability against
Parent, constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms.
5.3. No Violation or Conflict. The execution, delivery and the
performance of this Agreement by Buyer do not and will not conflict with,
violate or constitute or result in a default under any law, judgement,
order, decree, the articles of incorporation or bylaws of Buyer, or any
contract or agreement to which Buyer is a party or by which Buyer is bound.
5.4. No Government Restrictions. Except as required pursuant to the HSR
Act or as set forth in Schedule 5.4 no consent, approval, order or
authorisation of, or registration, declaration or filing with, any
governmental agency is required to be obtained or made by or with respect
to Buyer in connection with the execution, delivery and performance of this
Agreement by Buyer.
5.5. Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the best of Buyer's knowledge, threatened by
or against Buyer with respect to the transactions contemplated hereby, at
law or in equity or before or by any federal, state, municipal or other
governmental department, commission, board, agency, instrumentality or
authority.
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5.6. Financing. Buyer has received, and furnished a copy to Parent of,
a commitment letter signed by Buyer and Morgan Stanley & Co. Incorporated
("Morgan Stanley") in a form satisfactory to Parent (the "Commitment
Letter") to provide the financing for the Purchase Price and the Commitment
Letter is in full force and effect. Buyer shall have at Closing sufficient
funds to pay the Purchase Price.
5.7. Assets. Buyer is, and/or has engaged expert advisors, experienced
in the evaluation and purchase of property and assets such as the Assets as
contemplated hereunder. Buyer has undertaken such investigation and has
been provided with and has evaluated such documents and information as it
has deemed necessary to permit it to make an informed and intelligent
decision with respect to the execution, delivery and performance of this
Agreement. Buyer has satisfied itself that the Assets will, if transferred
to Buyer as provided in Section 2, permit Buyer, together with the
activities to be performed by Parent and its Affiliates pursuant to the
Supply Agreement, the Transition Services Agreement and the resources to be
provided by Buyer, as contemplated by Buyer's plan for the Retavase
Business presented to the FTC, to conduct the Retavase Business immediately
after the Closing Date.
6. PARENT'S COVENANTS
Parent covenants and agrees as follows:
6.1. Maintenance of Assets/Conduct of Business. Parent agrees that from
the date hereof until the Closing Date, except as specifically disclosed in
Section 6.1 of the Disclosure Schedule or unless otherwise consented to by
Buyer in writing, Parent shall, subject to applicable laws and regulations,
use its efforts to cause Sellers to preserve the Assets and to conduct the
Business in the ordinary course as set forth in the Stock Purchase
Agreement. From the closing of the Stock Purchase Agreement, Parent
undertakes as follows:
6.1.1. except as set forth in this Agreement or disclosed on the
Disclosure Schedule to cause Sellers and their Affiliates to maintain the
Assets in good status and condition and not sell or dispose of any of the
Assets except in the ordinary course of business;
6.1.2. to cause Sellers and their Affiliates to not make or institute any
unusual or novel methods of purchase, manufacture, sale, wholesale
inventory build-up, management, operation, or other business practice in
the conduct of the Business inconsistent with past practices; wholesale
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inventory build-up at the Closing Date shall not materially exceed two
month's supply, except as otherwise agreed by Parent and Buyer;
6.1.3. to cause Sellers not to enter into any material contract or
commitment, engage in any transaction, extend credit or incur any
obligation with respect to the Business, in each case not in the usual and
ordinary course of business and consistent with normal business practices;
and
6.1.4. to inform Buyer promptly of any change in the Assets or the
Business that would have a Material Adverse Effect.
6.2. Compliance with Laws. Except as otherwise disclosed on the
Disclosure Schedule, Parent shall comply or begin to remedy any non-
compliance or cause Sellers to comply or begin to remedy, any non-
compliance upon notification thereof in all material respects with all laws
and orders of any court or federal, state, local or other governmental
entity applicable to the Assets or the Business except where such that any
non-compliance will not have a Material Adverse Effect at or after Closing.
6.3. Access.
6.3.1. From and after the date hereof and up to the Closing Date (except
as otherwise provided herein) subject to applicable laws and regulations,
Parent shall use reasonable efforts to cause Sellers to grant Buyer and its
authorised agents, officers, and representatives access to the Assets
during normal business hours upon reasonable prior notice and at a time and
manner mutually agreed upon between Buyer and Parent in order to conduct
such examination and investigation of the Assets as is reasonably
necessary, provided that such examinations shall not unreasonably interfere
with the operations and activities of Sellers.
6.3.2. Parent will not, and will cause Sellers not to, disclose any
confidential information relating to the Business to other entities of the
Roche Group from and after the closing of the Stock Purchase Agreement up
to the Closing Date.
6.4. Patent Maintenance and Defence. As to any patents and patent
applications licenced to Buyer pursuant to this Agreement, Parent shall
assume, or cause Sellers to assume the following obligations for the
Territory: (a) to pay all prosecution cost for any pending patent
application; (b) to pay all maintenance fees; (c) to keep Buyer advised of
the status of all patent documents embraced by items (a) and (b) above;
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(d) to advise Buyer of any actual or, to the best of Parent's knowledge,
potential acts of infringement by any party; (e) to pursue and pay for all
available extensions; and (f) not to abandon any patent or patent
application underlying the Licenced Patents or Licenced Patent Applications
without giving Buyer written notice of at least 6 (six) months in advance
of any action toward abandonment in order for Buyer to take responsibility
for maintenance of such patent. To the extent Buyer has a licence under
this Agreement for a patent of Sellers, Buyer shall be solely responsible
for the defence of any patent suit relating to the Product in the
Territory. Buyer shall not abandon or interfere with any other aspect of
such patents.
6.5. Sale of Retavase by the Roche Group. During the term of the Supply
Agreement the Roche Group will not sell any assets used by the Roche Group
to supply Buyer with the Active Ingredient pursuant to the Supply
Agreement. If during the one year period following commencement by Buyer or
a third party designated by Buyer of the manufacture of the Product for
sale in the Territory, the Roche Group desires to sell all of the assets
relating solely to the research, development, manufacture, control,
packaging or release, marketing or sale of the Active Ingredient and the
Product outside the Territory to a third party, the Roche Group shall give
written notice to Buyer that the Roche Group desires to effect such a sale.
Buyer shall have a 30-day period in which to make an offer (the "Offer") to
purchase all of the assets relating solely to the research, development,
manufacture, control, packaging or release, marketing or sale of the Active
Ingredient and the Product outside the Territory by giving a written notice
to Parent or its Affiliate containing the proposed price and any other
material terms prior to the expiration of such 30-day period. The Roche
Group shall have the right in its sole discretion to accept or reject the
Offer. In the event Parent or its Affiliate rejects the Offer, the Roche
Group shall have the right to effect a sale of such assets to a third party
on substantially the same or more favourable terms from the perspective of
the Roche Group as set forth in the Offer.
6.6. Sales Force. Parent agrees to continue the currently implemented
stay-bonus program for the sales and marketing employees of the Business
through the earlier of (i) April 20, 1998 or (ii) the Closing Date.
6.7. Further Assurances. Parent shall use all reasonable efforts to
implement the provisions of this Agreement, and for such purpose Parent, at
the request of Buyer, at or after Closing, will, without further
consideration, execute and deliver, or cause to be executed and delivered,
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to Buyer such deeds, assignments, bills of sale, consents and other
instruments in addition to those required by this Agreement, in form and
substance satisfactory to Buyer, as Buyer may reasonably deem necessary or
desirable to implement any provisions of this Agreement.
6.8. Nonassertion. Notwithstanding the other provisions of this
Agreement, the Roche Group shall not assert or cause to be asserted against
Buyer, the contract manufacturer of Buyer or any customer of Buyer any
cause of action based upon infringement of any patents or patent
applications existing as of the Closing Date or patents issuing on such
patent applications of the Roche Group based on Buyer's conduct of the
Business following the Closing Date. For the avoidance of doubt, nothing
shall prevent the Roche Group or Buyer and its Affiliates from using any
technology that is in or comes into the public domain.
6.9. Genentech Disclosure. During the pendency of the Genetech Patent
Suits, Parent agrees that the Roche Group (including officers, directors
and employees of the Roche Group) will not disclose to any officer,
director or employee of Genentech, Inc., unless compelled to disclose by
judicial or administrative process or by other requirements of law, any
confidential information obtained by the Roche Group in connection with the
Corange Transaction (i) relating solely to the Business, or (ii) not
relating solely to the Business which would disclose to Genetech, Inc. the
application to thrombolytic drugs having essentially the same structure and
functionality as Retavase of any of the matters or know-how licenced to
Buyer pursuant to Section 2.16; provided that such obligation shall not
prevent the Roche Group from disclosing, to the extent necessary, such
confidential information to any person who is an officer, director or
employee of F. Hoffmann-La Roche Ltd or its Affiliates who is also a
director of Genentech, Inc. Information shall not be deemed to be
confidential to the extent that such information (i) was in the public
domain prior to the date of this Agreement or thereafter enters the public
domain through no fault of the Roche Group or its representatives, (ii) was
available to the Roche Group on a non-confidential basis, (iii) is later
lawfully acquired by the Roche Group from sources other than the Roche
Group or its representatives who are not subject to any legally binding
obligation to keep such information confidential, or (iv) independently
developed by the Roche Group.
6.10. Control of Genentech, Inc. In the event that (i) the Amended and
Restated Governance Agreement between Genentech, Inc. and Roche Holdings,
Inc. dated October 25, 1995 allows the Roche Group to control Genentech,
Inc. or (ii) the Roche Group obtains 100% of the stock of
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Genentech, Inc., the Roche Group shall cause to be dismissed, with
prejudice, the Genentech Patent Suits and shall cause Genentech, Inc.
to refrain from instituting any new litigation against Buyer as
provided for in the Agreement Containing Consent Order.
6.11. Keep Well Agreement. On or prior to the Closing Date,
Parent shall enter into a Keep Well Agreement (the "Keep Well") with
Roche Holding Ltd in substantially the form set forth in Exhibit D.
Parent further agrees that it shall not agree to any modification,
amendment or termination of the Keep Well if such modification,
amendment or termination shall have any adverse effect upon the ability
of Parent to meet its obligations under Section 3.4 and Section 13.7 of
this Agreement without the written consent of Buyer.
7. BUYER'S COVENANTS
Buyer covenants and agrees as follows:
7.1. Approvals and Registrations for Transfer of Distribution
of Products. Following Closing, Buyer shall use all reasonable efforts
and, except as otherwise set forth herein, at its own expense obtain as
expeditiously as possible such governmental approvals and registrations
from the competent regulatory authorities in the Territory, as may be
necessary with respect to the conduct of the Retavase Business by Buyer
or its designee (other than Parent or an Affiliate of Parent).
7.2. Labelling. Following Closing, Buyer shall at its own
expense and as expeditiously as possible use all reasonable efforts to
create, and to obtain such approvals of competent government
authorities in the Territory necessary for, Buyer's labelling for the
Product. Buyer may use the BM Labelling on the Inventory until such
Inventory is exhausted, subject to applicable laws and regulations in
the Territory. In addition, Buyer may, subject to applicable laws of
the relevant countries of the Territory, use the BM Labelling on each
Product manufactured by Parent or its Affiliates (including without
limitation the BM Group companies) for Buyer until the competent
authority approves Buyer's Labelling for use on the Product and Buyer,
using all efforts, has obtained sufficient supplies of materials with
Buyer's Labelling for use on such Product. Buyer may, however, use the
BM Labelling only in connection with clearly identifying Buyer as the
responsible person for commercialising the Product in a way approved in
advance by Parent, such approval not to be unreasonably withheld. All
expenses incurred by Buyer
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in connection with Buyer's labelling and package design of the Product
shall be solely for the account of Buyer.
7.3. References to Parent. Other than as set forth in Section
7.2 above, any reference to Parent or its Affiliates (including without
limitation the BM Group companies) or any use of the trademarks,
tradenames, or logos of Parent or its Affiliates (including without
limitation the BM Group companies) by Buyer in connection with the
Product after Closing must be approved by Parent in writing prior to
such use unless otherwise required by law or regulation; provided that
Buyer may refer to Sellers to the extent necessary to identify Sellers
as having previously sold the Product in the Territory. It is
understood that the Trademarks do not fall under this provision.
7.4. Further Assurances. Buyer shall use all reasonable
efforts to implement the provisions of this Agreement, and for such
purpose Buyer, at the request of Parent, at or after Closing, will,
without further consideration, execute and deliver, or cause to be
executed and delivered, to Parent such consents and other instruments
in addition to those required by this Agreement, in form and substance
satisfactory to Parent, as Parent may reasonably deem necessary or
desirable to implement any provision of this Agreement.
