<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
| | 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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2117202
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Great Valley Parkway Malvern, Pennsylvania 19355-1307
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(Address of principal executive offices) (Zip Code)
610-651-6000
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(Registrant's telephone number, including area code)
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 | |
Shares of Common Stock outstanding at May 3, 1999 were 70,905,337.
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Part I: Financial Information
Item I: Financial Statements
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes
4 and 8) $ 60,780 $ 67,332
Short-term investments (Note 4) 131,197 137,938
Accounts and contracts receivable 67,637 90,780
Inventory (Note 5) 45,934 45,259
Prepaid expenses 4,533 7,056
Other current assets 4,333 5,676
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314,414 354,041
Property, plant and equipment:
Land and buildings 73,998 75,813
Equipment, furniture, fixtures,
improvements and construction
in progress 199,646 168,895
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273,644 244,708
Less accumulated depreciation (87,862) (89,285)
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185,782 155,423
Long-term investments (Note 4) 19,962 21,332
Deferred tax assets (Note 9) 304,004 309,094
Intangible and other assets (Note 6) 241,083 242,199
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Total assets $ 1,065,245 $ 1,082,089
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
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CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D.)
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,789 $ 15,670
Accrued expenses 70,402 89,084
Notes payable (Note 8) 5,882 6,383
Unearned revenues 2,586 4,457
Other current liabilities (Note 7) 15,800 15,800
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108,459 131,394
Long-term debt (Note 8) 460,000 460,000
Other liabilities 4,505 4,476
Shareholders' equity (Notes 4, 8, and 12):
Preferred Stock, $.01 par value,
10,000 shares authorized, none issued -- --
Common Stock, $.01 par value,
100,000 shares authorized and
70,902 and 70,756 issued and
outstanding at March 31, 1999 and
December 31, 1998, respectively 709 708
Additional paid-in capital 1,101,391 1,098,315
Deficit (608,101) (618,185)
Accumulated other comprehensive income(loss) (1,718) 5,381
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492,281 486,219
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Total liabilities and shareholders' equity $ 1,065,245 $ 1,082,089
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
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For the three months ended March 31, 1999 1998
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<S> <C> <C>
Revenues:
Sales $ 100,497 $ 56,505
Contracts 250 360
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100,747 56,865
Costs and expenses:
Cost of sales 32,364 20,760
Research and development 20,951 19,913
Marketing, general and administrative 34,254 15,867
Special charges (Note 11) -- 145,405
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87,569 201,945
Other income (expenses):
Interest income 2,231 4,164
Interest expense (5,327) (2,687)
Litigation charge (Note 14) -- (3,430)
Gain on sale of investments (Note 4) 5,196 6,931
Other 1,529 (55)
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3,629 4,923
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Income (loss) before provision for income
taxes 16,807 (140,157)
Provision for income taxes (Note 9) 6,723 150
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Net income (loss) $ 10,084 $(140,307)
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Basic earnings (loss) per share $ 0.14 $ (2.00)
========= =========
Diluted earnings (loss) per share $ 0.14 $ (2.00)
========= =========
Weighted average number of shares
outstanding 70,863 70,185
========= =========
Weighted average common and dilutive
equivalent shares outstanding 72,388 70,185
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
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For the three months ended March 31, 1999 1998
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<S> <C> <C>
Cash flows from (used for) operating activities:
Net income (loss) $ 10,084 $(140,307)
Adjustments to reconcile net income (loss) to net
cash from (used for) operating activities:
Provisions for depreciation and amortization 10,927 5,158
Special charges (Note 11) -- 145,405
Gain on sale of investments (5,196) (6,931)
Changes in assets and liabilities:
Accounts and contracts receivable 17,468 (12,259)
Interest receivable (44) 105
Inventory (2,514) (3,546)
Prepaid expenses (1,150) (259)
Other current assets (150) (170)
Intangible and other assets (6,649) (7,412)
Accounts payable (942) (2,114)
Accrued expenses and other liabilities (7,796) 7,174
Other long-term liabilities (237) 150
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Net cash from (used for) operating activities 13,801 (15,006)
Cash flows used for investing activities:
Purchases of investments (138,583) (58,209)
Sales of investments 151,686 51,373
RETAVASE acquisition and related costs -- (337,039)
Purchases of fixed assets (35,558) (17,881)
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Net cash used for investing activities (22,455) (361,756)
Cash flows from financing activities:
Net proceeds from issuances of Common Stock 1,544 306
Net proceeds from issuance of long-term debt -- 448,500
--------- ---------
Net cash from financing activities 1,544 448,806
Effect of foreign currency translation 558 (314)
--------- ---------
Net increase (decrease) in cash and cash equivalents (6,552) 71,730
Beginning cash and cash equivalents 67,332 85,565
--------- ---------
Ending cash and cash equivalents $ 60,780 $ 157,295
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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Note 1
Basis of Presentation
Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical
company that creates, acquires and markets therapies that yield long-term
benefits for patients and the healthcare community. Its products, developed
through monoclonal antibody and other technologies, help physicians deliver
innovative treatments to improve human health and restore patients' quality of
life.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
periods. These financial statements do not include all disclosures required for
annual financial statements and should be read in conjunction with the more
complete disclosures contained in Centocor, Inc.'s audited financial statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
The statements reflect, in the opinion of management, all adjustments of a
normal and recurring nature necessary to present fairly the Company's
consolidated financial position at March 31, 1999 and December 31, 1998 and the
consolidated results of operations and cash flows for the three months ended
March 31, 1999 and 1998. The results of operations and the cash flows are not
necessarily indicative of the results to be expected for the entire year.
Note 2
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 and, more
recently, by therapeutic product sales.
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 the Company's
products will be dependent upon several factors, including, but not limited to,
the timing and extent of future regulatory approvals of those 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 the
FDA or other regulatory authorities will approve expanded labeling for ReoPro,
RETAVASE, REMICADE or other products or will approve any other of the Company's
product candidates under development for commercial sale. Failure to obtain, on
a timely basis, initial or expanded regulatory approvals for the Company's
products and product candidates will have a material adverse effect on the
Company.
Legal Proceedings
In July 1995, PaineWebber Development Corporation, a wholly-owned
subsidiary of PaineWebber Group Inc., caused a suit to be filed against the
Company by PaineWebber R&D II, L.P. ("PWR&DII"), a research and development
partnership formed by PaineWebber in the mid-1980s and managed by it since then.
PWR&DII was
6
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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an investor in Centocor Partners III, L.P. ("CPIII"), a research partnership for
which PaineWebber acted as the sales agent and in other capacities. 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.
The suit was filed in the Court of Chancery of the State of Delaware.
CPIII is named as a nominal defendant and the Company and Centocor Development
Corporation III ("CDCIII"), a wholly owned subsidiary of the Company which acted
as the general partner of CPIII, were named as defendants against whom relief is
sought. The claim in this case was 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 was 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 sought 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)
sought 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, asserted 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 the Company 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. As part of the settlement, the
complaint was amended to restate the claims as class claims. Abdo and
Pharmaceutical Partners II, L.P., a limited partnership which had purchased
CPIII limited partnership interests, objected to the settlement and were
permitted to take discovery regarding the settlement. A hearing on the
settlement was held on September 4, 1997. On March 15, 1999, the Court issued an
opinion and order in which it approved the settlement as fair and reasonable.
Once the Court has acted upon the applications for attorneys' fees, the Court
will enter an order and final judgement. The settlement will become effective if
the Court's order and final judgement is affirmed (in the event of an appeal) or
is not appealed and is no longer subject to appeal. If the order becomes final,
all claims will be dismissed, including those of Abdo.
On January 19, 1998, a 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
Court consolidated the actions and plaintiffs subsequently filed a consolidated
class action complaint. The complaint in this action charges the Company and its
chief executive officer with having violated the federal securities laws.
Plaintiffs sought to represent a class of those who purchased the Company's
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. On June 25, 1998,
defendants filed a motion to dismiss the complaint. On December 1, 1998, the
Court denied defendants' motion. On December 22, 1998, defendants answered the
complaint, denying all liability and raising various affirmative defenses. The
court has certified the action as a class action on behalf of all persons who
purchased the Company's securities between December 2, 1997 and December 16,
1997. Discovery has commenced. Pursuant to a pretrial order, all fact and expert
discovery must be completed by September 1, 1999. The Company believes this
action is without merit and intends to defend it vigorously.
7
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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Pursuant to the Asset Purchase Agreement between the Company and Roche
Healthcare, entered into in connection with the Company's acquisition of the
U.S. and Canadian product rights for RETAVASE, the Company assumed
responsibility for certain RETAVASE patent litigation instituted by Genentech,
Inc. against Boehringer Mannheim GmbH and Boehringer Mannheim Corporation in the
United States and Germany. The Purchase Agreement provides that the cost of the
RETAVASE patent litigation (in the United States and Germany) is to be shared
equally by Roche Healthcare and the Company, and Roche is committed to assist
the Company 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 RETAVASE patent litigation (a
"Binding Determination") or (ii) a settlement of the RETAVASE 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
any part of the $20,000,000 placed in escrow at the closing of the Purchase
Agreement) 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 RETAVASE 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
Healthcare's parent and Genentech allows Roche Healthcare's parent to control
Genentech or in the event the parent obtains 100% of the stock of Genentech,
Roche Healthcare's parent 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 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. Genentech seeks judgment
of infringement, an injunction, treble damages, and costs including attorney's
fees. The defendants have denied infringement and raised various affirmative
defenses and counterclaims. 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 directed the
parties to address initially three of the patents (United States Patent Nos.
4,342,832, 5,034,225 and 4,511,502), reserving two for later disposition (United
States Patent Nos. 5,221,619 and 5,185,259). The Court conducted a Markman
hearing as to the first three patents to be considered in order to construe
their claims. It subsequently issued an opinion which limited the construction
of the claims asserted by Genentech in certain instances, while not accepting
all of defendants' arguments as to construction. Thereafter, the Court
entertained argument on the motions by the defendants for summary judgment of
noninfringement as to the same three patents. On March 27,1998, the Company
moved to intervene as a named defendant in the litigation, and the Court
thereafter joined the Company as a party. On April 14, 1999, the Court granted
summary judgment dismissing Genentech's claims for infringement of United States
Patent Nos. 4,342,832 and 4,511,502, but held that there remained issues
precluding summary judgment at this time with respect to the claims of United
States Patent No. 5,034,225. The Court has not set a trial date for the case
concerning United States Patent 5,034,225, nor has it set a schedule for
proceedings with respect to United States Patent Nos. 5,221,619 and 5,185,259.
There can be no assurance that the defendants will prevail in obtaining a
judgment for noninfringement, invalidity, or unenforceability of United States
Patent Nos. 5,034,225, 5,221,619 and 5,185,259 in any subsequent trial or on any
of the patents (including those recently dismissed) in a subsequent appeal. An
adverse determination in these proceedings could trigger the reimbursement or
indemnification provisions set forth above and could have a material adverse
effect on the Company's ability to sell RETAVASE.
8
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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The patent litigation in Germany consists of a number of different
proceedings: 1) infringement suits by Genentech and its licensee against
Boehringer Mannheim based on the European patent EP 0 093 619 and 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 was initially stayed pending the outcome of the corresponding nullity
action. Following a hearing in the nullity action against the patent EP 0 093
619 on July 14, 1998, the court revoked the claims as originally stated, but
allowed alternative claims, the definition of which and the reasons for which
were subsequently set forth by the court. Boehringer Mannheim, Genentech and
Genentech's European licensee have all filed notices of appeals. 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. No report has been received from the
expert. At a hearing on July 28, 1998 in Boehringer Mannheim's nullity suit
against the patent EP 0 217 379, the court directed that further evidence be
submitted. After a further hearing, the court declared that patent invalid. No
date has been set for a hearing on the appeal in the opposition proceedings with
regard to patent EP 0 228 862. The infringement suit, based on patent EP 0 093
619, is now proceeding, following the decision in the related nullity action,
with the appointment of an expert to render advice to the Court. If any of the
German patent proceedings remain pending at the date when the Company is no
longer dependent on Boehringer Mannheim for the supply of RETAVASE, the defense
and risk of the remaining proceedings will revert to Boehringer Mannheim. An
adverse determination in these proceedings prior to the time when the Company is
no longer dependant on Boehringer Mannheim GmbH for the supply of RETAVASE could
trigger the reimbursement or indemnification provisions set forth above and
could have a material adverse effect on the Company's ability to sell RETAVASE.
On March 17, 1998, two additional patents were issued to Genentech, United
States Patent Nos. 5,728,565 (the "'565" Patent) and 5,728,566 (the "'566
Patent"). The `565 and `566 Patents issued from the same original application as
United States Patent No. 5,185,259, one of the patents at issue in the suit that
Genentech brought in the District of Massachusetts. That same day, March
17,1998, Genentech brought suit against the Company for infringement of the `565
and `566 Patents in the United States District Court for the Northern District
of California (Case No. C-98-1046). In that suit, as in Massachusetts, Genentech
seeks judgment of infringement, an injunction, damages and costs including
attorney's fees. The Company answered the complaint, denying infringement of the
`565 and `566 Patents and raising various affirmative defenses concerning
invalidity of those patents. On July 17, 1998, the Company filed an amended
answer and counterclaims against Genentech expanding the affirmative defenses
and further alleging that the `565 and `566 Patents are invalid and
unenforceable. The amended answer also asserts counterclaims against Genentech
for declaratory judgments of noninfringement, invalidity and unenforceability of
the `565 and `566 Patents and for monopolization and attempted monopolization
under the federal antitrust and unfair competition claims and moved to strike
certain of the Company's affirmative defenses of equitable estopped and/or
implied license, patent misuse, abandonment and laches. On November 9,1998, the
Court entered an order denying Genentech's motion to dismiss the antitrust and
unfair competition counterclaims and granting Genentech's motion to strike with
respect to two of the affirmative defenses (equitable estoppel/implied license
and laches) while denying the remainder of the motion to strike. The parties
have agreed that the antitrust and unfair competition claims will be separated
for discovery and trial along with issues relating to damages.
On February 9,1999, another patent was issued to Genentech, United States
Patent No. 5,869,314 (the "'314 Patent"). The `314 Patent issued from the same
original applications as the `565 and `566 Patents. The same day, February 9,
1999, Genentech brought suit against the Company for infringement of the `314
Patent in the United States District Court for the Northern District of
California (Case No. C-99-0604). In that suit, as in its other suits in
Massachusetts and California, Genentech seeks judgment of infringement, an
injunction, damages, and costs including attorney's fees. The Company answered
the complaint on April 19,1999, and asserted defenses and
9
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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counterclaims similar to those it had asserted in Case No. C-98-1046 except that
it did not include the equitable estoppel/implied license and laches defenses
that had been dismissed in the Case No. C-98-1046.
Because of the similarity of the claims in the `314 Patent to the claims
in the `565 and `566 Patents, the Court conducted a Markman hearing on all three
patents (`565, `566, and `314) on April 30, 1999. The Court has not yet issued
an opinion construing the claims of those patents. At the April 30,1999 hearing,
the Court stated that Case No. C-99-0604 should proceed along the same schedule
as Case No. C-98-1046. Therefore, trial in both cases is presently scheduled to
commence in or about October, 1999 and dispositive motions in both cases will be
considered in August, 1999. There can be no assurance that the Company will
prevail in its defense of Case Nos. C-98-1046 and C-99-0604, or on any
counterclaims that the Company has asserted. An adverse determination in these
proceedings could have a material adverse effect on the Company's ability to
sell RETAVASE.
Roche Healthcare has confirmed Centocor's understanding that the suits
that Genentech has brought against the Company in the Northern District of
California are covered by the indemnification and reimbursement provisions of
the Purchase Agreement.
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. The Company
thereafter acquired the Class B limited partnership interest. 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 indemnity agreements with the former limited
partners of Centocor Cardiovascular Imaging Partners ("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.
10
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
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 and does not maintain product recall or product tampering
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 3
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, 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 further amended its Sales and
Distribution Agreement, pursuant to which Lilly no longer has the right to buy
ReoPro for resale in Japan, but Lilly retains its exclusive right to buy and
resell ReoPro in the rest of the world.
Because of the complementary nature of RETAVASE and ReoPro in the
cardiovascular field, the Company believes that joint promotion of RETAVASE and
ReoPro could result in increased market penetration for ReoPro. Accordingly, the
Company and Lilly are jointly promoting ReoPro in the United States.
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. 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 and may make
future milestone payments to the Company.
Relationship with Glaxo Wellcome plc
In November 1993, Centocor and Glaxo Wellcome plc ("Glaxo Wellcome")
entered into an agreement for the development and marketing of certain of
Centocor's monoclonal antibody-based cancer therapeutic products, including
PANOREX (edrecolomab). In November 1994, Centocor and Glaxo Wellcome amended
their 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.
Relationship with Roche Healthcare Limited
In March 1998, Centocor and Roche Healthcare Limited entered into the
RETAVASE Asset Purchase Agreement, pursuant to which Centocor acquired the North
American product rights to RETAVASE. The
11
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
RETAVASE Asset 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 United States
Federal Trade Commission (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 is entitled to recover all or a portion of the $20,000,000
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.
Relationship with Boehringer Mannheim GmbH and Boehringer Mannheim
Corporation
During the Transfer Period Boehringer Mannheim GmbH will continue to
supply RETAVASE to Centocor from its facilities in Germany at an agreed price
per unit pursuant to a Supply Agreement. Boehringer Mannheim GmbH has
represented and warranted that the products supplied to Centocor will meet FDA
approved specifications and has provided the Company with customary indemnities,
including for damages that result from the failure of the product to meet FDA
approved specifications.
Relationship with Schering-Plough Corporation
In April 1998, Centocor entered into an agreement with Schering-Plough
Corporation ("Schering-Plough"), giving Schering-Plough exclusive worldwide
marketing rights, excluding the United States, Japan and portions of the Far
East, to REMICADE. REMICADE is a novel monoclonal antibody in development for
the treatment of Crohn's disease and rheumatoid arthritis.
Under terms of the agreement, Centocor received a $20,000,000
non-refundable payment and could receive additional payments of up to
$30,000,000 upon the achievement of certain milestones. In addition,
Schering-Plough and the Company will divide profits related to REMICADE and have
agreed to share certain internal and external development expenses related to
the product. Centocor retains U.S. marketing rights for REMICADE for all
indications, but reserves the right to co-promote with Schering-Plough. Centocor
previously granted distribution rights to REMICADE in Japan and portions of the
Far East to Tanabe Seiyaku Co., Ltd.
Relationship with Biovail Corporation International
On September 15, 1998, Centocor entered into an agreement with Biovail
Corporation International, making Biovail the exclusive distributor of RETAVASE
in Canada in exchange for an up-front payment of $4,000,000 and additional
payments on future sales, which will be recognized as income over the life of
the agreement.
Relationship with Pharmacia & Upjohn
In March 1999 Pharmacia & Upjohn and the Company announced an agreement to
co-promote Pharmacia & Upjohn's FRAGMIN (dalteparin sodium injection) in the
United States.
Under the terms of the agreement, the Company will promote FRAGMIN to
cardiovascular specialists across the U.S. after marketing clearance, if
received, by the U.S. Food and Drug Administration of a new indication for the
treatment of unstable angina. FRAGMIN is currently under FDA review for this
indication.
12
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
FRAGMIN, a low molecular weight heparin preparation, is marketed by
Pharmacia & Upjohn in more than 40 countries. In the U.S., it is currently
marketed by Pharmacia & Upjohn for the prevention of deep-vein thrombosis in
patients at risk undergoing abdominal surgery.
Note 4
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
carried as a separate component of shareholders' equity. Unrealized gains and
losses on specific securities classified as trading are reported as a component
of other income (expenses).
At March 31, 1999, securities classified as trading, available for sale
and held to maturity are summarized below (in thousands).
