SECURITIES AND EXCHANGE COMMISSION Total Pages- 19
WASHINGTON, D.C. 20549 Exhibit Index- 19
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 JUNE 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-12042
BIOGEN, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3002117
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 Cambridge Center, Cambridge, MA 02142
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 679-2000
Former name, former address and former fiscal year, if changed since
last report: Not Applicable
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
Number of shares outstanding of each of the issuer's classes of common stock, as
of August 12, 1998:
Common Stock, par value $0.01 73,732,655
(Title of each class) (Number of Shares)
B I O G E N , I N C . Page 2
----------------------
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed Consolidated Statements of Income -
Three months and six months ended June 30, 1998 and 1997 . . 3
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997. . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION 16
* * * * * * * * * * * * * * * * * *
Note concerning trademarks: AVONEX(R) is a registered trademark
of Biogen, Inc.
HIRULOG(R) is a registered trademark
of The Medicines Company.
Page 3
<TABLE>
BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ------------------
1998 1997 1998 1997
---------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES
Product sales . . . . . . . . $ 87,073 $56,440 $163,173 $109,056
Royalties . . . . . . . . . . 41,739 36,007 80,111 78,222
Interest . . . . . . . . . . 6,963 5,206 13,931 10,113
------- ------ ------- -------
Total revenues . . . . . . 135,775 97,653 257,215 197,391
======= ====== ======= =======
EXPENSES
Cost of sales. . . . . . . . . 17,171 11,444 32,044 23,188
Research and development . . . 42,135 32,014 79,255 69,922
Selling, general and
administrative . . . . . . 28,481 20,960 54,484 42,124
Other, net . . . . . . . . . 724 (190) 770 144
------ ------ ------ -------
Total expenses . . . . . . . . . 88,511 64,228 166,553 135,378
------- ------ ------- -------
INCOME BEFORE INCOME TAXES . . . 47,264 33,425 90,662 62,013
Income taxes . . . . . . . . . . 15,815 13,477 31,442 25,055
------- ------ ------ -------
NET INCOME . . . . . . . . . . . $ 31,449 $19,948 $ 59,220 $ 36,958
====== ====== ======= =======
BASIC EARNINGS PER SHARE . . . . $ 0.43 $ 0.27 $ 0.80 $ 0.50
====== ====== ====== ======
DILUTED EARNINGS PER SHARE . . . $ 0.41 $ 0.26 $ 0.77 $ 0.48
====== ====== ====== ======
SHARES USED IN CALCULATING:
BASIC EARNINGS PER SHARE . . . 73,772 73,887 73,854 73,578
====== ====== ====== ======
DILUTED EARNINGS PER SHARE . . 76,764 76,248 76,809 76,546
====== ====== ====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
Page 4
BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
June 30,1998 Dec.31,1997
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents. . . . . . . . . $ 71,839 $ 70,358
Marketable securities. . . . . . . . . . . 388,775 369,730
Accounts receivable, net . . . . . . . . 85,623 86,802
Deferred tax asset . . . . . . . . . . . . 25,306 37,203
Other current assets . . . . . . . . . . . 40,782 31,973
------- -------
Total current assets . . . . . . . . . . . 612,325 596,066
------- -------
Property, plant and equipment
Cost . . . . . . . . . . . . . . . . . . . 254,053 240,513
Less accumulated depreciation . . . . . . 76,274 66,021
------- -------
Property, plant and equipment, net . . . . 177,779 174,492
------- -------
Other assets
Patents, net . . . . . . . . . . . . . . . 16,105 14,935
Marketable securities. . . . . . . . . . . 19,652 17,095
Other . . . . . . . . . . . . . . . . . . 7,710 11,237
------- -------
Total other assets. . . . . . . . . . . . 43,467 43,267
------- -------
$833,571 $813,825
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . $ 17,842 $ 15,820
Note payable . . . . . . . . . . . . . . . 14,559 24,817
Current portion of long-term debt. . . . . 4,888 4,888
Accrued expenses and other . . . . . . . . 68,287 78,358
------- -------
Total current liabilities. . . . . . . . . 105,576 123,883
------- -------
Long-term debt, less current portion 59,401 61,846
Other long term liabilities . . . . . . . . . 15,798 15,132
Put options . . . . . . . . . . . . . . . . . 33,335 76,671
Commitments and contingencies . . . . . . . .
Shareholders' equity
Common stock . . . . . . . . . . . . . . . 741 741
Additional paid in capital . . . . . . . . 511,460 516,880
Retained earnings . . . . . . . . . . . . . 127,875 25,327
Unrealized loss on
marketable securities . . . . . . . . . . (6,937) (2,233)
Cumulative translation adjustment . . . . . (4) (37)
Treasury stock, at cost . . . . . . . . . . (13,674) (4,385)
------- -------
Total shareholders' equity . . . . . . . . . 619,461 536,293
------- -------
$833,571 $813,825
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 5
<TABLE>
BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1998 1997
-------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . $ 59,220 $ 36,958
Adjustments to reconcile net income
to net cash provided from
operating activities:
Depreciation and amortization . . . . . . 11,630 9,071
Deferred income taxes . . . . . . . . . . 13,208 (318)
Other . . . . . . . . . . . . . . . . . . 23 2,550
Changes in:
Accounts receivable . . . . . . . . . . 1,179 (16,855)
Other current and other assets . . . . . (9,372) (9,590)
Accounts payable, accrued expenses and
other current and long term
liabilities . . . . . . . . . . . . . . (7,383) (3,571)
------- -------
Net cash provided from operating
activities. . . . . . . . . . . . . . . . 68,505 18,245
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities . . . . (350,035) (217,012)
Proceeds from sales and maturities of
marketable securities. . . . . . . . . . 331,810 192,804
Investment in collaborative partners . . . (5,000) (11,000)
Acquisitions of property and equipment . . (13,113) (13,461)
Additions to patents . . . . . . . . . . . (2,974) (3,562)
-------- -------
Net cash used by investing activities. . (39,312) (52,231)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of note payable . . . . . . . . (10,258) -
Proceeds from issuance of long-term debt . - 4,545
Payments of long-term deb . . . . . . . . (2,445) (1,639)
Purchases of treasury stock . . . . . . . (28,800) -
Tax benefit related to stock options . . . 4,723 21,001
Issuance of common stock and option
exercises. . . . . . . . . . . . . . . . 9,068 21,297
-------- -------
Net cash (used by) provided from financing
activities . . . . . . . . . . . . . . . (27,712) 45,204
------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . 1,481 11,218
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD . . . . . . . . . . . . 70,358 62,032
------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD . . . . . . . . . . . . . . $ 71,839 $ 73,250
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 6
BIOGEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows of Biogen, Inc. and its
subsidiaries (the "Company"). The Company's accounting policies are
described in the Notes to Consolidated Financial Statements in the
Company's 1997 Annual Report on Form 10-K. Interim results are not
necessarily indicative of the operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Certain amounts for the six months ended June 30, 1997 have
been reclassified to conform to the current period presentation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 130 "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards Number 131
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). The Company adopted SFAS 130 and SFAS 131 on January 1,
1998. SFAS 130 establishes standards for reporting comprehensive income
and its components in the consolidated financial statements. Comprehensive
income for the three months and six months ended June 30, 1998 was $25.5
million and $54.5 million, respectively. SFAS 131 establishes standards
for reporting information on operating segments in interim and annual
financial statements.
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999 (January 1, 2000 for the Company). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company has not yet determined the impact
that the adoption of SFAS 133 will have on its financial position or
results of operations.
Page 7
Below is a summary of the shares used in calculating basic and diluted
earnings per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------------
1998 1997 1998 1997
--------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Weighted average number
of shares of common
stock outstanding . . . 73,772 73,887 73,854 73,578
Dilutive stock options.. 2,992 2,361 2,955 2,968
------ ------ ------ ------
hares used in
calculating diluted
earnings per share. . . 76,764 76,248 76,809 76,546
====== ====== ====== ======
</TABLE>
2. As of June 30, 1998, the Company had $20.0 million outstanding under a
term loan secured by a laboratory and office building in Cambridge,
Massachusetts. Principal payments of $833,000 are due semi-annually
through 2004 with the balance due on May 8, 2005.
As of June 30, 1998, the Company had $44.3 million outstanding under a
loan agreement with a bank for financing the construction of the Company's
biological manufacturing facility in North Carolina (the AConstruction
Loan@). The Construction Loan is secured by the facility. Payments of
$805,000 are due quarterly through 2006 with the balance due on March 31,
2007.
Terms of the loan agreements include various covenants, including
financial covenants, which require the Company to maintain minimum net
worth, cash flow and various financial ratios.
3. Inventories, which are included in other current assets, are stated at the
lower of cost or market with cost determined under the first-in/first-out
("FIFO") method. Raw materials include inventory used in the production of
pre-clinical and clinical products, which are expensed as research and
development costs when consumed. Inventories, net of applicable reserves
and allowances, at June 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
June 30, 1998 December 31, 1997
------------------ -------------------
<S> <C> <C>
Raw materials $ 3,685 $ 4,957
Work in process 17,743 8,132
Finished goods 8,816 9,870
------ ------
$30,244 $22,959
====== ======
</TABLE>
Page 8
4. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against
Biogen in the United States District Court for the District of New Jersey
alleging infringement by Biogen of Berlex's "McCormick" patent in the United
States in the production of Biogen's AVONEX(R)(Interferon beta-1a). Berlex
seeks a judgment granting it damages, a trebling of any damages awarded and
a permanent injunction restraining Biogen from the alleged infringement. An
unfavorable ruling in the Berlex suit could have a material adverse effect
on the Company's results of operations and financial position. The Company
believes that it has meritorious defenses to the Berlex claim; however, the
ultimate outcome is not determinable at this time. Prior to the date of the
suit filed by Berlex on the McCormick patent, Biogen had filed a suit
against Schering AG ("Schering"), Berlex and the Board of Trustees of the
Leland Stanford Jr. University ("Stanford") in the United States District
Court for the District of Massachusetts for a declaratory judgment of
non-infringement and invalidity of the McCormick patent contending that
AVONEX(R), its manufacturing process and intermediates used in that process
do not infringe the McCormick patent and that such patent is not valid. In
November 1996, the U.S. District Court in Massachusetts ruled that it had
jurisdiction and Berlex's New Jersey action was transferred to Massachusetts
and consolidated for pre-trial purposes with the Massachusetts case. In
February 1997, the U.S. District Court in Massachusetts dismissed Biogen's
declaratory judgment action as to Schering without prejudice if such
dismissal is later shown to result in an injustice to Biogen. Biogen and
Stanford subsequently entered into an agreement voluntarily dismissing
Stanford from the suit. The suit involving Berlex is still pending.
A trial is not expected before the early part of 1999.