7.5. Financing. Buyer agrees to use its best efforts to
complete the financing referred to in Section 5.6 including, without
limitation, to (i) perform all of Buyer's obligations under the
Commitment Letter; (ii) take all actions necessary to cause the
conditions under the Commitment Letter to be satisfied; (iii) not take
any action which would be reasonably expected to cause such conditions
not to be satisfied; (iv) not amend or waive any provision of the
Commitment Letter without the prior written consent of Parent and (v)
enforce its rights against Morgan Stanley & Co. Incorporated under the
Commitment Letter.
7.6. Notification. If at any time Buyer becomes aware of any
facts or circumstances which would be reasonably likely to result in a
failure of any condition to Morgan Stanley's obligations under the
Commitment Letter, Buyer shall promptly notify Parent in writing
describing the same in reasonable detail.
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8. COVENANTS BY BUYER AND PARENT
Buyer and Parent covenant and agree as follows:
8.1. Assignment of Patents and Trademarks. By or before
Closing, Buyer and Parent shall prepare in good faith an assignment
pursuant to which Sellers agree the Patents and Trademarks shall be
assigned to Buyer. Following Closing, Buyer shall prepare and Sellers
shall execute such documents as Buyer may reasonably request in order
to assign and record the assignment of the Patents and Trademarks. The
responsibility and expense of preparing and filing such documents and
any actions required ancillary thereto, shall be borne solely by Buyer.
Notwithstanding anything contained elsewhere herein, Buyer shall hold
Parent and its Affiliates (including without limitation the BM Group
companies) harmless from and against any loss or damage, including but
not limited to fees, penalties, fines or third party claims, due to
Buyer's failure to record any assignment of any such Patents or
Trademarks pursuant to this Section 8.1, except if such loss or damage
is solely due to the conduct of Parent (including without limitation
the BM Group companies).
Neither Parent nor any of its Affiliates (including without
limitation the BM Group companies) shall be obliged to maintain any
Trademark after the Closing. Parent will pay or cause to be paid any
fees for renewals of any of the Trademarks as were initiated prior to
the Closing. All other renewal and maintenance fees as well as the cost
and expenses for defending the Trademarks against infringements by
third parties occurring after the Closing Date shall be paid by Buyer.
Parent will arrange for the files relating to the Trademarks to be
handed over to Buyer without delay after the Closing. Until the
termination of the Transition Services Agreement, Parent will promptly
notify Buyer of any infringement or threatened infringement of any of
the Trademarks coming to its attention and will, if the registration of
any of the Trademarks is still in the name of Sellers, at the expense
of Buyer take such action against the infringer as Buyer may reasonably
request to restrain such infringement, or alternatively authorise Buyer
or its nominee to take such action in its own name. In the latter
event, Parent or its Affiliates will at Buyer's expense provide
reasonable assistance to Buyer.
8.2. Assignment of Registrations. Parent and Buyer shall
cooperate to ensure that the Registrations shall be assigned to Buyer,
except where such assignment may be prohibited by law. At or following
Closing, Buyer shall prepare and Sellers shall execute such documents
as
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Buyer may reasonably request in order to record the assignment of the
Registrations. The responsibility and expense of preparing and filing
such documents and any actions required ancillary thereto shall be
borne solely by Buyer. In addition, Buyer shall pay any user fees
associated with any Product that accrues after Closing but prior to
transfer of such Registration. Notwithstanding anything contained
elsewhere herein, Buyer shall hold Parent and its Affiliates (including
without limitation the BM Group companies) harmless from and against
any loss or damage, including but not limited to fees, penalties, fines
or third party claims, due primarily to Buyer's failure to record any
assignment of any such Registrations pursuant to this Section, except
if such loss or damage is due primarily to the conduct of Parent and
its Affiliates (including without limitation the BM Group companies).
8.3. Clinical Studies Transfer. Parent and Sellers shall
complete ongoing clinical studies which are scheduled to be completed
within two (2) months from the Closing Date and following completion
shall provide electronic copies of the relevant Clinical Data and all
reports relating to such clinical studies to Buyer. Ongoing clinical
studies scheduled to be completed after two (2) months from the Closing
Date shall be transferred to Buyer. Parent and Buyer shall cooperate in
the transfer of such studies and all other materials related thereto.
8.4. Access to Information. Buyer and Parent will, upon
reasonable prior notice, make available to the other, to the extent
reasonably required for the purpose of assisting Parent or Buyer in
obtaining governmental approvals and preparation of tax returns or
other filings required by law or regulation relating to the Assets, and
prosecuting or defending or preparing for the prosecution or defence of
any action, suit, claim, complaint, proceeding or investigation at any
time brought by or pending against Parent or any of its Affiliates
(including without limitation the BM Group companies) or Buyer relating
to the Assets or the Supply Agreement, other than in the case of
litigation between the parties hereto, such information or records (or
copies thereof) in their possession after Closing.
8.5. Press Releases. Except as required by applicable law,
neither Parent nor Buyer, nor any Affiliate thereof, will issue or
cause publication of any press release or other announcement or public
communication with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other
party, which consent will not be unreasonably withheld or delayed. To
the extent that any announcement is
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required by applicable law, Parent and Buyer shall consult with each
other in good faith prior to such announcement.
8.6. Customer Information. Buyer jointly with Parent or their
relevant Affiliates shall be entitled and obliged to announce to the
clients in the Territory, the transfer of the Business to Buyer or its
relevant Affiliate.
8.7. Hospital and Other Purchasing Contracts. Buyer and Parent
shall take such actions as are reasonably necessary to cause the
assignment to Buyer of hospital and other health services provider
purchasing contracts for the purchase of the Product. Those contracts,
if any, that relate to the purchase of the Product as well as other
products shall be terminated by Sellers with respect to the Product as
soon as practicable after closing so as to allow Buyer to enter into
new contracts with respect to the Product.
8.8. Reconciliation with the Agreement Containing Consent
Order; Canadian Filings.
8.8.1. If required by the FTC, Parent and Buyer will cooperate
with one another and will negotiate in good faith to amend any
provision of this Agreement to the extent necessary to make the
provisions hereof consistent with the Agreement Containing Consent
Order; provided that no such amendment shall be required to be made
unless it is acceptable to Buyer and Parent.
8.8.2. The parties hereto shall promptly make or cause to be
made all filings required or deemed advisable under the Competition Act
(Canada). If required by law, the transaction contemplated by this
Agreement is contingent upon (i) the issuance under section 102 of the
Competition Act (Canada) of an Advance Ruling Certificate or (ii) the
expiry of the waiting period under section 123 of the Competition Act
(Canada) and receipt of advice in writing by the Director that he has
determined not to make an application for an order under section 92 or
100 of the Competition Act (Canada) or to commence an inquiry under
section 10 of the Competition Act (Canada). The transaction
contemplated by this Agreement is further contingent upon completion of
any filings and obtaining of any approvals under the Investment Canada
Act if required.
8.9. Genentech Patent Suits.
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8.9.1. Buyer covenants that, immediately upon Closing, Buyer
will undertake, in good faith, control of the full and complete defence
of the Genentech Patent Suits. Parent represents and Buyer acknowledges
that the Assets to be transferred to Buyer pursuant to this Agreement
include all assets that are currently utilised by BM in its defence of
the Genentech Patent Suits, to the extent such assets are owned by the
BM Group at Closing. Buyer undertakes in good faith to not abandon or
make any concessions in the defence of the Genentech Patent Suits in
Germany which affects the ability of Parent or any of its Affiliates
(including without limitation the BM Group companies) to manufacture or
sell the Active Ingredient or the Product or any product made therewith
outside the Territory or any other product or research or development
project in or outside the Territory. Buyer shall retransfer control of
defence of the Genentech Patent Suits in Germany immediately upon
commencement by Buyer of the manufacture of the Product outside Germany
in the event such suits are still pending at that time.
8.9.2. Parent undertakes that during the pendency of the
Genentech Patent Suits (or any appeals relating to such suits), Parent
will take all steps to make available to Buyer (i) such employees of
the Roche Group that are knowledgeable with respect to the matters at
issue in the Genentech Patent Suits (including without limitation the
BM Group companies) and (ii) such relevant files of the BM Group (which
exist as of the Closing Date and which Parent undertakes to preserve)
that Buyer may reasonably require in connection with the defence of the
Genentech Patent Suits for such period of time as may be reasonably
required by Buyer. In particular, Parent agrees that with respect to
Stefan Fischer, Ulrich Konert, Anne Stern, Siegfried Schreiner, and
Claus-Jorg Rutsch, Parent will ensure that, for such period of time as
such individuals are employed by the Roche Group, the availability of
such individuals to Buyer in connection with the Genentech Patent Suits
shall not be interfered with by reason of their employment with the
Roche Group. In addition, to the extent that such individuals are not
employed by the Roche Group, Buyer or its Affiliates, Parent shall pay
all reasonable direct out-of-pocket expenses (and reasonable fees, if
permissible) of any such individual who participates in the defence of
the Genentech Patent Suits incurred in connection therewith. Parent
further agrees that it will take no adverse action against any employee
of the Roche Group based on such employee's provision of assistance or
information to Buyer pursuant to this Section 8.9.2. Parent also agrees
that, to the extent relevant and necessary, it will not enforce any
confidentiality agreement against an employee of the Roche Group that
would otherwise prevent or hinder such
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employee from cooperating with or providing information to Buyer
pursuant to this Section 8.9.2.
8.10. Transition Services. On or prior to the Closing Date,
Buyer and Parent or their Affiliates shall enter into the Transition
Services Agreement substantially in the form attached as Exhibit A
hereto.
8.11. Returns. For a period of two years following the Closing
Date, Sellers shall be responsible for all returns of the Product
within the Territory with respect to lot numbers shipped prior to the
Closing Date, provided that following the Closing Date, Buyer shall not
engage in any action (other than pricing of the Product) to induce any
purchaser of the Product to return Product sold prior to the Closing
Date; provided, however, that to the extent returns of Product result
from changes in pricing by Buyer, Buyer shall be responsible for such
returns. For Product shipped after the Closing Date, Buyer shall be
responsible for all returns of the Product within the Territory.
8.12. Chargebacks and Rebates. Sellers shall be responsible
for all chargebacks and rebates which are reported within 60 days
following the Closing Date. Buyer shall be responsible for all
chargebacks and rebates which are reported after 60 days following the
Closing Date.
8.13. Confidentiality. The Confidentiality Agreement (the
"Confidentiality Agreement") between F. Hoffman-La Roche Ltd and Buyer
dated as of October 14, 1997, as it applies to Parent and its
Affiliates, is hereby incorporated by reference into this Agreement.
8.14. Consents. Each of Parent, Sellers and Buyer agree to
cooperate in good faith to obtain any consents from third parties
relating to the assignment of existing contracts.
8.15. Cooperation on Safety Reports. Following the Closing
Date for so long as Sellers and Buyer continue to market the Product,
each of Sellers and Buyer agree promptly to provide the other party
with all information received by it in connection with the occurrence
of serious or unexpected events relating to the Product.
8.16. Manufacturing Improvements. Parent agrees that if,
during the term of the Supply Agreement, the Roche Group implements any
improvement in the manufacturing technology and know-how used in the
manufacture of the Active Ingredient or the Product, it shall grant to
Buyer a perpetual, paid-up, irrevocable, royalty-free, non-exclusive
licence, with
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right to sub-licence, any such improvement for use in manufacture of
the Active Ingredient or the Product for sale in the Territory.
Buyer agrees that if, during the term of the Supply Agreement,
Buyer or its assignee implements any improvement in the manufacturing
technology and know-how used in the manufacture of the Active
Ingredient or the Product, it shall grant to the Roche Group a
perpetual, paid-up, irrevocable, royalty-free, non-exclusive licence,
with right to sub-licence, any such improvement for use in manufacture
of the Active Ingredient or the Product for sale outside the Territory.
8.17. Importation. Each of Parent and Buyer agrees that,
subject to applicable law, it will not actively support the importation
of the Product into the Territory in the case of Parent and Sellers and
outside the Territory in the case of Buyer.
8.18. Product Recall; Product Liability. Parent and Buyer
agree that in the event prior to the Closing Date of a major recall of
the Product or the occurrence of material product liability issues in
connection therewith which affect the viability of the Business, Parent
and Buyer will negotiate in good faith with respect to an adjustment of
the Purchase Price.