<TABLE>
<CAPTION>
Unrealized
Adjusted ---------------------- Fair
Trading securities: Cost Gains Losses Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies $ 44,534 $ 32 $ (255) $ 44,311
Other short-term obligations 20,198 20 (53) 20,165
Corporate bonds and
commercial paper 92,674 -- -- 92,674
--------- --------- --------- ---------
$ 157,406 $ 52 $ (308) $ 157,150
========= ========= ========= =========
Unrealized
Adjusted ---------------------- Fair
Investments available for sale: Cost Gains Losses Value
--------- --------- --------- ---------
Equity securities $ 5,693 $ -- $ (731) $ 4,962
========= ========= ========= =========
Carrying Unrealized Fair
Value Gains Losses Value
Investments held to maturity: --------- --------- --------- ---------
Certificates of deposit $ 5,840 $ -- $ -- $ 5,840
========= ========= ========= =========
</TABLE>
At March 31, 1999, these securities were classified as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash equivalents $ 31,793
Short-term investments 131,197
Long-term investments 4,962
--------
$167,952
========
</TABLE>
13
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The Company has agreed to maintain investments with fair values of
$5,840,000 as of March 31, 1999 at a lending bank as collateral for loans from
that bank. See Note 8 - Debt.
As part of the Company's agreements with Roche Healthcare, the Company has
placed $20,000,000 in escrow, $15,000,000 of which is classified as a long-term
investment. Centocor is entitled to recover all or a portion of the $20,000,000
upon the successful completion of certain milestones in the transfer of the
manufacturing of RETAVASE from Boehringer Mannheim to Centocor.
In February 1999, the Company entered into a series of foreign exchange
forward contracts to hedge changes in exchange rates that impact the Company's
inventory production activities in Leiden, the Netherlands. Ultimately, the
Company's cost of sales is affected by changes in exchange rates. At March
31,1999 the Company has foreign exchange forward contracts valued at $69,700,000
to hedge anticipated inventory production for the remainder of 1999.
In March 1999, the Company sold an equity investment in Biometric Imaging,
Inc. consisting of 3,174,603 shares classified as available for sale resulting
in a realized gain of $5,196,000.
In February 1998, Centocor Diagnostics, Inc., a wholly owned subsidiary of
Centocor, Inc. ("Centocor Diagnostics"), sold an equity investment in
ChromaVision Medical Systems, Inc. consisting of 962,740 shares classified as
available for sale resulting in a realized gain of $6,931,000.
Note 5
Inventory
Inventory, net of reserves, consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials $ 6,994 $ 5,801
Work in progress 24,398 20,908
Finished goods 14,542 18,550
--------- ------------
$ 45,934 $ 45,259
========= ============
</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.
14
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Note 6
Intangible and Other Assets
Intangible and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Acquired regulatory licenses $ 80,799 $ 82,248
Goodwill 36,032 36,678
Prepaid royalties related to CPIII 26,564 26,802
Deferred charges 11,765 12,976
Debt issuance costs 10,895 11,345
Other licenses 22,377 18,017
All other 52,651 54,133
----------- -------------
$ 241,083 $ 242,199
=========== =============
</TABLE>
Intangible and other assets related to the acquisition of RETAVASE,
consisting primarily of goodwill and acquired regulatory licenses, are being
amortized over periods ranging from six to fifteen years.
Prepaid royalties related to CPIII 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 2 - Commitments and
Contingencies and Note 7 - Other Current Liabilities.
Deferred charges include a prepayment of certain future royalties and a
prepayment associated with the commercialization and market development of
ReoPro.
Intangible and other assets are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amount of the
asset may not be recoverable. Impairment is evaluated by using identified or
expected cash flows.
Note 7
Other Current Liabilities
In June 1997, the Company announced that it had 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 2 - Commitments and
Contingencies. The settlement is conditional on the finality of the Delaware
Chancery Court approval of the settlement. 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, when cumulative world-wide sales of ReoPro exceed $600,000,000 and a
revision to the royalties payable to the former limited partners of CPIII. The
Company has recorded a current liability for the $15,800,000 for these probable
payments to the former limited partners of CPIII.
15
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Note 8
Debt
Notes Payable
Notes payable at March 31, 1999 and December 31, 1998 consists of
$5,882,000 and $6,383,000, respectively, of borrowings under short-term notes at
an interest rate of 3.9% per annum at March 31, 1999, payable in Dutch guilders
no later than September 30, 1999. These borrowings are secured by investments at
the lending bank of $5,840,000.
Long-term debt
4 3/4% Convertible Subordinated Debentures
On February 20, 1998, the Company issued $460,000,000 aggregate principal
amount of the 4 3/4% Convertible Subordinated Debentures (the "4 3/4%
Debentures") due February 15, 2005. The 4 3/4% Debentures are convertible by the
holders into approximately 9,338,000 shares of the Company's Common Stock at an
initial conversion price of $49.261 per share, subject to adjustment in certain
circumstances. The 4 3/4% Debentures are not redeemable by the Company prior to
February 21, 2001. After February 21, 2001, the 4 3/4% Debentures will be
redeemable by the Company at a redemption price of 102.714% of the principal
amount of the 4 3/4% Debentures and declining annually. The holders of the
4 3/4% Debentures will be entitled at any time after 90 days following the date
of original issuance thereof through the close of business on the final maturity
date of the 4 3/4% Debentures, subject to prior redemption, to convert any of
the 4 3/4% Debentures or portions thereof into Common Stock of the Company,
subject to the terms of the Indenture. At March 31, 1999, the aggregate amount
of senior obligations outstanding amounted to $5,882,000.
Note 9
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 entire tax benefit associated with
these carryforwards is not assured, a partial 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.
Centocor has approximately $360,000,000 of gross deferred tax assets
consisting primarily of the future tax benefit from net operating loss
carryforwards. In the fourth quarter of 1998, the Company concluded that it is
more likely than not that it will realize a portion of the benefit of such tax
assets. Accordingly, the Company reduced the valuation allowance against the
asset and recorded a tax benefit of $282,000,000 in December 1998. Due to the
recognition of the Company's tax benefit in 1998, the Company's effective tax
rate 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. A provision for income taxes of $6,723,000 was recorded for
the three months ended March 31, 1999 as compared to $150,000 for the three
months ended March 31, 1998. The Company's effective tax rate for the three
months ended March 31, 1999 is 40% compared to 7% for the three months ended
March 31, 1998.
16
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Note 10
Supplemental Information on Cash Flows
Interest paid for the three months ended March 31, 1999 was $10,925,000.
There were no interest payments made for the three months ended March 31, 1998.
Income tax payments made for the three months ended March 31, 1999 were
$269,000. Income tax payments for the three months ended March 31, 1998 were
approximately $12,000.
In March 1999, the Company sold an equity investment in Biometric Imaging,
Inc. consisting of 3,174,603 shares classified as available for sale resulting
in a realized gain of $5,196,000.
In February 1998, Centocor Diagnostics sold an equity investment in
ChromaVision Medical Systems, Inc. consisting of 962,740 shares classified as
available for sale resulting in a gain of $6,931,000.
Note 11
Special Charges
In the first quarter of 1998, the Company recorded special charges of
$145,405,000 consisting of the following:
Acquisition of RETAVASE
On March 13, 1998, the Company completed the acquisition of the U.S. and
Canadian product rights for RETAVASE, an acute-care cardiovascular drug, from
Roche Healthcare for $335,000,000 in cash.
RETAVASE is a recombinant biologic cardiology care product administered
for the treatment of acute myocardial infarction (heart attack) to improve blood
flow to the heart. It is among the class of fibrinolytic drugs known as "clot
busters." RETAVASE received marketing authorization from the FDA in October 1996
and was launched in January 1997.
Charges relating to the acquisition of RETAVASE consist of (in thousands):
Charge for acquired research and development
related to the acquisition of RETAVASE $ 134,495
One-time transitional expenses related to the
integration of RETAVASE into Centocor 4,943
---------
$ 139,438
=========
The value of acquired research and development related to this acquisition
represents the planned development of a combination cardiovascular therapy
employing the fibrinolytic drug RETAVASE in combination with ReoPro. This
combination therapy, in research and development at acquisition, was expected to
address potential side effects of RETAVASE therapy, increase the speed of
therapy, amplify the effectiveness of RETAVASE, improve long-term outcomes and
increase safety through lower RETAVASE doses.
At the date of acquisition, RETAVASE had been on the market for over a
year. However, the combination therapy was at an early stage of development and
could not be considered technologically feasible. While certain animal studies
had been done showing favorable results, the ReoPro/RETAVASE therapy was at the
point of
17
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
commencing Phase II clinical trials. It was expected to require a full series of
Phase II trials as well, despite this therapy representing the combination of
two drugs previously approved for sale.
At the acquisition date, there remained questions as to both the potential
efficacy and safety of the combination therapy. Given alternative therapies
available in the cardiovascular field, improved efficacy at prevailing safety
levels or equivalent efficacy with improved safety would need to be established
for commercial viability to exist. Because of the great uncertainty associated
with these issues, and both the uncertainty and remaining effort associated with
clinical trials for this therapy, the combination ReoPro/RETAVASE therapy had
not established technological feasibility at the acquisition date.
The estimated value of all acquired intangible assets including the
acquired combination therapy project were determined. Other identified
intangibles included the commercial reteplase (RETAVASE) full-dose product line,
patents, trademarks and trade names, the customer base of prescribing physicians
associated with RETAVASE and the assembled workforce (principally sales and
marketing personnel) associated with the commercial product line.
The value of the acquired in-process research and development project was
determined by projecting expected completion costs for the combination therapy
as well as projected cash flows resulting from its commercialization. The net
cash flows implied by this projection were discounted to present value using an
appropriate risk adjusted cost of capital. This rate was developed by including
a risk premium above the return associated with the valuation of the reteplase
product line, and above the observed weighted average costs of capital for
comparable companies involved with the sale and development of similar
therapies.
Centocor Diagnostics, Inc. Restructuring
Charges related to the Centocor Diagnostics, Inc. restructuring consist of
(in thousands):
Severance $ 3,142
Asset impairments 2,825
--------
$ 5,967
========
18
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Note 12
Comprehensive Income
In January 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of Statement 130 had no impact on the
Company's net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive income
(loss).
<TABLE>
<CAPTION>
For the three
months ended
----------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Net income (loss) $ 10,084 $(140,307)
Foreign currency translation adjustments (7,129) (1,213)
Unrealized gain (loss) on marketable
securities 30 (963)
Reclassification adjustment - realized
gain on available for sale security -- (6,931)
--------- ---------
Subtotal other comprehensive income (loss) (7,099) (9,107)
--------- ---------
Total comprehensive income (loss) $ 2,985 $(149,414)
========= =========
</TABLE>
The components of accumulated other comprehensive income are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Cumulative foreign currency translation
adjustments $ (987) $ 6,142
Unrealized gain (loss) on marketable
securities (731) (761)
---------- ------------
Other comprehensive income $ (1,718) $ 5,381
========= ============
</TABLE>
Note 13
Earnings per share
The Company adopted Financial Accounting Standard Board Statement No. 128
Earnings per Share in 1997. Below is a reconciliation of basic earnings per
share to diluted earnings per share.
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
-----------------------------------------
Income Shares
(in thousands) (in thousands) Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ---------
<S> <C> <C> <C>
Basic EPS $ 10,084 70,863 $ 0.14
Incremental shares from assumed
exercise of dilutive options and warrants -- 1,525
------------ -------------- ---------
Diluted EPS $ 10,084 72,388 $ 0.14
============ ============== =========
</TABLE>
19
<PAGE>
Centocor, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
When dilutive, options are included as share equivalents using the
treasury stock method and are included in the calculation of diluted per share
data. The approximately 9,338,000 shares issuable upon the conversion of the
4 3/4% Debentures are not assumed to have converted and are not included in the
calculation of diluted per share data in all periods presented since their
effect is antidilutive.
For the quarter ended March 31, 1998 no exercise of options and warrants
or other common stock equivalents is assumed since their effect is antidilutive,
resulting from the Company reporting a loss for this period.
Note 14
Litigation Charge
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. On February
20, 1998, the Company and Velos entered into a comprehensive settlement
agreement resolving all claims between them. Upon the execution and delivery of
the settlement agreement, the Company paid to Velos $4,750,000 in full and final
satisfaction of any and all obligations that the Company may have owed as the
result of any claims that had been brought by Velos, or that it may have owed in
the future under the provisions of the license agreement, including the future
minimum annual royalty payments that would become due. The Company and Velos
exchanged general releases and both parties filed stipulations dismissing all
litigation between them (including appeals). The Company granted to Velos a
fully-paid exclusive license to United States Patent No. 5,057,598 (which had
been assigned to the Company on November 7, 1990 and has no applicability to any
of the Company's products or product candidates); and the parties terminated the
license agreement. As a result of the completion of the comprehensive settlement
agreement in February 1998, the Company recorded a one-time charge to earnings
of $3,430,000 primarily representing the portion of the payment due to Velos
which had not been previously expensed.
20
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Results of Operations
General
This quarterly report on Form 10-Q contains 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 business and
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, but are not limited to, 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 and the patent position of others; (iii) the Company's
forward integration 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; (ix) the potential for product liability claims and (x) the
availability of raw materials and other necessary inputs into the production
process. 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.
Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical
company that creates, acquires and markets therapies that yield long-term
benefits for patients and the healthcare community. Its products, developed
through monoclonal antibody and other technologies, help physicians deliver
innovative treatments to improve human health and restore patients' quality of
life.
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 expects that its sales of therapeutic
products in 1999 will provide sufficient revenues to cover operating expenses
and provide net income for the year. The Company's results for the three months
ended March 31, 1999 and March 31,1998 have been affected by various significant
one-time events. For the three months ended March 31, 1999 the significant
one-time event was a gain on sale of an investment in Biometric Imaging, Inc.
Significant one-time events for the three months ended March 31, 1998 included
special charges, a gain on sale of an investment in ChromaVision Medical
Systems, Inc. and a litigation charge. Excluding such significant one-time
events, the Company's diluted earnings per share would have been $0.10 and $0.02
for the three months ended March 31, 1999 and March 31,1998, respectively.
The Company has four therapeutic products approved for sale and several
product candidates in various stages of development.
ReoPro(R) (abciximab) is co-promoted in the United States by Centocor and
Eli Lilly and Company ("Lilly"). Lilly distributes the product worldwide, except
in Japan, where Fujisawa Pharmaceutical Company, Ltd. ("Fujisawa") will
distribute it if approved. ReoPro is a therapeutic product approved 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 and for whom PCI is planned within twenty-four hours.
21
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
REMICADE(TM) (infliximab) is marketed in the United States by Centocor.
REMICADE was cleared for marketing by the U.S. Food and Drug Administration
("FDA") in August 1998 for the treatment of moderately-to-severely active
Crohn's disease for the reduction of signs and symptoms in patients who have an
inadequate response to conventional therapy. It is also indicated as a treatment
for patients with fistulizing Crohn's disease for reduction in the number of
draining enterocutaneous fistula(s). Centocor has retained exclusive marketing
rights for REMICADE in the United States. Following approval from global
regulatory agencies, if achieved, Tanabe Seiyaku Company, Ltd. ("Tanabe") will
market the product in Japan and parts of the Far East, while Schering-Plough
Ltd. ("Schering-Plough") will market REMICADE in all other countries throughout
the world.
RETAVASE(R) (reteplase) is marketed in the United States by Centocor. In
March 1998, Centocor completed the acquisition of the United States and Canadian
product rights for RETAVASE, a leading acute care cardiovascular drug, from
Roche Healthcare Ltd. ("Roche"). RETAVASE is a recombinant biologic cardiology
care product administered for the treatment of acute myocardial infarction
(heart attack) to improve blood flow to the heart. It is among the class of
drugs known as "clot busters".
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.
PANOREX, RETAVASE and REMICADE are trademarks of Centocor. ReoPro is a
trademark of Lilly.
Three months ended March 31, 1999 compared to the three months ended March
31, 1998
The increase in sales for the three months ended March 31, 1999, as
compared to the three months ended March 31, 1998 is principally due to REMICADE
sales in 1999 which did not exist in 1998, as well as an increase in sales of
ReoPro and RETAVASE.
For the three months ended March 31, 1999, ReoPro sales to Lilly were
$58,028,000 and Lilly's announced sales to end-users were $101,000,000. For the
three months ended March 31, 1998 sales to Lilly were $45,688,000 and Lilly's
announced sales to end-users were $70,000,000. The Company's sales of RETAVASE
for the three months ended March 31, 1999 were $20,391,000 and initial sales of
RETAVASE by Centocor for the period beginning March 16, 1998 through March 31,
1998 were $2,300,000. For the three months ended March 31, 1999, the Company's
sales of Panorex to Glaxo Wellcome were $998,000 as compared to $1,390,000 for
the three months ended March 31, 1998. REMICADE sales for the three months ended
March 31, 1999 were $21,080,000. REMICADE sales commenced in September 1998.
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-user sales to increase in 1999 as market acceptance continues to grow.
Therefore, the Company expects its sales of ReoPro to Lilly to increase in 1999
over 1998 levels. RETAVASE and REMICADE sales are also expected to increase in
1999 over 1998 as additional market acceptance is achieved. PANOREX sales to
Glaxo Wellcome in 1999 are not expected to have a significant impact on the
Company's financial results.
Diagnostic product sales for the three months ended March 31, 1998 were
$7,507,000. In November 1998, the Company sold the oncology diagnostic business
to Fujirebio Inc. for approximately $36,500,000 in cash. Under the terms of the
sale, Fujirebio has purchased Centocor's in vitro diagnostic oncology business,
which includes immunoassays using monoclonal antibody technology that aids in
the detection and monitoring of tumor-associated antigens.
The level of future sales of the Company's products will be dependent upon
several factors, including, but not limited to, the timing and extent of future
regulatory approvals, the availability of production capacity, as well as the
continued availability of necessary raw materials and intermediate inputs into
the production process,
22
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
approval and commercialization of competitive products and ultimately, the
degree of acceptance of the Company's products in the marketplace.
Cost of sales increased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 due primarily to REMICADE
sales in 1999 that did not exist in 1998, a full quarter of RETAVASE sales in
1999 as well as increased sales of ReoPro to Lilly. The Company is required to
make certain royalty payments, based on sales of products. These payments
represent a significant percentage of cost of sales. The Company expects an
increase in cost of sales in 1999, the extent of which will depend primarily on
the amount and mix of products sold. Other factors that can influence cost of
sales 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 three months ended March 31,
1999 increased as compared to the three months ended March 31, 1998 due
principally to REMICADE and ReoPro clinical activities which are being shared
with Schering-Plough and Lilly, respectively. 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 1999 as compared to 1998 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, unstable angina and in stroke. In addition, clinical trial
activities for REMICADE, primarily Phase III trials for the Crohn's disease and
severe rheumatoid arthritis indications, are expected to continue throughout
1999.
Marketing, general and administrative expenses for the three months ended
March 31, 1999 increased as compared to the three months ended March 31, 1998
due principally to the integration of the Company's RETAVASE and REMICADE sales
force and related infrastructure into the organization, amortization of the cost
of acquired intangibles and continued ReoPro, RETAVASE and REMICADE market
development efforts. Marketing, general and administrative expenses are expected
to increase in 1999 as compared to 1998 due primarily to the Company's increased
investment in the direct promotion and sale of RETAVASE and REMICADE and
co-promotion of ReoPro and Fragmin.
Interest income decreased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 due to the decrease in the
level of the Company's investments and lower rates of return on the Company's
investments. 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 increased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 due to the issuance of the
Company's 4 3/4% Convertible Debentures in February 1998. Interest expense in
1999 is expected to increase slightly as a result of the interest on the 4 3/4%
Debentures. Interest expense in future periods will depend upon the level of
debt outstanding.
The Company expects its effective tax rate in 1999 to be approximately
40%.
Per Share Calculations
At March 31, 1999, approximately 5,282,000 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 9,338,000 shares issuable upon conversion of the 4 3/4% 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.