In June 1996, ASTA Medica Aktiengesellschaft ("ASTA") filed for
arbitration against Biogen with the International Chamber of Commerce
("ICC") in connection with a dispute with Biogen regarding a License,
Development and Supply Agreement, dated May 30, 1989 (the "1989 Agreement"),
among Biogen, ASTA and Bioferon Biochemische Substanzen GmbH & Co
("Bioferon"). Bioferon was a joint venture between Biogen and Rentschler
Arzneimittel GmbH & Co. of Laupheim, Germany, which entered bankruptcy in
1993. In the proceeding, ASTA had asked for a determination that Biogen
could not terminate the 1989 Agreement as to ASTA solely as a result of
Bioferon's bankruptcy and a further determination that Biogen was
required to supply ASTA with recombinant beta interferon. On March 13,
1998, the ICC arbitration panel ruled that, as between Biogen and ASTA,
the 1989 Agreement was not terminated as a result of the bankruptcy of
Bioferon, but that Biogen was not required to perform Bioferon's
obligations under the 1989 Agreement and, as a result, had no obligation
to supply recombinant beta interferon to ASTA. Under the 1989 Agreement,
ASTA was granted an exclusive license for a number of European countries
to certain intellectual property relating to recombinant beta interferon,
including Biogen's European Fiers patent which has since been revoked by
the European Patent Office. In light of the panel's decision, Biogen
has notified ASTA that it was terminating the 1989 Agreement based on
ASTA's conduct and failure to perform. On March 19, 1998, ASTA notified
Biogen that it deemed Biogen's termination of the 1989 Agreement to be
invalid. On or about May 14, 1998, ASTA filed a complaint against Biogen in
the United States District Court for the District of Massachusetts seeking
enforcement of the arbitration decision, injunctive relief, damages, relief
pursuant to the Massachusetts Consumer Protection Act (Mass. Gen L. ch. 93A)
and other
Page 9
relief arising out of additional tort and contract claims. ASTA alleges
that Biogen's termination of the 1989 Agreement based on ASTA's conduct is
invalid and that ASTA is Biogen's exclusive licensee of recombinant beta
interferon in the territories specified in the 1989 Agreement. To date,
ASTA has not served Biogen with the complaint in this case. If served,
Biogen intends to vigorously defend the lawsuit.
On May 6, 1998, a jury found in favor of the Company and rejected all of
the plaintiff's claims in a class action lawsuit initiated against the
Company in 1994 in the United States District Court for the District of
Massachusetts. The plaintiffs' claims in the lawsuit related to the
Company's 1994 public comments regarding HIRULOG(R) (bivalirudin) direct
thrombin inhibitor.
On or about July 17, 1998, Biogen received a letter demanding relief
pursuant to the Massachusetts Consumer Protection Act (Mass. Gen. L. ch.
93A) on behalf of an alleged class of persons who have filled
prescriptions at pharmacies owned and/or operated by CVS Pharmacy, Inc.
The demand purports to be made in connection with litigation filed against
CVS and others in the Massachusetts Superior Court styled Weld v. CVS
Pharmacy, Inc., et al. Civil Action No. 98-0897-F. Biogen understands that
the Weld plaintiffs filed an amended complaint on or about July 15, 1998,
naming Biogen (and other major pharmaceutical manufacturers) as additional
defendants. Plaintiffs have yet to serve this amended complaint on Biogen.
In pertinent part, the demand seeks unspecified monetary and equitable
relief from Biogen on account of Biogen's alleged participation in a
direct mailing program to CVS customers. Plaintiffs claim that this
alleged program violates these customers' statutory and common law rights
to privacy as well as Chapter 93A. Biogen disputes the claims raised in
the demand letter, and intends to vigorously oppose any subsequent legal
action that may be taken in connection with the demand letter. If served,
Biogen also intends to vigorously oppose the claims asserted in the Weld
action.
5. Income tax expense as a percent of pre-tax income for the quarters ended
June 30, 1998 and 1997 was 33.5% and 40.3%, respectively. The effective
tax rate varied from U.S. statutory rates in the current quarter primarily
due to an increase in European sales and to the utilization of research
and development credits. The effective tax rate varied from U.S. statutory
rates in the comparable period of 1997 primarily due to the benefit of
research and development and investment tax credits partially offset by
foreign losses for which the Company received no tax benefit.
Page 10
BIOGEN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Biogen, Inc. (the ACompany@ or ABiogen@) is a biopharmaceutical company
principally engaged in the business of developing, manufacturing and marketing
drugs for human health care. The Company currently derives revenues from sales
of AVONEX(R) (Interferon beta-1a) for the treatment of relapsing forms of
multiple sclerosis ("MS")and from royalties on worldwide sales by the Company=s
licensees of a number of products covered under patents controlled by the
Company, including alpha interferon and hepatitis B vaccines and diagnostic
products.
Results of Operations
For the quarter ended June 30, 1998, the Company reported net income of $31.4
million or $0.41 per diluted share as compared to $19.9 million or $0.26 per
diluted share for the comparable period of 1997. For the six months ended June
30, 1998, the Company recorded net income of $59.2 million or $0.77 per diluted
share as compared to $37 million or $0.48 per diluted share for the comparable
period of 1997.
Total revenues for the current quarter were $135.8 million, as compared to $97.7
million in the quarter ended June 30, 1997, an increase of $38.1 million or 39%.
The increase in total revenues was primarily due to increased sales of the
Company=s product AVONEX(R). Product sales for the current quarter were $87.1
million compared to $56.4 million for the comparable period in 1997, an increase
of $30.7 million or 54.4%. The growth in 1998 was due to an increase in the
sales volume of AVONEX(R)in the United States as well as expansion into several
new countries in the European Union ("EU"). In March 1997, the Company received
regulatory approval to market AVONEX(R) in the fifteen member countries of the
EU. By the end of 1997, AVONEX(R) had received reimbursement approval and was on
the market in all of the EU countries. In addition, in April 1998, the Company
received approval to market AVONEX(R) in Canada. AVONEX(R) sales outside of the
United States were approximately $19 million in the current quarter as compared
to approximately $3 million in the comparable period of 1997. Revenues from
royalties for the current quarter were $41.7 million as compared to $36 million
for the comparable period of 1997, an increase of $5.7 million or 15.8%,
primarily as a result of an increase in alpha interferon sales by
Schering-Plough Corporation ("Schering-Plough")as well as an increase in
royalties on sales of Hepatitis B vaccines sold by SmithKline and Merck. In May
1998, the Company and Schering Corporation, a subsidiary of Schering-Plough,
amended the terms of the license agreement under which Schering-Plough pays the
Company royalties on worldwide sales of Schering-Plough's alpha interferon
product, Intron(R) A. Under the terms of the amendment, Schering-Plough acquired
Biogen's patent application and agreed to pay certain sums on U.S. sales of
Intron(R) A from July 2002 until expiration of the alpha interferon patent
expected to be issued to F.Hoffman-LaRoche, Inc. and Genentech Inc., which was
the subject of a lawsuit filed by the Company. The lawsuit has been settled.
Total revenues for the six months ended June 30, 1998 were $257.2 million as
compared to $197.4 million in the comparable period of 1997, an increase of
$59.8 million or 30.3%, primarily due to increased sales of
Page 11
AVONEX(R). Revenues from product sales for the six-month period ended June 30,
1998 increased $54.1 million or 49.6% to $163.2 million, or 63.5% of total
revenues, compared to $109.1 million, or 55.3% of total revenues, in the
comparable period of 1997. Royalties during the six months ended June 30, 1998
increased $1.9 million, or 2.4% from the comparable period of 1997 to $80.1
million.
The Company expects product sales as a percentage of total revenues to continue
to increase in the near term as the Company continues to market AVONEX(R)
worldwide, and expects sales from AVONEX(R) in Europe to continue to increase as
a percentage of total product sales. The Company, however, expects to face
increasing competition in the MS marketplace from existing and new MS
treatments. In the near term, the Company expects overall sales of licensee
products and royalty revenues to fluctuate depending on changes in sales volumes
for specific products, patent expirations, new licensing arrangements, if any,
or other developments. Licensee sales levels may also fluctuate from quarter to
quarter due to the timing and extent of major events such as new indication
approvals or government sponsored vaccination programs.
Interest income for the current quarter was $7.0 million, an increase of $1.8
million or 34.6% as compared to $5.2 million in the comparable period of 1997.
For the six months ended June 30, 1998, interest income was $13.9 million
compared to $10.1 million in the comparable period of 1997, an increase of $3.8
million or 37.6%. The increase in interest income is primarily a result of
increased funds invested.
Total expenses for the current quarter were $88.5 million as compared to $64.2
million in the quarter ended June 30, 1997, an increase of $24.3 million or
37.9%. Cost of sales in the current quarter totaled $17.2 million, an increase
of $5.8 million from the quarter ended June 30, 1997. Cost of sales in the
current quarter includes product costs relating to sales of AVONEX(R) of $13.9
million compared to $8.8 million in the quarter ended June 30, 1997. Gross
margins for product sales remained flat at approximately 84% for both the
current quarter and the comparable period of 1997. Cost of sales relating to
royalty revenue for the current quarter was $3.3 million as compared to $2.6
million in the comparable period of 1997. Gross margins on royalty revenue
declined slightly to 92.1% for the current quarter as compared to 92.8% for the
comparable period of 1997. The Company expects that gross margins on royalty
revenue will fluctuate in the future based on the impact of one-time royalty and
milestone payments.
Research and development expenses for the current quarter were $42.1 million, an
increase of $10.1 million or 31.6% as compared to the quarter ended June 30,
1997. This increase was primarily due to an increase in clinical trial costs and
an increase in the Company=s development efforts related to other research and
development programs in its pipeline. The Company expects that, in the
long-term, research and development expenses will increase as the Company
continues to expand its development efforts with respect to new products and as
it conducts clinical trials of these products. Selling, general and
administrative expenses for the current quarter were $28.5 million, an increase
of $7.5 million or 35.7% as compared to the quarter ended June 30, 1997. This
increase was primarily due to higher selling and marketing expenses related to
sales of AVONEX(R), principally in support of the ongoing European launch and
higher legal costs. The Company expects that selling, general and administrative
expenses will increase in the near and long-term as the
Page 12
Company continues to put in place the commercial infrastructure and sales and
marketing organizations necessary to sell AVONEX(R) worldwide.
Total expenses for the six-month period ended June 30, 1998 were $166.6 million
as compared to $135.4 million in the comparable period of 1997, an increase of
$31.2 million or 23%. Cost of sales for the six months ended June 30, 1998 were
$32 million as compared to $23.2 million in the comparable period of 1997, an
increase of $8.8 million or 37.9%. Cost of sales for the six months ended June
30, 1998 and 1997 included $26 million and $16.6 million, respectively, of
product costs related to the sales of AVONEX(R). Gross margins for product sales
decreased slightly to 84.1% for the six months ended June 30, 1998 as compared
to 84.8% for the comparable period of 1997. Cost of sales relating to royalty
revenue decreased $0.6 million to $6 million for the six months ended June 30,
1998 as compared to $6.6 million for the comparable period of 1997. Gross
margins on royalty revenue increased slightly to 92.5% for the six months ended
June 30, 1998 as compared to 91.6% for the comparable period of 1997.
Research and development expenses for the current six-month period were $79.3
million as compared to $69.9 million in the comparable period of 1997. Included
in research and development expenses for the six months ended June 30, 1997 was
a one-time license fee of $5 million to CV Therapeutics, Inc. Excluding the
one-time license fee, research and development expenses for the six months ended
June 30, 1998, increased $14.4 million or 22.2% from the comparable period of
1997. This increase was primarily due to an increase in clinical trial costs and
an increase in the Company's development efforts related to other research and
development programs in its pipeline. Selling, general and administrative
expenses for the six-month period ended June 30, 1998 were $54.5 million as
compared to $42.1 million in the comparable period of 1997, an increase of $12.4
million or 29.5%. This increase was primarily due to the higher selling and
marketing expenses related to sales of AVONEX(R), primarily in Europe, and
higher legal fees.