8.19. Confirmation of Financing. Upon the written request by
Parent at any time and from time to time, (a) Buyer shall use its best
efforts to obtain (and deliver to Parent within 5 business days after
such request) a waiver by Morgan Stanley in the form set forth in
Exhibit C hereto, in favor of Buyer, of any right to terminate the
Commitment Letter or to assert that any condition to Morgan Stanley's
obligations under the Commitment Letter has not been satisfied at the
time of such waiver, based upon facts and circumstances at the time of
such waiver which are publicly known or, after due inquiry by Morgan
Stanley, known to Morgan Stanley and (b) in the event Morgan Stanley
fails or refuses to provide such waiver within such period, Buyer shall
deliver to Parent within 6 business days after such request a full
written explanation of such failure or refusal and the reasons
therefor.
9. MANUFACTURING
9.1. Supply Agreement. Consistent with the terms of the
Agreement Containing Consent Order, on or prior to the Closing Date,
Parent and Buyer or their Affiliates shall enter into the Supply
Agreement for the supply of the Product (as that term is defined in
Section 1.3 of the Supply Agreement) substantially in the form attached
hereto as Exhibit B.
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9.2. Parent's Representations and Warranties for its
Supplies. As provided in the Supply Agreement:
Parent shall make representations and warranties to Buyer that
the bulk labelled lyophilized vials or bulk Active Ingredient that is
manufactured by the Roche Group (including without limitation the BM
Group companies) for Buyer pursuant to the Supply Agreement meets the
FDA and DHC approved specifications therefor. Parent shall agree to
indemnify, defend and hold Buyer harmless from any and all suits,
claims, actions, demands, liabilities, expenses or losses that may be
alleged to result from the failure of the bulk labelled lyophilized
vials or bulk Active Ingredient manufactured by the Roche Group for
Buyer pursuant to the Supply Agreement to meet FDA and DHC
specifications. This obligation shall be contingent upon Buyer giving
Parent prompt, adequate notice of such claim, cooperating fully in the
defence of such claim, and permitting Parent to assume the sole control
of all phases of the defence and/or settlement of such claim, including
the selection of counsel. This obligation shall not require Parent to
be liable for any negligent act or omission of Buyer or for any
representations and warranties, express or implied, made by the Buyer
that exceed the representations and warranties made by Parent to Buyer.
9.3. Technology Transfer. To the extent Buyer undertakes the
manufacture of the Product in the Territory and subject to the
obligations under the Supply Agreement, upon reasonable notice and
request from Buyer, the Roche Group (including without limitation the
BM Group companies) shall provide to Buyer or a third party contract
manufacturer designated by Buyer in a timely manner: (a) for a period
not to exceed four years following the Closing Date, assistance and
advice to enable Buyer or a third party contract manufacturer
designated by Buyer to obtain all necessary approvals to manufacture
the Product for sale in the Territory; (b) for a period not to exceed
one (1) year from the date of such approvals, assistance to enable
Buyer or a third party contract manufacturer designated by Buyer to
manufacture the Product in substantially the same manner and quality
employed or achieved by Sellers as of the date Buyer obtains such
approvals; and (c) until the date of such approvals (or earlier if
Buyer abandons its efforts to obtain such approvals), consultation with
knowledgeable employees of the Roche Group and training at the request
of and at the manufacturing facility of Buyer or a third party contract
manufacturer designated by Buyer (or of the Buyer's choosing),
sufficient to satisfy the management of Buyer that its personnel (or
the personnel of a third party contract manufacturer
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designated by Buyer) are adequately trained in the manufacture of the
Product for sale in the Territory. Such assistance shall include
on-site inspections, at Buyer's request, of the facility that is
producing the Active Ingredient for supply under the Supply Agreement.
Parent shall be entitled to reimbursement from Buyer for all the Roche
Group's direct out-of-pocket expenses incurred in providing the
services and assistance described above. Buyer shall be responsible for
the construction of the facilities associated with the manufacture of
the Product.
9.4. Approvals. In the manner and form required by the Agreement
Containing Consent Order, Buyer shall submit to the FTC a certification
attesting to the good faith intention of Buyer, including a plan of
Buyer, to obtain in an expeditious manner all necessary approvals to
manufacture the Product for sale in the Territory. Furthermore, in
accordance with the terms of the Agreement Containing Consent Order,
Buyer shall submit to the trustee appointed pursuant to the Agreement
Containing Consent Order, periodic verified written reports setting
forth in detail the efforts of Buyer to sell the Product obtained
pursuant to the Supply Agreement in the United States and to obtain all
approvals necessary to manufacture the Product for sale in the
Territory. The first such report shall be submitted within sixty (60)
days from the date this Agreement is approved by the FTC and every
ninety (90) days thereafter until all necessary approvals are obtained
by Buyer for manufacturer of the Product for sale in the Territory.
Buyer shall also report to the FTC and the trustee referred to above
within ten (10) days of its ceasing the sale in the United States of
the Product obtained pursuant to the Supply Agreement for any time
period exceeding sixty (60) days or abandoning its efforts to obtain
all necessary approvals to manufacture the Product for sale in the
Territory.
10. CONDITIONS PRECEDENT TO CLOSING
10.1. Conditions to Obligations of Buyer and Parent. The
obligations of Buyer and Parent to complete the transactions
contemplated hereby are subject to the satisfaction on or prior to the
Closing Date of the following conditions:
10.1.1. No provision of any applicable law or regulation and no
judgement, injunction, order or decree shall prohibit the consummation
of the Closing.
10.1.2. Agreement Containing Consent Order. The Agreement
Containing Consent Order (in the form provided to Buyer) shall have
been
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accepted for public comment by the FTC, and the transactions
contemplated by this Agreement shall be permitted under the terms of
the Agreement Containing Consent Order.
10.1.3. To the extent required by law or as deemed advisable by
the parties, an Advance Ruling Certificate under section 102 of the
Competition Act (Canada) shall have been issued for the transaction
contemplated by this Agreement or the waiting period under section 123
of the Competition Act (Canada) shall have been expired and advice in
writing by the Director shall have been received that he has determined
not to make an application for an order under section 92 or 100 of the
Competition Act (Canada) or to commence an inquiry under section 10 of
the Competition Act (Canada) and the transaction contemplated by this
Agreement shall have obtained of any approvals under the Investment
Canada Act if required; provided that if all other conditions shall
have been satisfied, Parent and Buyer agree to close that portion of
the transaction pertaining to the United States prior to the
satisfaction of the conditions set forth in this Section and to close
that portion of the transaction pertaining to Canada at such later
date, and on terms and conditions, as mutually agreed.
10.1.4. The Corange Transaction shall have been consummated in
accordance with the terms of the Stock Purchase Agreement.
10.1.5. Any applicable waiting period under the HSR Act relating
to the transactions contemplated hereby shall have expired or been
terminated.
10.2. Conditions to Obligations of Buyer. The obligation of
Buyer to complete the transactions contemplated hereby is subject to
the satisfaction on or prior to the Closing Date of the following
conditions (all or any of which may be waived in whole or in part by
Buyer);
10.2.1. Representations and Warranties. The representations and
warranties made by Parent in this Agreement shall have been true and
correct (without regard to materiality or Material Adverse Effect
qualifications set forth therein) as of the Closing Date with the same
force and effect as though said representations and warranties had been
made on the Closing Date, except for representations and warranties
made as of a specified date, which will be true and correct in all
respects as of the specified date, and except for breaches of any such
representations or warranties that would not have, individually or in
the aggregate, a Material Adverse Effect. Each Seller shall have
delivered to Buyer at Closing a
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representation and warranty that each of Parent's representations and
warranties in Section 4 with respect to such Seller were true and
correct as of the date thereof, and such representation and warranty
shall be true and correct as of the Closing Date except for breaches
that would not have, individually or in the aggregate, a Material
Adverse Effect.
10.2.2. Performance. Parent shall have performed and complied in
all material respects with all agreements, obligations and conditions
required by this Agreement to be so performed or complied with by it
prior to or at Closing.
10.3. Conditions to Obligations of Parent. The obligation of
Parent to complete the transactions contemplated hereby is subject to
the satisfaction on or prior to the Closing Date of the following
conditions (all or any of which may be waived in whole or in part by
Parent):
10.3.1. Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall have been true and
correct in all material respects as of the Closing Date with the same
force and effect as though said representations and warranties had been
made on the Closing Date (except for representations and warranties
made as of a specified date, which will be true and correct in all
respects as of the specified date).
10.3.2. Performance. Buyer shall have performed and complied in
all material respect with all agreements, obligations and conditions
required by this Agreement to be so performed or complied with by it
prior to or at Closing.
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11. THE CLOSING
11.1. The Closing. Subject to the satisfaction of all of the
conditions to each party's obligations set forth in Section 10 hereof
(or, with respect to any condition not satisfied, the waiver in writing
thereof by the party or parties for whose benefit the condition exists)
and subject to Section 12.1.2, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at 9
a.m. (local time) on the first business day which is at least 30 days
following public announcement of this Agreement (assuming the last
condition precedent under Section 10 herein above has been fulfilled)
or earlier or later, if mutually agreed by the parties, in accordance
with the Agreement Containing Consent Order and any applicable law or
regulation (the "Closing Date") at the offices of Parent in Hamilton,
Bermuda. The transfer of the Assets shall be deemed to have occurred as
of 0.01 a.m. of the Closing Date.
11.2. Deliveries by Parent. At Closing, Parent shall deliver or
cause to be delivered to Buyer:
11.2.1. the conveyance, assignment, and assumption agreement with
respect to the Assets and the Assumed Agreements and all obligations
and responsibilities associated therewith;
11.2.2. the assignments of the Patents and Trademarks as set forth
in Section 8.1;
11.2.3. the assignments of the Registrations as set forth in Section
8.2;
11.2.4. the Supply Agreement;
11.2.5. the Transition Services Agreement;
11.2.6. the Inventory and the statement of the quantity of the
Inventory as set forth in Section 2.12;
11.2.7. to the extent available and practicable, hard copies of the
documents as set forth in Section 2 herein above; all such documents,
which cannot be delivered to Buyer at Closing, shall be delivered by
Parent to Buyer as soon as practicable after Closing;
11.2.8. except as otherwise provided herein, such agreements,
licences, notices, and authorisations as may be necessary and
sufficient to
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permit Buyer to use or operate under the Registrations (if legally
permissible) and Know-How and that Buyer has requested from Parent;
11.2.9. a receipt for the Purchase Price; and
11.2.10. the licences or sublicences set forth in Sections 2.2,
2.3, 2.7, 2.8 and 2.16.
11.3. Deliveries by Buyer. At Closing, Buyer shall deliver or
cause to be delivered to Parent:
11.3.1. the Purchase Price payable in accordance with Section
3.1; and
11.3.2. the conveyance, assignment and assumption agreement with
respect to the Assets and the Assumed Agreements and all obligations
and responsibilities associated therewith;
11.3.3. the Supply Agreement; and
11.3.4. the Transition Services Agreement;
11.4. Effects of Closing. Upon Closing the ownership of the
Assets as well as the full responsibility for the use of the Assets and
the conduct of the Business comprising the use of the Assets shall pass
from Sellers to Buyer. Sellers shall remain exclusively responsible for
the conduct of the Business prior to Closing (including any
consequences therefrom which may appear after the Closing). Buyer shall
be exclusively responsible for the conduct of the Retavase Business
from Closing. Buyer acknowledges that as per the Closing the product
liability insurance of Sellers will terminate on the Closing Date and
Buyer shall be responsible for proper insurance of the product
liability and other risks relating to the Retavase Business. The
Closing shall further have the other effects provided for in this
Agreement.
12. TERMINATION
12.1. Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing
Date:
12.1.1. By the mutual written consent of Parent and Buyer;
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12.1.2. By either Parent or Buyer if Closing shall not have
occurred on or before April 20, 1998; or
12.1.3. By either Parent or Buyer if consummation of the
transactions contemplated hereby shall violate any non-appealable final
order, decree or judgement of any court or governmental body having
competent jurisdiction.
12.1.4. By either Parent or Buyer if there has been a material
violation or breach by the other party of any of the agreements,
representations or warranties contained in this Agreement that has not
been waived in writing, or if there has been a material failure of
satisfaction of a condition to the obligations of the other party that
has not been waived in writing, and such violation, breach, or failure
has not been cured within fifteen (15) days (but in no event later than
April 20, 1998) of written notice to the other party; or
12.2. Effect of Termination. If this Agreement is terminated
pursuant to this Section 12, all obligations of Parent and Buyer under
this Agreement shall terminate without further liability of Parent or
Buyer except (a) for the obligations of Buyer and Parent under Sections
8.13, 15, and 16.2; and (b) that such termination shall not constitute
a waiver by any party of any claim it may have for damages caused by
reason of a breach by the other party of a representation, warranty,
covenant or agreement.