23
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
No shares issuable upon conversion of the 4 3/4% Debentures were included
in the per share calculations for any period presented since to do so would have
been anti-dilutive. 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 shares issuable upon the conversion of the 4 3/4% 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 its 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 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
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 the Company's products will be
dependent upon several factors, including, but not limited to, the timing and
extent of future regulatory approvals of those 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 authorities will approve expanded labeling for ReoPro, REMICADE
and other products or will approve any other of the Company's product candidates
under development for commercial sale. Failure to obtain, on a timely basis,
initial or expanded regulatory approvals for the Company's products and product
candidates will have a material adverse effect on the Company.
At March 31, 1999, the Company had cash, cash equivalents and investments
of $211,939,000, including equity investments of $4,962,000. For the three
months ended March 31, 1999, the Company had cash flows from operations of
$13,801,000. The Company's total cash flows for the three months ended March 31,
1999 included the receipt of $6,596,000 representing the proceeds from the sale
of an equity investment in Biometric Imaging Inc., and $1,544,000 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.
At March 31, 1999 the Company had a note payable of $5,882,000 which is secured
by investments at the lending bank of $5,840,000, and $20,000,000 of its cash is
held in escrow and is restricted based upon the successful completion of certain
milestones in the transfer of the manufacturing of RETAVASE from Boehringer
Mannheim to Centocor. The Company's total cash, cash equivalents and investments
decreased by $14,663,000 from December 31, 1998, principally as a result of
capital expenditures relating to the establishment of a U.S. biopharmaceutical
manufacturing facility to support ReoPro and REMICADE production. The Company
believes that its cash, cash equivalents and investments will be sufficient to
fund its operations through at least the end of 2000.
Accounts receivable at March 31, 1999 decreased as compared to December
31, 1998 due primarily to the timing of receipts from sales of ReoPro to Lilly.
Gross property, plant and equipment at March 31, 1999 increased as
compared to December 31, 1998, principally due to the investment of $35,558,000
for the purchase of property and equipment, partially offset by the impact of
exchange rates on property and equipment denominated in foreign currencies. The
Company expects its total investments in property, plant and equipment to
increase in 1999 by an amount up to approximately $100,000,000 for its
manufacturing capacity expansion plans in Europe and the establishment of a
24
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
U.S. biopharmaceutical manufacturing facility to support ReoPro and REMICADE
production requirements. The Company continually evaluates the future needs for
its facilities and equipment. There can be no assurance that there will be
losses resulting from sales, or that reserves to reduce the carrying value, of
certain fixed assets will not be required in the future.
Long-term investments at March 31, 1999 decreased as compared to December
31, 1998 principally due to the sale of an equity investment in Biometric
Imaging, Inc., classified as available for sale in March 1999.
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.
Legal Proceedings
The Company is subject to certain litigation, as more fully described in
Note 2 to the Centocor, Inc. and Subsidiaries Condensed Notes to Consolidated
Financial Statements (Unaudited). While it is not possible to predict with
certainty the eventual outcome of these matters, the Company believes that those
proceedings will not have a material adverse effect on the Company.
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 and does not maintain product recall or product tampering
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.
25
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
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" or
"Y2K" 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 data or cause a system to fail, resulting in business
interruption. The Year 2000 issue is expected to affect the systems of the
Company and various entities with which the Company interacts, including the
Company's marketing partners, suppliers, and various vendors.
To address the Y2K problem, the Company has established a Year 2000
project and a Y2K Steering Committee comprised of representatives from key
functional areas. In addition, an Information Technology Association of America
certified Y2K consulting firm has been engaged to assist with the validation and
management of the Year 2000 project. The project encompasses global corporate
initiatives, including the Company's manufacturing facility in the Netherlands
and the United States manufacturing facility which is currently under
construction.
In a separate project to replace some of the Company's legacy systems, the
Company is in the process of implementing a new Enterprise Resource Planning
("ERP") system, which is Y2K compliant, with a goal to complete the initial
phase of the project by the second quarter of 1999. The completion of the
initial phase of this project will result in replacing many of the Company's
primary financial and manufacturing business applications and will
simultaneously replace some of the Company's critical systems (i.e., systems
which, if not Y2K compliant, pose risks to revenues, manufacturing processes or
individuals, property and the environment). Centocor's goal is to achieve full
Y2K readiness by the end of the third quarter of 1999.
The Centocor Year 2000 Project is designed to address three major areas:
(1) information technology systems, including business application software; (2)
hardware, equipment and instrumentation, including embedded systems; (3) and
third party relationships. The Company's approach within each of these areas is
to inventory, assess and prioritize those systems which present potential Y2K
problems; remediate (repair, replace or upgrade) non-compliant items; test each
major area of exposure to ensure compliance; and develop contingency plans to
minimize potential business interruption.
High-level risk assessments have been completed for all functional areas.
Inventory and assessments for Information Technology Department-supported
business systems and infrastructure as well as hardware, equipment and
instrumentation are completed. Remediation or replacement is in process. Test
plans and scripts are under development, with testing to occur as new equipment
is acquired or old equipment is replaced. All testing is scheduled for
completion by the end of the second quarter of 1999.
The failure of the Company or third parties to be fully Year 2000
compliant for essential systems and equipment by January 1, 2000 could result in
interruptions in normal business operations. The Company's potential risks
include, but are not limited to, (i) the failure of security systems, heating
systems or other operational systems and equipment of the Company's facilities
and (ii) the inability to receive critical equipment and/or supplies from
vendors. Each of these events could have a material adverse affect on the
Company's business, results of operations and financial condition.
26
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Conditions and Results
of Operations
- --------------------------------------------------------------------------------
The Company has contacted all of its critical suppliers and strategic
business partners with regard to their Year 2000 readiness and remediation
plans, and detailed evaluations of those plans, and their potential impact on
the Company, are being developed. Most of those parties state that they intend
to be Y2K compliant by 2000. 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 conversion that
is incompatible with the Company's systems, would not have a material adverse
affect on the Company. Contingency plans with respect to critical suppliers and
strategic business partners are being developed and are scheduled for completion
by mid-1999. The Company intends to have contingency plans completed for
essential systems and equipment by June 30, 1999; however, there can be no
assurance that it will meet this objective by such date or by January 1, 2000.
The total costs associated with Year 2000 compliance are not expected to
be material to Centocor's financial position and are estimated to be
approximately $2,500,000.
The foregoing estimated completion times and costs are management's best
estimates and utilize 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 these estimates will be
achieved and actual results could differ materially from those estimates.
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, the readiness of
strategic partners and similar uncertainties. Further, given the complexity of
the Year 2000 issues, the Company is currently unable at this time to determine
whether Year 2000 failures will have a material impact on results of operation,
liquidity or financial condition. The Company's Y2K Project is intended to
significantly reduce, but not eliminate, levels of uncertainty about Year 2000
compliance.
Inflation
The Company believes the effects of inflation generally do not have a
material adverse impact on its operations or financial condition.
Euro Conversion
On January 1, 1999, member countries of the European Monetary Union
("EMU") began a three-year transition from their national currencies to a new
common currency, the "Euro". In the first phase, the permanent rates of exchange
between the members' national currency and the Euro has been established and
monetary, capital, foreign exchange and interbank markets will be converted to
the Euro. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions. By January 2002, Euro currency
will be issued and by July, 2002, the respective national currencies will be
withdrawn. The Company has operations in Leiden, the Netherlands and
accordingly, is establishing action plans that will address the Euro's impact on
information systems, currency exchange rate risk, taxation, contracts and
pricing. Based on its current assessments, management believes that the costs of
the Euro conversion will not have a material impact on the operations, cash
flows or financial position of the Company.
27
<PAGE>
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The Company has exposure to changing interest rates, primarily in the
United States. The Company's investment portfolio includes investment grade debt
instruments. These bonds are subject to interest rate risk and could decline in
value if interest rates fluctuate. Due to the short duration and conservative
nature of these instruments, the Company does not believe that it has material
exposure to interest rate risk related to its investment portfolio. All of the
Company's outstanding indebtedness has a fixed interest rate of 4 3/4% and
matures in 2005, subject to prior redemption.
Exchange Rate Sensitivity
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, accordingly,
changes in exchange rates between foreign countries and the U.S. dollar will
affect the translation of financial results of foreign subsidiaries into U.S.
dollars for purposes of recording the Company's consolidated financial results.
In February 1999, the Company entered into a series of foreign exchange
forward contracts to hedge changes in exchange rates that impact the Company's
inventory production activities in Leiden, the Netherlands. Ultimately, the
Company's cost of sales is affected by changes in exchange rates. At March
31,1999 the Company has foreign exchange forward contracts valued at $69,700,000
to hedge anticipated inventory production for the remainder of 1999.
28
<PAGE>
Part II OTHER INFORMATION
Item 1: Legal Proceedings
See Note 2 to the Centocor, Inc. and Subsidiaries Condensed Notes to
Consolidated Financial Statements (Unaudited), which is attached hereto and
incorporated herein by reference.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Development and Manufacturing Agreement between Centocor,
Inc. and Covance Biotechnology Services Inc. dated January
14, 1999 (The Registrant has requested confidential
treatment from the Securities and Exchange Commission for
portions of this Agreement.)
10.2(a) Form of Severance Agreement for Executive Officers
10.2(b) Schedule of Named Executive Officers and Executive Officers
who are parties to a Severance Agreement
27.0 Centocor, Inc. and subsidiaries Financial Data Schedule for
the three months ended March 31,1999
(b) Reports on Form 8-K
The Registrant has filed the following reports on Form 8-K
since the beginning of the quarter ended March 31, 1999:
Date of Report Item Covered
-------------- ------------
none --
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Centocor, Inc.
(Registrant)
Date: May 14, 1999 /s/ David P. Holveck
--------------------
David P. Holveck
Chief Executive Officer
(principal executive officer)
Date: May 14, 1999 /s/ Dominic J. Caruso
---------------------
Dominic J. Caruso
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
30
<PAGE>
Exhibit 10.1
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
CENTOCOR/CBSI DEVELOPMENT AND
MANUFACTURING AGREEMENT
This Development and Manufacturing Agreement (the "Agreement") is
effective as of the 14th day of January, 1999 (the "Effective Date") by and
between Centocor, Inc. on its own behalf and on behalf of its subsidiaries and
Affiliates, whether now existing or hereafter formed ("Centocor"), 200 Great
Valley Parkway, Malvern, Pennsylvania 19355, and Covance Biotechnology Services
Inc. ("CBSI"), 6051 George Watts Hill Drive, P.O. Box 13865, Research Triangle
Park, North Carolina 27709-3865.
W I T N E S S E T H
WHEREAS, CBSI provides a full range of bioprocessing services to the
biopharmaceutical industry, including process development, fermentation, cell
culture, separation/purification, bioanalytical chemistry, quality control,
quality assurance, and regulatory affairs;
WHEREAS, Centocor has acquired the rights to, among other things,
manufacture and distribute the pharmaceutical product known as Retavase(TM) in
the United States of America and Canada;
WHEREAS, Centocor desires to engage CBSI to perform contract
manufacture and development services on behalf of Centocor in connection with
the manufacture of the bulk form of the pharmaceutical product known as
Retavase(TM), and CBSI desires to perform such services and to manufacture the
Drug Substance, all on the terms and subject to the conditions set forth in this
Agreement and Exhibits hereto, which Exhibits are expressly incorporated by
reference herein.
NOW THEREFORE, in consideration of the above statements and other good
and valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
-----------
Terms defined elsewhere in this Agreement shall have the meanings set forth
therein for all purposes of this Agreement, unless otherwise specified to the
contrary. The following terms shall have the following meanings:
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1.1 "Active Ingredient" means recombinant reteplase (rPA).
1.2 "Affiliate" means any corporation or other business entity controlled
by, controlling, or under common control with a Party. For this
purpose, "control" of any Party, corporation, or other business entity
shall mean direct or indirect beneficial ownership of at least fifty
percent (50%) of the voting interests, or at least a fifty percent
(50%) interest in the income of, such Party, corporation, or other
business entity, or such other relationship as, in fact, constitutes
actual control of such Party, corporation, or other business entity.
1.3 "Agreement" means this document as signed by the Parties including the
referred Exhibits, Attachments, and any amendments and additions to
this Agreement.
1.4 "Assumptions" has the meaning set forth in Section 2.5(c)(i).
1.5 "Authorized Representative" means a person or persons representing the
quality assurance and/or operations group of a Party to this
Agreement, who is authorized to discuss and agree upon matters
concerning the quality and Manufacture of the Drug Substance, its raw
materials and excipients and whose name and signature are listed in
the Quality Requirements for the Drug Substance attached hereto as
Exhibit "B", and incorporated herein by reference.
1.6 "Batch" means a defined quantity of Drug Substance processed and
produced in one process or series of processes so that it is
homogeneous, which is approximately XXXXXX of active Drug
Substance.
1.7 "Batch Record" means a record made concurrently with the performance
of each step of the manufacturing process for the Drug Substance such
that successive steps in the manufacture may be traced, which is
written by CBSI and approved by Centocor.
1.8 "Boehringer Mannheim" or "BM" means Boehringer Mannheim GmbH,
Mannheim, Germany, a wholly owned subsidiary of Roche Holding, Ltd.
1.9 "Calendar Quarter" means the period of three consecutive calendar
months ending March 31, June 30, September 30, or December 31.
2
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1.10 "Calendar Year" means the period beginning January 1 and ending
December 31.
1.11 "CBSI Group" has the meaning set forth in Section 18.2.
1.12 "CBSI Inventions" has the meaning set forth in Section 23.1.
1.13 "Centocor Group" has the meaning set forth in Section 18.1.
1.14 "cGMP" means current Good Manufacturing Practice, including without
limitation, that described in 21 CFR 211 (USA), as amended or updated
from time to time, as well as Canadian cGMP, as amended or updated
from time to time.
1.15 "Claim" has the meaning set forth in Section 18.1.
1.16 "CMC" means chemistry manufacturing controls.
1.17 "Confidential Information" has the meaning set forth in Section 21.1.
1.18 "Consent Order" has the meaning set forth in Section 2.3.
1.19 "Cross-Validation" means the comparison of the appropriate Drug
Substance tests performed at two or more sites to demonstrate that
such test results are equivalent.
1.20 "Development Phase" or "Pre-commercial" means the Manufacture of the
Drug Substance for test purposes and for purposes of Validation and
approval of the process and Facility by the FDA and HPB, prior to
commercial production of Drug Substance.
1.21 "Drug Product" means the final dosage form pharmaceutical medicine,
containing Active Ingredient, which Centocor markets in the United
States and Canada, under the trade name of Retavase(TM).
1.22 "Drug Substance" means the bulk form drug substance from which Drug
Product is made, processed and Manufactured in accordance with the
Specifications, which, after formulation, filling, lyophilizing,
labeling and packaging, Centocor sells to its customers in the United
States and Canada.
3
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1.23 "DSP" means down stream processing.
1.24 "Effective Date" means the date set forth in the preamble.
1.25 "Equipment" has the meaning set forth in Section 3.2.
1.26 "Errors and Omissions Insurance" means the errors and omissions
insurance policies purchased by CBSI and described on Exhibit "F"
attached hereto and incorporated herein by reference.
1.27 "Executive Liaisons" shall mean XXXXXX A Party may appoint a new
executive liaison with the consent of the other Party.
1.28 "FDA" means the United States Food and Drug Administration, or any
successor thereto.
1.29 "FTC" means the United States Federal Trade Commission.
1.30 "Facility" or "RTP Facility" means the CBSI manufacturing facility
located, at 6051 George Watts Hill Drive, P.O. Box 13865, Research
Triangle Park, North Carolina 27709-3865.
1.31 XXXXXX
1.32 "HPB" means the Canadian Health Protective Branch, or any successor
thereto.
1.33 "IB" means inclusion bodies.
1.35 "Initial Term" has the meaning as set forth in Section 24.1.
1.36 "Item Specifications" means quality acceptance parameters mutually
agreed to by the Parties for components, raw Materials and CBSI
produced Materials.
1.37 "Loss" has the meaning set forth in Section 18.1.
4
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1.38 "Manufacture" means all services provided by CBSI hereunder including,
without limitation, the development, production, formulation,
warehousing, delivery and/or quality testing and quality assurance of
the Drug Substance, as set forth in the Scope of Work, this Agreement,
the Quality Requirements or as otherwise agreed to in writing by the
Parties.
1.39 "Manufacturing Process" has the meaning set forth in Section 22.1.
1.40 "Manufacturer's Working Cell Bank" means the manufacturing working
cell bank for Drug Substance, which is developed from the Master Cell
Bank and owned by Centocor.
1.41 "Master Cell Bank" means the Master Cell Bank expressing Active
Ingredient, owned by Centocor.
1.42 "Material(s)" means the Manufacturer's Working Cell Bank, and raw
materials, as all of the foregoing are utilized in Manufacture of Drug
Substance.
1.43 "Modification" has the meaning set forth in Section 2.5(c)(i).
1.44 "Party/Parties" means either CBSI or Centocor, or both, as the case
may be.
1.45 "Price List" means the Price List for commercial production Drug
Substance which is attached hereto as Exhibit "D", and incorporated
herein by reference.
1.46 "Program Assumptions" has the meaning set forth in Section 2.5(c)(i).
1.47 "Project Team" has the meaning set forth in Section 4.
1.48 "Protocol" means a step by step procedure to be followed indicating
all activities, analysis, interpretation and reporting to performed
with regard to Manufacture and Drug Substance.
1.49 "Purchase Order" means a written notification and authorization from
Centocor to CBSI to supply a quantity of Drug Substance.
1.50 "Purchase Price" means the price at which CBSI sells commercial
production Drug Substance to Centocor.
5
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1.51 "Report" means a document recording the outcome of a particular study
or event containing summary, procedures and materials, results,
interpretation and conclusion sections.
1.52 "QA" means quality assurance.
1.53 "Qualification" means the procedure by which Quality Requirements,
manufacturing procedures and/or equipment is proven to be designed
properly and to perform according to each of their design criteria.
1.54 "Quality Requirements" means the quality requirements for the
Manufacture of Drug Substance, a copy of which is attached hereto as
Exhibit "B" and incorporated herein by reference, as may be amended
from time to time by Centocor.
1.55 "Regulatory Plan" has the meaning set forth in Section 13.5.
1.56 "Regulatory Requirements" means the applicable requirements of any and
all federal, state, local or other law, including without limitation,
the regulations, rules and permit or license requirements of the FDA
and HPB and any and all other applicable governmental and regulatory
authorities.
1.57 "Release" means a written statement from Centocor's authorized quality
assurance representative that a certain identified quantity of Drug
Substance or Material is ready for use in a further step in the
manufacturing process for the Drug Product.
1.58 "Scope of Work" shall mean the Scope of Work for the pre-commercial
and commercial production of Drug Substance attached hereto as Exhibit
"A" and incorporated herein by reference.
1.59 "SOPs" means the CBSI's standard operating procedures used to
Manufacture the Drug Substance, prepared by CBSI, as may be amended
from time to time.
1.60 "Special Damages" means incidental, indirect, consequential or special
damages.
1.61 "Specifications" means the requirements with respect to which tests,
analyses, test procedures, and test results for the Drug Substance,
its raw materials and excipients, as set forth in the Quality
Requirements, must conform.
6
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
1.62 "Supply Year" means the one year period beginning with the supply of
the first commercial lot of Drug Substance to Centocor by CBSI and
subsequent one year periods.
1.63 "Termination Fee" has the meaning set forth in Section 25.4.
1.64 "Total Development Price" has the meaning set forth in Section 2.5(a).
1.65 "Trustee" has the meaning set forth in Section 2.3.
1.66 "TTR" means technical transfer report.
1.67 "Validated Methodology" means analyte validation in accordance with
the Text on Validation of Analytical Procedures, ICH Harmonized
-----------------------------------------------------------
Tripartite Guideline, 27 October 1994, as amended from time to time.