Income tax expense as a percent of pre-tax income for the quarters ended June
30, 1998 and 1997 was 33.5% and 40.3%, respectively. The effective tax rate
varied from U.S. statutory rates in the current quarter primarily due to an
increase in European sales and to the utilization of research and development
credits. The effective tax rate in the comparable period of 1997 varied from
U.S. statutory rates primarily due to the benefit of research and development
and investment tax credits offset by foreign losses for which the Company
received no tax benefit. The Company=s effective tax rate for the six months
ended June 30, 1998 was 34.7%, and is expected to continue at or near this level
for the remainder of 1998.
Financial Condition
At June 30, 1998, cash, cash equivalents and short term marketable securities
were $460.6 million compared with $440.1 million at December 31, 1997, an
increase of $20.5 million. Working capital increased $34.6 million to $506.7
million from December 31, 1997 to June 30, 1998. Net cash provided from
operating activities for the six-month period ended June 30, 1998 was $68.5
million, compared with $18.2 million in the comparable period of 1997. Cash
outflows for the six months ended June 30, 1998, included investments in
property and equipment and patents of $16.1 million and $5 million related to
research collaboration agreements. Cash outflows from financing activities
included note payable and loan repayments of $12.7 million and repurchases of
the Company's common stock
Page 13
at a total cost of $28.8 million. Cash inflows from financing activities
included $13.8 million from common stock option and purchase plan activity,
including tax benefits related to stock options.
Several legal proceedings were pending during the current quarter which involve
the Company. See Note 4 of the Notes to the Condensed Consolidated Financial
Statements and Part II Item 1 - Legal Proceedings. See also Item 1 - Business,
APatents and Other Proprietary Rights@ of the Company=s Annual Report on Form
10-K for the fiscal year ended December 31, 1997 for discussions of these legal
proceedings.
The Company believes that existing funds and cash generated from operations
are adequate to satisfy its working capital and capital expenditure
requirements in the foreseeable future. However, the Company may seek to raise
additional capital to take advantage of favorable conditions in the market or
in connection with the Company's development activities.
Page 14
Outlook
Safe Harbor Statement under Private Securities Litigation Reform Act of 1995
In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. Reference is made in particular to forward-looking
statements regarding the anticipated level of future royalty revenues, product
sales, expenses and profits and predictions as to the anticipated outcome of
pending litigation. These and all other forward-looking statements are made
based on the Company=s current belief as to the outcome and timing of such
future events. Factors which could cause actual results to differ from the
Company=s expectations and which could negatively impact the Company=s results
of operations are discussed below and elsewhere in this Management=s Discussion
and Analysis of Financial Condition and Results of Operations.
Dependence on AVONEX(R) Sales and Royalty Revenue
The Company's ability to sustain increases in revenues and profitability will be
primarily dependent on the level of revenues and profitability from AVONEX(R)
sales. The Company's ability to sustain profitability from sales of AVONEX(R)
will depend on a number of factors, including: continued market acceptance of
AVONEX(R) worldwide; the Company's ability to maintain a high level of patient
satisfaction with AVONEX(R); the nature of regulatory and pricing decisions
related to AVONEX(R) worldwide and the extent to which AVONEX(R) receives
reimbursement coverage; market acceptance of AVONEX(R) outside the United
States; successful resolution of the lawsuit with Berlex related to the
"McCormick" patent, which if decided in Berlex's favor could have a material
adverse effect on the Company's financial position and results of operations;
the Company's ability to sustain market share of AVONEX(R) in light of the
introduction of competitive products for the treatment of multiple sclerosis;
the success of ongoing development work related to AVONEX(R) in expanded
multiple sclerosis indications and the continued accessibility of third parties
to vial, label, and distribute AVONEX(R) on acceptable terms. The Company also
receives royalty revenues which contribute significantly to its overall
profitability. The Company's ability to maintain the level of its royalty
revenues will depend on a number of factors, including: sustaining the scope and
validity of existing patents; the efforts of licensees in the clinical testing
and marketing of products from which the Company derives revenue; and the timing
and extent of royalties from additional licensing opportunities. In addition,
licensee sales levels may fluctuate from quarter to quarter due to the timing
and extent of major events such as new indication approvals or government
sponsored vaccination programs. There can be no assurance that the Company will
achieve a positive outcome with respect to any of the factors discussed in this
Section or that the timing and extent of the Company's success with respect to
any combination of these factors will be sufficient to result in sustained
increases in revenues or profitability or the sustained profitability of the
Company. For a further discussion of risks regarding drug development, patent
matters, including the Berlex lawsuit on the "McCormick" patent, competition in
the multiple sclerosis market and regulatory matters, see the Company's Annual
Report on Form 10-K for the period ended December 31, 1997 under the headings
"Business - Risks Associated with Drug
Page 15
Development", "Business - Patents and Other Proprietary Rights", "Business -
Competition and Marketing -AVONEX(R)(interferon beta-1a)", "Business -
Regulation", "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Outlook."
New Products
AVONEX(R) is currently the only product sold by the Company. The Company=s
long-term viability and growth will depend on the successful development and
commercialization of other products from its research activities and
collaborations. The Company has begun to expand its development efforts related
to other potential products in its pipeline. The expansion of the pipeline may
include increases in spending on internal projects, the acquisition of third
party technologies or products or other types of investments. Product
development involves a high degree of risk. Many important factors affect the
Company=s ability to successfully develop and commercialize drugs, including the
ability to obtain and maintain necessary patents and licenses, to demonstrate
safety and efficacy of drug candidates at each stage of the clinical trial
process, to meet applicable regulatory standards and to receive required
regulatory approvals, to be capable of producing drug candidates in commercial
quantities at reasonable costs, to compete successfully against other products
and to market products successfully. There can be no assurance that the Company
will be successful in its efforts to develop and commercialize new products.
Page 16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On May 6, 1998, a jury found in favor of the Company and rejected all of the
plaintiff's claims in a class action lawsuit initiated against the Company in
1994 in the United States District Court for the District of Massachusetts. The
plaintiffs' claims in the lawsuit related to the Company's 1994 public comments
regarding HIRULOG(R) (bivalirudin) direct thrombin inhibitor.
On or about July 17, 1998, Biogen received a letter demanding relief pursuant to
the Massachusetts Consumer Protection Act (Mass. Gen. L. ch. 93A) on behalf of
an alleged class of persons who have filled prescriptions at pharmacies owned
and/or operated by CVS Pharmacy, Inc. The demand purports to be made in
connection with litigation filed against CVS and others in the Massachusetts
Superior Court styled Weld v. CVS Pharmacy, Inc., et al. Civil Action No.
98-0897-F. Biogen understands that the Weld plaintiffs filed an amended
complaint on or about July 15, 1998, naming Biogen (and other major
pharmaceutical manufacturers) as additional defendants. Plaintiffs have yet to
serve this amended complaint on Biogen. In pertinent part, the demand seeks
unspecified monetary and equitable relief from Biogen on account of Biogen's
alleged participation in a direct mailing program to CVS customers. Plaintiffs
claim that this alleged program violates these customers' statutory and common
law rights to privacy as well as Chapter 93A. Biogen disputes the claims raised
in the demand letter, and intends to vigorously oppose any subsequent legal
action that may be taken in connection with the demand letter. If served, Biogen
also intends to vigorously oppose the claims asserted in the Weld action.
In June 1996, ASTA Medica Aktiengesellschaft ("ASTA") filed for arbitration
against Biogen with the International Chamber of Commerce ("ICC") in connection
with a dispute with Biogen regarding a License, Development and Supply
Agreement, dated May 30, 1989 (the "1989 Agreement"), among Biogen, ASTA and
Bioferon Biochemische Substanzen GmbH & Co ("Bioferon"). Bioferon was a joint
venture between Biogen and Rentschler Arzneimittel GmbH & Co. of Laupheim,
Germany, which entered bankruptcy in 1993. In the proceeding, ASTA had asked for
a determination that Biogen could not terminate the 1989 Agreement as to ASTA
solely as a result of Bioferon's bankruptcy and a further determination that
Biogen was required to supply ASTA with recombinant beta interferon. On March
13, 1998, the ICC arbitration panel ruled that, as between Biogen and ASTA, the
1989 Agreement was not terminated as a result of the bankruptcy of Bioferon, but
that Biogen was not required to perform Bioferon's obligations under the 1989
Agreement and, as a result, had no obligation to supply recombinant beta
interferon to ASTA. Under the 1989 Agreement, ASTA was granted an exclusive
license for a number of European countries to certain intellectual property
relating to recombinant beta interferon, including Biogen's European Fiers
patent which has since been revoked by the European Patent Office. In light of
the panel's decision, Biogen notified ASTA that it was terminating the 1989
Agreement based on ASTA's conduct and failure to perform. On March 19, 1998,
ASTA notified Biogen that it deemed Biogen's termination of the 1989 Agreement
to be invalid. On or about May 14, 1998, ASTA filed a complaint against Biogen
in the United States District Court for the District of Massachusetts seeking
enforcement of the arbitration decision,
Page 17
injunctive relief, damages, relief pursuant to the Massachusetts Consumer
Protection Act (Mass. Gen L. ch. 93A) and other relief arising out of additional
tort and contract claims. ASTA alleges that Biogen's termination of the 1989
Agreement based on ASTA's conduct is invalid and that ASTA is Biogen's exclusive
licensee of recombinant beta interferon in the territories specified in the 1989
Agreement. To date, ASTA has not served Biogen with the complaint in this case.
If served, Biogen intends to vigorously defend the lawsuit.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The information set forth in this Item 4 relates to matters
submitted to a vote at the Annual Meeting of stockholders of
Biogen, Inc. on June 19, 1998.
(b) Not applicable.
(c) A proposal to elect Alan Belzer, Dr. Mary L. Good, Dr. Kenneth
Murray and James W. Stevens to serve for three year terms
ending in 2001 and until their successors are duly elected and
qualified was approved with the following vote:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
------------------ --------------- ---------------------
<S> <C> <C>
Alan Belzer 55,661,193 222,728
Mary L. Good 55,655,853 228,068
Kenneth Murray 55,743,926 139,995
James W. Stevens 55,681,831 202,090
</TABLE>
A proposal to ratify the selection of Price Waterhouse LLP
as the Company's independent accountants for the fiscal
year ending December 31, 1998 was approved with
55,760,281 affirmative votes, 39,934 negative votes, 83,706
abstentions and 0 broker non-votes.
(d) Not applicable.
Item 5 - Other Information
To be considered for inclusion in the proxy statement relating to the Annual
Meeting of stockholders to be held in 1999, stockholder proposals must be
received no later than January 8, 1999. To be considered for presentation at the
Annual Meeting, although not included in the proxy statement, proposals must be
received no later than 60 days, but not more than 90 days, prior to the Annual
Meeting. All stockholder proposals should be marked for the attention of the
Vice President-General Counsel, Biogen, Inc., 14 Cambridge Center, Cambridge, MA
02142.
Page 18
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
No. 27Financial Data Schedule (for EDGAR filing purposes only).
(b) On April 8, 1998, the Company filed a report on Form 8-K
disclosing the issuance of 3,350 shares of its Common Stock
under Regulation S of the Securities Act of 1933.