12.3. Termination by the FTC. (a) As set forth in Paragraph
II.B.9 of the Agreement Containing Consent Order, the FTC may terminate
this Agreement if Buyer: (i) voluntarily ceases for sixty (60) days or
more the sale in the United States of, or otherwise fails to pursue
good faith efforts to sell, the Product obtained pursuant to the Supply
Agreement prior to obtaining all necessary FDA approvals to manufacture
its own Product for sale in the United States; (ii) fails to pursue
good faith efforts to obtain all necessary FDA approvals to
manufacture, or have manufactured by third parties other than Parent or
its Affiliates, its own Product for sale in the United States; or (iii)
fails to obtain all such FDA approvals within four (4) years from the
date the FTC grants final approval to the Agreement Containing Consent
Order; provided, however, that this time period may be extended as
provided in Paragraph II.B.9 of the Agreement Containing Consent Order.
If this Agreement is terminated in accordance with the provisions of
this section, the Assets shall revert back to Sellers and shall be
divested in the manner provided in Paragraph IV of the Agreement
Containing Consent Order.
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(b) In the event the FTC withdraws its acceptance of the
Agreement Containing Consent Order after expiration of the sixty (60)
day public comment period referred to in paragraph 4 of the Agreement
Containing Consent Order, this Agreement shall forthwith become null
and void and the Buyer shall immediately transfer back to Sellers all
assets, properties and rights conveyed to it hereunder and, upon
receipt of said assets, properties and rights, Sellers shall pay to
Buyer the Purchase Price. Buyer agrees that (i) during the pendency of
the sixty (60) day public comment period it shall, subject to its sale
of inventory purchased under the Supply Agreement, preserve intact all
assets, properties and rights conveyed to it hereunder and shall take
no action that would individually or in the aggregate have a material
adverse effect on those assets and (ii) Buyer and its Affiliates will
not disclose any confidential information concerning the Retavase
Business; provided that information shall not be deemed to be
confidential that Buyer can prove (A) was in the public domain prior to
the date of this Agreement or thereafter enters the public domain
through no fault of Buyer, its Affiliates or their respective
representatives, (B) was available to Buyer on a non-confidential basis
prior to its disclosure to Buyer by Parent, Sellers, their Affiliates
or their respective representatives, (C) is later lawfully acquired by
Buyer from sources other than Parent, Sellers, their Affiliates or
their respective representatives who are not, to the best of knowledge
of Buyer, subject to any legally binding obligation to keep such
information confidential, or (D) independently developed by Buyer
without reference to confidential information covered hereunder.
13. SURVIVAL; REMEDIES; CLAIMS; INDEMNIFICATION
13.1. Remedy for Breach. After the Closing, the sole and
exclusive remedy of Buyer and Parent for any breach or inaccuracy of
any representation or warranty under this Agreement by the other party
hereto or by Sellers shall be the remedies contained in this Section 13
and shall be enforceable only as provided in Section 15.1. Any claims
that a party may have arising out of the other party's or Sellers'
breach of its representations and warranties hereunder shall be
notified to the other party no later than 12 (twelve) months following
Closing (without affecting either party's right to start arbitration
proceedings in accordance with Section 15.1 thereafter if the
notification for the pertaining matter has been given prior to the
expiration of such 12 month period). Parent and Buyer agree to use all
reasonable efforts to mitigate any loss or damage for which they may
seek a remedy under this Article 13.
13.2. Indemnification by Parent.
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13.2.1. Claims. Subject to the limitations set forth in Section
13.2.2, Parent shall indemnify Buyer and its Affiliates against and
agrees to hold Buyer and its Affiliates harmless from any and all
damage, loss, liability, third party claims, and expense (collectively,
"Damages") (including, without limitation, reasonable expenses of
investigation and attorneys' fees and expenses in connection with any
action, suit or proceeding brought against Buyer or its Affiliates)
incurred or suffered by Buyer or its Affiliates arising out of (a) any
breach of a representation or warranty or covenant made by Parent or
Sellers herein, (b) the maintenance of the Assets by Sellers prior to
Closing or (c) the conduct of the Business by Parent or its Affiliates
prior to Closing (collectively, "Indemnifiable Claims").
13.2.2. Limitations. Notwithstanding anything to the contrary
set forth elsewhere herein, Buyer and its Affiliates shall not be
entitled to indemnification hereunder with respect to any Indemnifiable
Claim for breaches of representations and warranties asserted pursuant
to Section 13.2.1(a) unless the amount of Damages with respect to such
Indemnifiable Claim exceeds US$500,000. However, Parent shall in no
event be required to pay Buyer and its Affiliates more than 33% of the
Purchase Price in respect of aggregate Damages for Indemnifiable Claims
for breaches of representations and warranties asserted pursuant to
Section 13.2.1(a).
13.3. Indemnification by Buyer. Buyer shall indemnify Parent
and its Affiliates (including without limitation the BM Group
companies) against and agrees to hold Parent and its Affiliates
harmless from any and all Damages (including without limitation
reasonable expenses of investigation and attorneys' fees and expenses
in connection with any action, suit or proceeding brought against
Parent or its Affiliates) incurred or suffered by Parent or its
Affiliates arising out of (a) any breach of a representation or
warranty or covenant made by Buyer herein; (b) the conduct of the
Retavase Business by Buyer and its Affiliates from Closing or (c) the
use of the licences granted pursuant to Section 2.16 of this Agreement
(collectively, "Indemnifiable Claims"). Notwithstanding anything to the
contrary set forth elsewhere herein, Parent and its Affiliates shall
not be entitled to indemnification hereunder with respect to any
Indemnifiable Claim for breaches of representations and warranties
asserted pursuant to this Section 13.3 unless the amount of Damages
with respect to such Indemnifiable Claim exceeds US$ 500,000, provided
that such limitation shall not apply to a breach by Buyer in connection
with Buyer's obligations pursuant to Sections 3.1 and 3.3.
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13.4. Notice. A party seeking indemnification or to be held
harmless pursuant to Section 13.2 or 13.3 (an "Indemnified Party")
shall give prompt notice to the party from whom such relief is sought
(the "Indemnifying Party") of the assertion of any claim, or the
commencement of any action, suit or proceeding, in respect of which
relief is or may be sought hereunder (whether or not the limits set
forth in Section 13.2.2 and Section 13.3 have been exceeded) and will
give the Indemnifying Party such information with respect thereto as
the Indemnifying Party may reasonably request, but failure to give such
notice shall not relieve the Indemnifying Party of any liability
hereunder (except to the extent the Indemnifying Party has suffered
actual prejudice thereby).
13.5. Participation in Defence. The Indemnifying Party may, at
its expense, participate in or assume the defence of any such action,
suit or proceeding involving a third party. In such case the
Indemnified party shall have the right (but not the duty) to
participate in the defence thereof, and to employ counsel, at its own
expense, separate from counsel employed by the Indemnifying Party in
any such action and to participate in the defence thereof. The
Indemnifying Party shall be liable for the fees and expenses of one
firm as counsel (and appropriate local counsel) employed by the
Indemnified Party if the Indemnifying Party has not assumed the defence
thereof. Whether or not the Indemnifying Party chooses to defend or
prosecute any claim involving a third party, all the parties hereto
shall, and shall cause their respective Affiliates to, cooperate in the
defence or prosecution thereof and shall furnish, or cause to be
furnished, such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as
may be reasonably requested in connection therewith.
13.6. Settlements. The Indemnifying Party shall not be liable
under this Section for any settlement effected without its consent of
any claim, litigation or proceedings in respect of which relief may be
sought hereunder, unless the Indemnifying Party refuses to acknowledge
liability for indemnifying or holding the Indemnified Party harmless
under this Section 13 and/or declines to defend the Indemnified Party
in such claim, litigation or proceeding.
13.7. Other Claims. In the event that any third party
(including Genentech) commences (in the Territory or in Germany) a
patent infringement action (with respect to a patent that has been
issued or a patent application that has been published as of the date
hereof) with respect to the Product in the Territory, Buyer shall be
solely responsible
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for the control of the defence of such action and Buyer further
covenants to undertake, in good faith, the full and complete defence of
any such action. Buyer shall not abandon or make any concessions in the
defence of such patent suits which affect Parent's or its Affiliates'
ability to manufacture or sell the Active Ingredient or any product
made therewith outside the Territory or any other products or research
or development projects in or outside the Territory. Parent shall
reimburse Buyer with respect to such actions in the same manner and to
the same extent as set forth in Section 3.4 hereof, provided, that (i)
if the action has been instituted by Genentech, Inc. or a subsidiary or
licensee of Genentech, Inc., Parent shall not be obligated to make any
payment to Buyer as a result of any settlement thereof unless such
settlement is commercially reasonable for Buyer under the circumstances
in absence of Parent's reimbursement obligations pursuant to this
Section 13.7 and (ii) in the case of any other action, Parent shall not
be obligated to make any payment to Buyer as a result of any settlement
thereof unless in the judgement of Parent such settlement is reasonable
under the circumstances.
14. NOTICES
Any notice required or permitted to be given hereunder shall be deemed
sufficient if sent by facsimile letter or overnight courier, or
delivered by hand to Parent or Buyer at the respective addresses and
facsimile numbers set forth below or at such other address and
facsimile number as either party hereto may designate. If sent by
facsimile letter, notice shall be deemed given when the transmission is
completed if the sender has a confirmed transmission report and if the
sender has sent a confirmation copy by registered mail. If a confirmed
transmission report does not exist, then the notice will be deemed
given when the notice is actually received by the person to whom it is
sent. If delivered by overnight courier, notice shall be deemed given
when it has been signed for. If delivered by hand, notice shall be
deemed given when received.
If to Buyer, to:
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355-1307
Attention: Corporate Secretary
Fax: 610-651-6331
44
<PAGE>
if to Parent, to:
Roche Healthcare Limited
P.O. Box HM 905
Hamilton HM DX
Bermuda
Attention: President
Fax: ++1 441 295-4165
with a copy to:
F. Hoffmann-La Roche Ltd
CH-4070 Basel, Switzerland
Attention: Corporate Law Department
Fax: ++41 61 688 1396
15. ARBITRATION AND GOVERNING LAW
15.1. Except for the right of either party to apply to a court
of competent jurisdiction for a temporary restraining order to preserve
the status quo or prevent irreparable harm pending the selection and
confirmation of a panel of arbitrators, any dispute, controversy, or
claims arising under, out of or relating to this Agreement (and
subsequent amendments thereof), its valid conclusion, binding effect,
interpretation, performance, breach or termination, including tort
claims, shall be referred to and finally determined by arbitration, to
the exclusion of any courts of law, in accordance with the Rules of
Arbitration of the International Chamber of Commerce as in force at the
time when initiating the arbitration. The arbitral tribunal shall
consist of three arbitrators. The place of arbitration shall be
Hamilton, Bermuda. The language to be used in the arbitral proceedings
shall be English. The arbitration decision shall be final and binding
upon the parties and the parties agree that any award granted pursuant
to such decision may be entered forthwith in any court of competent
jurisdiction. This arbitration clause and any award rendered pursuant
to it shall be governed by the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitration Awards signed in New
York as of 10 June, 1958. The party to whom a favourable ruling is
awarded shall be entitled to reimbursement of all its reasonable costs
and expenses in arbitration by the other party.
15.2. The present Agreement shall be subject to the
substantive law of Bermuda (regardless of its or any other
jurisdiction's choice of law principles).
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<PAGE>
16. ADDITIONAL TERMS
16.1. Brokers. Buyer represents to Parent that it has not
employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be
entitled to a fee or any commission from Parent upon consummation of
the transactions contemplated hereby. Parent represents to Buyer that
it has not employed any such person in connection with the transactions
contemplated hereby who might be entitled to a fee or any commission
from Buyer upon consummation of the transactions contemplated hereby.
16.2. Expenses, Taxes and Fees. Except as otherwise expressly
provided in this Agreement, all legal, accounting and other costs and
expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses. Any possible value added, excise or transfer taxes or merger
control filing fees or similar filing fees levied in connection with
the present Agreement shall be paid and borne solely by Buyer and are
not included in the Purchase Price or the payment for the inventory
according to Section 3.