--------------------
1.68 "Validation" means establishing documented evidence which provides a
high degree of assurance that a specific process will consistently
produce a product meeting its pre-determined specification and quality
attributes as defined in FDA Guideline on General Principles of
----------------------------------
Process Validation, May, 1987.
------------------
1.69 "Waste" has the meaning set forth in Section 9.
1.70 "Working Volume" means sixty-five percent (65%) to seventy-five
percent (75%) of the total tank volume.
2. Development Phase Manufacture.
-----------------------------
2.1 Development Phase Scope of Work. CBSI agrees to use diligent efforts
-------------------------------
to perform the pre-commercial production of Drug Substance in the
Development Phase in accordance with the Scope of Work. CBSI agrees to
deliver the deliverables set forth in the Scope of Work for the
Development Phase in the manner and at the time stated in the Scope of
Work. In the event of a conflict between the Scope of Work and the
terms and conditions of this Agreement, the terms and conditions of
this Agreement shall govern. The Scope of Work may be amended only by
mutual written agreement of the Parties.
2.2 Objectives of Development Phase. The Parties agree that the objectives
-------------------------------
of the Development Phase are: (a) the transfer to Centocor for use by
CBSI of the technology currently used by Boehringer Mannheim in
Germany to manufacture Drug Substance; (b) the transfer from Centocor
to CBSI of the
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
manufacturing technology for production of Drug Substance; (c) to
prepare the Facility to Manufacture the Drug Substance in accordance
with the Specifications as developed by Boehringer Mannheim and in
accordance with cGMP and Regulatory Requirements; (d) to test
Manufacture to show: (i) the ability to Manufacture Drug Substance
comparable to that manufactured by Boehringer Mannheim; and (ii)
ability to Manufacture Drug Substance in accordance with
Specifications, cGMP, Regulatory Requirements and to Centocor's
satisfaction; (e) to obtain FDA and HPB approval for use of the
Facility to Manufacture Drug Substance for purposes of commercial sale
by Centocor in the United States and Canada; and (f) as otherwise
provided in the Scope of Work.
2.3 FTC Trustee. The Parties acknowledge that the transfer of technology
-----------
for Manufacture from Boehringer Mannheim to Centocor for use by CBSI
is done pursuant to, among other things, Agreement Containing the
Consent Order entered into by Roche Holding, Ltd. and the FTC, dated
February 11, 1998 (the "Consent Order") which Consent Order requires,
among other things, supervision of such transfer by a trustee
appointed by the FTC (the "Trustee"). CBSI agrees to cooperate fully
with the Trustee, to permit the Trustee access to the Facility upon
reasonable notice to inspect operations and documentation related to
the Manufacture of the Drug Substance; and to perform any reasonable
task requested by the Trustee and agreed to by Centocor in writing
with regard to the Manufacture of the Drug Substance during the
Development Phase. Such tasks requested by the Trustee not defined
within the Scope of Work will be separately invoiced and paid for by
Centocor at CBSI's standard rates for such tasks.
2.4 Samples. During each stage of the Development Phase, CBSI will supply
-------
Centocor with samples of in-process Materials and Drug Substance in
the amounts requested by Centocor in writing for the purpose of
testing against Specifications.
2.5 Price and Milestones for Development Phase Manufacture.
------------------------------------------------------
(a) Total Development Price. Centocor shall pay CBSI a Total Price
-----------------------
for services and expenses of XXXXXX for complete performance of
CBSI's obligations under this Agreement and the Scope of Work for
the Development Phase ("Total Development Price"). The Total
Development Price shall include, but is not limited to, fees for
services, Materials costs, travel costs, testing costs,
reasonable
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
miscellaneous costs, and all applicable taxes; provided however the
stability testing performed by CBSI shall be an additional charge.
(b) Payment Schedule. The Total Development Price shall be paid to
----------------
CBSI by Centocor in accordance with the payment schedule set
forth below. Centocor will make a payment to CBSI only when the
applicable deliverable is delivered in full by CBSI to Centocor's
reasonable satisfaction, including, without limitation, the
approval of Centocor's Executive Liaison. The Parties agree the
deliverables, delivery date and applicable payments are as
follows:
<TABLE>
<CAPTION>
====================================================================================================================
Deliverables Delivery Date Payments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(1) Execution of this Agreement by 12/31/98 XXXXXX as an advance toward payment
both CBSI and Centocor. of the deliverable stated in Section
2.5(b)(2).
- --------------------------------------------------------------------------------------------------------------------
(2) Delivery to Centocor of 3/30/99 XXXXXX credited from Agreement
satisfactorily completed final Execution Payment set forth in
pre-construction Deliverable #1).
engineering design
of modifications
necessary to fit the Facility for
Manufacture of Drug Substance pursuant
to this Agreement. In addition, CBSI
has completed deliverables set forth
in the Precommercial Stages I and II
of the Scope of Work.
- --------------------------------------------------------------------------------------------------------------------
(3) Completed transfer, implementation 11/30/99 XXXXXX
and Cross Validation of all in process
control and release assays as set
forth in the Precommercial Stage III
of the Scope of Work.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
====================================================================================================================
Deliverables Delivery Date Payments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(4) Satisfactory completion of 1/30/00 XXXXXX
installation of all significant
manufacturing equipment (including
piping) necessary for production of
Drug Substance.
- --------------------------------------------------------------------------------------------------------------------
(5) Successful performance by CBSI of 4/01/00 XXXXXX
two full scale cGMP compliant
demonstration runs of Drug Substance
at the commercial supply scale
including full downstream processing
as set forth in Precommercial Stages
IV and V of the Scope of Work.
- --------------------------------------------------------------------------------------------------------------------
(6) Completion and approval of 8/01/00 XXXXXX
Manufacturing documents for the
consistency lots.
- --------------------------------------------------------------------------------------------------------------------
(7) Satisfactory completion of the 12/31/00 XXXXXX
Validation process (i.e., installation
and operation qualification) for the
Manufacture of Drug Substance for
Commercial Sale, including completion
of three (3) complete consistency lots as
set forth in Precommercial Stage VIII
of the Scope of Work.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
====================================================================================================================
Deliverables Delivery Date Payments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(8) Centocor submits applications to TBD XXXXXX
FDA and HPB for approval of CBSI
Facility for commercial production
of Drug Substance and all outstanding
audit observations (by Centocor and any
third party auditor) are reasonably
corrected by CBSI.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Change Orders.
-------------
(i) The estimated Total Development Price for the
Development Phase specified in Section 2.5(a) of this
Agreement and the individual budget components and time
estimates specified in the Scope of Work are subject to
a number of general and program specific assumptions.
The program specific assumptions relate to the
Development Phase design and objectives, manpower
requirements, timing, capital expenditure requirements,
if any, and other matters relating to the completion of
the Development Phase as set forth in Section 2.2 of
the Scope of Work (the "Program Assumptions"). CBSI
also assumes that Centocor will perform its obligations
under this Agreement and Scope of Work in a timely
manner, that no event outside the control of CBSI will
occur and that there are no changes to any applicable
laws, rules or regulations which effect the Development
Phase (the foregoing assumptions together with the
Program Assumptions, collectively, the "Assumptions").
In the event that any of the Assumptions require
material modification or the Development Phase
objectives cannot be achieved based on the Assumptions
(each being a "Modification") then the Scope of Work
may be amended as provided in paragraph (ii) of this
Section 2.5(c).
(ii) In the event a Modification is identified by Centocor
or by CBSI, the identifying party shall notify the
other party as soon as is reasonably possible. CBSI
shall provide Centocor with a Change Order containing
an estimate of the required Modifications to the Total
Development Price in this Agreement and timeline
specified in the Scope of Work within twenty (20)
business days of receiving such notice. Centocor shall
use commercially reasonable efforts to respond in
writing to such
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Change Order promptly. If Centocor does not approve
such Change Order and has not terminated the
Development Phase but wants the Development Phase to be
modified to take into account the Modification, then
Centocor and CBSI shall use commercially reasonable
efforts to agree on a Change Order that is mutually
acceptable. CBSI shall continue to work on the
Development Phase during any such negotiations, but
shall not commence work with respect to the Change
Order unless authorized in writing.
(d) Invoice. Upon completion of a deliverable to Centocor's
-------
reasonable satisfaction, CBSI will submit to Centocor an
invoice for payment of amounts due to CBSI for completion of
that deliverable. Payment shall be made by Centocor thirty
(30) days after the receipt of an invoice by Centocor. Late
payments are subject to an interest charge of one and
one-half percent (1 1/2%) per month. Any payments that are
greater than XXXXXX past due constitute a material
breach of this Agreement.
2.6 Re-Validation of Existing CBSI Systems and Equipment. CBSI agrees
----------------------------------------------------
to re-Validate its existing systems and equipment used in the
Manufacture of Drug Substance as mutually agreed by the Parties.
In the event that the Parties cannot agree, CBSI agrees to
re-Validate its existing systems and equipment as determined by
an independent third party auditor selected by Centocor. Such
re-Validation by CBSI shall occur prior to the first of either
(a) the Manufacture of the first commercial Batch of Drug
Substance; or (b) the inspection of the Facility by the FDA or
the HPB for approval of commercial manufacture of Drug Substance.
CBSI shall pay all costs associated with re-Validation pursuant
to this Section 2.6.
3. Materials and Equipment for the Development Phase and for Manufacture
---------------------------------------------------------------------
of Drug Substance for Commercial Sale.
-------------------------------------
3.1 Materials.
---------
(a) Drug Substance Materials. Centocor shall provide to CBSI at
------------------------
no cost to CBSI, the Manufacturer's Working Cell Bank and
the XXXXXX used to Manufacture the Drug Substance.
CBSI shall purchase and pay for all other Materials used to
Manufacture the Drug Substance. CBSI shall purchase
Materials from approved vendors and/or suppliers.
12
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
CBSI is responsible for testing all Materials and assuring
that Materials comply with Specifications.
(b) Facility Materials and Supplies. CBSI will also supply at
-------------------------------
its own expense all other materials that are normally
required for the operation and maintenance of the Facility
during the term of this Agreement.
3.2 Equipment. The parties agree that the equipment listed on XXXXXX
---------
(the "Equipment") XXXXXX, shall be mutually specified by the
Parties and installed, installation qualified, process qualified,
operation qualified and purchased by Centocor for use in the
Facility solely to perform the Manufacture of the Drug Substance
pursuant to this Agreement. XXXXXX may be amended from time to
time upon the mutual consent of the Parties. Centocor will pay
the amounts listed in XXXXXX to purchase the Equipment. Title to
the Equipment purchased by Centocor pursuant to this Paragraph
3.2 shall remain with Centocor. CBSI will at no additional cost
to Centocor maintain the Equipment in good working order;
provided that Centocor shall be responsible for the replacement
of the Equipment.
4. Project Team.
------------
Centocor and CBSI will each appoint representatives to a project team
("Project Team") in accordance with the Scope of Work. The purpose of the
Project Team is to facilitate the transfer and discussion of information
relating to activities required under this Agreement and the Scope of Work.
The Project Team will meet in the manner and at the times stated in the
Scope of Work.
5. Supply of Drug Substance for Commercial Sale.
--------------------------------------------
5.1 Products to be Supplied. Upon receipt of approval by the FDA for
-----------------------
Manufacture of the Drug Substance at the Facility for purposes of
commercial sale, and upon receipt by CBSI of written
authorization by Centocor to commence manufacture of the Drug
Substance at the Facility for purposes of commercial sale, CBSI
agrees to provide to Centocor and Centocor agrees to purchase
from CBSI Drug Substance in the amounts and in the manner set
forth in Section 6 of this Agreement.
13
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
5.2 Exclusivity. During the term of this Agreement, CBSI shall
-----------
Manufacture Drug Substance solely and exclusively for Centocor,
and/or provide and sell Drug Substance solely and exclusively to
Centocor. CBSI will not Manufacture for, nor sell nor provide
Drug Substance to any person or entity other than Centocor.
5.3 Manufacturing Standards. CBSI shall use commercially reasonable
-----------------------
efforts to perform the Manufacturing at all times at the Facility
strictly in accordance with this Agreement and in strict
conformity with (i) the Specifications, (ii) cGMP, (iii) all
Regulatory Requirements and (iv) the Quality Requirements. CBSI
will test all Drug Substance Manufactured according to Validated
Methodology and compare all Drug Substance with reference
standards to be supplied by Centocor. CBSI agrees to notify
Centocor immediately in writing of any test or other failures in
the Manufacture of the Drug Substance that indicate that such
Drug Substance fails to comply with the Specifications, Quality
Requirements, Regulatory Requirements or other requirements for
Drug Substance.
5.4 Samples. CBSI shall supply Centocor in the amounts and at the
-------
times requested by Centocor with samples of in-process Material
and/or Drug Substance.
5.5 Packing List. All shipments of Drug Substance must be accompanied
------------
by a packing list. The packing lists as well as all packages must
be clearly marked with the part numbers of CBSI and Centocor,
quantity, container numbers, Batch number, and expiration date.
The Drug Substance container label will contain the special
storage conditions and Centocor's Drug Product description, such
storage conditions and Centocor's Drug Product description to be
supplied by Centocor.
6. Forecasts and Orders of Drug Substance for Commercial Sale.
----------------------------------------------------------
6.1 Forecasts.
---------
(a) In order to assist CBSI in its production planning, Centocor
will provide CBSI on a Calendar Quarterly basis with a non-
binding twenty-four (24) calendar months rolling forecast of
anticipated requirements for the Drug Substance. Each forecast
will be updated each Calendar Quarter and will extend such
forecast for one additional Calendar Quarter. The forecast is for
planning purposes only. Subsequent forecasts may include changes
to the
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
anticipated requirements for the Drug Substance for the
Calendar Quarters addressed in a previously delivered
forecast. After the first forecast for commercial production
of Drug Substance is submitted by Centocor, in no event will
the anticipated requirements for Drug Substance forecasted
for any Calendar Year exceed the forecast for the previous
Calendar Year by more than twenty percent (20%) unless
otherwise mutually agreed upon by the Parties.
(b) Within five (5) business days after CBSI's receipt of
each forecast, CBSI will notify Centocor if it anticipates
that it will be unable to meet any portion of the forecasted
requirements. Within ten (10) business days of receipt of
such notification by Centocor, the Executive Liaisons shall
meet to discuss the forecast and resolve any production
scheduling issues.
6.2 Purchase Orders. Centocor shall send CBSI a written binding
---------------
Purchase Order for Drug Substance. Each Purchase Order shall
specify the quantity of Drug Substance that Centocor intends
to purchase for the applicable Calendar Quarter. Such
Purchase Order shall be received by CBSI at least ninety
(90) days prior to Centocor's required delivery date for the
Drug Substance that is the subject of the Purchase Order,
provided that CBSI will ship Drug Substance monthly or
quarterly as requested by Centocor in accordance with
Section 7.1. In no event will the quantity of Drug Substance
specified for purchase for a Calendar Quarter in a Purchase
Order be more than twenty percent (20%) above, or less than
twenty percent (20%) below, the amount of the Drug Substance
forecasted for that Calendar Quarter pursuant to Section 6.1
of this Agreement. CBSI shall use best efforts to meet fully
the requirements of each Purchase Order placed by Centocor.
6.3 Conflict Between this Agreement and Purchase Order. In the
--------------------------------------------------
event of a conflict between any Forecast or Purchase Order
and this Agreement, the terms and conditions of this
Agreement shall govern.
6.4 Minimum Annual Purchase Requirement. Centocor agrees to
-----------------------------------
purchase from CBSI a minimum of XXXXXX of commercial
production Drug Substance in addition to the Drug Substance
from the consistency lots in the first year of commercial
production of Drug Substance by CBSI, and a XXXXXX per year
for the nine (9) years thereafter of commercial production
of Drug Substance by CBSI. This minimum purchase requirement
shall be void and unenforceable in any year that CBSI is not
able, for any reason other than Centocor's failure to
perform
15
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
under this Agreement, including Force Majeure, to supply a
minimum of XXXXXX of commercial production Drug Substance;
provided that CBSI need only supply XXXXXX in the XXXXXX of
commercial production of Drug Substance.
7. Delivery, Storage and Acceptance or Rejection of Drug Substance for
-------------------------------------------------------------------
Commercial Sale.
---------------
7.1 Delivery Destination and Dates. CBSI shall ship the Drug
------------------------------
Substance to the destination specified by Centocor and on the
date specified by Centocor in the applicable Purchase Order.
Centocor may, at its sole option, request that Drug Substance be
shipped each month.
7.2 Required Delivery and Inventory. CBSI may only ship Drug
-------------------------------
Substance before or after the date specified by Centocor if CBSI
obtains Centocor's prior written consent. CBSI agrees to store at
the Facility at no additional cost to Centocor a minimum
inventory of three months supply of purified, commercial
production Drug Substance. CBSI will store Drug Substance and
Materials at the Facility under conditions specified in the SOPs.
7.3 Delivery to Carrier at CBSI's Facility. CBSI shall deliver the
--------------------------------------
Drug Substance at Centocor's expense in accordance with
Centocor's instructions, Ex Works, according to INCO terms 1990.
Delivery of Drug Substance by CBSI shall be deemed to have taken
place upon delivery to a Centocor designated and approved carrier
at the Facility.
7.4 Batch Acceptance or Rejection. Within five (5) business days
-----------------------------
after CBSI release of each Batch, CBSI shall, with respect to
each Batch, send copies of all appropriate Batch record
documentation, all certificates of analysis required in the
Specifications, and all other required documentation, including
without limitation, the documentation required under this
Agreement and under the Quality Requirements to Centocor.
Centocor shall have ten (10) business days from Centocor's
receipt of such records to accept or reject the Drug Substance.
Centocor may reject Drug Substance on a Batch-by-Batch basis in
the event such Batch of Drug Substance fails to comply with the
Specifications and other requirements set forth in this Agreement
and in the Quality Requirements, by giving written notice of
rejection to CBSI within ten (10) business days following receipt
by Centocor of the required documentation. Any rejected Batch
will be destroyed upon the request of Centocor and in
16
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
accordance with Centocor's written instructions. Acceptance of a
Batch by Centocor constitutes Release of a Batch by Centocor.
7.5 Replacement of Product. Any rejection of a Batch by Centocor
----------------------
submitted to CBSI pursuant to Section 7.4 shall be accompanied by
a report of analysis. In the event that Centocor rejects a Batch
in accordance with Section 7.4 and either CBSI agrees that such
rejection was justified or, pursuant to Section 7.6, a third
party determines that such rejection was justified, CBSI agrees
to Manufacture a replacement Batch complying with the
Specifications, the terms of this Agreement and the Quality
Requirements. CBSI shall promptly reimburse (or credit if so
approved by Centocor) Centocor for any amounts paid or payable by
Centocor with respect to the rejected Batch.
7.6 Dispute Resolution for Batch Rejection. If Centocor rejects any
--------------------------------------
Batch pursuant to Section 7.4 and if CBSI, after good faith
negotiations with Centocor, fails to agree that such rejection
was justified, the Parties shall mutually agree upon a third
party to review records and test data and other relevant
information developed by both Parties and determine whether the
rejection of the Batch is appropriate. If the Drug Substance is
found to comply with the Specifications, the other requirements
of this Agreement and the Quality Requirements, Centocor shall
pay the costs of such tests and third party and shall be required
to pay for such Batch. If the Drug Substance is not found to
comply with the Specifications, the other requirements of this
Agreement and the Quality Requirements, CBSI shall pay the costs
of such tests, third party and shall promptly reimburse Centocor
as provided in Section 7.5 and shall Manufacture a replacement
Batch as provided in Section 7.5.
8. Price and Payment for Drug Substance for Commercial Sale.
--------------------------------------------------------
8.1 Purchase Price.
--------------
(a) The Purchase Price to Centocor for commercial production Drug
Substance Manufactured by CBSI is set forth on XXXXXX hereto
which is incorporated herein by reference.