On May 7, 1998, the Company filed a report on Form 8-K to
disclose a decision by the U.S. Federal District Court for the
District of Massachusetts in connection with a class action
suit relating to the Company's 1994 public comments about
HIRULOG(R) (bivalirudin) direct thrombin inhibitor. The jury
rejected all claims made by the plaintiffs against the
Company.
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.
BIOGEN, INC.
Dated: August 13, 1998 /s/Timothy M. Kish
----------------------------------
Timothy M. Kish
Vice President-Finance and
Chief Financial Officer
<PAGE>
Page 19
PART II - OTHER INFORMATION
EXHIBITS
Index to Exhibit.
No. 10.1.1 Agreement and Amendment between the Company and Schering
Corporation dated May 1, 1998.*
No. 10.1.2 1985 Non-Qualified Stock Option Plan, as amended through
June 20, 1998 and restated.
No. 10.1.3 1982 Incentive Stock Option Plan, as amended through
June 20, 1998 and restated.
No. 27 Financial Data Schedule (for EDGAR filing purposes only).
*Confidential treatment requested as to certain portions, which
portions are omitted and filed separately with the Securities and
Exchange Commission.
***Biogen, Inc. has omitted from this Exhibit 10.1.1 portions of the
Agreement for which Biogen, Inc. has requested confidential treatment from the
Securities and Exchange Commission. The portions of the Agreement for which
confidential treatment has been requested are marked with X's in brackets and
such confidential portions have been filed separately with the Securities and
Exchange Commission.***
AGREEMENT AND AMENDMENT
This Agreement and Amendment (this "Biogen Amendment") is made as of
this lst day of May, 1998, by and between Biogen, Inc., a corporation organized
under the laws of the Commonwealth of Massachusetts and having its principal
place of business at 14 Cambridge Center, Cambridge, Massachusetts 02142
("Biogen"), and Schering Corporation, a corporation organized under the laws of
the State of New Jersey and having its principal place of business at 2000
Galloping Hill Road, Kenilworth, New Jersey 07033 ("Schering").
WITNESSETH:
WHEREAS, Schering and Biogen, as successor to Biogen N.V., a
corporation organized under the laws of the Netherlands Antilles, are parties to
an Exclusive License and Development Agreement, dated December 8, 1979, relating
to human recombinant leukocyte interferon (such agreement, as amended to date by
the Prior Amendments as defined below, the "Biogen-Schering Agreement"); and
WHEREAS, certain patent rights owned or controlled by Schering and
Biogen, on the one hand, and by Hoffmann-La Roche, Inc. ("Roche") and Genentech,
Inc. ("Genentech"), on the other hand, covering the use, manufacture and sale of
the respective interferon alpha products of Schering and Roche have been in
dispute as among Biogen, Schering, Roche and Genentech and have been the subject
of an interference proceeding before -the Board of Patent Appeals and
Interferences of the United States Patent and Trademark Office ("USPTO"),
entitled David V. Goeddel and Sidney Pestka v. Charles Weissmann, Interference
No. 101,601 (the "Interference"), which awarded priority to the Goeddel and
Pestka Application (the "Roche/Genentech Patent Application") over the Weissmann
Application in the Interference. This Interference decision has been appealed
('Interference Appeal") to the United States District Court for the District of
Massachusetts (the "Court"); and
WHEREAS, all the parties wish to avoid the risk and expense attendant
upon further litigation and to settle all claims which have been brought in the
Interference Appeal, and in order to accomplish these objectives, the parties
wish to enter into a settlement agreement as of the same date hereof which
specifies the terms and conditions agreed to by the parties to resolve the
Interference Appeal (the "Settlement Agreement"); and
WHEREAS, in connection with the Settlement Agreement, Schering, Biogen,
Genentech and Roche (where applicable) have agreed to execute this Biogen
Amendment and the Fourth Amendment to that certain agreement dated May 14, 1985
by and between Schering and Roche relating to recombinant human leukocyte
interferon (such agreement, as amended by prior amendments thereto, dated May
14, 1985, August 27, 1986, and October 9, 1986, the "Roche-Schering Agreement")
(the "Fourth Amendment," and the Biogen Amendment and the Fourth Amendment
together, the "Amendments"); and
WHEREAS, Schering and Biogen agree to the assignment of the Weissmann
Application to Schering upon the receipt of all required governmental consents
and approvals and the observance of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act ("HSR Act") in connection with the
Biogen Amendment, the Fourth Amendment and the Settlement Agreement (the
"Governmental Approvals"); and
WHEREAS, Schering recognizes that (i) royalty payments might have been
due to Biogen under the Biogen Agreement if the Weissmann Application prevailed
and (ii) the payments to be made hereunder are made in consideration of the
assignment to Schering of the Weissmann Application and the grant to Schering of
the rights set forth in Section 3.2.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. Definitions.
1.1. All capitalized terms used herein and not otherwise defined shall
have the respective earnings set forth in the Biogen-Schering Agreement.
1.2. "Additional Patent Rights" shall mean any United States patents that shall
issue to Biogen from the following patent applications or any divisional,
continuation, continuation-in-part, continuing prosecution application, reissue,
renewal or extension thereof or substitute therefor:[xxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxx]; however, U.S. Serial No. 471, 30 1, filed March 3, 1983 is excluded from
this definition.
<PAGE>
1.3. "Biogen Patent" shall mean U.S. Patent No. 4,530,901 entitled
"Recombinant DNA Molecules and
Their Use in Producing Interferon-Like Polypeptides," issued on July 23, 1985.
1.4. "Prior Amendments" shall mean the amendments and supplements to
the Exclusive icense and Development Agreement dated as of December 8, 1979, by
and between Biogen, Biogen .V., and Biogen N.V. and Schering, executed prior to
the date hereof, including without limitation the following: (i) Supplemental
Agreement, dated as of March 11, 1983, by and between Biogen N.V., Biogen B.V.
and Schering; (ii) Amendatory Agreement, dated as of May 14, 1985, by and
between Biogen B.V. and Schering; (iii) Amendment and Settlement Agreement,
dated as of September 29, 1988 by and between Biogen, Biogen B.V. and Schering;
(iv) Amendment, dated as of March 20, 1989 by and between Biogen B.V. and
Schering; (v) Amendment, dated as of March 23, 1992, by and between Biogen and
Schering; and (vi) Supplemental Amendment and Agreement, dated as of March 1,
1994, by and between Schering and Biogen.
1.5. "Roche Patent Rights" shall mean any United States patents that
shall issue from patent applications owned or controlled by Roche
individually or jointly with Genentech, that were the subject of the
Interference, including, but not limited to,[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxx] or from any divisional, continuation, continuation-in-part,
continuing prosecution application, reissue or extension thereof or substitute
therefor.
1.6. "Royalty Termination Date" shall mean (as applicable):
a) with respect to Additional Patent Rights for any given Licensed
Product or Licensed Combination Product, the last to expire of any issued
Additional Patent Rights which has a claim that covers the manufacture, use,
offer to sell, sale, export or import of such Licensed Product or Licensed
Combinations Product (both as defined in the Biogen-Schering Agreement); or
b) with respect to the Roche Patent Rights, for any given Licensed
SCHERING Product the last to expire of any issued Roche Patent Rights which has
a claim that covers the manufacture, use, sale, offer to sell, export or import
of such Licensed SCHERING Products, as defined by the Roche-Schering Agreement,
as amended by the Fourth Amendment.
1.7. "Weissmann Application" shall mean U.S. Serial No. 471,301
filed March 2, 1983.
2. Roche Patent Rights. Biogen hereby acknowledges that Schering is
entering into the Fourth Amendment with Roche under
<PAGE>
which Roche has agreed to grant Schering an exclusive (even as to Roche),
non-transferable license and an immunity from suit under the Roche and
Roche/Genentech Patent Rights for use solely within the United States to
manufacture, have manufactured, import, export, use, offer to sell, and sell
Licensed SCHERING Products (as such terms are defined by the Roche-Schering
Agreement, as amended by the Fourth Amendment). Biogen also acknowledges that,
for consideration granted herein, it retains no right, title or interest in the
rights granted to Schering by Roche in the Roche-Schering Agreement, as amended
by the Fourth Amendment.
3. Assignment of Weissmann Application.
3.l. Biogen hereby agrees to assign, transfer and convey to Schering
all of its right, title and interest in and to the Weissmann Application by
executing and delivering, within ten (10) days of the last to occur of the
Governmental Approvals, an Assignment of Patent Rights substantially in the form
of Exhibit A attached hereto (the "Patent Assignment"). Biogen further covenants
and agrees that it will from time to time, if requested by Schering, execute,
acknowledge and deliver such additional documents and instruments as may be
reasonably necessary to effectuate the foregoing assignment.
3.2. Biogen also agrees that it will assign to Schering, as assignee of
the Weissmann Application, contemporaneously with the assignment of the
Weissmann Application, the right (i) to contest or consent to the decision of
the Board of Patent Appeals and Interferences of the USPTO rendered on December
15, 1995 in the Interference and (ii) to take such actions as Schering in its
sole discretion may determine in order to carry on or to conclude the
Interference and the Interference Appeal.
3.3. If, for any reason, the Court does not approve, or withdraws its
approval of, the Settlement Agreement, or the Settlement Agreement is declared
null and void ab initio after the assignments contemplated in paragraphs 3.1 and
3.2 herein occur, then such assignments shall be deemed null and void ab initio
and have no further force and effect and Schering shall execute, acknowledge and
deliver such documents and instruments as may be reasonably necessary to
effectuate the reassignment to Biogen of all rights assigned pursuant to
Sections 3.1 and 3.2 herein.
4. Covenants of Schering.
4.1. Schering hereby covenants and agrees that it shall (i) seek to
enforce in a commercially reasonable matter Article 11 of the Fourth Amendment;
(ii) keep Biogen informed in
<PAGE>
a reasonably prompt manner of all substantive actions of which Schering is aware
have been taken with respect to the Roche Patent Rights; and (iii) provide
Biogen with copies of all substantive filings and substantive correspondence, to
the extent permissible under law, with respect to the Roche Patent Rights that
Schering receives from Roche
or any governmental authority.
4.2. Schering hereby represents and warrants that, other
than with respect to certain confidential financial terms which have been
deleted, the copy of the Roche-Schering Agreement provided to Biogen on the date
hereof is true and correct.