16.3. Entire Agreement. This Agreement, the Exhibits, the
Schedules (including Disclosure Schedule), and the Confidentiality
Agreement embody the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede and replace all
previous negotiations, understandings, representations, writings, and
contract provisions and rights relating to the subject matter hereof.
16.4. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and assigns; provided that this Agreement may not be
assigned by any party without the written consent of the other party.
16.5. Amendments; No Waiver. No provision of this Agreement
may be amended, revoked or waived except by a writing signed and
delivered by an authorised officer of each party. No failure or delay
on the part of either party in exercising any right hereunder will
operate as a waiver of, or impair, any such right. No single or partial
exercise of any such right will preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right
will be deemed a waiver of any other right hereunder.
46
<PAGE>
16.6. Counterparts. This Agreement may be executed in one or
more counterparts all of which shall together constitute one and the
same instrument and shall become effective when a counterpart has been
signed by Buyer and delivered to Parent and a counterpart has been
signed by Parent and delivered to Buyer.
16.7. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction
or interpretation hereof.
IN WITNESS WHEREOF, this Agreement has been signed by duly authorised
representatives of each of the parties hereto as of the date first above
written.
Roche Healthcare Limited Centocor, Inc.
By /s/ John R. Talbot By /s/ David P. Holveck
--------------------------- ---------------------------
Name John R. Talbot Name David P. Holveck
------------------------- --------------------------
Title: President Title: Chief Executive Officer
------------------------ -------------------------
47
<PAGE>
List of Exhibits
- ----------------
48
<PAGE>
Exhibit 10.35
Exhibit A
---------
TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT (the "Agreement") is made and entered
into on ____________ ,1998 by and between Boehringer Mannheim Corporation
("Seller") on the one hand and Centocor, Inc. ("Buyer") on the other hand.
WHEREAS Roche Healthcare Limited ("Parent") and Buyer have entered into an
Asset Purchase Agreement dated February 11, 1998 (the "Asset Purchase
Agreement") relating to RETAVASE (the "Product"), and
WHEREAS the parties agree that Buyer or its Affiliates shall take over the
distribution of the Product as soon as possible when Buyer or its Affiliate has
obtained the pertaining necessary government approvals for the distribution of
the Product. Parent and Buyer have agreed in the Asset Purchase Agreement that
Parent or its Affiliates shall provide certain transition services to Buyer or
its Affiliates for the Product under a transition services agreement for a
certain transition period after Closing.
Now, therefore the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
1.1. "Affiliate" of a party means any corporation or other business entity
controlled by, controlling or under common control with, such party. For
this purpose "control" shall mean direct or indirect beneficial ownership
of more than fifty percent (50%) of the voting or income interest in such
corporation or other business entity; provided, however, Genentech, Inc.
and its subsidiaries shall not be considered an Affiliate of Parent.
1.2. "Fully Loaded Costs" means all direct expenses and, with respect to time
spent on a project by employees, an hourly rate which equals salary
(including benefits) plus overhead allocated on the basis of time spent.
1.3. "Net Sales" means gross sales occurring after the Closing Date after
deduction of returns, distributor discounts, sales rebates (price
reduction) and volume (quantity) discount as well as sales taxes (e.g.
value added taxes) and other taxes directly linked to the sales (e.g.
excise taxes) attributed to those sales.
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1.4. "Services Fee" means a rate which equals 4% of Net Sales for the first
month, 3% of Net Sales for the second month and 2% of Net Sales for the
third month (and thereafter) following the Closing Date.
1.5. "Services" means any and all services with respect to the Product provided
by Seller to Buyer pursuant to this Agreement.
1.6. "Territory" means the United States and Canada and respective possessions
or territories.
1.7. Other Terms. The term "Product" as well as other defined terms used
herein and not defined above shall have the respective meanings assigned to
such terms in the Asset Purchase Agreement.
ARTICLE 2. RESPONSIBILITY OF PARTIES
2.1. Provision of Services. Subject to the terms hereof, Seller and/or its
designated Affiliate(s) shall (a) cooperate with Buyer or its Affiliate and
assist in the orderly transition of the Business in the Territory to Buyer,
and (b) provide the Services described herein that are requested by Buyer.
2.2. Cooperation and Assistance. Seller or its designated Affiliate(s) shall
make available knowledgeable employees/the individuals identified on
Schedule I, or their qualified designees, for consultation with Buyer's
representatives who shall be designated in writing to Seller via telephone,
correspondence or in person at Seller's or its designated Affiliate's
facilities for the purpose of conveying and transferring information
relating to the operation of the Business in the Territory. Such
consultation shall occur for reasonable periods of time upon reasonable
notice during normal business hours. Seller may appoint substitutes for the
individuals listed on Schedule I. Notwithstanding any other provision of
this Agreement, the individuals listed on Schedule I (or their substitutes)
shall be available for reasonable consultation but only for a period of six
(6) months following Closing.
2.3. Distribution Agency Services. With respect to the Product in the
Territory, Seller or its designated Affiliate(s) shall provide all services
(including warehousing and distribution, order taking, shipping, invoicing
and collecting) customarily performed by a distribution agent and as
currently conducted by Seller in connection with the sale of the Product in
the Territory, including the following:
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<PAGE>
(a) accepting orders and invoicing purchasers on behalf of Buyer;
(b) processing all Product returned by customers in accordance with Section
3 of this Agreement;
(c) order entry and billing services;
(d) recording sales and collecting amounts due in accordance with Section 4
of this Agreement;
(e) making appropriate payments for charge-backs and rebates subject to
Section 3.1; and
(f) customer complaint and inquiry services;
it being understood that in providing such services Seller and/or its
Affiliates shall continue to use certain tangible assets not transferred to
Buyer at Closing including, without limitation, AUDIUS system, electronic
mail, computer hardware and call reporting.
2.4. Customer Information. In order to inform customers of the transfer of
the Business to Buyer, and otherwise transition same, Seller and/or its
Affiliates and Buyer shall notify all contracted customers, trade customers
and wholesalers of the transfer of the Product to Buyer by a method and at
a time mutually agreed to by the parties. Notice to wholesalers shall
allow adequate transition time for the wholesalers. The parties hereby
agree that Seller and its Affiliates shall not be responsible for providing
Buyer with any sales or promotion support.
2.5. Government Contracts. The parties shall mutually agree on the timing and
method of notifying applicable federal agency customers and the Health Care
Financing Administration ("HCFA") of the sale of the Product to Buyer, and
shall take whatever action is necessary to simultaneously add the Product
to Buyer's federal supply schedule and Medicaid rebate agreement and delete
the Product from the federal supply schedule and Medicaid rebate agreement
of Seller or its Affiliates, as applicable.
2.6. Reports. Seller shall submit in writing to Buyer (i) within four (4)
business days after the end of each month a report setting forth total
Sales, and (ii) within fifteen (15) days after the end of each calendar
month a report as set forth on Schedule II and such other information as
Buyer shall reasonably request and that the BM Group had in place prior to
the Closing Date.
2.7. NDC Numbers. Promptly following the Closing, Buyer shall take any and all
action necessary to change the National Drug Code number for the Product,
which change shall be implemented under Section 7.1 of the Asset Purchase
Agreement; and if such number shall be obtained during the term of this
Agreement, the
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<PAGE>
parties will discuss the appropriate implementation thereof with respect to
the Services provided hereunder. Payments with respect to rebates shall be
consistent with the Asset Purchase Agreement.
2.8. Payment of Net Sales. Four days following the end of each month, Seller
will wire transfer to Buyer an amount equal to total Net Sales collected
for such month less the amount of the Services Fee portion of the fee
calculated for such month under Section 5.2.
2.9. Medical Safety and Reporting. Following Closing, Buyer, will be responsible
to provide all drug safety services for the Product in the Territory, such
as handling medical and safety inquiries regarding the Product, receiving
adverse event inquiries and report preparation, and the preparation and
submission of two required quarterly reports, namely the Drug Safety
Periodic Report and the Drug Safety Increased Frequency Report. Buyer
represents to Seller that it will employ a trained physician to handle such
inquiries and report preparation and filing. Following Closing, Seller and
Buyer shall cooperate in good faith, as defined by the regulatory and drug
safety reporting transition teams, to respond to all such questions, calls
or inquiries. Seller shall during the term of this Agreement forward
medical safety information concerning the Products in the Territory
received by Seller or its Affiliates to Buyer.
ARTICLE 3. PRODUCT RETURNS
3.1. Returns. The responsibility for Product returns in the Territory
shall be governed by Section 8.11 of the Asset Purchase Agreement. During
the term of this Agreement, Seller and its Affiliates process and pay all
claims received by them for returns of Product in accordance with the
provision of their return goods policy attached hereto as Schedule III.
Buyer shall not engage in any action (other than pricing of the Product) to
induce any purchaser of the Product to return Product sold prior to Closing
Date; provided, however, that to the extent returns of Product result from
changes in pricing by Buyer, Buyer shall be responsible for such returns.
For Product shipped after the Closing Date, Buyer shall be responsible for
all returns of the Product within the Territory. Buyer shall reimburse
Seller and its Affiliates for all cost of returns handled by Seller and its
Affiliates hereunder for which Buyer is responsible according to Section
8.11 of the Asset Purchase Agreement.
3.2. Disposition of Returned Product. Returned Product will be handled in
accordance with the provisions of the disposition of returned goods policy
4
<PAGE>
Seller, a copy of which is attached hereto as Schedule IV.
ARTICLE 4. ACCOUNTS RECEIVABLE
So long as it continues to provide Services, Seller or its designated
Affiliate(s) shall use reasonable efforts (except for instituting third
party collection or legal proceedings) to collect accounts receivable with
respect to the Product.
ARTICLE 5. PAYMENTS
5.1. Fees. In consideration of Seller's and its Affiliate(s) Services under
this Agreement, Buyer will pay to Seller a fee equal to the Services Fee.
In addition, Seller and its Affiliate(s) shall be reimbursed their Fully
Loaded Costs for any extraordinary services (i.e., those services beyond
those expected in the context of ordinary business operations) including
without limitation the cost of destruction of returned goods other than
pursuant to on-going, normal business operations and the participation of
Seller and its Affiliates in any recall of Product, "scrap" charges
incurred because of NDC or other labelling or packaging changes,
transportation costs associated with the delivery of inventory and records
upon termination of this Agreement and any other expenses incurred by
Seller and its Affiliates specifically as a result of this Agreement.
Buyer will reimburse Seller and its Affiliates with respect to the
foregoing costs, if any, within thirty (30) days of receipt of Seller's
statement.
5.2. Calculations. As soon as practicable after the end of each calendar month,
Seller and its Affiliates will calculate the total amount of fee payable by
Buyer for such month under Section 5.1.
ARTICLE 6. STANDARD FOR SERVICE
Seller and its Affiliate(s) shall meet the standards of the applicable
profession in performing Services hereunder; provided that neither Seller
and its Affiliate(s) nor their employees shall have any liability to Buyer
in connection with such performance absent bad faith, negligence or wilful
misconduct. As a principle, the parties agree that the quality and quantity
of Services provided hereunder to Buyer (including without limitation the
substance, timeliness and diligence thereof) shall be substantially the
same as the quality and quantity of services previously rendered in
relation to the Product by BMC personnel. Nothing contained in this
5
<PAGE>
Agreement shall require Seller and its Affiliate(s) to alter its
operations, policies, procedures, method of doing business, reporting
mechanism or formats or information technology systems in order to provide
Services hereunder or otherwise engage in any extraordinary activities,
except as set forth in this Agreement. If Buyer suffers any loss or damage
caused directly by the bad faith, negligence or wilful misconduct of
Seller, its Affiliates or their employees hereunder, Buyer shall be
entitled to recover its direct costs incurred. Under no circumstances shall
Seller and its Affiliates have to pay or shall Buyer be entitled to recover
any consequential, special, indirect or incidental damages hereunder.
ARTICLE 7. TERM AND TERMINATION
7.1. Term. This Agreement shall commence as of the Closing date under the Asset
Purchase Agreement and shall expire on the later of (i) 3 (three) months
following the Closing Date and (ii) when Buyer or its Affiliate has
obtained the pertaining necessary government approvals for the distribution
of the Product in the country concerned, but in no event later than 6 (six)
months after the Closing Date under the Asset Purchase Agreement. Buyer
shall use best efforts to assume the Services provided by Seller and its
Affiliates hereunder as soon as possible, whenever possible earlier than
the expiry of this Agreement. If Buyer is, despite such best efforts,
unable to assume the services being provided within the term of this
Agreement, Buyer and Seller shall discuss in good faith solutions for the
countries concerned.