(b) In the event that an improvement or change to the
Manufacturing process for the Drug Substance is made, the
Purchase Price in effect at the time of the change or improvement
and thereafter for the term of this Agreement will be adjusted
proportionately, provided that any change or improvement during
the Development Phase will adjust the Purchase Price
17
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
proportionately in year one of commercial production of Drug
Substance and thereafter for the term of the Agreement.
8.2 CBSI Costs and Expenses Included in Purchase Price. The Purchase
--------------------------------------------------
Price includes, without limitation, all costs and expenses of
CBSI with regard to all labor, equipment, Materials and the
Facility used for Manufacture of the Drug Substance in accordance
with this Agreement, the Scope of Work, the SOPs, Batch records,
Quality Requirements, Specifications, and Regulatory Requirements
for the Drug Substance, except that Centocor will provide to CBSI
the Materials and the Equipment stated in Section 3 of this
Agreement.
8.3 Invoicing. CBSI shall invoice Centocor against the applicable
---------
Purchase Order for the supply of the Drug Substance after (a) the
CBSI Quality Assurance approval of a Batch of Drug Substance; (b)
receipt by Centocor of the completed documentation described in
Section 7.4; and (c) Release of the Batch by the Centocor Quality
Representative. All invoices shall be payable within thirty (30)
calendar days after receipt of invoice by Centocor. Late payments
are subject to an interest charge of one and one-half percent
(1 1/2%) per month. Any payments that are greater than XXXXXX
days past due constitute a material breach of this Agreement.
9. Waste Disposal. As used hereinafter, the term "Waste" shall mean all
--------------
rejects, improper goods or other waste arising from the Manufacture of
the Drug Substance, including but not limited to rejected, excess, or
unusable Materials, or Drug Substance. CBSI shall hire, direct, and
pay all costs for a waste contractor to remove all Waste from CBSI's
Facility.
10. Title and Risk of Loss.
----------------------
10.1 Ownership. Ownership of all Active Ingredient, Manufacturer's
---------
Working Cell Bank, and variants or derivatives thereof, XXXXXX
and Equipment purchased by Centocor remain with Centocor at all
times. Title to all Materials purchased by CBSI shall pass to
CBSI. Title to and risk of loss for Drug Substance shall pass to
Centocor upon delivery of the Drug Substance to a Centocor
designated and approved carrier at the Facility consistent with
Section 7.3 of this Agreement, except that Centocor shall be
entitled to reject Drug Substance in accordance with Paragraph
7.4 of this Agreement.
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
10.2 Risk of Loss. To the extent covered by insurance, CBSI shall
------------
assume all liability for, and defend and indemnify and hold
Centocor harmless from and against any loss or damage relating to
Equipment, Manufacturer's Working Cell Bank, XXXXXX or Drug
Substance arising from CBSI's negligence or willful misconduct
while CBSI has custody and control over the Equipment,
Manufacturer's Working Cell Bank, XXXXXX and/or Drug Substance.
11. Changes.
-------
11.1 Changes. CBSI will not implement any material changes or
-------
alterations to the Manufacturing process relating to the Drug
Substance without the prior written consent of the Centocor
Authorized Representatives listed in the Quality Requirements
attached hereto as amended from time to time. A material change
or manufacturing process alteration implemented by CBSI includes,
but is not limited to, any change or alteration that (a) impacts
the regulatory commitments made to regulatory authorities for the
Drug Product; (b) may require revalidation; (c) may affect the
quality, purity, identity, or strength of the Drug Product; (d)
would result in changing the Specifications, master Batch
records, or test methods with respect to the Drug Substance
and/or Drug Product; (e) results in change of Materials,
Manufacturing methods, sampling procedures, SOPs or Batch
worksheet relating to the Drug Substance; and (f) subcontracting
an operation currently performed by CBSI for Centocor. Centocor
will not change any Specifications regarding the manufacturing
process for the Drug Substance without prior written consent of
CBSI's Authorized Quality Representatives. Such consent by either
party for changes contemplated by this Paragraph shall not be
unreasonably withheld. Reasonable costs incurred by CBSI for such
changes shall be invoiced by CBSI and paid for by Centocor in
accordance with Section 8.3.
11.2 Impact of Permitted Changes. In the event the proposed changes
---------------------------
have an impact on delivery times, CBSI shall promptly inform
Centocor, and the Parties will meet to discuss and mutually agree
upon such proposed changes to delivery times.
12. Access and Audits by Centocor and Maintenance of Records.
--------------------------------------------------------
12.1 Access. CBSI shall permit one or more of Centocor's
------
representative(s), representatives of Boehringer Mannheim and
representatives of Roche access to the Facility at any time
(provided that, as to representatives at Boehringer
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Mannheim and/or Roche, adequate notice is given to allow CBSI
time to protect the confidentiality of CBSI's other clients
information and technology) to observe and monitor the
Development Phase Manufacture of Drug Substance and the
Manufacture of Drug Substance for commercial sale. Such
representative(s) shall be nominated from time to time by
Centocor and shall comply with CBSI SOPs for the Facility.
12.2 Audit Right. Centocor's personnel shall have the right, at
-----------
Centocor's expense, to inspect and have access to the facilities
used in the Manufacturing, receiving, sampling, analyzing,
storing, handling, packaging, shipping and disposing of the raw
Materials, the Drug Substance, Waste and all records related to
this Agreement, and the subject matter hereof, during regular
business hours and upon reasonable advance written notice to CBSI
for the purpose of conducting quality audits, conducting
operation audits regarding Manufacture and otherwise auditing
compliance with this Agreement. CBSI shall cooperate with
Centocor in conducting such audits and shall allow Centocor
representatives to copy records set forth in Section 12.3 for
liability, regulatory and quality control purposes. CBSI also
agrees to permit external audits to be performed by qualified
experts chosen by Centocor and approved by CBSI, such approval by
CBSI to not be unreasonably withheld, provided that any such
experts must sign a confidentiality agreement with CBSI
containing substantially similar terms to the terms set forth in
Section 21 of this Agreement. In addition, Centocor may conduct
cGMP audits, at its expense. The date and the agenda of the cGMP
audits shall be mutually agreed upon at least five (5) business
days prior to the date of such audit. All information obtained by
Centocor and its third party representatives pursuant to this
Section shall be subject to the confidentiality provisions of
Section 21. Centocor will inform CBSI of any adverse findings
discovered during the audits. CBSI will provide Centocor with its
intended corrective actions, including time schedule, within
fifteen (15) business days of receiving such information. If any
disagreement with respect to the level of corrective action
occurs, Centocor and CBSI will agree upon and share the cost of a
third party quality or regulatory compliance expert who will make
the final decision on the issue in dispute.
12.3 Maintenance of Records. CBSI shall maintain for XXXXXX
----------------------
after termination of this Agreement all quality assurance
manufacturing records, samples relating to each Batch sufficient
to substantiate and verify its duties and obligations hereunder,
Batch production records and other records related in any way to
the Manufacture of the Drug Substance and as may be necessary to
comply with Regulatory Requirements, including without
limitation, records
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
of orders received, Drug Substance manufactured, work in process,
Drug Substance analysis and quality control tests, disposal of
Waste, and other similar records. Before destruction of any such
records, CBSI shall provide Centocor with at least sixty (60)
days prior written notice of the intended destruction and, if
requested by Centocor, will provide Centocor with copies of any
such records or originals as requested by Centocor.
Notwithstanding the foregoing, at any time after XXXXXX years
from the date of Manufacture of each Batch (or such longer period
as may be required by applicable laws or regulations), CBSI may
dispose of or deliver to Centocor any records relating to such
Batch in accordance with Centocor's instructions. If Centocor
fails to give said instructions, CBSI shall so notify Centocor;
and if said instructions are still not forthcoming within sixty
(60) days of said notification, then CBSI may destroy such
property in accordance with SOPs.
13. Regulatory Matters.
------------------
13.1 Inspections. CBSI will notify Centocor immediately (within 24
-----------
hours) of any regulatory inspections that involve Drug Substance
supplied or to be supplied to Centocor. CBSI will notify Centocor
of any issues that affect regulatory approval, filings, Drug
Substance supplied or continued supply of the Drug Product. If
Centocor deems appropriate, Centocor has the option of attending
the inspection to address Drug Substance and Drug Product related
issues.
13.2 CBSI's Filings. Centocor is authorized to review and approve all
--------------
regulatory filings or communications between CBSI and any
regulatory agency that affect Centocor's Drug Product or
registration.
13.3 Regulatory Submissions. Centocor shall be responsible for all
----------------------
routine submissions (e.g. annual reports, stability updates) as
well as all submissions regarding changes to the licensed
manufacturing process for Drug Substance to the FDA and/or the
HPB or any successors thereto. Centocor shall be responsible for
filing and obtaining approval for all submissions to the FDA and
HPB pertaining to the Manufacture and testing of Drug Substance
by CBSI and Centocor shall own all such submissions. CBSI shall
provide to Centocor, in a timely manner, all assistance
reasonably requested to prepare a regulatory submission
including, but not limited to, the regulatory support services
stated in the Scope of Work. Regulatory services not covered in
the Scope of Work will be separately invoiced and be paid for by
Centocor at CBSI's reasonable standard rates for such services.
CBSI agrees to comply with all commitments
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
made in regulatory submissions regarding CBSI's manufacturing
responsibilities as described herein.
13.4 Regulatory Responsibilities. Centocor shall be responsible for
---------------------------
the compliance of the Drug Product, including the Specifications
for Drug Product, with the FDA, the HPB and all required
regulatory standards. CBSI shall be responsible for compliance
with cGMPs and all applicable Regulatory Requirements in the
Manufacture of Drug Substance except that Centocor is responsible
for the Release of Drug Substance. Each Party will provide
reasonable assistance to the other, at no charge, if necessary to
respond to FDA and/or HPB and other regulatory agency audits,
inspections, inquiries or requests concerning the Drug Substance
or the Manufacture of the Drug Substance.
13.5 Regulatory Plan. Centocor agrees to prepare a written plan
---------------
setting forth the obligations of each Centocor and CBSI with
regard to compliance with Regulatory Requirements for the
Manufacture of Drug Substance (the "Regulatory Plan"). CBSI shall
review, and the Parties shall mutually agree on the Regulatory
Plan prior to implementation. The Regulatory Plan shall be
completed within six months after the Effective Date, and shall
be attached to this Agreement as XXXXXX and incorporated
herein by reference.
13.6 Notices Regarding Safety of Products. Each Party shall provide
------------------------------------
the other Party with prompt notice of any information either of
them receive regarding the safety of the Drug Product, including
any confirmed or unconfirmed information on adverse, serious or
unexpected events associated with the use of the Drug Product.
For serious, unexpected events, notice must be given by telephone
within three (3) calendar days after receipt of the information,
and followed by written notice not less than two (2) calendar
days thereafter. All responsibility and cost for filing any
reports with the FDA concerning such reactions (including Drug
Experience Reports) caused by the Drug Substance Manufactured for
Centocor shall be borne by Centocor. Furthermore, Centocor will
be responsible at its cost for handling all Drug Product
complaints. CBSI will provide reasonable assistance in responding
to any complaints including reviews of retained samples and Batch
records as well as testing the Drug Product engendering a
complaint against the appropriate retained samples, if required,
and Centocor will reimburse CBSI for reasonable out of pocket
expenses incurred therewith. The costs of such testing shall be
borne by Centocor; however, if it is determined that the Drug
Product complaint was directly or indirectly caused by CBSI's
Manufacture and if the Drug Product complaint is related to the
Drug Substance's failure to
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
conform to any of its Specifications or other requirements under
this Agreement and/or the Quality Requirements, CBSI shall
reimburse Centocor for the costs of such testing.
14. CBSI Representations and Warranties. CBSI represents and warrants to
-----------------------------------
Centocor, in addition to the other representations and warranties set
forth in this Agreement, that:
14.1 Corporate Organization, Good Standing and Qualification to do
-------------------------------------------------------------
Business. CBSI is a corporation duly and validly existing under
--------
the laws of the State of Delaware. CBSI is in good standing under
the laws of its jurisdiction of incorporation and is duly
qualified to do business and is in good standing in the State of
North Carolina.
14.2 Power and Authority and Agreement Validity. CBSI has the
------------------------------------------
corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution, delivery and performance by CBSI of this Agreement has
been duly and validly authorized, and no additional authorization
or consent is required in connection with the execution, delivery
and performance by CBSI of this Agreement.
14.3 Due Execution. This Agreement has been duly executed and
-------------
delivered by CBSI and constitutes the valid and legally binding
obligation of CBSI, enforceable in accordance with its terms,
except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other
similar laws affecting the enforcement of creditors' rights
generally from time to time in effect and general principles of
equity.
14.4 No Conflict. To the best of CBSI's knowledge, the execution and
-----------
delivery of this Agreement do not, and the consummation by CBSI
of the transactions contemplated hereby and the performance by
CBSI of its obligations hereunder will not, violate the
provisions of, or constitute a default or give rise to rights of
any entity under, (i) CBSI's Articles of Incorporation or Bylaws
or (ii) any law applicable to CBSI or (iii) any judgment, decree
or order of any court or governmental or regulatory agency
applicable to CBSI, its subsidiaries, its Affiliates or their
respective assets or (iv) any agreement, contract or commitment
to which CBSI or any of its subsidiaries or Affiliates is a party
or by which they or their respective assets are bound.
23
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
14.5 Litigation. To CBSI's knowledge, there is no pending or
----------
threatened lawsuit or proceeding of any governmental or
regulatory authority against or concerning CBSI in connection
with the type of services to be provided by CBSI hereunder which,
if adversely determined, would (i) prohibit the execution,
delivery or performance of this Agreement or (ii) have a material
adverse effect on CBSI or on CBSI's ability to consummate the
transactions contemplated hereby or to perform its obligations
under this Agreement.
14.6 Condition of Assets. All property of CBSI and its subsidiaries
-------------------
and Affiliates, whether real or personal, that is used in the
production or Manufacture of the Drug Substance is in good
condition, reasonable wear and tear excepted, and is sufficient
for its intended use pursuant to this Agreement.
14.7 Compliance with Specifications and Quality Agreement. All Drug
----------------------------------------------------
Substance, Manufactured and supplied hereunder, shall comply with
the requirements of the Specifications and of the Quality
Requirements and the requirements of this Agreement.
14.8 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WITH REGARD TO THE SERVICES PROVIDED UNDER
THIS AGREEMENT AND THE MANUFACTURE OF THE DRUG SUBSTANCE,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND CBSI
HEREBY EXPRESSLY DISCLAIMS ALL SUCH OTHER WARRANTIES OR ANY
WARRANTY THAT THE DRUG SUBSTANCE PRODUCED HEREUNDER WILL SATISFY
THE REQUIREMENTS OF ANY REGULATORY AGENCY AT THE TIME OF A
REGULATORY SUBMISSION REGARDING SUCH DRUG TO SUCH AGENCIES
REGARDLESS OF WHETHER CBSI IS FAMILIAR WITH THE PURPOSES FOR
WHICH CENTOCOR INTENDS TO USE THE DRUG SUBSTANCE.
15. CBSI Covenants. CBSI covenants and agrees that throughout the term of
--------------
this Agreement:
15.1 Maintenance of Licenses, Permits, etc. CBSI will maintain in
-------------------------------------
effect during the term of this Agreement any and all federal,
state and/or local licenses, regulatory approvals, registrations
and permits which may be required to be maintained by CBSI in
order to Manufacture the Drug Substance hereunder.
24
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
15.2 Compliance with Law. In its performance of this Agreement, CBSI
-------------------
will comply with all applicable federal, state and local laws,
regulations and executive orders and amendments thereto and all
Regulatory Requirements.
15.3 Performance Standards. CBSI will Manufacture the Drug Substance
---------------------
in strict compliance with all of the Specifications, the Quality
Requirements, the terms of this Agreement and in strict
compliance with all requirements of the Product's FDA and HPB
approvals.
15.4 Storage and Handling. CBSI will store and handle all Materials
--------------------
and the Drug Substance in compliance with the storage and
handling conditions set forth in the Specifications and Quality
Requirements.
15.5 Certain Actions. CBSI will not take any action or omit to take
---------------
any action that could reasonably be expected to interfere with,
or impair or jeopardize, its ability to supply the Drug
Substance, in accordance with this Agreement, including without
limitation, the Specifications, the Quality Requirements and
Regulatory Requirements.
15.6 Notifications. CBSI will notify Centocor promptly within fifteen
-------------
(15) days in writing of any material civil, criminal or
administrative action brought against CBSI, its directors,
officers, employees or agents which could reasonably be expected
to have a material adverse effect on CBSI or on CBSI's ability to
consummate the transactions contemplated hereby or to perform its
obligations under this Agreement and promptly provide Centocor
with reasonably detailed information regarding CBSI's handling of
each such action.
15.7 Testing and Specifications. CBSI agrees to perform all tests
--------------------------
listed in the Specifications and/or the Quality Requirements in
the manner set forth in the Specifications and/or the Quality
Requirements. CBSI will promptly report to Centocor in writing
all test results that do not comply with the Specifications
and/or the Quality Requirements.
15.8 Insurance. Upon request from Centocor, CBSI shall furnish to
---------
Centocor an insurance carrier's certificate showing that CBSI has
Workmen's Compensation, Comprehensive General Liability and
Property Damage insurance coverage in amounts and coverages
reasonably acceptable to Centocor and/or as may be required by
this Agreement. The certificate shall set forth the amount of
coverage, policy number and date of expiration. CBSI shall
maintain in force during the term of this Agreement the insurance
stated in Section 19.1 of this Agreement.
25
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
15.9 Manufacturing Capacity. CBSI hereby covenants that as of the date
----------------------
of commencement of commercial production of Drug Substance, CBSI
shall have and shall maintain sufficient capacity available at
the Facility for Manufacture of XXXXXX of commercial production
Drug Substance for a period of ten years. This ten year period
will commence from the date commercial production of Drug
Substance has actually begun.
16. Centocor's Representations and Warranties. Centocor represents and
-----------------------------------------
warrants to CBSI, in addition to the other representations and
warranties set forth in this Agreement, as follows:
16.1 Corporate Organization. Centocor is a corporation duly organized
----------------------
and validly existing under the laws of the Commonwealth of
Pennsylvania.
16.2 Power and Authority and Agreement Validity. Centocor has the
------------------------------------------
corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution, delivery and performance by Centocor of this Agreement
has been duly and validly authorized, and no additional
authorization or consent is required in connection with the
execution, delivery and performance by Centocor of this
Agreement.
16.3 Due Execution. This Agreement has been duly executed and
-------------
delivered by Centocor and constitutes the valid and legally
binding obligation of Centocor, enforceable in accordance with
its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
and other rights generally affecting the enforcement of
creditors' rights generally from time to time in effect and
general principles of equity.
16.4 No Conflict. To the best of Centocor's knowledge, the execution
-----------
and delivery of this Agreement does not, and the consummation by
Centocor of the transactions contemplated hereby and the
performance by Centocor of its obligations hereunder will not,
violate the provisions of, constitute a default or give rise to
rights of any entity under, (i) Centocor's corporate documents,
or (ii) any law applicable to Centocor, or (iii) to Centocor's
knowledge, any judgment, degree or order of any court or
governmental or regulatory agency applicable to Centocor, or (iv)
to Centocor's knowledge, any agreement, contract or commitment to
which Centocor is a party or by which it is bound, (v) or to
Centocor's knowledge, the Consent Order.
26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
16.5 XXXXXX
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
17. Centocor Covenants. Centocor covenants and agrees that:
------------------
17.1 Maintenance of License and Permits, etc. Centocor will maintain
---------------------------------------
in effect during the term of this Agreement any and all federal,
state and/or local licenses, regulatory approvals, registrations
and permits which may be required to be maintained by Centocor in
order for CBSI to Manufacture the Drug Substance hereunder.
17.2 Compliance with Law. In its performance of this Agreement,
-------------------
Centocor will comply with all applicable federal, state and local
laws, regulations and executive orders and amendments thereto and
all Regulatory Requirements, and the Consent Order.