5. Amendments to the Biogen-Schering Agreement.
5.1. Section 5.1 of the Biogen-Schering Agreement is hereby amended by
deleting the second sentence (Le., the first full sentence) beginning on page 29
of the Biogen-Schering Agreement, as amended by the Prior Amendments, and
substituting in lieu thereof the following:
Such earned royalties shall be paid (i) at the rate of
[xxxxxxxxxxxxxxxxx] with respect to Licensed Products other than
Licensed Combination Products and [xxx] times the "proration factor"
with respect to Licensed Combination Products
[xxxxxxxxxxxxxxxxxxxxxxxxx] of aggregate Sales Value (including
aggregate Sales Value of Licensed Combination Products) of such sales
during each License Year and (ii) at the rate of
[xxxxxxxxxxxxxxxxxxxxxxxxxx] with respect to Licensed Products other
than Licensed Combination Products and [xxx]times the "proration
factor" with respect to Licensed Combination Products on the aggregate
Sales Value (including aggregate Sales Value of Licensed Combination
Products) of all such sales [xxxxxxxxxxxxxxxxxx]in each License Year;
provided that no royalties shall be paid under any circumstances on
Licensed Products or Licensed Combination Products sold or manufactured
in the United States following the date of expiration of the Biogen
Patent, i.e., July 23, 2002 (the "Patent Expiration Date"); except that
(A) After the Patent Expiration Date and through the Royalty
Termination Date, in consideration of the assignments
described in Sections 3.1 and 3.2 above, royalties shall be
paid (I) with respect to Licensed Products sold in the United
States during the periods specified below other than Licensed
Combination Products, at the royalty rates specified below and
(ii) with respect to Licensed Combination Products sold in the
United States during such periods at the royalty rates
specified below times the "proration factor"
<PAGE>
Royalty Rate
(Percent of
Royalty Period Sales Value)
After the Patent Expiration [xxx]
Date until July 22, 2003
On or after July 23, 2003 [xxx]
until July 22, 2004
On or after July 23, 2004 [xxx]
until July 22, 2005
On or after July 23, 2005 [xxx]
until July 22, 2006
On or after July 23, 2006 [xxx]
until July 22, 2007
On or after July 23, 2007 and [xxx]
until the Royalty Termination
Date
; and
(B) After the Patent Expiration Date, with respect to Licensed
Products and Licensed Combination Products manufactured in the
United States and sold outside the United States, royalties
shall be paid if and only to the extent that Biogen still owns
an unexpired patent or supplementary protection certificate
covering such Licensed Products or Licensed Combination
Products in the country in which such Licensed Products or
Licensed Combination Products are sold. Any such royalties
shall be paid (i) at the rate of [xxxx xxxxxxxxxxxx] with
respect to Licensed Products other than Licensed Combination
Products and [xxx] times the "proration factor" with respect
to Licensed Combination Products on such sales
[xxxxxxxxxxxxxxxx xxxxxxxx] of aggregate Sales Value
(including aggregate Sales Value of Licensed Combination
Products) of sales during each License Year; and (ii) at the
rate of [xxxxxxxxxxxxxxxxxxxxxx] with respect to Licensed
Products and [xxx] times the "proration factor" with respect
to Licensed Combination Products on such sales within the
aggregate Sales Value (including aggregate Sales Value of
Licensed Combination Products) of all sales [xxxxxxxxxxxxxx
xxxxx] in each License Year.
<PAGE>
For purposes of the foregoing subsections (A) and (B), the Roche Patent
Rights shall be deemed to be a "patent with respect to any Biogen
Invention" under Section 1. 14(a)(i) of this Schering-Biogen Agreement.
5.2.[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
6. Consents and Approvals; Cooperation.
6.1. Schering and Biogen shall in good faith cooperate to
obtain all Governmental Approvals. Both parties agree to: (i) take promptly
all actions necessary to make the filings required of the parties; (ii)
comply at the earliest practicable date with any requests for additional
information received either by Biogen or Schering from a governmental authority;
and (iii) furnish to each other such information and assistance as may
reasonably be requested in connection with the foregoing, to the extent
permissible under law. Biogen and Schering agree to provide the other with
copies of all correspondence between either of them (or their advisors) and
any government antitrust entity relating to this Biogen Amendment, the
Fourth Amendment or the Settlement Agreement to the extent permissible under
law. Biogen and Schering agree that all meetings with a governmental authority
relating to any matters described in this Section 6.1 shall include
representatives of both Biogen and Schering unless Biogen and Schering jointly
decide otherwise or the governmental authority objects to such attendance.
6.2. Nothing in this Biogen Amendment shall require Biogen or
Schering, as a consequence of any government action or threatened action, to
change, modify, add, or delete any material term in this Biogen Amendment, or
to take any other action that shall have a material adverse effect on such
party. Either party may provide notice to the other party that it concludes, in
good faith, it would not be feasible and consistent with the intentions of the
parties in entering into this Biogen Amendment to continue the effectiveness of
this Biogen Amendment in the event any governmental agency seeks to enjoin or a
court enjoins the parties from acting pursuant to this Biogen Amendment or a
governmental authority seeks to terminate this Biogen Amendment. Upon the
receipt of such notice by the other party, this Biogen Amendment shall be
<PAGE>
declared null and void ab initio and the Biogen-Schering Agreement shall remain
in full force and effect as if this Biogen Amendment and Patent Assignment had
never been executed, and Schering shall execute an assignment in mutually
satisfactory form assigning the Weissmann Application to Biogen.
7. Confidentiality. No party shall make any public statements with
respect to this Biogen Amendment or the transactions or agreements contemplated
hereby, the Fourth Amendment, the Interference, the Interference Appeal, the
Settlement Agreement, nor shall any of the parties hereto disclose to any third
party the terms of this Biogen Amendment or any of the other agreements
referenced in this Section 7, or the relationships created hereby, without, in
any such case, the prior written consent of the other parties hereto, except as
required by law or regulation. Each party may make a press release concerning
this Biogen Agreement or the Settlement Agreement, but agree that prior to
making such release, such party will submit the text thereof to the other party
and shall issue the release only with the approval of such party, which approval
shall not be unreasonably withheld; provided, that, once information has been
released in accordance with this Section 7, the information contained in such
release may subsequently be released by the releasing party without the prior
approval or consent of the other party.
8. Revocation. In addition to those rights specified in Paragraph 6.2
above, this Biogen Amendment and the Patent Assignment (if executed), shall be
null and void ab initio, and Schering shall execute an assignment in mutually
satisfactory form assigning the Weissmann Application to Biogen and the present
Biogen-Schering Agreement (prior to this Biogen Amendment), shall remain in full
force and effect as if this Biogen Amendment and the Patent Assignment (if
executed) had never been executed, if (i) either a stay of litigation in the
Interference Appeal agreed to by the parties in the Settlement Agreement is not
granted by the court or is lifted by the court prior to the termination of the
Interference Appeal by Schering, as assignee of Biogen, under the provisions of
Paragraph 3 of the Settlement Agreement; (ii) the Settlement Agreement is
properly declared null and void ab initio or a governmental authority whose
prior approval must be obtained, enjoins, rejects or rescinds the Settlement
Agreement, the Fourth Amendment, or this Biogen Amendment or otherwise fails to
render a final approval on or before December 31, 1998; or (iii) Roche fails to
enter into the Fourth Amendment.
9. Covenants of Biogen. Section 12.1 of the Biogen-Schering Agreement
shall apply to the prosecution of Additional Patent Rights. In addition,
Biogen hereby covenants and agrees that it shall (i) keep Schering fully
informed of all actions
<PAGE>
taken with respect to the Additional Patent Rights, and (ii) provide Schering
with copies of all proposed filings and correspondence with respect to the
Additional Patent Rights at least thirty (30) days before submission to the
relevant patent office, and give good faith consideration to any comments and
suggestions of Schering with respect thereto. Any and all costs and expenses
incurred by Biogen in connection with any such actions shall be borne by
Biogen.
10. Miscellaneous.
10.1. This Biogen Amendment shall constitute an amendment of the
Biogen-Schering Agreement within the meaning of Section 18 thereof.
10.2. Except as expressly set forth herein, all of the other terms and
conditions of the Biogen-Schering Agreement shall remain in full force and
effect.
10.3. In the event of any inconsistency between this Biogen Amendment
and the Biogen Agreement (as previously amended), the provisions of this
Biogen Amendment shall govern.
IN WITNESS WHEREOF, the parties have caused this Biogen Amendment to be
executed by their respective officers hereunto duly authorized as of the date
and year first written above.
SCHERING CORPORATION
By: /s/Thomas C. Lauda
Name: Thomas C. Lauda
Title: Vice President
BIOGEN, INC.
By: /s/James R. Tobin
Name: James R. Tobin
Title: President & Chief Executive Officer
<PAGE>
EXHIBIT A
Assignment of Patent Rights
ASSIGNMENT OF PATENT RIGHTS, dated as of May _, 1998 from Biogen, Inc.,
a Massachusetts corporation ("Biogen"), to Schering Corporation, a New Jersey
corporation ("Schering").
WITNESSETH
WHEREAS, Biogen and Schering have entered into an Agreement and
Amendment dated as of even date hereof (the "Biogen Amendment"), pursuant to
which Biogen has agreed to transfer certain patent rights to Schering upon the
receipt of certain governmental approvals and consents and observance of certain
waiting periods specified therein ("Governmental Approvals") in exchange for the
payment by Schering of certain royalties specified therein.
NOW, THEREFORE, in consideration of the premises and in satisfaction of
its obligation under the Biogen Amendment and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, Biogen hereby conveys, transfers and assigns to, and vests in
Schering and its successors and assigns, all of Biogen's right, title and
interest, in and to the patent rights described on Schedule A attached hereto
(the "Assigned Patent Rights").
TO HAVE AND TO HOLD all of the foregoing Assigned Patent Rights unto
Schering, its successors and assigns, to its and their own proper use forever:
1. Biogen, for itself and its successors and assigns, hereby covenants
that, at any time and from time to time after delivery of this instrument, at
Schering's request and expense but without further consideration, Biogen will
do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all and every such further acts, conveyances,
instruments, transfers, assignments, powers of attorney and assurances as
reasonably may be required for the better assuring, conveying, transferring,
confirming and vesting in or to Schering, the Assigned Patent Rights or to
enable Schering, its successors and assigns, to realize upon or otherwise to
enjoy the Assigned Patent Rights.
2. This instrument is executed by, and shall be binding upon Biogen,
its successors and assigns, for the uses and purposes above set forth and
referred to, effective as of the date hereof.
<PAGE>
3.Terms used herein shall have the same meaning that such terms have
when used in the Biogen Amendment. In the event of any inconsistency
between the provisions hereof and the provisions of the Biogen Amendment,
the provisions of the Biogen Amendment shall be controlling. The
representation and warranties and other terms and conditions of the Biogen
Amendment shall be incorporated in and shall survive execution and delivery of
this Assignment of Patent Rights.
4. This Assignment of Patent Rights shall be governed by and construed
and enforced in accordance with the laws of the state of New Jersey.
IN WITNESS WHEREOF, Biogen and Schering have caused this Assignment of
Patent Rights to be signed by their respective authorized officers as an
instrument under seal, on the day and year first above written.
SCHERING CORPORATION
By: __________________________
Title:
BIOGEN, INC.
By: ___________________________
Title:
<PAGE>
SCHEDULE A
Assigned Patent Rights
"Assigned Patent Rights" shall mean the patent application designated
as U.S. Serial No. 471,301 filed
March 2, 1983.
BIOGEN, INC.
1985 NON-QUALIFIED STOCK OPTION PLAN
(AS AMENDED THROUGH JUNE 20, 1998 AND RESTATED)
I. PURPOSE OF THE PLAN
The Plan is intended to encourage ownership of shares of Common Stock
of the Company by certain employees and Directors of the Company and its
Affiliates and to provide an additional incentive to those employees and
Directors to promote the success of the Company and its Affiliates.
II. DEFINITIONS
1. "Company" means Biogen, Inc., a Massachusetts corporation.
2. "Affiliate" means a corporation in respect of which the Company owns
directly or indirectly fifty percent (50%) or more of the voting shares thereof
or which is otherwise controlled by the Company.
3. "Committee" means the Stock and Option Plan Administration Committee of
the Board of Directors of the Company.