7.2. Termination. Either party may terminate this Agreement with immediate
effect upon written notice (a) if the other party is in material breach or
default with respect to any term or provision hereof and fails to cure the
same within twenty-one (21) days of receipt of notice of said breach or
default or (b) if the other party is or will inevitably in the near future
be dissolved, liquidated or bankrupt. Buyer may terminate this Agreement at
any time upon not less than ten (10) days written notice, provided any
transition issues that will require cooperation after termination are
mutually agreed to by the parties.
7.3. Rights and Duties of Parties Upon Termination. Upon expiration or other
termination of this Agreement in accordance with the terms hereof, the
parties shall cooperate in the orderly termination of the Services
hereunder, including without limitation the transfer of Product to Buyer;
and the transfer of other information relating solely to the Product,
including customer information.
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<PAGE>
ARTICLE 8. CONFIDENTIALITY
Seller and its Affiliates shall treat as confidential all information
provided by Buyer hereunder, including but not limited to information
relating to the Services. Buyer shall provide such information only to
those employees of Seller and its Affiliates that require such information
to effect the provisions of this Agreement. Seller shall not use such
information except for the express purposes contemplated by this Agreement
and shall not disclose such information to any individual or entity (except
to such of its employees, Affiliates and subcontractors who reasonably
require same for the purposes hereof and who are bound to Seller by like
obligations as to confidentiality and non-use) without the express written
permission of Buyer. Notwithstanding the foregoing, Seller shall not be
prevented from using or disclosing any portion of such information that
Seller can prove: (a) was in the public domain prior to the date of this
agreement or thereafter enters the public domain through no fault of
Seller, its Affiliates or their respective representatives; (b) was
available to Seller on a non-confidential basis prior to its disclosure to
Seller by Buyer, its Affiliates or their respective representatives; (c) is
later lawfully acquired by Seller from sources other than Buyer, its
Affiliates or their respective representatives who are not, to the best of
knowledge of Seller, subject to any legally binding obligation to keep such
information confidential; (d) independently developed by Seller without
reference to such confidential information; or (e) is required by law,
regulation, rule, act or order of any governmental authority or agency to
be disclosed by Seller; provided, however, that in the case of (e), Seller
gives Buyer sufficient advance written notice to permit Buyer to seek a
protective order with respect to such information and thereafter Seller
discloses only the minimum information required to be disclosed in order to
comply. Should Seller and its Affiliates provide Buyer with any
confidential information, or marked or confirmed in writing as confidential
by Seller, relating to Seller's or its Affiliate(s) products or business,
other than information which pertains to the Product or the Business, Buyer
shall be subject to the confidentiality provisions under this Section 7.
The obligations of each party under this Section shall remain in full force
and effect for five (5) years following termination or expiration of this
Agreement.
ARTICLE 9. INDEPENDENT CONTRACTOR
Each party shall act solely as an independent contractor and nothing in
this Agreement shall be construed to give either the power or authority to
enter into or incur, any commitments, expenses or liabilities whatsoever on
behalf of the other party. Nothing herein shall be construed to create the
relationship of partnership,
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<PAGE>
principal and agent, or joint venture between Buyer and Seller, other than
as expressly set forth herein.
ARTICLE 10. NOTICES
Any notice required or permitted to be given hereunder shall be deemed
sufficient if sent by facsimile letter or overnight courier, or delivered
by hand to Seller or its designates Affiliate(s) or to Buyer at the
respective addresses and facsimile numbers set forth below or at such other
address and facsimile number as either party hereto may designate. If sent
by facsimile letter, notice shall be deemed given when the transmission is
completed if the sender has a confirmed transmission report. If a confirmed
transmission report does not exist, then the notice will be deemed given
when the notice is actually received by the person to whom it is sent. If
delivered by overnight courier, notice shall be deemed given when it has
been signed for. If delivered by hand, notice shall be deemed given when
received.
All correspondence to Seller shall be addressed as follows:
Boehringer Mannheim Corporation
101 Orchard Ridge Drive
Gaithersburg, MD 20878
Attention: Law Department
Fax: 301-990-3815
with a copy to:
F.Hoffmann-La Roche Ltd
CH-4070 Basel, Switzerland
Attention: Corporate Law Department
Fax: ++41 61 688 1396
8
<PAGE>
All correspondence to Buyer shall be addressed as follows:
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355-1307
Attention: Corporate Secretary
Fax: 610-651-6331
ARTICLE 11. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective successors and assigns; provided that
this Agreement may not be assigned by any party without prior written
consent of the other party except that Seller may assign this
Agreement to one or more of its Affiliates with the prior written
consent of Buyer, which consent shall not be unreasonably withheld.
ARTICLE 12. ADDITIONAL TERMS
12.1. Arbitration and Governing Law. Any dispute, controversy or claim
arising out of or relating to this Agreement shall be settled by final
and binding arbitration in accordance with the arbitration provisions
and the governing law of the Asset Purchase Agreement.
12.2. Entire Agreement. This Agreement, along with the Asset Purchase
Agreement, constitutes the entire understanding between the parties
with respect to the subject matter hereof and supersedes and replaces
all previous negotiations, understandings, representations, writings,
and contract provisions and rights relating to the subject matter
hereof. If there is any conflict between this Agreement and the terms
and conditions contained on any purchase order or invoice, the terms
and conditions of this Agreement shall prevail.
12.3. Amendments; No Waiver. No provision of this Agreement may be amended,
revoked or waived except by a writing signed and delivered by an
authorized officer of each party. No failure or delay on the part of
either part in exercising any right hereunder will operate as a waiver
of, or impair, any such right. No single or partial exercise of any
such right will preclude any other or further exercise thereof or the
exercise of any other right. No waiver of any such right will be
deemed a waiver of any other right hereunder.
12.4. Validity. Should any part or provision of this Agreement be held
unenforceable or invalid, the invalid or unenforceable provision shall
be replaced with a provision
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that accomplishes, to the extent possible, the original business purpose
of such provision in a valid and enforceable manner, and the remainder of
this Agreement shall remain binding upon the parties.
12.5. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute a single agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first hereinabove written.
Boehringer Mannheim Corporation Centocor, Inc.
By By
------------------------- ---------------------------
Name Name
----------------------- -------------------------
Title: Title:
--------------------- -----------------------
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SCHEDULE I
SELLER CONTACTS
<TABLE>
<CAPTION>
Key Contacts:
Primary Secondary
------- ---------
<S> <C> <C>
Overall questions of policy on major
unresolved issues
General operational questions Barry Buzogany Emile Williams
Legal Barry Buzogany Donate Garoner
Sales and marketing Jesus Leal Jim Lennertz
Contracts Dave Martinez Kathy Jarber
Production planning/specific orders Phil Rothchild Veronica Starks
Accounting/Finance Emile Williams Kirk Barton
Inventory Phil Rothchild Vic Pascoe
Distribution Vic Pascoe Phil Rothchild
Records transfer/retention Barry Buzogany Donate Garoner
Regulatory Julie Zimmerman Chris Pannunzio
Medicaid Kirk Barton Kathy Jarber
Clinical Studies Stephan Fischer Hugo Morales
Medical Affairs Stephen Ohimor Hugo Morales
Quality Assurance/Quality Control Lyn Olson Karl-Wilhem Schultze
</TABLE>
<PAGE>
SCHEDULE II
REPORTING FORMAT
<TABLE>
<CAPTION>
$ Amount Units Average
price or cost
<S> <C> <C> <C>
SALES:
Gross Sales
(by NDC for finished product or by product for
bulk active)
Adjustments to gross sales:
Sales returns and allowances (by NDC)
Managed Care Rebates
(by NDC)
Medicaid Rebates
(by NDC)
Charge-backs (by NDC)
FINISHED GOOD INVENTORY
Beginning Balance
(by NDC)
Production (by NDC), @ agreed upon unit cost)
Cost of Sales (by NDC)
Ending Balance (by NDC)
</TABLE>
<PAGE>
EXHIBIT 10.36
Exhibit B
---------
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") is made and entered into on
_____, 1998 by and between Boehringer Mannheim GmbH ("Seller") on the one hand
and Centocor, Inc. ("Buyer") on the other hand.
WHEREAS Roche Healthcare Limited ("Parent") and Buyer have entered into
an Asset Purchase Agreement dated February 11, 1998 (the "Asset Purchase
Agreement") relating to RETAVASE (the "Product"), and
WHEREAS Parent and Buyer have agreed in the Asset Purchase Agreement that
Seller and/or its Affiliates shall supply bulk labelled lyophilized vials or
bulk Active Ingredient to Buyer or its Affiliate for a period of four years and
at certain terms and conditions to be set forth in more detail in the present
Supply Agreement;
Now, therefore, the parties hereto agree as follows:
1. DEFINITIONS
1.1. "Active Ingredient" means recombinant reteplase (rPA), a recombinant,
non-glycosylated plasminogen activator containing amino acids 1-3 and
176-527 of the amino acid sequence of tissue-type plasminogen activator.
1.2. "Affiliate" of a party means any corporation or other business entity
controlled by, controlling or under common control with, such party. For
this purpose "control" shall mean direct or indirect beneficial ownership
of more than fifty percent (50%) of the voting or income interest in such
corporation or other business entity; provided, however, Genentech, Inc.
and its subsidiaries shall not be considered an Affiliate of Seller.
1.3. "Product", for purposes of this Supply Agreement only, means either the
Active Ingredient or any pharmaceutical preparation containing the Active
Ingredient (sometimes hereinafter referred to as bulk labelled
lyophilized vials), and including future formulation changes developed
during the term of this Supply Agreement that are used by Seller to
supply Buyer.
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1.4. "Specifications" has the meaning ascribed to such term in Section 5.1.1.
1.5. "Territory" means the United States and Canada and respective possessions
or territories.
1.6. Other Terms. The defined terms used herein and not defined above shall
have the respective meanings assigned to such terms in the Asset Purchase
Agreement.
2. SUBJECT MATTER
2.1. Subject Matter. Subject to the terms and conditions of this Agreement,
Seller or its designated Affiliate(s) shall supply to Buyer during the
term of the present Agreement Buyer's requirements of the bulk labelled
lyophilized vials or bulk Active Ingredient manufactured by Seller or
Affiliates of Seller, provided that Seller and its Affiliates shall not
be obliged to supply bulk labelled lyophilized vials or bulk Active
Ingredient in excess of its capacity.
3. FORECASTS AND ORDERS
3.1. Forecasts. Buyer shall give Seller or Seller's designated Affiliate(s)
within one month from the date of this Agreement and thereafter at the
beginning of every calendar quarter the estimate by month of its
requirements of bulk labelled lyophilized vials or bulk Active Ingredient
for the following 12 (twelve) months. The first 3 (three) months of each
estimate shall constitute a firm order. Each successive estimate (after
the first such estimate) shall update the estimate previously given for
the last calendar quarter covered by the immediately preceding estimate
and add an estimate for the calendar quarter following immediately
thereafter, such that Seller shall have sufficient information upon which
to schedule its manufacturing operations so as to be able to meet Buyer's
estimated requirements of the bulk labelled lyophilized vials or bulk
Active Ingredient. Seller shall not provide any of the forecast
information set forth above to Genentech, Inc.
3.2. Orders. Buyer shall provide a written firm purchase order to Seller or
its designated Affiliate(s) (at one of Seller's or its Affiliates'
offices designated by Seller) at least 3 (three) months prior to a
requested delivery date. Seller or its designated Affiliate(s) shall
supply the bulk labelled lyophilized vials or bulk Active Ingredient
within 3 (three) months after receipt of a firm order therefor from
Buyer. In the event that the sum of the orders for delivery within any
2
<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 ASTERICKS (*); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
calendar quarter exceeds 100% (one hundred percent) of the most recent
estimate given by Buyer for such calendar trimester pursuant to Section
3.1 above, and subject to the supply obligation set forth in Section 2.1
above, Seller and Buyer shall consult with each other and Seller shall be
allowed such reasonable time as is needed to arrange for the orderly
manufacture of such additional requirements.
3.3 Minimum Order Size. The minimum size of any order for any bulk labelled
lyophilized vials or bulk Active Ingredient shall be one full batch of
such bulk labelled lyophilized vials (as set forth in Schedule 3.3
hereto) or bulk Active Ingredient with larger orders being in whole
number multiples of such a batch.
4. PRICE, DELIVERY AND PAYMENT CONDITIONS
4.1 Price. Buyer shall purchase the bulk labelled lyophilized vials from the
Seller at DM [*] per vial or DM [*] per amount of bulk Active
Ingredient contained in one such vial or, in the case of formulation
changes, a price to be agreed on by the parties in good faith.