17.3 Certain Actions. Centocor will not take any action or omit to
---------------
take any action that could be reasonably be expected to interfere
with, or impair or jeopardize, CBSI's ability to Manufacture the
Drug Substance in accordance with this Agreement, including,
without limitation, the Specifications and the Quality
Requirements.
18. Indemnification.
---------------
18.1 CBSI shall indemnify Centocor and its Affiliates and their
respective officers, directors and employees (the "Centocor
Group") from any loss, damage, cost or expense (including
reasonable attorneys' fees)(a "Loss") arising from any
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
lawsuit, action, claim, demand, assessment or proceeding (a
"Claim") arising from or related to (i) personal injury or
property damage arising or occurring during the Manufacture of
the Batch as a result of CBSI's negligence, gross negligence or
intentional misconduct or inaction of CBSI in the performance of
its obligations under this Agreement, Scope of Work or Quality
Requirements; or (ii) CBSI's violation, non-conformance or
non-performance of any of the terms of this Agreement or CBSI's
breach of any representation or covenant made herein, provided
that if such Loss or Claim arises in whole or in part from
Centocor's negligence, gross negligence or intentional misconduct
or inaction, then the amount of the Loss that CBSI shall
indemnify Centocor for pursuant to this Section 18 shall be
reduced by an amount in proportion to the percentage of
Centocor's responsibilities for such Loss determined by a court
of competent jurisdiction in a final and non-appealable decision
or in a binding settlement between the parties.
18.2 Centocor shall indemnify CBSI and its Affiliates and their
respective officers, directors, employees and agents (the "CBSI
Group") from any Claim or Loss arising from or related to (i)
personal injury to any employee of the CBSI Group or the Centocor
Group directly or indirectly caused by Material or Equipment
provided by Centocor hereunder; (ii) CBSI's strict and complete
performance of its obligations under this Agreement or the Scope
related thereto; (iii) the Drug Substance, the Quality
Requirements or any aspect of the Scope of Work which violates
any applicable law, rule, regulation or ordinance, or the Consent
Order; (iv) the Drug Substance's harmful or otherwise unsafe
effect, including, without limitation, a Claim based upon
Centocor or any other person's use, consumption, sale,
distribution or marketing of Drug Substance; (v) the negligence,
gross negligence or intentional misconduct or inaction of
Centocor in the performance of its obligations under this
Agreement or Scope of Work, (vi) any alleged infringement of any
patent, trademark, copyright or any other intellectual property
right arising from CBSI's performance of this Agreement,
including, without limitation, the making, using, selling,
production or creation of the Drug Substance or use of the
Materials and the expression systems and process used to make,
create or produce the Drug Substance, or (vii) Centocor's
violation, non-conformance or non-performance of any of the terms
of this Agreement or Centocor's breach of any representation or
covenant made herein; provided that if such Loss or Claim arises
in whole or in part from CBSI's negligence, gross negligence or
intentional misconduct or inaction, then the amount of such Loss
that Centocor shall indemnify the CBSI Group for pursuant to this
Section 18 shall be reduced by an amount in proportion to the
percentage of CBSI's responsibilities for such Loss as determined
by 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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
court of competent jurisdiction in a final and non-appealable
decision or in a binding settlement between the parties.
18.3 Indemnification Procedure. The indemnified party shall give
-------------------------
prompt written notice to the indemnifying party of any suits,
claims or demands by third parties or the indemnified party which
may give rise to any loss for which indemnification may be
required under this Section 18; provided, however, that the
-------- -------
failure to give such notice shall not impair the obligation of
the indemnifying party to provide indemnification hereunder
except if and to the extent that such failure materially impairs
the ability of the indemnifying party to defend the applicable
suit, claim or demand. The indemnifying party shall be entitled
to assume the defense and control of any suit, claim or demand of
any third party at its own cost and expense; provided, however,
-------- -------
that the other party shall have the right to be represented by
its own counsel at its own cost in such matters. In the event
that the indemnifying party shall decline to assume control of
any such suit, claim or demand, the party entitled to
indemnification shall be entitled to assume such control, conduct
the defense of, and settle such suit, claim or action, all at the
sole cost and expense of the indemnifying party. Neither the
indemnifying party nor the indemnified party shall settle or
dispose of any such matter in any manner which would adversely
impact the rights or interests of the other party without the
prior written consent of the indemnified party, which shall not
be unreasonably withheld. Each party shall cooperate with the
other party and its counsel in the course of the defense of any
such suit, claim or demand, such cooperation to include using
reasonable efforts to provide or make available documents,
information and witnesses. XXXXXX Such indemnification shall not
be subject to the proportional reduction referred to in Section
18.2.
19. Insurance.
---------
19.1 CBSI Insurance. CBSI agrees (i) to obtain and maintain at its
--------------
cost and expense, while this Agreement is in effect, (a)
commercial general liability insurance, including commercially
reasonable coverage for the risks assumed by CBSI in Section 10.2
of this Agreement; (b) products liability insurance with coverage
limits of not less than XXXXXX per occurrence and
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX in the aggregate; (c) property damage insurance with
coverage limits of not less than XXXXXX per occurrence; and
(d) the Errors and Omissions Insurance; (ii) not to cancel the
insurance or reduce the coverage without giving at least thirty
(30) days prior written notice to Centocor. CBSI shall cause
Centocor to be a named additional insured party on each insurance
policy. In the event of cancellation or termination of the
coverage described herein, CBSI shall immediately obtain
substitute or replacement coverage.
19.2 Centocor Insurance. Centocor agrees to obtain and maintain at its
------------------
cost and expense, while this Agreement is in effect, commercial
general liability insurance and products liability insurance in
commercially reasonable amounts.
20. Recall. If Drug Product must be recalled by reason of failure to meet
------
any Regulatory Requirement, Centocor shall have the sole
responsibility to effect the recall. However, CBSI shall cooperate as
reasonably required in Centocor's efforts. Centocor shall reimburse
CBSI for any costs reasonably expended by CBSI to effect the recall,
unless the recall is required due to a failure of CBSI to conform in
all material respects to the Specifications or the Quality
Requirements. If the failure to meet applicable requirements resulting
in a recall is caused by the negligently or intentionally wrongful act
or omission of CBSI, CBSI shall reimburse Centocor for (a) any cost
reasonably expended by Centocor to effect the recall; (b) any amount
paid by Centocor for Materials used in recalled Drug Product; (c)
shipping fees and Manufacture fees paid to CBSI for recalled Drug
Product and for any Drug Product that cannot be shipped due to the
condition requiring the recall; provided however that any
reimbursement by CBSI shall not exceed amounts actually paid by
Centocor for the recall.
21. Confidentiality.
---------------
21.1 Definition of Confidential Information. During the term of this
--------------------------------------
Agreement, the Parties may provide to one another confidential
information, or may receive from Boehringer Mannheim, the Trustee
or Roche as the designees of Centocor, documents or other
materials which may be unpublished, including without limitation,
unpatented technical and other information which is not in the
public domain, information comprising or relating to concepts,
discoveries, data, formulae, the Active Ingredient, the Master
Cell Bank, the Manufacturer's Working Cell Bank, inventions,
procedures for experiments and tests and results of
experimentation and testing, results of research, development
processes, manufacturing processes, specifications and
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
techniques, economic information, business or research
strategies, trade secrets, the cell line of the Drug Product,
patents, unpublished patent applications and material embodiments
thereof. As used herein, "Confidential Information" means any of
such information or documents described above or any other
information or documents furnished for the purposes of
Manufacturing the Drug Substance which is furnished to or comes
to the attention of either Party and shall include without
limitation, the terms of this Agreement, information provided by
Roche or Boehringer Mannheim or their representatives regarding
the Drug Substance or Drug Product or the manufacturing process
for the Drug Substance or Drug Product, information that consists
of, or relates to, an unpublished patent application, know-how,
technical specifications, the Specifications, development
processes, manufacturing processes, operating manuals, services
information concerning current, future or proposed products and
services, Drug Product and service descriptions, financial or
Drug Substance or Drug Product forecasts or plans, security
procedures or passwords, computer programs, customer or client or
prospective customer or client lists and printouts, records, and
any or all other information, data or material relating to the
business trade secrets and technology of either Party.
21.2 Confidentiality and Non-Use. Both Parties shall maintain in
---------------------------
strict confidence all such Confidential Information and both
Parties shall take all steps necessary to ensure that such
Confidential Information does not enter the public domain or come
into the possession of unauthorized persons, provided however,
----------------
that if and to the extent that disclosure is required by
applicable law, or to obtain regulatory approvals, such Party
seeking to disclose the Confidential Information may disclose
such Confidential Information after giving the other Party prior
written notice of the intended disclosure. CBSI shall not use
such Confidential Information for any purpose other than for the
Manufacture and provision of Drug Substance hereunder and shall
not use the Confidential Information in any way, directly or
indirectly, detrimental to Centocor. Both Parties will ensure
that only those of its officers and employees who are directly
concerned with carrying out this Agreement have access to such
Confidential Information and are informed of the secret and
confidential nature of it. Each Party will maintain a secure
system for the storage and handling of Confidential Information.
21.3 Exclusions. Confidential Information shall not include
----------
information that: (i) is shown by contemporaneous documentation
of the recipient to have been in its possession prior to receipt
from the providing Party or its designee and was not acquired,
directly or indirectly, from any person in violation of a
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Confidential Treatment Requested
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
restriction on disclosure in favor of the providing Party; (ii)
is or becomes, through no fault of the recipient, publicly known;
(iii) is furnished to the recipient by a third party without
breach of a duty to the disclosing Party and without any
obligation of confidentiality; or (iv) is made public by the
party otherwise having the right to keep the Confidential
Information confidential.
21.4 Required Notifications. Each Party shall notify the other
----------------------
immediately if a subpoena or other legal process or demand
related to the Confidential Information is served upon or
received by such Party or any of its employees, contractors,
subcontractors or agents, and such Party shall cooperate at the
other Party's expense in any lawful effort to contest such
subpoena or other legal process or demand.
21.5 Injunctive Relief. Each Party acknowledges and agrees that any
-----------------
breach or threatened breach of this Section 21 may result in
immediate and irreparable harm and that in such event there may
be no adequate remedy at law. Either Party shall therefore be
entitled to seek immediate injunctive relief, specific
performance, and other equitable relief for such breach or
threatened breach, and such resort to any such equitable relief
shall not be deemed to waive or to limit in any respect any right
or remedy which either Party may have with respect to such breach
or threatened breach.
21.6 Return of Confidential Information. Upon any expiration or
----------------------------------
termination of this Agreement, subject to Section 12.3 of this
Agreement, each Party shall, at the request or without the
request of the other Party, either return or destroy (as
evidenced by a written certificate of destruction) all
Confidential Information previously furnished by the other Party;
provided however, that each Party shall be entitled to retain one
----------------
(1) copy of such Confidential Information for archival purposes.
21.7 Use of Name. Neither Party shall, without the prior consent of
-----------
the other party, use in advertising, publicity or otherwise, the
name, trademark, logo, symbol or other image of the other Party.
21.8 Survival. All obligations of confidentiality and non-use imposed
--------
under this Section 21 shall survive the expiration or termination
of this Agreement for any reason for a period of ten (10) years.
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
22. License Solely for Purpose of Manufacture.
-----------------------------------------
22.1 License Grant. Centocor hereby grants to CBSI a non-exclusive,
-------------
royalty-free license, without right to sublicense, to use the
manufacturing technology, trade secrets and know-how used to
manufacture the Drug Substance ("Manufacturing Process") solely
and exclusively for the purpose of performing the Manufacture of
the Drug Substance, in accordance with terms and conditions of
this Agreement, such license to terminate immediately upon the
termination of this Agreement by either Party.
22.2 No Implied License. Subject to Section 22.1, nothing in this
------------------
Agreement does, is intended to, or shall be construed to create,
confer, give effect to or otherwise imply in CBSI or anyone
claiming through CBSI any license, right, or property interest,
in or to Centocor patents or patent rights, Centocor trademarks
or trade names, or any other Centocor trade secrets, know how or
property.
23. Establishment of Proprietary Position.
-------------------------------------
23.1 Ownership. CBSI will promptly inform Centocor of any ideas,
---------
improvements and inventions arising out of the performance of
Manufacture of Drug Substance under this Agreement solely by CBSI
personnel or by CBSI personnel jointly with employees from
Centocor. Inventions, including inventions relating to
manufacturing methods and processes, made solely by CBSI
personnel and any patent applications and patents thereon shall
be owned by CBSI ("CBSI Inventions"). XXXXXX
23.2 CBSI Patent Responsibilities. CBSI shall be responsible for
----------------------------
filing and prosecuting United States and foreign patent
applications on CBSI Inventions. While CBSI shall be responsible
for making decisions regarding the scope and content of any such
applications and prosecution thereof, Centocor shall have an
opportunity to review and provide input thereto. The expenses in
connection with filing and prosecution of any such patent
applications, United States and/or foreign, and the maintenance
of issued patents thereon shall be borne by CBSI.
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
23.3 Centocor Patent Responsibilities. Centocor shall be entitled to
--------------------------------
file and prosecute United States and/or foreign patent
applications on jointly owned inventions. CBSI and Centocor shall
be jointly responsible for making decisions regarding the scope
and content of applications and prosecution thereof on any such
jointly owned inventions. CBSI will assist in assembling
inventorship information and data for filing patent applications
on jointly owned inventions. Decisions on when, where and whether
to file on jointly owned inventions will be made by Centocor
after consulting with CBSI. The expenses in connection with
filing and prosecution of any jointly owned patent applications,
United States and/or foreign, and the maintenance of issued
patents thereon shall be borne by Centocor.
23.4 CBSI Election Not to File Patent. In the event that CBSI elects
--------------------------------
not to file a patent application on any CBSI Invention or decides
to discontinue prosecution or maintenance of any such application
or maintenance of any patent issued thereon, Centocor may at its
own expense file, prosecute and/or maintain any such patent
application or patent as the case may be. If Centocor assumes
responsibility of jointly owned patent applications or patents
under this subparagraph, Centocor, upon written request from
CBSI, shall grant to CBSI a royalty-free license thereunder.
23.5 Centocor Election Not to File Patent. In the event that Centocor
------------------------------------
elects not to file a patent application on any invention referred
to in Paragraph 23.3 or decides to discontinue prosecution or
maintenance of any such application or maintenance of any patent
issued thereon, CBSI may at its own expense file, prosecute
and/or maintain any such patent application or patent as the case
may be. If CBSI assumes responsibility of jointly owned patent
applications or patents under this subparagraph, CBSI, upon
written request from Centocor, shall grant to Centocor a
royalty-free license thereunder.
23.6 License to Centocor.
-------------------
(a) In consideration of Centocor's promises and covenants and
other consideration hereunder, CBSI hereby grants to
Centocor:
(i) an exclusive, worldwide royalty-free license to make
or have made, use or sell Drug Substance and/or Drug
Product using CBSI Inventions or joint inventions of
Centocor and CBSI;
(ii) an exclusive, worldwide royalty-free license under any
patent rights to CBSI Inventions or joint inventions
of CBSI to make,
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Confidential Treatment Requested
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
have made, use and sell Drug Substance and or Drug
Product; and
(iii) the licenses granted by CBSI to Centocor under
Paragraphs 23.6(i) and 23.6(ii) shall include the
right to grant sublicenses of no greater than the
license granted to Centocor hereunder.
24. Term.
----
24.1 Initial Term. This Agreement shall begin on the Effective Date
------------
and shall expire ten years after the date CBSI begins commercial
production of Drug Substance (the "Initial Term"), unless earlier
terminated pursuant to Section 26.
24.2 Extensions. Centocor will have the right, exercisable by written
----------
notice to CBSI given no later than twelve (12) months before the
expiration of the Initial Term, to request that the term of this
Agreement be extended for an additional three or four years, at
Centocor's sole option.
25. Termination and Default.
-----------------------
25.1 Termination by Centocor. In addition to the termination of this
-----------------------
Agreement upon expiration of its Initial Term or any extension
thereof, Centocor may at any time terminate this Agreement as
follows: (a) after initiation of Manufacture of commercial
production Drug Substance by CBSI by providing XXXXXX written
notice to CBSI; or (b) during the Development Phase, without
incurring any further liability with respect to the Agreement, by
providing written notice to CBSI that for reasons other than a
material wrongful act or omission of Centocor, in Centocor's
reasonable opinion (i) the process used by Boehringer Mannheim to
manufacture Retavase(TM) Drug Substance does not transfer to the
Facility; (ii) CBSI fails to deliver the deliverable set forth in
Section 2.5(b)(5) of this Agreement, (iii) CBSI is unable to
deliver any deliverable as set forth in Section 2.5(b) as the
result of force majeure; or (iv) a Modification as defined in
Section 2.5(c)(i) is unacceptable to Centocor after good faith
negotiations by the Parties.
25.2 Termination by CBSI. CBSI may terminate this Agreement after
-------------------
initiation of Manufacture of commercial production Drug Substance
by CBSI by giving Centocor XXXXXX prior written notice to
Centocor. CBSI may
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
not terminate this Agreement for any reason during the
Development Phase. Notwithstanding the foregoing, CBSI may
terminate this Agreement at any time upon XXXXXX written notice
in the event Centocor is in default of a material obligation
under this Agreement which Centocor fails to cure within thirty
(30) days after a face to face meeting of the Executive Liaisons
pursuant to Section 29.2(a). Such face to face meeting shall
occur within fifteen (15) days of receipt by Centocor of written
notice of termination for material breach by CBSI.
25.3 Right to Termination is Additional Right. The right to terminate
----------------------------------------
this Agreement shall be in addition to and not in substitution or
limitation of any other rights available under this Agreement or
under applicable law.
25.4 Termination Prior to Commencement of Commercial Production. In
----------------------------------------------------------
the event that Centocor terminates this Agreement prior to the
completion of the Development Phase for a reason other than (a)
reasons provided in Section 25.1(b) herein, or (b) any other
failure of CBSI to perform its material obligations under this
Agreement for the Development Phase, Centocor will pay CBSI a
termination fee of XXXXXX ("Termination Fee") and Centocor will
pay the amounts due for completion of the Development Phase
deliverable in process at the time of termination. Payment of the
amounts due under this Section 25.4 and amounts due and owing to
CBSI under this Agreement as of the date of termination by
Centocor shall be made by Centocor XXXXXX after the date of the
written notice from Centocor to CBSI terminating this Agreement.
Payment of the amounts due under this Section 25.4 shall
constitute full and complete payment by Centocor to CBSI for any
services rendered or costs incurred by CBSI as the result of this
Agreement. Upon receipt of payment of amounts due under this
Section 25.4 by CBSI, neither party shall have any further
obligation to the other.
25.5 Termination After Commencement of Commercial Production. In the
-------------------------------------------------------
event that Centocor terminates this Agreement after commencement
of commercial production, CBSI will supply to Centocor sufficient
Drug Substance to meet the XXXXXX months Forecast, incorporating
the minimum annual purchase requirement of XXXXXX The parties
agree that in no event is Centocor required to purchase more than
ten years of commercial production of Drug Substance.
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
25.6 Transition. In addition to any rights Centocor may have under
----------
this Agreement or under applicable law, in the event of the
expiration or termination of this Agreement for any reason, CBSI
agrees to return to Centocor within ninety (90) days of
termination of this Agreement all Manufacturer's Working Cell
Banks, Drug Substance, Equipment and XXXXXX in CBSI's possession,
provided that, in the event that Centocor, at its sole
discretion, elects not to have some or all of the Equipment
returned to it after expiration or termination of this Agreement,
CBSI may purchase such Equipment from Centocor at a commercially
reasonable price that is mutually agreeable to CBSI and Centocor.
Shipping, insurance and other costs of transportation shall be
borne by Centocor. CBSI agrees to work with Centocor for a period
of up to two (2) years to effect an orderly termination of this
Agreement, as may be reasonably requested by Centocor, including
without limitation, the return of Confidential Information.