4. "Option" means a stock option granted under this Plan.
III. SHARES SUBJECT TO THE PLAN
The aggregate number of shares as to which Options may be granted from time
to time shall be 20,454,000 of the shares of Common Stock of the Company (par
value $.01); provided, however that such aggregate number shall be reduced by
the number of shares which has been sold under, or may be sold pursuant to
options granted from time to time under, the Company's 1982 Incentive Stock
Option Plan (the "ISO Plan"), to the same extent as if such sales had been made
or options granted pursuant to this Plan.
If any option granted under this Plan or the ISO Plan ceases to be
"outstanding", in whole or in part, other than by reason of the exercise of such
option, the shares which were subject to such option shall be available for the
granting of other Options. Any option shall be treated as "outstanding" until
such option is exercised in full, terminates under the provisions of this Plan
or the ISO Plan, as the case may be, or expires by reason of lapse of time.
The aggregate number of shares as to which Options may be granted shall be
subject to change only by means of an amendment adopted in accordance with
Article XI below, subject to the provisions of Article VIII.
IV. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The membership of the
Committee shall be determined, and shall be subject to change without cause and
without notice from time to time, by the Board of Directors of the Company.
The Committee is authorized to interpret the provisions of the Plan or of
any Option and to make all rules and determinations necessary or advisable for
the administration of the Plan. Subject to the provisions of the Plan, Options
may be granted upon such terms and conditions as the Committee may prescribe.
This Plan is intended to comply in all respects with Rule 16b-3 or its
successors promulgated under the Securities Exchange Act of 1934 ("1934 Act")
with respect to participants who are subject to Section 16 of the 1934 Act, and
any provision in this Plan with respect to such persons contrary to Rule 16b-3
shall be deemed null and void to the extent permissible by law and deemed
appropriate by the Committee.
V. ELIGIBILITY FOR PARTICIPATION
The Committee shall determine which employees and Directors shall be
eligible to participate in the Plan. Without limiting the generality of the
foregoing, Options may be awarded for reasons of performance, merit, promotion,
bonus or upon new employees joining the Company or any Affiliate.
The Committee may grant to one or more such employees or Directors one or
more Options, and shall designate the number of shares to be optioned under each
Option so granted; provided, however, that no Options shall be granted after
December 31, 2002. In no event shall any employee be granted in any calendar
year options to purchase or receive more than 1,200,000 shares of the Company's
Common Stock pursuant to this Plan.
VI. TERMS AND CONDITIONS OF OPTIONS
No Option issued pursuant to this Plan shall be an incentive stock option
under Section 422 of the Internal Revenue Code of 1986, as amended. Each Option
shall be set forth in writing in an Option agreement, duly executed on behalf of
the Company and by the person to whom such Option is granted. No Option shall be
deemed to have been granted and no purported grant of any Option shall be
effective until such Option shall have been approved by the Committee. The
Committee may provide that Options be granted
<PAGE>
subject to such conditions as the Committee may deem appropriate, including
without limitation, subsequent approval by the shareholders of the Company of
this Plan or any amendments thereto. Each such Option agreement shall be subject
to at least the following terms and conditions:
A. Option Price: Except as otherwise determined by the Committee, the
Option price per share for Options granted under the Plan shall be equal to the
fair market value per share of Common Stock on the date of grant of the Option;
provided, however, that in no event shall the Option price be less than the par
value per share of Common Stock. Fair market value shall be the average of the
"high" and "low" sale prices as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the date of grant
of the Option or, if none, for the most recent trading date thirty (30) days or
less prior to the date of grant of the Option on which the Common Stock was
traded.
B. Term of Option: Each Option shall terminate not more than ten (10) years
from the date of the grant thereof, or at such earlier or later time as the
Committee shall expressly resolve.
C. Date of Exercise: The Committee may prescribe the date or dates on which
the Option becomes exercisable, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or years, or upon the
attainment of stated goals.
D. Cancellation and Repurchase Rights: The Committee may stipulate that any
Option which becomes exercisable shall be subject to cancellation or that shares
purchased upon the exercise of such Option shall be subject to repurchase rights
in favor of the Company. In such event the Committee shall determine the date or
dates, or event or events, upon which such cancellation or repurchase rights
shall become effective or shall lapse, as the case may be.
E. Medium of Payment: The Option price shall be payable upon the
exercise of the Option. It shall be payable in cash, or, if permitted by the
Committee, in shares or other consideration.
F. Termination of Employment: An Option holder who ceases (for any
reason other than death or total and permanent disability or termination of
employment for cause) to be an employee or Director of the Company or of an
Affiliate may exercise any Option granted to the extent that the right to
purchase shares thereunder has accrued on the date of such termination. Such
Option shall be exercisable only within three (3) months after such date of
termination, or, if earlier, within
<PAGE>
the originally prescribed term of the Option, unless the Committee shall
authorize a different period. Employment shall not be deemed terminated by
reason of a transfer to another employer which is the Company or an Affiliate.
An Option holder whose employment with the Company or an Affiliate is
terminated by his/her employer for cause or a Director who is removed from the
Board of Directors for cause shall forthwith upon such termination cease to have
any right to exercise any Option. For purposes of this paragraph, "cause" shall
be deemed to include dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized disclosure of
confidential information, and conduct substantially prejudicial to the business
of the Company or any Affiliate. The determination of the Committee as to the
existence of cause shall be conclusive.
An Option holder to whom an Option has been granted under the Plan who
is absent from work with the Company or with an Affiliate because of temporary
disability, or who is on a permitted leave of absence for any purpose, shall
not, during the period of any such absence, be deemed by virtue of such absence
alone, to have terminated his employment with the Company or with an Affiliate
except as the Committee may otherwise expressly provide.
G. Total and Permanent Disability: If an Option holder ceases to be an
employee or Director of the Company or of an Affiliate by reason of total and
permanent disability, as determined by the Committee, any Option held by him or
her on the date of disability shall be exercisable as to all or any part of the
shares subject to the Option, all of which shares shall be fully vested as of
the date of such disability. A disabled Option holder may exercise such Option
only within a period of one (1) year after the date as of which the Committee
determines that he or she became disabled or within such different period as may
be determined by the Committee, or, if earlier, within the originally prescribed
term of the Option.
H. Death: If an Option holder dies while the Option holder is an employee
or Director of the Company or of an Affiliate, any Option held by him or her at
the date of death shall be exercisable as to all or any part of the shares
subject to the Option, all of which shares shall be fully vested as of the date
of the Option holder's death. A deceased Option holder's legal representatives
or one who acquires the Option by will or by the laws of descent and
distribution may exercise such Option only within a period of one (1) year after
the date of death or within such different period as may be determined by the
Committee, or, if earlier, within the originally prescribed term of the Option.
<PAGE>
I. Exercise of Option and Issue of Shares: Options shall be exercised
by giving written notice to the Company, addressed to the Company at the address
specified in the Option agreement, with which the Option holder shall tender the
Option price. Such written notice shall be signed by the person exercising the
Option, shall state the number of shares with respect to which the Option is
being exercised, and shall contain any warranty required by Article VII of the
Plan. The issuance of the Option shares may be delayed by the Company if any law
or regulation requires the Company to take any action with respect to the Option
shares prior to the issuance thereof. Without limiting the generality of the
foregoing, nothing contained herein shall be deemed to require the Company to
issue any Option shares if prohibited by law or applicable regulation.
The shares shall, upon issuance, be evidenced by an appropriate certificate
or certificates in respect of paid-up, non-assessable shares.
J. Assignability and Transferability of Option: By its terms, an Option
granted to an Option holder shall not be transferable by such Option holder
other than (i) by will or by the laws of descent and distribution or (ii)
pursuant to a qualified domestic relations order, as defined by the Code or
Title 1 of the Employee Retirement Income Security Act or the rules thereunder,
or (iii) as otherwise determined by the Committee and set forth in the
applicable Option agreement. The designation of a beneficiary of an Option by an
Option holder shall not be deemed a transfer prohibited by this paragraph.
Except as provided in the preceding sentence, an Option shall be exercisable,
during an Option holder's lifetime, only by the Option holder (or by his or her
legal representative) and shall not be assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation, or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Paragraph, or the levy of
any attachment or similar process upon an Option or other such rights, shall be
null and void.
K. Other Provisions: The Option agreements authorized under the Plan shall
be subject to such other terms and conditions, including, without limitation,
restrictions upon the exercise of the Option, as the Committee shall deem
advisable.
L. Non-Employee, Non-Scientific Board Directors' Options: Each Director who
is not (i) an employee of the Company or any of its Affiliates, or (ii) a member
of the Scientific Board of the Company, or (iii) elected pursuant to an
agreement or arrangement
<PAGE>
between shareholders of the Company or between the Company and its shareholders,
upon first being appointed or elected to the Board of Directors, and upon every
third anniversary thereof, shall be granted an Option to purchase 30,000 shares
of Common Stock. Each such Option shall have an exercise price equal to the fair
market value per share of Common Stock on the date of grant, as determined under
Section VI.A. above, and a term of ten (10) years, and shall be exercisable as
to one-third (1/3) of the shares subject thereto upon completion of one full
year of service on the Board of Directors after the date of grant, and as to an
additional one-third (1/3) upon completion of each full year of service
thereafter. For any such Director serving in office on December 6, 1991, the
first such Option shall be granted on the date on which the most recent Option
previously granted to him, the vesting of which is contingent upon continued
service on the Board of Directors, becomes fully vested, and subsequent Options
under this Paragraph shall be granted on every third anniversary of such date.
Notwithstanding the provision of Section XI concerning amendment of the Plan,
the provisions of this Section VI.L. shall not be amended more than once every
six months, other than to comport with changes in the Internal Revenue Code of
1986, as amended, the Employee Retirement Income Security Act, or the rules
thereunder. The grants of options under this Paragraph L are intended to be
non-discretionary formula awards within the meaning of Rule 16b-3(c)(2)(ii).
Paragraph F of Article VI, which cancels the Options of any Participant
determined by the Committee to have been terminated for cause, shall not apply
to the awards under this Paragraph L.
M. Tax Withholding: In the event that any federal, state, or local income
taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.")
withholdings or other amounts are required by applicable law or governmental
regulation to be withheld from the Option holder's salary in connection with the
exercise of an Option, the Option holder shall advance in cash to the Company,
or to any Affiliate of the Company which employs or employed the Option holder,
the amount of such withholdings unless a different withholding arrangement,
including the use of shares of the Company's Common Stock, is authorized by the
Committee (and permitted by law), provided, however, that with respect to
persons subject to Section 16 of the 1934 Act, any such withholding arrangement
shall be in compliance with any applicable provisions of Rule 16b-3 promulgated
under Section 16 of the 1934 Act. For purposes hereof, the fair market value of
the shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Section VI.A. above, as of the most recent practicable
date prior to the date of exercise. If the fair market value of the shares
withheld is less than the amount of payroll withholdings required, the Option
holder may be
<PAGE>
required to advance the difference in cash to the Company or the Affiliate
employer.