4.2 Delivery Conditions. Title and risk of loss or damage to any bulk
labelled lyophilized vials or bulk Active Ingredient supplied hereunder
shall pass to Buyer upon delivery at Seller's or its Affiliate's
manufacturing plant to a common carrier for delivery of such Product.
Buyer shall be responsible and pay for any and all customs duties, value
added, excise and other taxes, clearances and/or levies of any type
whatsoever with regard to the supply of the Product from Seller or its
Affiliate hereunder Seller may select a common carrier for shipment of
goods; delivery will be per Buyer's instruction.
4.3 Certificate of Analysis. All bulk labelled lyophilized vials or bulk
Active Ingredient supplied to Buyer shall be accompanied by a signed and
dated Certificate of Analysis, which shall be substantially in the form
attached as Schedule 4.3 hereto. A copy of this Certificate of Analysis
will be sent by fax to the appropriate contact person at Buyer. The
original Certificate of Analysis shall be dispatched by airmail, or sent
together with the Product, at the time of shipment in accordance with
Buyer's instructions.
4.4 Invoicing and Payment Conditions. Seller or its designated Affiliate(s)
shall invoice Buyer in German marks for all supplies of bulk labelled
lyophilized vials or bulk Active Ingredient hereunder monthly after
delivery as defined herein. Buyer shall effect payment of such invoices
in German marks to Seller's or its Affiliate(s) designated bank account
within 30 (thirty) days after the date of
3
Confidential Treatment Requested
<PAGE>
invoice. Seller and its Affiliate(s) may charge a late payment fee of
1.5% of the outstanding balance for each 30 (thirty) day period
thereafter during which said balance remains unpaid.
4.5 Supply. If there is an interruption in the manufacture of the bulk
labelled lyophilized vials or bulk Active Ingredient for a period of more
than 45 days (i) caused by the actions of Seller or its Affiliates, Buyer
shall have first call on the then available supply, or (ii) caused by
actions other than those of Seller or its Affiliates, the then available
supply shall be divided between Seller and Buyer based upon their
respective previous three months' sale.
5. SPECIFICATIONS, WARRANTY AND INDEMNIFICATION
5.1 Warranties; Specifications and Analysis
5.1.1. Seller represents and warrants that the bulk labelled lyophilized vials
or bulk Active Ingredient manufactured by Seller or its Affiliate(s) for
Buyer pursuant meet the FDA approved specifications therefor, as may be
amended from time to time by Seller after reasonable prior notice to
Buyer which is sufficient to enable Buyer to assess the impact of the
amendment on Buyer's manufacturing process, but not exceeding 60 (sixty)
days, and prior approval by the respective registration authorities, if
required (the "Specifications").
Seller or its Affiliate shall send to Buyer with each such shipment a
certificate of analysis specifying, inter alia, the results of each of
the determinations required to show conformance of such shipment with the
Specifications. The figures set forth in the certificate of analysis
shall be accepted as accurate for the purposes of this Agreement unless
Buyer within 30 (thirty) days of the receipt of such shipment notifies
Seller in writing that it has analysed such shipment in accordance with
Seller's or its Affiliates' methods of analysis, as may be amended from
time to time by Seller after reasonable prior notice to Buyer which is
sufficient to enable Buyer to assess the impact of the amendment on
Buyer's manufacturing process, but not exceeding 60 (sixty) days, and
prior approval by the respective registration authorities, if required
and has determined that such shipment does not conform to the
Specifications. In the latter event, Buyer and Seller agree to consult
with each other in order to resolve the discrepancy between each other's
determinations. If such consultations do not resolve the discrepancy,
Buyer and Seller agree to nominate an independent, reputable laboratory,
acceptable to both parties, which shall carry out determinations on
representative samples taken from such shipment, using Seller's or its
Affiliates' methods of analysis, and the resulting determinations shall
be binding on Buyer and Seller for the purposes hereof. The
4
<PAGE>
cost of the analysis of such independent laboratory shall be borne by the
party whose testing was in error.
5.1.2. If it is determined that a shipment of bulk labelled lyophilized vials or
bulk Active Ingredient, as of the date shipped, does not conform to the
Specifications, Seller shall replace such shipment with a substitute
shipment that meets the Specifications. The above shall be Seller's and
its Affiliates' sole liability for, and Buyer's sole and exclusive remedy
for the supply of any Product that do not conform to the Specifications.
The non-conforming shipment shall be returned, at Seller's expense by
Buyer to Seller upon final determination in accordance with Section 5.1.1
above that it does not meet the Specifications.
5.2 DISCLAIMER. EXCEPT AS SET FORTH IN SECTIONS 5.1.1 AND 5.1.2 ABOVE, SELLER
MAKES NO REPRESENTATIONS AND DISCLAIMS ANY WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, TO BUYER FOR ANY BULK LABELLED LYOPHILIZED VIALS OR
BULK ACTIVE INGREDIENT SUPPLIED BY SELLER OR ITS AFFILIATES HEREUNDER,
INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
5.3 Recall. Buyer is competent and responsible for deciding about and
effecting a recall of the Product. In case of such a recall, to the
extent necessary or needed, Seller shall cooperate with Buyer as
reasonably required in carrying out any such recall. Buyer shall
reimburse Seller and its Affiliates for any cost reasonably expended by
Seller and its Affiliates to effect the recall, provided that if a recall
is caused by non-compliance of the Product with the Specifications at the
date of shipment, Seller shall reimburse Buyer for (a) any cost
reasonably expended by Buyer to effect the recall, (b) any manufacturing
and shipping fees paid to Seller by Buyer for recalled Product, and (c)
any reasonable disposal costs for such recalled Product.
5.4 Indemnification
5.4.1. Indemnification by Seller. Subject to the following limitations, Seller
shall be liable for and shall indemnify and hold harmless Buyer in
respect of any and all liabilities, losses, damages, claims or lawsuits,
including but not limited to any liabilities, losses, damages, claims or
lawsuits arising out of the manufacture, use, sale or marketing of the
Product, including but not limited to any claims made (directly or
indirectly) by or on behalf of consumers who have purchased or otherwise
obtained and/or used the Product, arising from Seller's (i) failure to
5
<PAGE>
supply bulk labelled lyophilized vials or bulk Active Ingredient meeting
FDA specifications upon delivery to Buyer, provided that Buyer gives
Seller prompt, adequate notice of such third party claim and permits
Seller to assume the sole control of all phases of the defense and/or
settlement of such claim, including the selection of counsel, it being
understood that Seller shall not be liable for any negligent act or
omission of Buyer or for any representations and warranties, express or
implied, made by Buyer that exceed the representations and warranties
made by Seller to Buyer under this Agreement, (ii) breach of this
Agreement, (iii) negligence or wilful misconduct, (iv) breach of
statutory duty, or (v) act, omission or default howsoever caused on the
part of Seller, its Affiliates, employees and agents. The indemnity by
Seller set forth in clause (i) above shall include loss of Buyer's
profits unless Seller is able to demonstrate that Seller's failure to
supply bulk labelled lyophilized vials or bulk Active Ingredient meeting
FDA specifications upon delivery to Buyer was entirely beyond Seller's
control and in no part the result of negligence or wilful misconduct on
the part of Seller.
5.4.2. Indemnification by Buyer. Subject to the following limitations, Buyer
shall be liable for and shall indemnify and hold harmless Seller in
respect of any and all liabilities, losses, damages, claims or lawsuits,
including but not limited to any liabilities, losses, damages, claims or
lawsuits arising out of the manufacture, use, sale or marketing of the
Product, including but not limited to any claims made (directly or
indirectly) by or on behalf of consumers who have purchased or otherwise
obtained and/or used the Product, arising from Buyer's (i) breach of this
Agreement, (ii) negligence or wilful misconduct, (iii) breach of
statutory duty or (iv) act, omission or default howsoever caused on the
party of Buyer, its employees and agents. Notwithstanding the foregoing,
Buyer shall not be liable to Seller, whether in contract, tort or
otherwise, for any consequential, indirect, economic or financial loss or
damage (including, without prejudice to the generality of the foregoing,
any loss of turnover, revenue, profits, business or goodwill) howsoever
caused.
6. CONFIDENTIALITY
6.1 Subject to the Asset Purchase Agreement, each party shall during and for
5 (five) years after the term of this Agreement not use for any other
purpose than contemplated under this Agreement and not disclose to any
person (not including a contract manufacturer of Buyer with respect to
manufacture of the Active Ingredient, provided that such contract
manufacturer (i) shall be obligated to keep such confidential information
confidential and (ii) shall not use such information for any purpose
other than with respect to manufacture of the Active Ingredient)
6
<PAGE>
any confidential information received from the other party concerning
formulas, manufacturing processes, commercial methods and other activities
of the other party, except to the extent required by government authorities
for the execution of this Agreement or relating to the safety of the
Product.
6.2 It is understood that confidential information shall not include
information which the party receiving the information (in the case of
either Seller or Buyer, their Affiliates and their respective
representatives, "Receiving Party") can prove (a) was in the public domain
prior to the date of this agreement or thereafter enters the public domain
through no fault of Receiving Party; (b) was available to Receiving Party
on a non-confidential basis prior to its disclosure to Receiving Party by
the party providing the information (in the case of either Seller or Buyer,
their Affiliates and their respective representatives, "Providing Party");
(c) is later lawfully acquired by Receiving Party from sources other than
Providing Party who are not, to the best of knowledge of Receiving Party
subject to any legally binding obligation to keep such information
confidential; (d) independently developed by Receiving Party without
reference to such confidential information; or (e) is required by law,
regulation, rule, act or order of any governmental authority or agency to
be disclosed by Receiving Party; provided, however, that in the case of
(e), Receiving Party gives Providing Party sufficient advance written
notice to permit Providing Party to seek a protective order with respect to
such information and thereafter Receiving Party discloses only the minimum
information required to be disclosed in order to comply.
7. TERM AND TERMINATION
7.1 Term. The present Agreement shall become effective at the Closing Date and
shall remain in force for a period which is the earlier of (i) four years
and (ii) three months following the date Buyer obtains all necessary
approvals to manufacture the Active Ingredient, subject to extension with
approval of the FTC.
7.2 Termination. Notwithstanding Section 7.1 above, either party may terminate
this Agreement at any time with immediate effect by written notice to the
other party.
a) if the other party has failed to perform any of its obligations
hereunder and has not corrected such default within 60 (sixty) days
after dispute resolution pursuant to Section 8.1 hereof (provided
that, even following the 60-day period referred to above, the Seller
shall not have a right to terminate pursuant to this Section 7.2 a) as
long as Buyer continues to pay all amounts due to Seller in accordance
with Sections 4.4. and 5.4.2
7
<PAGE>
hereof);
b) if the other party is or will inevitably in the near future be
dissolved, liquidated or bankrupt; provided that Seller shall not have
a right to terminate pursuant to this Section 7.2 b) as long as Buyer
continues to pay all amounts due to Seller in accordance with Section
4.4.
8. ARBITRATION AND GOVERNING LAW
8.1 Arbitration. Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order to preserve the
status quo or prevent irreparable harm pending the selection and
confirmation of a panel of arbitrators, any dispute, controversy, or claims
arising under, out of or relating to this Agreement (and subsequent
amendments thereof), its valid conclusion, binding effect, interpretation,
performance, breach or termination, including tort claims, shall be
referred to and finally determined by arbitration, to the exclusion of any
courts of law, in accordance with the Rules of Arbitration of the
International Chamber of Commerce as in force at the time when initiating
the arbitration. The arbitral tribunal shall consist of three arbitrators.
The place of arbitration shall be Hamilton, Bermuda. The language to be
used in the arbitral proceedings shall be English. The arbitration decision
shall be final and binding upon the parties and the parties agree that any
award granted pursuant to such decision may be entered forthwith in any
court of competent jurisdiction. This arbitration clause and any award
rendered pursuant to it shall be governed by the United Nations Convention
on the Recognition and Enforcement of Foreign Arbitration Awards signed in
New York as of 10 June, 1958. The party to whom a favourable ruling is
awarded shall be entitled to reimbursement of all its reasonable costs and
expenses in arbitration by the other party.
8.2 Governing Law. The present Agreement shall be subject to the substantive
law of Bermuda (regardless of its or any other jurisdiction's choice of law
principles).