25.7 Transition Costs. In the event that CBSI terminates this
----------------
agreement without cause, CBSI will pay all reasonable costs for
transitions incurred by Centocor and CBSI during the transition
period. In the event that CBSI terminates this Agreement with
cause, Centocor will pay all reasonable costs for transition
incurred by Centocor and CBSI during the transition period. In
the event that Centocor terminates this Agreement for cause, CBSI
will pay all reasonable costs incurred by Centocor and CBSI for
transition during the transition period. In the event that
Centocor terminates this Agreement without cause, Centocor will
pay all reasonable costs incurred by Centocor and CBSI for the
transition period. If the parties mutually agree to terminate
this Agreement, the reasonable costs for transition shall be
shared equally by Centocor and CBSI.
26. Independent Contractor Status. The relationship of Centocor and CBSI
-----------------------------
established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to: (i) give
either Party the power to direct or control the day to day activities
of the other; (ii) constitute the Parties as partners, joint-ventures,
co-owners or otherwise as participants in a joint or common
undertaking; or (iii) allow a Party to create or assume any obligation
on behalf of the other Party for any purpose whatsoever. Nothing in
this Agreement will give rise to the creation of any labor relation by
or between either Party and any employees of the other Party.
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
27. Assignability.
-------------
27.1 Centocor. Centocor may, without the prior consent of CBSI, assign
--------
this Agreement or any of its rights or obligations hereunder to
any parent, subsidiary or Affiliate of Centocor. Such assignee
may, without the prior written consent of CBSI, assign this
Agreement or any of the rights or obligations hereunder back to
Centocor or to any parent, subsidiary or Affiliate of Centocor.
27.2 CBSI. Neither this Agreement nor any of the rights or obligations
----
hereunder shall be assignable or otherwise transferable by CBSI
without the prior written consent of Centocor, such consent not
to be unreasonably withheld.
27.3 Permitted Assigns and Successors. This Agreement shall be binding
--------------------------------
upon, and inure to the benefit of, the permitted assigns and
successors of the Parties hereto.
28. Force Majeure.
-------------
28.1 Force Majeure Defined. Neither CBSI nor Centocor are liable to
---------------------
perform any of its obligations in so far as it proves to the
other Party:
(i) that the failure was due to an occurrence beyond the
control of the Party affected including but not limited to
acts of God, fire, explosion, weather, disease, war,
insurrection, riot, government action or power failure; and
(ii) that it could not reasonably be expected to have taken into
account the occurrence and the effects of the occurrence
upon its ability to perform at the time of the acceptance
of a Purchase Order; and
(iii) that it could not reasonably have avoided or overcome the
occurrence or at least its effects.
28.2 Force Majeure Limited. No Party shall have the right to avail
---------------------
itself of this article in the event the force majeure occurrences
arises from an act or from any negligence of that Party.
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
28.3 Excused from Performance. Either Party shall upon written notice
------------------------
to the other Party be excused from performance of its obligations
under the Agreement only for so long as force majeure may
continue.
28.4 Bear Own Cost. Each Party shall bear its own costs arising out of
-------------
or resulting from the occurrence of any force majeure event.
28.5 Adjustment of Forecast. As soon as the force majeure situation
----------------------
has ended, or as earlier as is feasible, the rolling forecast for
at least the next four (4) Calendar Quarters shall be adjusted in
good faith with the other Party.
28.6 XXXXXX
29. Miscellaneous Provisions.
------------------------
29.1 Limitation of Damages.
---------------------
(a) Development Phase. Centocor shall not be entitled to
-----------------
Special Damages arising in connection with a breach of,
negligent performance of and/or failure to perform of
CBSI's obligations under this Agreement, the Scope of
Work or any documents or attachments with regard thereto
to the extent such breach, negligence or failure to
perform directly relate to and occur during the
Development Phase.
XXXXXX
XXXXXX
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
29.2 Dispute Resolution.
------------------
(a) Senior Executive Meeting. In the event any dispute shall
------------------------
arise between Centocor and CBSI with respect to any of the
terms and conditions of this Agreement, then the Executive
Liaisons of Centocor and CBSI shall meet as promptly as
practicable after notice of such dispute to resolve in good
faith such dispute.
(b) Arbitration.
-----------
(i) If Centocor and CBSI are unable to resolve
satisfactorily the dispute, then such dispute shall be
settled by arbitration conducted in the English language in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA"). The
arbitration shall be conducted by one arbitrator chosen by
mutual agreement of the Parties. If the Parties are unable
to agree on an arbitrator, they shall each pick one
arbitrator and the two arbitrators shall choose a third
arbitrator. The Parties will cooperate with each other in
causing the arbitration to be held in as efficient and
expeditious manner as practicable. Discovery in such
arbitration shall be conducted in accordance with the
Federal Rules of Civil Procedure and shall be completed
within one year after initiation of the arbitration. Any
arbitration proceeding instituted by a Party under this
Agreement shall be brought in Philadelphia, Pennsylvania.
(ii) Any award rendered by the arbitrator(s) shall be
final and binding upon the Parties hereto. Such award shall
be issued by the arbitrators no later than two years after
initiation of arbitration. Judgment upon the award may be
entered in any court of record of competent jurisdiction.
Each party shall pay its own expenses of
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Confidential Treatment Requested
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
arbitration and the expenses of the arbitrator(s) shall be
equally shared unless the arbitrator(s) assesses as part of
his, her or their award all or any part of the arbitration
expenses of one Party (including reasonable attorney's fees)
against the other Party. Punitive damages shall not be
awarded to either party.
(iii) Centocor and CBSI irrevocably and
unconditionally consent to the jurisdiction of any such
proceeding and waives any objection that it may have to
personal jurisdiction or the laying of venue of any such
proceeding.
29.3 Notices. Any notice or other communication hereunder shall be in
-------
writing and shall be deemed given when so delivered in person, by
facsimile, by overnight courier (with receipt confirmed) or, if
given by mail, upon receipt, as follows (or to such other persons
and/or addresses as may be specified in writing to the other
Party hereto);
If to Centocor, to: Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Attn: Corporate Secretary
Facsimile: 610-651-6331
With a copy to: Vice President, Worldwide Operations
If to CBSI, to: CBSI Covance Biotechnology Services Inc.
6051 George Watts Hill Drive
P.O. Box 13865
Research Triangle Park, NC 27709-3865
Attn: President
Facsimile: 919-468-7019
With a copy to: Senior Vice President, Commercial
Development
29.4 Entire Agreement and Modification. This Agreement together with
---------------------------------
the Exhibits hereto, constitutes the entire Agreement between the
Parties hereto and supersedes any previous agreements or
understandings whether oral or written. In the event of a
conflict between this Agreement and any of the Exhibits hereto,
the provisions of this Agreement shall be valid and binding on
each Party.
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Confidential Treatment Requested
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
29.5 Invalid Clauses. If a judicial determination is made that any of
---------------
the provisions contained in this Agreement constitute an
unreasonable restriction against any Party or are otherwise
unenforceable, such provision or provisions shall be rendered
void or invalid only to the extent such judicial determination
finds such provision or provisions to be unreasonable or
otherwise unenforceable, and the remainder of this Agreement
shall remain operative and in full force and effect.
29.6 Headings. The headings, contained in this Agreement are inserted
--------
for convenience only and shall not be construed to limit or
otherwise modify its provisions.
29.7 Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to its choice of law principles.
29.8 Continuing Liability. Expiration or termination of this Agreement
--------------------
for any reason shall not release either Party from any liability,
obligation or agreement which has already accrued nor affect the
survival of any provision hereof which is expressly stated to
survive such termination. Termination of this Agreement for any
reason shall not constitute a waiver or release of, or otherwise
be deemed to prejudice or adversely affect any right, remedies or
claims, whether for damages or otherwise, which a Party may have
hereunder or which may arise out of or in connection with such
termination.
29.9 Survival. Notwithstanding any such termination, the obligations
--------
of the Parties in Sections 12.3, 13.6, 18, 20, 21, 23, 25.4,
25.5, 25.6, 25.7 and 29 of this Agreement and the Quality
Requirements shall survive termination of this Agreement.
29.10 Language. This Agreement is in the English language, which
--------
language shall be controlling in all respects, and all versions
hereof in any other language shall be for accommodation only and
shall not be binding upon the parties hereto. All communications
and notices to be made or given pursuant to this Agreement shall
be in the English language.
29.11 Publicity. Except as otherwise provided in Section 21, neither
---------
Party shall disclose this Agreement or any of the terms thereof
to any third party except a Party's independent auditors and
counsel, whether in writing or orally, without the prior written
consent of the other Party. Either Party may make disclosure if
but only to the extent such disclosure is, on advice of counsel,
required by
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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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
applicable law. The disclosing Party shall use all commercially
reasonable efforts to preserve the confidentiality of this
Agreement and the terms thereof notwithstanding any such required
disclosure, and will give the other Party written notice of such
required disclosure as reasonably far in advance thereof as is
practical. In the event either Party is required to file this
Agreement with the Securities and Exchange Commission or any
other regulatory agency, such Party shall apply for confidential
treatment of this Agreement to the fullest extent permitted by
law, shall provide the other Party a copy of the confidential
treatment request far enough in advance of its filing to give the
other Party a meaningful opportunity to comment thereon, and
shall incorporate in such confidential treatment request any
reasonable comments of the other Party. Notwithstanding the
foregoing, Centocor may disclose the terms of this Agreement to
the Trustee.
29.12 Remedies Not Exclusive. The rights and remedies contained in
----------------------
this Agreement are cumulative and are not intended to waive or
preclude any other claims, rights or remedies which may exist at
law (whether statutory or otherwise) or in equity with respect to
the matters covered hereby.
IN WITNESS WHEREOF, and intending to be bound hereby, Centocor and CBSI have
- ------------------
caused this Agreement to be executed.
CENTOCOR, INC. COVANCE BIOTECHNOLOGY
SERVICES, INC.
MPR /s/ Joseph C. Scodari /s/ V. Bryan Lawlis, Ph.D.
- ------------------------- --------------------------
Joseph C. Scodari V. Bryan Lawlis, Ph.D.
President and Chairman XXXXXX
Chief Operating Officer Covance Biotechnology Services, Inc.
Centocor, Inc.
Date: 1/14/99 Date: 1/15/99
---------------- ------------------
44
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Exhibit A: XXXXXX
- ---------
Exhibit B: Quality Requirements for the Manufacture and Supply of Retavase(TM)
- --------- Drug Substance, including six (6) Attachments for the Drug
Substance:
Attachment 1: XXXXXX
Attachment 2: XXXXXX
Attachment 3: Authorized Representatives of the Parties
Attachment 4: XXXXXX
Attachment 5: XXXXXX
Attachment 6: XXXXXX
Exhibit C: XXXXXX
- ---------
Exhibit D: XXXXXX
- ---------
Exhibit E: XXXXXX
- ---------
Exhibit F: XXXXXX
- ---------
45
Confidential Treatment Requested
<PAGE>
Exhibit A
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 2 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 3 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 4 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 5 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 6 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 7 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 8 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 9 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 10 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 11 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 12 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 13 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 14 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 15 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 16 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 17 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 18 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 19 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 20 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 21 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 22 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 23 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 24 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 25 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
PAGE 26 OF 26
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Exhibit B
Quality Requirements for the Manufacture
and Supply of Retavase/TM/ Drug Substance
1. Definitions
Unless otherwise defined herein, all definitions used within these Quality
Requirements have the same meaning as defined in the Development and
Manufacturing Services Agreement between Centocor and CBSI dated as of December
31, 1998 (the "Agreement").
These Quality Requirements for the Manufacture and Supply of Drug Substance
XXXXXX are an integral and enforceable part of the Agreement. They specify the
quality requirements and responsibilities required for the successful and
acceptable Manufacture of the Drug Substance.
2. Manufacturing standards
2.1 Product definition.
Drug Substance will be Manufactured and tested in accordance with the
manufacturing Batch Records and test methods which will be generated by
CBSI and approved by Centocor.
2.2 Supply of Active Ingredient.
Centocor will provide CBSI with the Materials and Equipment stated in
Section 3 of the Agreement. CBSI will supply all other Materials for the
Manufacture of Drug Substance including, but not limited to, those items
designated in XXXXXX CBSI will only use Materials which have been released
by its QA department. CBSL will take samples of all materials and store
such samples for a minimum of two years after the date the sample was
taken, or for a longer period, as reasonably requested by Centocor.
2.3 Batch numbering.
CBSI will assign batch numbers for the Drug Substance upon completion of
and prior to delivery to Centocor in accordance with SOPs.
/s/ MPR JCS /s/ VBL
------------- ---------
JCS VBL
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
2.4 Processing responsibilities.
CBSI will Manufacture and inspect the Drug Substance in strict accordance
with cGMP, as set forth in 21 CER 211, as amended and updated from time to
time, as well as the HPB Guide to GMP, and all other appropriate Regulatory
Requirements.
2.5 Reprocessing.
CBSI shall not reprocess a Batch without the prior written consent of an
Authorized Representative of Centocor. Reprocess shall mean introducing an
intermediate or active pharmaceutical ingredient that does not conform to
established standards of specifications back into the process repeating a
step that it part of the Validated Manufacturing process. The Authorized
Representatives for Centocor and CBSI are listed in Attachment 3, which
------------
Attachment is incorporated herein by reference. Changes in the Authorized
Representatives may be made by each Party with prior written notice to the
other Party. CBSI shall not rework a Batch under any circumstances.
2.6 XXXXX
3. Testing
3.1 General Testing.
The Drug Substance will be tested by CBSI in accordance with the Validated
and cross Validated test methods which will be written by CBSI and approved
by Centocor Quality Product Development and Operation representatives in
accordance with the provisions in Attachment 2.
------------
3.2 Provision of Samples to Centocor.
In the event that Centocor requests samples of the Drug Substance and/or
supplies of in-process materials for testing and/or storage, they will be
shipped by CBSI to Centocor under the shipping conditions specified in the
SOP for shipping the Drug Substance.
3.3 Expiry dating.
CBSI will issue the expiration date for the Drug Substance based upon its
currently approved shelf life. The expiry date will be printed in the
format MMMYY for each batch of Product, e.g., Mar 99. The approved
abbreviations are:
2
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
JAN = January; FEB = February; MAR = March;
APR = April; MAY = May; JUN = June;
JUL = July; AUG = August; SEP = September;
OCT = October; NOV = November; DEC = December.
3.4 Packaging Specification
Labeling and packaging of Drug Substance will comply with the Batch Record,
SOPs and as provided in Section 5.5 of the Agreement.
4. Quality Responsibilities
4.1 Process deviations.
Any major unplanned deviations in Manufacture learned by CBSI after
occurrence at the CBSI facilities shall be reported to Centocor's
Authorized Quality Representative immediately. This includes non-conforming
test results. CBSI will provide Centocor's Authorized Quality
Representative a copy of all major deviations immediately via facsimile.
Centocor will make every reasonable effort to review a temporary change
request or quality deviation within five working days, either giving
approval or disapproval to proceed to CBSI or requesting additional
information. Centocor QA will review all deviations as part of the release
process. The resolutions of the deviations must be approved by Centocor's
Authorized Quality Representatives.
4.2 Changes to the Manufacturing Process
CBSI will not make any material changes relating to the Drug Substance
without obtaining the Centocor Quality and Operations Representatives'
prior written approval. A material change is defined as any change that a)
impacts the regulatory commitments for the Drug Product; b) may require
revalidation; c) may affect the quality, purity, identity or strength of
the Drug Product; d) would result in changing or modifying Centocor's or
CBSI's Specifications, test methods, SOPs or Batch worksheet relating to
the Drug Substance and/or (e) that is otherwise listed in Section 11 of the
Agreement. Centocor will have access to all documentation upon request.
4.3 Changes to Quality Requirements
These Quality Requirements or any part of them may be changed by the signed
and dated written agreement of the Parties, such Parties to include from
Centocor the Centocor Authorized Quality Representatives and the Authorized
Operations Representatives.
4.4 Quality Review
CBSI will provide Centocor's Authorized Quality Representative with a
written annual summary of the Manufacture of the Drug Substance in a format
acceptable to Centocor to assess compliance with Specifications at end of
shelf life.
3
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
4.5 Documentation
4.5.1 Transmission of documentation.
CBSI will send the appropriate Batch documentation and a certificate of
analysis for the Batch to the Centocor Authorized Quality Representative
for review within five business days after CBSI approval of the
Manufacture of the Batch. The documentation will include the data from
the sterility test, Quality Control testing, Batch Records and all
relevant deviations or investigations as applicable.
4.5.2 Statement of release.
Upon release of a Batch, the Centocor Authorized Quality Representative
will provide CBSI with a Release statement.
4.5.3 Retention of records.
Records relating to Manufacture shall be maintained by CBSI in accordance
with Section 12.3 of the Agreement.
4.5.4 Approval of CBSI documentation.
CBSI will provide its own SOPs, manufacturing and testing documentation
which will be approved by Centocor's Authorized Quality and Operation
Representatives before use by CBSI in the Manufacture. All CBSI SOPs
relating to the Manufacture of Drug Substance will be made available to
Centocor for inspection and copying upon request by Centocor.
4.6 Access by Centocor Representative
Upon Centocor's request, CBSI will permit Centocor to have one or more
representatives present in the Facility to observe Manufacture of Drug
Substance in accordance with Section 12 of the Agreement.
4.7 Performance of Quality Audits.
CBSI will also permit Centocor's Authorized Quality Representatives to
enter CBSI's Facility upon reasonable notice and at reasonable intervals
during regular business hours for the purpose of performing quality
audits of the facilities used in the Manufacture, storage, analysis and
shipping of the Drug Substance, in accordance with and as otherwise
provided in Section 12 of the Agreement.
5. Shipping and Transport of Product.
CBSI will pack Drug Substance according to Centocor's approved
Specifications and SOPs and label the shipping container with Drug
Substance name, lot number, container number, manufacturing date and
expiration date. CBSI will ship Drug Substance according to procedures
that are approved by Authorized Quality and Operation Representatives of
Centocor. Shipping must be arranged so that delivery occurs during normal
working hours on Monday, Tuesday, Wednesday or Thursday,
4
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
unless previously agreed to in writing by an authorized representative of
Centocor's Worldwide Operations Group. Shipping will be by road in a
dedicated refrigerated truck when the destination is within the United
States of America. To other destinations, shipping will be by air and in
approved packaging. XXXXXX
6. Regulatory Inspections
6.1 Notification of regulatory inspections.
CBSI will notify Centocor and Centocor will notify CBSI immediately of
any regulatory inspections that involve Drug Substance. Both Parties will
notify each other of any issues that affect regulatory approval, filings,
or continued supply of Drug Substance. If desired by Centocor, an
Authorized Quality Representative may attend any regulatory inspection
that applies to Drug Substance.
6.2 Review of regulatory findings.
CBSI agrees that Centocor may review and approve on all regulatory
filings or communications between CBSI and a regulatory agency that
directly affect Centocor's Drug Substance or Drug Product Registration.
6.3 Regulatory Agency access to Facility.
CBSI will allow access to its Facility to a regulatory agency in
accordance with Section 13 of the Agreement.
7. Term and Termination
These Quality Requirements shall begin on the Effective Date of the
Agreement and will remain in force throughout the duration of the
Agreement. If the Agreement is terminated for any reason, those articles
required by cGMP will remain in force for the time stipulated, unless
otherwise agreed in writing between the Authorized Quality
Representatives.
8. Communication
All communication affecting the Quality Requirements shall be between the
Authorized Quality Representatives, except as otherwise stated in the
Agreement.