N. Reload Options: The Committee may authorize reload options ("Reload
Options") to purchase for cash or shares a number of shares of Common Stock. The
number of Reload Options shall equal (i) the number of shares of Common Stock
used to exercise the underlying Options and (ii) to the extent authorized by the
Committee, the number of shares of Common Stock used to satisfy any tax
withholding requirement incident to the exercise of the underlying Options. The
grant of a Reload Option will become effective upon the exercise of underlying
Options through the use of shares of Common Stock held by the optionee for at
least 6 months. Reload Options must be evidenced in Option agreements or
amendments to those agreements. The Option price per share of Common Stock
deliverable upon the exercise of a Reload Option shall be the fair market value
of a share of Common Stock on the date the grant of the Reload Option becomes
effective. The term of each Reload Option shall be equal to the remaining option
term of the underlying Option. No additional Reload Options shall be granted to
Option holders when Options and/or Reload Options are exercised pursuant to the
terms of this Plan following termination of the Option holder's employment or on
account of death or total and permanent disability. All other provisions of this
Plan with respect to Options shall apply equally to Reload Options.
O. Rights as a Shareholder: No Option holder shall have rights as a
shareholder with respect to any shares covered by such Option except as to such
shares as have been registered in the Company's share register in the name of
such person upon the due exercise of the Option.
VII. PURCHASE FOR INVESTMENT
If and to the extent that the issuance of shares pursuant to the
exercise of Options is deemed by the Company to be subject to the United States
Securities Act of 1933, as now in force or hereafter amended ("1933 Act"), or to
the securities law of any other jurisdiction, the Company shall be under no
obligation to issue shares covered by such exercise unless the person or persons
who exercises or who exercise such Option shall make such warranty or take such
action as may be required by any applicable securities law of any applicable
jurisdiction and shall, in the case of the applicability of the 1933 Act, in the
absence of an effective registration under such Act with respect to such shares,
warrant to the Company, at the time of such exercise, that such person is or
that they are acquiring the shares to be issued to such person or to them,
pursuant to such exercise of the Option, for investment and not with a view to,
or for sale in connection with, the distribution of any such shares; and in such
<PAGE>
events the person or persons acquiring such shares shall be bound by the
provisions of a legend endorsed upon any share certificates expressing the
requirements of any applicable non-United States securities law, or, in cases
deemed governed by the 1933 Act, substantially the following legend, which shall
be endorsed upon the certificate or certificates evidencing the shares issued by
the Company pursuant to such exercise:
"The shares have not been registered under the securities laws of any
country, including the United States Securities Act of 1933, as amended, and the
Company may refuse to permit the sale or transfer of all or any of the shares
until (1) the Company has received an opinion of Counsel satisfactory to the
Company that any such transfer is exempt from registration under all applicable
securities laws or (2) in the case of sales or transfers to which the United
States Securities Act of 1933 is applicable, unless a registration statement
with respect to such shares shall be effective under such Act, as amended."
Without limiting the generality of the foregoing, the Company may delay
issuance of the shares until completion of any action or obtaining of any
consent which the Company deems necessary under any applicable law (including
without limitation state securities or "blue sky" laws).
VIII. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the outstanding Common Stock, $.01 par value, of the
Company is changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification,
change in par value, stock split-up, combination of shares or dividend payable
in capital stock, or the like, appropriate adjustment shall be made in the
number and kind of shares for the purchase of which Options may be granted under
the Plan, including Options to be granted pursuant to Article VI L hereof, and,
in addition, appropriate adjustment shall be made in the number and kind of
shares and in the Option price per share subject to outstanding Options so that
each Option holder shall be in a position equivalent to the position the Option
holder would have been in had the Option holder exercised the Options
immediately prior to the applicable event.
IX. DISSOLUTION OR LIQUIDATION OF THE COMPANY
Upon the dissolution or liquidation of the Company other than in connection
with transactions to which the preceding Article VIII is applicable, all Options
granted hereunder shall terminate and become null and void; provided, however,
that if the rights hereunder of an Option holder or one who acquired an
<PAGE>
Option by will or by the laws of descent and distribution have not otherwise
terminated and expired, the Option holder or such person shall have the right
immediately prior to such dissolution or liquidation to exercise any Option
granted hereunder to the extent that the right to purchase shares thereunder has
accrued as of the date of exercise immediately prior to such dissolution or
liquidation.
X. TERMINATION OF THE PLAN
Unless the Committee shall decide to reduce or, subject to shareholder
approval, if required under Article XI, to extend the duration of the Plan, the
Plan shall terminate on December 31, 2002. Termination of the Plan shall not
affect any Options granted or any Option agreements executed prior to the
effective date of termination.
XI. AMENDMENT OF THE PLAN
The Plan may be amended by the Committee or the Board of Directors of the
Company provided, however, that if the scope of any amendment is such as to
require shareholder approval in order to comply with Rule 16b-3 under the 1934
Act such amendment shall require approval by the shareholders. Any amendment
shall not affect any Options theretofore granted and any Option agreements
theretofore executed by the Company and any Option holder unless such amendment
shall expressly so provide. No amendment shall adversely affect any Option
holder with respect to an outstanding Option without the written consent of such
Option holder. With the consent of the Option holder affected, the Committee may
amend any outstanding Option agreement in a manner not inconsistent with the
Plan, including, without limitation, to accelerate the date of exercise of any
installment of any Option.
XII. EMPLOYMENT RELATIONSHIP
Nothing herein contained shall be deemed to prevent the Company or an
Affiliate from terminating the employment of any employee, nor to prevent any
employee from terminating his/her employment with the Company or an Affiliate.
XIII.EFFECTIVE DATE
This Plan first became effective on January 2, 1985.
BIOGEN, INC.
1982 INCENTIVE STOCK OPTION PLAN
(AS AMENDED THROUGH JUNE 20, 1998 AND RESTATED)
I. DEFINITIONS AND PURPOSE
A. Definitions: References in this document to the "Company" are to
Biogen, Inc., a Massachusetts corporation; reference to the "Plan" are to the
Biogen, Inc. 1982 Incentive Stock Option Plan; references to the "Code" are to
the United States Internal Revenue Code of 1986, as amended. Unless otherwise
specified or unless the context otherwise requires, the following terms, as used
in the Plan, have the following meanings:
1. "Affiliate" means a corporation which, for purposes of Section 422
of the Code, is a parent or subsidiary of the Company, direct or indirect.
2. "Disability" means permanent and total disability as defined in
Section 105(d)(4) of the Code.
3. "Key Employee" means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an officer of
the Company or of an Affiliate), designated by the Committee to be eligible to
be granted one or more Options under the Plan.
4. "Option" means a right or option granted under the Plan.
5. "Participant" means a Key Employee to whom one or more Options are
granted under the Plan. As used herein, "Participant" shall include
"Participant's Survivors" where the context requires.
6. "Participant's Survivors" means a deceased Participant's legal
representatives and/or any person or persons who acquired the Participant's
rights to an Option by will or by the laws of descent and distribution.
7. "Shares" mean those shares of the Common Stock, $.01 par value,
of the Company as to which Options
have been or may be granted under the Plan.
B. Purposes Of The Plan: The Plan is intended to encourage ownership of
the Shares of the Company by Key Employees in order to attract such Key
Employees, to induce such Key Employees to remain in the employ of the Company
or of an Affiliate and to provide additional incentive for such Key Employees to
promote
<PAGE>
the success of the Company or its Affiliates. It is further intended that
Options issued pursuant to the Plan shall be eligible to constitute "incentive
stock options" within the meaning of Section 422 of the Code.
II. SHARES SUBJECT TO THE PLAN
The aggregate number of Shares as to which Options may be granted from
time to time shall be 20,454,000; provided, however that such aggregate number
shall be reduced by the number of shares which have been sold under, or may be
sold pursuant to options granted from time to time under the Company's 1985
Non-Qualified Stock Option Plan (the "1985 Plan"), to the same extent as if such
sales had been made or options granted pursuant to this Plan.
If any option granted under this Plan or the 1985 Plan ceases to be
"outstanding", in whole or in part, other than by reason of the exercise of such
option, the shares which were subject to such option shall be available for the
granting of other Options. Any option shall be treated as "outstanding" until
such option is exercised in full, terminates under the provisions of this Plan
or the 1985 Plan, as the case may be, or expires by reason of lapse of time.
The aggregate number of Shares as to which Options may be granted shall
be subject to change only by means of an amendment of the Plan duly adopted by
the Company and approved by the Shareholders of the Company within one year
before or after the date of the adoption of any such amendment, subject to the
provisions of Article VII.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Stock and Option Plan
Administration Committee of the Company (the "Committee"). The membership of the
Committee shall be determined and shall be subject to change without cause and
without notice from time to time, by the Company.
The Committee is authorized to interpret the provisions of the Plan or
of any Option and to make all rules and determinations necessary or advisable
for the administration of the Plan. It may from time to time determine which
employees of the Company or of any Affiliate shall be designated as Key
Employees and which of the Key Employees shall be granted Options and, subject
to the other provisions of the Plan, the number of Shares for which an Option or
Options shall be granted. Subject to the provisions of the Plan, Options may be
granted upon such
<PAGE>
terms and conditions as the Committee may prescribe; provided, however, that
such terms and conditions shall be prescribed in the context of preserving, to
the extent reasonably possible, the United States tax status of the Options as
incentive stock options.
This Plan is intended to comply in all respects with Rule 16b-3 or its
successors promulgated under the Securities Exchange Act of 1934 ("1934 Act")
with respect to participants who are subject to Section 16 of the 1934 Act, and
any provision in this Plan with respect to such persons contrary to Rule 16b-3
shall be deemed null and void to the extent permissible by law and deemed
appropriate by the Committee.
IV. ELIGIBILITY FOR PARTICIPATION
Each Participant must be a Key Employee of the Company or of an
Affiliate at the time an Option is granted.
The Committee may grant to one or more Key Employees one or more
Options, and shall designate the number of Shares to be optioned under each
Option so granted; provided, however, that no Options shall be granted after
December 31, 2002, and provided further, that the fair market value (determined
as of the date the Options are granted) of the Shares as to which incentive
stock options granted on or after January 1, 1987 by the Company or its
Affiliates to any individual employee under the Plan and/or under any other
incentive stock option plans are exercisable for the first time in any one
calendar year shall not exceed $100,000.
Notwithstanding any of the foregoing provisions, the Committee may
authorize the grant of an Option to a person not then in the employ of the
Company or of an Affiliate, conditioned upon such person becoming eligible to be
a Participant at or prior to the execution of the Option agreement evidencing
such Option.
In no event shall any employee be granted in any calendar year options
to purchase or receive more than 1,200,000 shares of the Company's Common Stock
pursuant to this Plan.
V. TERMS AND CONDITIONS
Each Option shall be set forth in writing in an Option agreement, duly
executed on behalf of the Company and by the Participant to whom such Option is
granted. No Option shall be deemed to have been granted and no purported grant
of any Option shall be effective, until such Option shall have been approved by
<PAGE>
the Committee. The Committee may provide that Options be granted subject to such
conditions as the Committee may deem appropriate, including without limitation,
subsequent approval by the shareholders of the Company of this Plan or any
amendments thereto. Each such Option agreement shall be subject to at least the
following terms and conditions:
A. Option Price: If, including for this purpose the Shares which are
the subject of Options previously granted and outstanding or proposed to be
granted hereunder, the optionee owns 10% or less of the total combined voting
power of all classes of share capital of the Company, the Option price (per
share) of the Shares covered by each Option granted hereunder shall be not less
than the fair market value (per share) of the Shares on the date of the grant of
the Option; provided, however, that in no event shall the Option price be less
than the par value per share of Common Stock. In all other cases, the Option
price shall be not less than 110% of the said fair market value. For purposes
hereof, the fair market value shall be the average between the high and low sale
prices, as reported in the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") for the date of the grant of the Option or, if none,
for the most recent trading date thirty (30)days or less prior to the date of
the grant of the Option on which the Common Stock was traded. If the fair market
value cannot be determined under the preceding sentence, it shall be determined
in good faith by the Committee.