9. MISCELLANEOUS
9.1 Force Majeure. If any of the parties hereto finds itself in spite of
ordinary care unable by reason of a duly evidenced case of force majeure,
i.e. an event beyond its control, to carry out its obligations hereunder in
whole or in part, the obligations of such party, to the extent that they
are affected by such force majeure, shall be suspended as long as the
impossibility so caused shall endure.
8
<PAGE>
The party affected by force majeure shall immediately inform the other
party and shall make all reasonable efforts to remedy the situation created
by such force majeure as soon as possible.
9.2 Independent Contractor. Each party shall act solely as an independent
contractor and nothing in this Agreement shall be construed to give either
the power or authority to enter into or incur, any commitments, expenses or
liabilities whatsoever on behalf of the other party. Nothing herein shall
be construed to create the relationship of partnership, principal and
agent, or joint venture between Seller and Buyer.
9.3 Quality Control. In connection with the obligations of Seller and Buyer as
set forth in this Agreement, Seller and Buyer shall review the quality
control procedures required by the FDA and the Department of Health Canada
in order to determine the most practical way in which to comply with such
procedures.
9.4 Notices. Any notice required or permitted to be given hereunder shall be
deemed sufficient if sent by facsimile letter or overnight courier, or
delivered by hand to Seller or Buyer at the respective addresses and
facsimile numbers set forth below or at such other address and facsimile
number as either party hereto may designate. If sent by facsimile letter,
notice shall be deemed given when the transmission is completed if the
sender has a confirmed transmission report and if the sender has sent a
confirmation copy by registered mail. If a confirmed transmission report
does not exist, then the notice will be deemed given when the notice is
actually received by the person to whom it is sent. If delivered by
overnight courier, notice shall be deemed given when it has been signed
for. If delivered by hand, notice shall be deemed given when received.
if to Buyer, to:
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355-1307
Attention: Corporate Secretary
Fax: 610-651-6331
if to Seller, to:
Boehringer Mannheim GmbH
Sandhofer Str. 116
D-68305 Mannheim
9
<PAGE>
Germany
Attention: Claus-Jorg Rutsch
Fax: ++49 621 759 3523
with a copy to:
F.Hoffmann-La Roche Ltd
CH-4070 Basel, Switzerland
Attention: Corporate Law Department
Fax: ++41 61 688 1396
9.5 Assignment. Neither party shall have the right to assign the present
Agreement or any part thereof to any third party without the prior written
approval of the other party. However, all Affiliates of Seller shall not
be deemed to be third parties within the meaning of this provision.
9.6 Amendments: No Waiver. No provision of this Agreement may be amended,
revoked or waived except by a writing signed and delivered by an authorized
officer of each party. No failure or delay on the part or either party in
exercising any right hereunder will operate as a waiver of, or impair, any
such right. No single or partial exercise of any such right will preclude
any other or further exercise thereof or the exercise of any other right.
No waiver of any such right will be deemed a waiver of any other right
hereunder.
9.7 Validity. Should any part or provision of this Agreement be held
unenforceable or invalid, the invalid or unenforceable provision shall be
replaced with a provision that accomplishes, to the maximum possible
extent, the original business purpose of such provision in a valid and
enforceable manner, and the remainder of this Agreement shall remain
binding upon the parties.
9.8 Counterparts. This Agreement may be executed in one or more counterparts
all of which shall together constitute one and the same instrument and
shall become effective when a counterpart has been signed by Buyer and
delivered to Seller and a counterpart has been signed by Seller and
delivered to Buyer.
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by duly authorized
representatives of each of the parties hereto as of the date first above
written.
Boehringer Mannheim GmbH Centocor, Inc.
By: By:
------------------------- --------------------------
Name: Name:
------------------------ -------------------------
Title: Title:
----------------------- ------------------------
11
<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 ASTERICKS (*); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 3.3
For bulk labelled vials: One full batch equals [*]
For bulk Active Ingredient: One full batch equals 100g (one hundred grams).
12
<PAGE>
Exhibit D
---------
KEEP WELL AGREEMENT
Agreement dated as of , 1998 between Roche Holding Ltd (the
"Parent") and Roche Healthcare Limited (the "Subsidiary").
WHEREAS the Parent owns directly or indirectly all the capital stock of the
Subsidiary; and
WHEREAS the Subsidiary proposes to enter into an Asset Purchase Agreement
with Centocor, Inc. (the "Asset Purchase Agreement").
NOW, THEREFORE, the parties agree as follows:
1. Stock Ownership of the Subsidiary. At all times during the term of
---------------------------------
this Agreement, the Parent shall directly or indirectly own and hold the entire
legal title to and beneficial interest in all the outstanding shares of stock of
the Subsidiary having the right to vote for the election of members of the Board
of Directors of the Subsidiary and will not directly or indirectly pledge or in
any way encumber or otherwise dispose of any such shares of stock, unless
required to dispose of any or all such shares of stock pursuant to a court
decree or order of any governmental authority which, in the opinion of counsel
to the Parent, may not be successfully challenged.
2. Maintenance of Consolidated Net Worth. The Parent agrees that it shall
-------------------------------------
cause the Subsidiary to have a Consolidated Net Worth of at least U.S.$1,000,000
at all times.
For purposes of this Agreement, the term "Consolidated Net Worth" shall
mean the excess of total assets of the Subsidiary and its consolidated
subsidiaries over total liabilities of the Subsidiary and its consolidated
subsidiaries, total assets and total liabilities each to be determined in
accordance with generally accepted international accounting principles
consistently applied.
3. Waiver. The Parent hereby waives any failure or delay on the part of
------
the Subsidiary in asserting or enforcing any of its rights or in making any
claims or demands hereunder.
4. Not a Guarantee. This Agreement is not, and nothing herein contained
---------------
and nothing done pursuant hereto by the Parent shall be deemed to
<PAGE>
constitute, a guarantee by the Parent of the payment of any obligation,
indebtedness or liability, of any kind or character whatsoever, of the
Subsidiary. The only parties to this Agreement are the Subsidiary and the
Parent, and this Agreement shall not confer upon any other person any right or
claim against the Parent.
5. Modification, Amendment or Termination. This agreement may be
--------------------------------------
modified, amended or terminated by the written agreement of the parties;
provided, however, that no such modification, amendment or termination shall
have any adverse effect upon the ability of the Subsidiary to meet its
obligations under Section 3.4 and Section 13.7 of the Asset Purchase Agreement
without the written consent of Centocor, Inc.
6. Bankruptcy, Liquidation or Moratorium. Any rights and obligations
-------------------------------------
which either of the parties has under this Agreement will remain valid and
binding notwithstanding any bankruptcy or liquidation of, or moratorium
involving, the Subsidiary.
7. Rights of the Subsidiary. It is the intention of the parties in
------------------------
entering into this Agreement to benefit the Subsidiary, and accordingly the
obligations of the Parent under this Agreement may be enforced exclusively by
the Subsidiary at any time against the Parent.
8. Successors. The agreements herein set forth shall be mutually binding
----------
upon, and inure to the mutual benefit of, the Parent and the Subsidiary and
their respective successors.
9. Governing Law. This Agreement shall be governed by the laws of Bermuda
-------------
(regardless of its or any other jurisdiction's choice of law principles).
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the day and year first above written.
Roche Holding Ltd Roche Healthcare Limited
By: By:
-------------------------- ---------------------------
By:
--------------------------
3
<PAGE>
Exhibit 11
----------
CENTOCOR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Computation of Earnings (Loss) Per Common Share
For the Years ended December 31, 1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Earnings (loss)
Income (loss) from continuing operations before
loss on sale of facility, extraordinary gain,
special charges and litigation $15,695 ($13,468) ($51,740)
Loss on sale of facility and related business ($4,565) - -
Net gain on extinguishment of debt - 705 -
Special charges - - (1,642)
Litigation settlement - - (3,750)
---------- ----------- -----------
Net income (loss) available to common stock $11,130 ($12,763) ($57,132)
========== =========== ===========
Shares
Weighted average number of common shares
outstanding 69,809 66,475 58,207
========== =========== ===========
Weighted average common and dilutive
equivalent shares outstanding 71,770 66,475 58,207
========== =========== ===========
Basic earnings (loss) per common share:
Income (loss) from continuing operations before
loss on sale of facility, extraordinary gain,
special charges and litigation $0.22 (0.20) ($0.89)
Loss on sale of facility and related business ($0.06) - -
Net gain on extinguishment of debt - 0.01 -
Special charges - - (0.03)
Litigation settlement - - (0.06)
---------- ----------- -----------
Net earnings (loss) $0.16 ($0.19) ($0.98)
========== =========== ===========
Diluted earnings (loss) per common share:
Income (loss) from continuing operations before
loss on sale of facility, extraordinary gain,
special charges and litigation $0.22 ($0.20) ($0.89)
Loss on sale of facility and related business ($0.06) - -
Net gain on extinguishment of debt - 0.01 -
Special charges - - (0.03)
Litigation settlement - - (0.06)
---------- ----------- -----------
Net earnings (loss) $0.16 ($0.19) ($0.98)
========== =========== ===========
</TABLE>
The computation of basic earnings or loss per share in each period is
based on the weighted average number of common shares outstanding.
When dilutive, stock options and warrants are included as share
equivalents using the treasury stock method and are included in the
calculation of diluted per share data. Convertible Debentures are not
considered share equivalents and are not included in the calculation
of basic or diluted per share data but would be included in the
calculation of diluted per share data if their effect is dilutive.
<PAGE>
Exhibit 12
----------
CENTOCOR, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIOS
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
EARNINGS (LOSS):
Earnings (loss) $11,130 ($12,763) ($57,132) ($126,658) ($74,379)
PLUS:
Fixed charges (below) 5,144 9,648 18,903 21,719 22,820
LESS:
Interest capitalized - - - - -
------------- ------------- ------------- ------------- -------------
ADJUSTED EARNINGS (LOSS) $16,274 ($3,115) ($38,229) ($104,939) ($51,559)
FIXED CHARGES:
Rent expense deemed interest $ 1,049 $ 1,138 $ 1,191 $ 1,187 $ 1,987
Interest expense 3,938 8,351 17,001 19,821 20,087
Amortization of debt issuance cost 157 159 711 711 746
Interest capitalized - - - - -
------------- ------------- ------------- ------------- -------------
TOTAL FIXED CHARGES $ 5,144 $ 9,648 $18,903 $ 21,719 $ 22,820
RATIO 3.16 * * * *
============= ============= ============= ============= =============
</TABLE>
* Adjusted earnings did not cover fixed charges for the years ended
December 31, 1996, 1995, 1994 and 1993 by $12,763,000, $57,132,000,
$126,658,000 and $74,379,000, respectively.
<PAGE>
Exhibit 21
----------
CENTOCOR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
Subsidiaries of the Registrant or Organization
-------------------------------------- ------------------------------------
<S> <C>
1. Centocor B.V. The Netherlands
2. Centocor Development Corporation III Delaware
3. Centocor Property Management Corp. Delaware
4. Centocor Property Management Corp. II Delaware
5. First Valley Insurance Company Vermont
6. Nippon Centocor K.K. Japan
7. Centocor (BVI), Inc. British Virgin Islands
8. Winthorp and Valentine, Inc. Delaware
9. Centocor Diagnostics of PA Pennsylvania
10. CDP Investments Delaware
11. CDP Holdings Delaware
12. Centocor Diagnostics, Inc. Pennsylvania
</TABLE>
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Centocor, Inc.:
We consent to incorporation by reference in Registration Statement Nos.
33-35729, 33-16286, 33-7311, 33-23481, 33-44231, 33-29142 and 333-07829 on Form
S-3 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 January 28, 1998, relating to the consolidated balance sheets of Centocor,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, cash flows, shareholders' equity and
related consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 1997, which report appears in the December
31, 1997 Annual Report on Form 10-K of Centocor, Inc.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTOCOR,
INC CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 85,565
<SECURITIES> 109,108
<RECEIVABLES> 27,853
<ALLOWANCES> 0
<INVENTORY> 27,777
<CURRENT-ASSETS> 254,845
<PP&E> 156,440
<DEPRECIATION> 79,426
<TOTAL-ASSETS> 405,104
<CURRENT-LIABILITIES> 91,594
<BONDS> 54,765
0
0
<COMMON> 701
<OTHER-SE> 257,134
<TOTAL-LIABILITY-AND-EQUITY> 405,104
<SALES> 196,354
<TOTAL-REVENUES> 200,784
<CGS> 77,958
<TOTAL-COSTS> 77,958
<OTHER-EXPENSES> 109,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,938
<INCOME-PRETAX> 11,130
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,130
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