5
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
9. Conflict Resolution
Any disputes or conflicts relating to these Quality Requirements will be
resolved by CBSI and Centocor Authorized Quality Representatives in a
timely and equitable manner and in compliance with all applicable
Regulatory Requirements and in accordance with cGMP. Such resolutions
shall be in writing and will be signed by a CBSI and Centocor Authorized
Representatives. If any issue remains unresolved for more than 30 days,
the senior corporate representatives from each Party will meet to resolve
the issue. If resolution remains unattainable for an additional 30 days,
then the issue will be resolved in accordance with Section 29.2 of the
Agreement.
6
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
7
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Attachment 2
Method of Manufacture for Drug Substance
Drug Substance will be Manufactured according to Batch records written by CBSI
and approved by Centocor. Other Production documents required for Manufacture
include but are not limited to those set forth in XXXXXX
8
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Attachment 3
Authorized Representatives of the Parties
The following represents the list of people allowed to approve changes to these
Quality Requirements ("Authorized Representatives"). Any change must be signed
by at least one Centocor Authorized Quality Representative and one Centocor
Authorized Operation Representative.
CENTOCOR
- --------
Centocor Quality Representatives
- --------------------------------
XXXXXX
XXXXXX
XXXXXX
Centocor Authorized Representatives
- -----------------------------------
XXXXXX
XXXXXX
XXXXXX
Centocor Operations Representatives
- -----------------------------------
XXXXXX
XXXXXX
XXXXXX
XXXXXX
XXXXXX
XXXXXX
9
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
CBSI
- ----
CBSI Quality Representatives
- ----------------------------
XXXXXX
XXXXXX
CBSI Authorized Representatives
- -------------------------------
XXXXXX
XXXXXX
CBSI Operation Representatives
- ------------------------------
XXXXXX
XXXXXX
XXXXXX
XXXXXX
XXXXXX
XXXXXX
10
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
11
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
12
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
***CONFIDENTIAL ***
XXXXXX
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
***CONFIDENTIAL ***
XXXXXX
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
***CONFIDENTIAL***
XXXXXX
[signature]
---------------
Signature
***FOR INFORMATIONAL USE ONLY***
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Attachment 6
Storage Conditions for Drug Substance
According to approved Centocor procedures.
13
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
/s/ MPR - JCS /s/ VBL
---- ----
JCS VBL
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 (XXXX); AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
XXXXXX
/s/ MPR - JCS /s/ VBL
---- ----
JCS VBL
Confidential Treatment Requested
<PAGE>
EXHIBIT 10.2(A)
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May , 1999, is made by and between Centocor,
Inc. a Pennsylvania corporation (the "Company"), and _________ (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of poten-
<PAGE>
tially disturbing circumstances arising from the possibility of a Change in
Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2
-----------------
hereof, the Term of this Agreement shall commence on the date hereof and shall
continue in effect through December 31, 2000; provided, however, that commencing
-------- -------
on January 1, 2000 and each January 1 thereafter, the Term shall automatically
be extended for one additional year unless, not later than September 30 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
------- -------- -------
shall have occurred during the Term, the Term shall expire no ear-
2
<PAGE>
lier than twenty-four (24) months beyond the month in which such Change in
Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
3
<PAGE>
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is twelve (12) months from the
date of such Potential Change in Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment for
Good Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason. The
Executive further agrees that if the Executive's employment is terminated
following a Change in Control and during the Term, other than (A) by the Company
for Cause, (B) by reason of death or Disability, or (C) by the Executive without
Good Reason, then for a period of 12 months following the Date of Termination
the Executive will make himself available to the Company for consultation with
senior executive officers of the Company or the Board; provided, however, that
(i) the Executive shall
4
<PAGE>
not be required to perform such consulting services (x) for more than four (4)
days in any month and (y) for more than twenty (20) hours in any calendar month,
(ii) such consulting services will be required at such time and such places as
will result in the least inconvenience to the Executive, taking into
consideration Executive's other business commitments during such period which
may obligate Executive to honor such other commitments prior to his rendering
services hereunder, (iii) such consulting services shall be rendered by personal
consultation at Executive's principal residence or office, wherever maintained,
or by correspondence through mail, telephone or facsimile or other similar modes
of communication at times, including weekends and evenings, most convenient to
Executive and (iv) if during such period the Executive should engage in full-
time employment, the Executive shall not be required to consult at times that
will conflict with his responsibilities with respect to such employment. The
Company will pay or promptly reimburse the Executive for reasonable expenses
actually incurred
5
<PAGE>
by the Executive in connection with such consulting services.
5. Compensation Other Than Severance Payments.
------------------------------------------
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement (other than the Company's short- or long-
term disability plan, as applicable) maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of
6
<PAGE>
Termination at the rate in effect immediately prior to the Date of Termination
or, if higher, the rate in effect immediately prior to the first occurrence of
an event or circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect
7
<PAGE>
immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the occurrence of the first event
or circumstance constituting Good Reason.
6. Severance Payments.
------------------
6.1 Subject to Section 6.2 hereof, if the Executive's employment is
terminated following a Change in Control and during the Term, other than (A) by
the Company for Cause, (B) by reason of death or Disability, or (C) by the
Executive without Good Reason, then the Company shall pay the Executive the
amounts, and provide the Executive the benefits, described in this Section 6.1
("Severance Payments") and Section 6.2, in addition to any payments and benefits
to which the Executive is entitled under Section 5 hereof. For purposes of this
Agreement, the Executive's employment shall be deemed to have been terminated
following a Change in Control by the Company without Cause or by the Executive
with Good Reason, if (i) the Executive's employment is terminated by the Company
without Cause prior to a Change in Control
8
<PAGE>
(whether or not a Change in Control ever occurs) and such termination was at the
request or direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in Control, (ii) the
Executive terminates his employment for Good Reason prior to a Change in Control
(whether or not a Change in Control ever occurs) and the circumstance or event
which constitutes Good Reason occurs at the request or direction of such Person,
or (iii) the Executive's employment is terminated by the Company without Cause
or by the Executive for Good Reason and such termination or the circumstance or
event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever
occurs). For purposes of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to the Board by clear and
convincing evidence that such position is not correct.
9
<PAGE>
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to three times the
sum of (i) the Executive's base salary as in effect immediately prior to
the Date of Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason, and
(ii) the greatest of (w) the Executive's target bonus under any annual
bonus or incentive plan maintained by the Company as in effect immediately
prior to the Change in Control in respect of the fiscal year in which the
Change in Control occurs (x) the Executive's target bonus under such plan
in respect of the fiscal year ending immediately prior to the fiscal year
in which occurs the Date of Termination, (y) the Executive's target bonus
under such plan in respect of the fiscal year
10
<PAGE>
immediately prior to the fiscal year in which occurs the first event or
circumstance constituting Good Reason and (z) the average annual bonus
earned by the Executive pursuant to such plan in respect of the three
fiscal years (or such shorter period during which the Executive was
employed by the Company) ending immediately prior to the fiscal year in
which occurs the Date of Termination or, if higher, immediately prior to
the fiscal year in which occurs the first event or circumstance
constituting Good Reason.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the Executive
and his dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immedi-
11
<PAGE>
ately prior to the first occurrence of an event or circumstance
constituting Good Reason, at no greater cost to the Executive than the cost
to the Executive immediately prior to such date or occurrence; provided,
--------
however, that, unless the Executive consents to a different method (after
-------
taking into account the effect of such method on the calculation of
"parachute payments" pursuant to Section 6.2 hereof), such health insurance
benefits shall be provided through a third-party insurer. Benefits
otherwise receivable by the Executive pursuant to this Section 6.1(B) shall
be reduced to the extent benefits of the same type are received by or made
available to the Executive during the thirty-six (36) month period
following the Executive's termination of employment (and any such benefits
received by or made available to the Executive shall be reported to the
Company by the Executive); provided, however, that the Company shall
-------- -------
reimburse the Executive for the excess, if any, of the cost of such
benefits to
12
<PAGE>
the Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason. If the Severance Payments shall be
decreased pursuant to Section 6.2 hereof, and the Section 6.1(B) benefits
which remain payable after the application of Section 6.2 hereof are
thereafter reduced pursuant to the immediately preceding sentence, the
Company shall, no later than five (5) business days following such
reduction, pay to the Executive the least of (a) the amount of the decrease
made in the Severance Payments pursuant to Section 6.2 hereof, (b) the
amount of the subsequent reduction in these Section 6.1(B) benefits, or (c)
the maximum amount which can be paid to the Executive without being, or
causing any other payment to be, nondeductible by reason of section 280G of
the Code.
(C) Notwithstanding any provision of any annual or long-term
incentive plan to the con-
13
<PAGE>
trary, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the sum of (i) any unpaid incentive compensation which has been
allocated or awarded to the Executive for a completed fiscal year or other
measuring period preceding the Date of Termination under any such plan and
which, as of the Date of Termination, is contingent only upon the continued
employment of the Executive to a subsequent date, and (ii) a pro rata
portion to the Date of Termination of the aggregate value of all contingent
incentive compensation awards to the Executive for all then uncompleted
periods under any such plan, calculated as to each such award by
multiplying the award that the Executive would have earned on the last day
of the performance award period, assuming the achievement, at the target
level, of the individual and corporate performance goals established with
respect to such award, by the fraction obtained by dividing the number of
full months and any fractional portion of a month during
14
<PAGE>
such performance award period through the Date of Termination by the
total number of months contained in such performance award period.
(D) In addition to the benefits to which the Executive is
entitled under the Pension Plan, the Company shall pay the Executive a lump
sum amount, in cash, equal to the sum of (i) the amount that would have
been contributed thereto by the Company on the Executive's behalf during
the three years immediately following the Date of Termination, determined
(x) as if the Executive made the maximum permissible contributions thereto
during such period, (y) as if the Executive earned compensation during such
period at a rate equal to the Executive's compensation (as defined in the
Pension Plan) during the twelve (12) months immediately preceding the Date
of Termination or, if higher, during the twelve months immediately prior to
the first occurrence of an event or circumstance constituting Good Reason,
and (z) without regard to any amendment to
15
<PAGE>
the Pension Plan made subsequent to a Change in Control and on or prior to
the Date of Termination, which amendment adversely affects in any manner
the computation of benefits thereunder, and (ii) the excess, if any, of (x)
the Executive's account balance under the Pension Plan as of the Date of
Termination over (y) the portion of such account balance that is
nonforfeitable under the terms of the Pension Plan.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any payment or benefit received or to be received by
the Executive in connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Company, any Person
whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, excluding the
Gross-Up Payment, being hereinafter
16
<PAGE>
called "Total Payments") will be subject (in whole or part) to the Excise
Tax, then, subject to the provisions of subsection (B) of this Section 6.2,
the Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state
and local income and employment taxes and Excise Tax upon the Gross-Up
Payment, shall be equal to the Total Payments. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation
in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which
the Gross-up Payment is calculated for purposes of this Section
17
<PAGE>
6.2), net of the maximum reduction in federal income tax which could be
obtained from deduction of such state and local taxes.
(B) In the event that, after giving effect to any redeterminations
described in subsection (D) of this Section 6.2, a reduction in the Severance
Payments to the largest amount that would result in no portion of the Total
Payments being subject to the Excise Tax (after taking into account any
reduction in the Total Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement) would produce a net amount (after
subtracting the net amount of federal, state and local income and employment
taxes on such reduced Total Payments) that would be greater than or equal to the
net amount of unreduced Total Payments (after deduction of the net amount of
federal, state and local income and employment taxes and the amount of Excise
Tax to which the Executive would be subject in respect of such unreduced Total
Payments), then subsection (A) of this Section 6.2 shall not apply and the cash
18
<PAGE>
Severance Payments shall first be reduced (if necessary, to zero), and the
noncash Severance Benefits shall thereafter be reduced (if necessary, to zero);
provided, however, that the Executive may elect to have the noncash Severance
- -------- -------
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments.
(C) For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as "parachute payments" within the meaning of
section 280G(b)(2) of the Code, unless in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the accounting
firm which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such other payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall be treated as subject to the
19
<PAGE>
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the
payment date set forth in Section 6.3 hereof, the Company shall provide the
Executive with its calculation of the amounts referred to in this Section 6.2(C)
and such supporting materials as are reasonably necessary for the Executive to
evaluate the Company's calculations. If the Executive disputes the Company's
calculations (in whole or in part), the reasonable opinion of Tax Counsel with
respect to the matter in dispute shall prevail.
(D) In the event that (i) amounts are paid to the Executive pursuant
to subsection (A) of this Section
20
<PAGE>
6.2, (ii) the Excise Tax is finally determined to be less than the amount taken
into account hereunder in calculating the Gross-Up Payment, and (iii) after
giving effect to such redetermination, the Severance Payments are to be reduced
pursuant to subsection (B) of this Section 6.2, the Executive shall repay to the
Company, within five (5) business days following the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive),
to the extent that such repayment results in (i) no portion of the Total
Payments being subject to the Excise Tax and (ii) a dollar-for-dollar reduction
in the Executive's taxable income and wages for purposes of federal, state and
local income and employment taxes) plus interest on the amount of such repayment
at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event
that (x) the
21
<PAGE>
Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment) and (y) after giving effect to
such redetermination, the Severance Payments should not have been reduced
pursuant to subsection (B) of this Section 6.2, the Company shall make an
additional Gross-Up Payment in respect of such excess and in respect of any
portion of the Excise Tax with respect to which the Company had not previously
made a Gross-Up Payment (plus any interest, penalties or additions payable by
the Executive with respect to such excess and such portion) within five (5)
business days following the time that the amount of such excess is finally
determined.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination (or if there is no Date of
22
<PAGE>
Termination, then the date on which the Gross-up Payment is calculated for
purposes of Section 6.2 hereof); provided, however, that if the amounts of such
-------- -------
payments, and the limitation on such payments set forth in Section 6.2 hereof,
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Executive
or, in the case of payments under Section 6.2 hereof, in accordance with Section
6.2 hereof, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest on the unpaid remainder (or on all such payments to the extent the
Company fails to make such payments when due) at 120% of the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess shall constitute a
loan by the Company
23
<PAGE>
to the Executive, payable on the fifth (5th) business day after demand by the
Company (together with interest at 120% of the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations including, without limitation, any opinions or other
advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the
24
<PAGE>
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's written requests
for payment accompanied with such evidence of fees and expenses incurred as the
Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a
25
<PAGE>
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment
26
<PAGE>
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than fifteen
(15) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with
27
<PAGE>
respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that the Date of Termination shall be
-------- -------
extended by a notice of dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due
28
<PAGE>
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
29
<PAGE>
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts
30
<PAGE>
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
31
<PAGE>
To the Company:
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Attention: Secretary
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
- -------- -------
forth the terms and
32
<PAGE>
conditions of the Executive's employment with the Company only in the event that
the Executive's employment with the Company is terminated on or following a
Change in Control, by the Company other than for Cause or by the Executive other
than for Good Reason. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania. All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the Executive
under this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
33
<PAGE>
12. Validity; Pooling.
-----------------
12.1 Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.2 Pooling. In the event that the Company is party to a
-------
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment then (A) this Agreement shall, to the extent practicable,
be interpreted so as to permit such accounting treatment, and (B) to the extent
that the application of clause (A) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), the Board shall be
entitled to cause such provision to be null and void as of the date hereof. All
determinations under this Section 12.2 shall be made by the accounting firm
whose opinion with
34
<PAGE>
respect to "pooling of interests" is required as a condition to the consummation
of such transaction.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
-----------------------------------
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of the
decision denying a claim and shall further allow the Executive to appeal to the
Board a decision of the Board within sixty (60) days after notification by the
Board that the Executive's claim has been denied.
35
<PAGE>
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Philadelphia, Pennsylvania, in accordance with the rules of the American
Arbitration Association then in effect; provided, however, that the evidentiary
-------- -------
standards set forth in this Agreement shall apply. Judgment may be entered on
the arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
36
<PAGE>
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof)
that has not been cured within 30 days after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which
37
<PAGE>
the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive in conduct
which is demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of
this definition, (x) no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in the event of a dispute
concerning the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board by
clear and convincing evidence that Cause exists.
(G) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of
38
<PAGE>
securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly
from the Company or its affiliates) representing 50% or more of the
combined voting power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in connection
with a transaction described in clause (i) of paragraph (III) below;
or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board
or nomination for elec-
39
<PAGE>
tion by the Company's shareholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so
approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of
40
<PAGE>
the Company or any subsidiary of the Company, at least 55% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including in
the securities Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates) representing 50%
or more of the combined voting power of the Company's then outstanding
securities; or
(IV) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition
41
<PAGE>
by the Company of all or substantially all of the Company's assets, other
than a sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 55% of the combined voting
power of the voting securities of which are owned by shareholders of the
Company in substantially the same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
42
<PAGE>
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Company" shall mean Centocor, Inc. and, except in determining
under Section 15(G) hereof whether or not any Change in Control of the Company
has occurred, shall include any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(K) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termi-
43
<PAGE>
nation is given, the Executive shall not have returned to the full-time
performance of the Executive's duties.
(L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(M) "Excise Tax" shall mean any excise tax imposed under section 4999
of the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (I), (V), (VI) or
44
<PAGE>
(VII) below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company
and all senior executives of any Person in control of the Company;
45
<PAGE>
(III) the relocation of the Executive's principal place of
employment to a location more than 30 miles from the Executive's
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive to be based anywhere
other than such principal place of employment (or permitted relocation
thereof) except for required travel on the Company's business to an
extent substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the Executive
any portion of the Executive's current compensation except pursuant to
an across-the-board compensation deferral similarly affecting all
senior executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive any
46
<PAGE>
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of the date
such compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount and
timing of payment of benefits provided and the level of the
Executive's participation relative to other participants,
47
<PAGE>
as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to
48
<PAGE>
provide the Executive with the number of paid vacation days to which
the Executive is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof; for purposes of
this Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
49
<PAGE>
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(P) "Gross-Up Payment" shall have the meaning set forth in Section
6.2 hereof.
(Q) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(R) "Pension Plan" shall mean the Centocor Savings and Retirement
Plan or any successor plan thereto.
(S) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering
50
<PAGE>
of such securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(T) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
either the then outstanding shares of common stock of the Company or
the combined
51
<PAGE>
voting power of the Company's then outstanding securities (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(U) "Retirement" shall be deemed the reason for the termination by
the Executive of the Executive's employment if such employment is terminated in
accordance with the Company's retirement policy, including early retirement,
generally applicable to its salaried employees.
(V) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(W) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
52
<PAGE>
(X) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described therein).
(Y) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
53
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CENTOCOR, INC.
By:____________________________
Name: David P. Holveck
Title: Chief Executive
Officer
_______________________________
Address:
54
<PAGE>
Exhibit 10.2(B)
Schedule of Named Executive Officers and Executive Officers who are Parties to a
- --------------------------------------------------------------------------------
Severance Agreement
- -------------------
Hubert J.P Schoemaker Chairman of the Board
David P. Holveck Chief Executive Officer
Joseph C. Scodari President and Chief Operating Officer
Dominic J. Caruso Senior Vice President and Chief
Financial Officer
Christopher C. Hentschel Senior Vice President and Chief
Scientific Officer
Martin R. Page Senior Vice President - Worldwide
Regulatory Affairs and Quality Assurance
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTOCOR,
INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 60,780
<SECURITIES> 131,197
<RECEIVABLES> 67,637
<ALLOWANCES> 0
<INVENTORY> 45,934
<CURRENT-ASSETS> 314,414
<PP&E> 273,644
<DEPRECIATION> 87,862
<TOTAL-ASSETS> 1,065,245
<CURRENT-LIABILITIES> 108,459
<BONDS> 460,000
0
0
<COMMON> 709
<OTHER-SE> 491,572
<TOTAL-LIABILITY-AND-EQUITY> 1,065,245
<SALES> 100,497
<TOTAL-REVENUES> 100,747
<CGS> 32,364
<TOTAL-COSTS> 32,364
<OTHER-EXPENSES> 55,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,327
<INCOME-PRETAX> 16,807
<INCOME-TAX> 6,723
<INCOME-CONTINUING> 10,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,084
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