B. Number of Shares: Each Option shall state the number of Shares to
which it pertains.
C. Term of Option: Each Option shall terminate at such date as the
Committee, at the time it authorizes the grant of the Option, shall determine,
and shall be subject to earlier termination as herein provided, except that if
the option price is required under Paragraph A of this Article V to be at least
110% fair market value, each such Option shall terminate not more than five (5)
years from the date of the grant hereof; and provided that in no case may the
term of any Option exceed ten (10) years.
D. Date of Exercise: The Committee may prescribe the date or dates on
which the Option becomes exercisable, and may provide that the Option rights
accrue or become exercisable in installments over a period of months or years,
or upon the attainment of stated goals. The Committee may stipulate that any
Option which becomes exercisable shall be subject to cancellation or that Shares
purchased upon the exercise of such Option shall
<PAGE>
be subject to repurchase rights in favor of the Company. In such event, the
Committee shall determine the date or dates, or event or events, upon which such
cancellation or repurchase rights shall become effective or shall lapse, as the
case maybe.
E. Medium of Payment: The option price shall be payable upon the
exercise of the Option. It shall be payable in cash, or, if permitted by the
Committee and by Section 422 of the Code, in shares or other consideration.
F. Prior Options: By its terms, each Option granted prior to January 1,
1987 under the Plan to a Participant, shall not be exercisable while there
is"outstanding" any other incentive stock option (as defined in the predecessor
to Section 422 of the Code), which was granted before the grant of such Option,
to such Participant to purchase Shares in the Company or in an Affiliate or in a
predecessor of the Company or of an Affiliate.
G. Termination of Employment: A Participant who ceases (for any reason
other than death or disability or termination by the Participant's employer for
cause) to be an employee of the Company or of an Affiliate, may exercise any
Option granted to such Participant, to the extent that the right to purchase
Shares thereunder has accrued on the date of such termination of employment, but
only within three (3) months, or such shorter period as may be determined by the
Committee, after such date, or, if earlier, within the originally prescribed
term of the Option. A Participant's employment shall not be deemed terminated by
reason of a transfer to another employer which is the Company or an Affiliate.
A Participant whose employment is terminated by the Participant's
employer for cause shall forthwith upon such termination cease to have any right
to exercise any Option. For purposes of this paragraph, "cause" shall be deemed
to include dishonesty with respect to the employer, insubordination, substantial
malfeasance or non-feasance of duty, unauthorized disclosure of confidential
information, and conduct substantially prejudicial to the business of the
Company or any Affiliate. The determination of the Committee as to the existence
of cause shall be conclusive on the Participant and Company.
A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of temporary
disability, or who is on leave of absence for any purpose permitted by any
authoritative interpretation of Section 422, shall not, during the period of any
such absence, be deemed, by virtue of such absence alone, to have terminated his
employment with the Company or with an
<PAGE>
Affiliate, except as the Committee may otherwise expressly provide.
H. Disability: If a Participant ceases to be an employee of the Company
or of an Affiliate by reason of Disability, any Option held by him or her on the
date of Disability shall be exercisable as to all or any part of the Shares
subject to the Option, all of which shares shall be fully vested as of the date
of such Disability. A Disabled Participant may exercise such Option only within
a period of one (1) year after the date as of which the Committee determines
that he or she became Disabled, or, if earlier, within the originally prescribed
term of the Option.
I. Death: If a Participant dies while the Participant is an employee of
the Company or of an Affiliate, any Option held by him or her at the date of
death shall be exercisable as to all or any part of the Shares subject to the
Option, all of which shares shall be fully vested as of the date of the
Participant's death. A deceased Participant's Survivors may exercise such Option
only within a period of one (1) year after the date of death, or, if earlier,
within the originally prescribed term of the Option.
J. Exercise of Option and Issue of Shares: Options shall be exercised
by giving written notice to the Company, addressed to the Company at the address
specified in the Option agreement, with which the Participant shall tender the
Option price. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised, and shall contain any warranty required by Article VI. The
issuance of the Shares may be delayed by the Company if any law or regulation
requires the Company to take any action with respect to the shares prior to the
issuance thereof. Without limiting the generality of the foregoing, nothing
contained herein shall be deemed to require the Company to issue any Shares if
prohibited by law or applicable regulation.
The Shares shall, upon delivery, be evidenced by an appropriate
certificate or certificates in respect of paid-up, non-assessable Shares.
K. Rights as a Shareholder: No Participant to whom an Option has been
granted shall have rights as a shareholder with respect to any Shares covered by
such Option except as to such Shares as have been registered in the Company's
share register in the name of such Participant upon the due exercise of the
Option.
L. Assignability and Transferability of Options: By its
<PAGE>
terms, an Option granted to a Participant shall not be transferable by the
Participant otherwise than by will or by the laws of descent and distribution
and shall be exercisable, during the Participant's lifetime, only by such
Participant. Such Option shall not be assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment, or similar process. Any attempted transfer, assignment,
pledge, hypothecation, or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Paragraph L, or the levy
of any attachment or similar process upon an Option or such rights, shall be
null and void.
M. Tax Withholding: In the event that any federal, state, or local income
taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.")
withholdings or other amounts are required by applicable law or governmental
regulation to be withheld from the Option holder's salary in connection with the
exercise of an Option, the Option holder shall advance in cash to the Company,
or to any Affiliate of the Company which employs or employed the Option holder,
the amount of such withholdings unless a different withholding arrangement,
including the use of shares of the Company's Common Stock, is authorized by the
Committee (and permitted by law), provided, however, that with respect to
persons subject to Section 16 of the 1934 Act, any such withholding arrangement
shall be in compliance with any applicable provisions of Rule 16b-3 promulgated
under Section 16 of the 1934 Act. For purposes hereof, the fair market value of
the shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Section V.A. above, as of the most recent practicable
date prior to the date of exercise. If the fair market value of the shares
withheld is less than the amount of payroll withholdings required, the Option
holder may be required to advance the difference in cash to the Company or the
Affiliate employer.
N. Reload Options: Concurrently with the award of Options under the
Plan, the Committee may authorize reload options ("Reload Options") to purchase
for cash or shares a number of shares of Common Stock. The number of Reload
Options shall equal (i) the number of shares of Common Stock used to exercise
the underlying Options and (ii) to the extent authorized by the Committee, the
number of shares of Common Stock used to satisfy any tax withholding requirement
incident to the exercise of the underlying Options. The grant of a Reload Option
will become effective upon the exercise of underlying Options or Reload Options
through the use of shares of Common Stock held by the optionee for at least 6
months. Reload Options must be evidenced in Option agreements.
The Option price per share of Common Stock
<PAGE>
deliverable upon the exercise of a Reload Option shall be determined in
accordance with Paragraph V.A. hereof on the date the grant of the Reload Option
becomes effective. The term of each Reload Option shall be equal to the
remaining option term of the underlying Option. No additional Reload Options
shall be granted to Option holders when Options and/or Reload Options are
exercised pursuant to the terms of this Plan following termination of the Option
holder's employment or on account of death or total and permanent disability.
All other provisions of this Plan with respect to Options shall apply equally to
Reload Options.
O. Other provisions: The Option agreements authorized under the Plan
shall be subject to such other terms and conditions, including, without
limitation, restrictions upon the exercise of the Option, as the Committee shall
deem advisable. Any such Option agreement shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
such Option can be an "incentive stock option" within the meaning of the Section
442 of the Code.
VI. Purchase for Investment
If, and to the extent that, the issuance of Shares pursuant to the
exercise of Options is deemed by the Company to be subject to the United States
Securities Act of 1933, as now in force or hereafter amended, ("1993 Act"), or
to the securities laws of any other jurisdiction, the Company shall be under no
obligation to issue the Shares covered by such exercise unless the person or
persons who exercises or who exercise such Option shall make such warranty as
may be required by any applicable securities law of any applicable jurisdiction
and shall, in the case of the applicability of the 1933 Act, in the absence of
an effective registration under such Act with respect to such Shares, warrant to
the Company, at the time of such exercise, that such person is or that they are
acquiring the Shares to be issued to such person or to them, pursuant to such
exercise of the Option, for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and in such events the
person or persons acquiring such Shares shall be bound by the provisions of a
legend endorsed upon any share certificates expressing the requirements of any
applicable non-United States securities law, or, in cases deemed governed by the
1933 Act substantially the following legend, which shall be endorsed upon the
certificate or certificates evidencing the Shares issued by the Company pursuant
to such exercise:
"The shares have not been registered under the securitieslaws of any
country including the UnitedStates Securities Act of 1933, as amended,and
the Company may refuse to permit the sale or transfer of all or any of
the shares until (1) the Company has received an opinion of Counsel
satisfactory to the Company that any such transfer is exempt from
registration under all applicable securities laws or (2) in the case of
sales or transfer to which the United States Securities Act of 1933
is applicable, unless a registration statement with respect to such
shares shall be effective under such Act, as amended."
Without limiting the generality of the foregoing, the Company may delay
issuance of the Shares until completion of any action or obtaining of any
consent which the Company deems necessary under any applicable law (including,
without limitation, state securities or "blue sky" laws).
VII. Adjustments upon Changes in Capitalization
In the event that the outstanding Common Stock, $.01 par value, of the
Company is changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification,
change in par value, stock split-up, combination of shares or dividend payable
in capital stock, or the like, appropriate adjustment shall be made in the
number and kind of Shares for the purchase of which Options may be granted under
the Plan, and, in addition, appropriate adjustment shall be made in the number
and kind of Shares and in the Option price per share subject to outstanding
Options so that each Option holder shall be in a position equivalent to the
position the Option holder would have been in had the Option holder exercised
the Options immediately prior to the applicable event. No such adjustment shall
be made which shall, within the meaning of Section 424 of the Code, constitute
such a modification, extension or renewal of any Option as to cause it to be
considered as the grant of a new Option.
VIII. Dissolution or Liquidation of the Company
Upon the dissolution or liquidation of the company other than in
connection with a transaction to which the preceding Article VII is applicable,
all Options granted hereunder shall terminate and become null and void;
provided, however, that if the rights of a Participant or the Participant's
Survivors hereunder have not otherwise terminated and expired, the Participant
or the Participant's Survivors shall have the right
<PAGE>
immediately prior to such dissolution or liquidation to exercise any Option
granted hereunder to the extent that the right to purchase Shares thereunder has
accrued as of the date of exercise immediately prior to such dissolution or
liquidation.
IX. Termination of the Plan
The Plan shall terminate on December 31, 2002. The Plan may be
terminated at an earlier date by vote of the Shareholders; provided, however,
that expiration or any such earlier termination shall not affect any Option
granted or Option agreements executed prior to expiration or the effective date
of such termination.
X. Amendment of the Plan
The Plan may be amended by action of the Committee or the Board of
Directors of the Company; provided, however, that if the scope of any amendment
is such as to require shareholder approval in order to preserve incentive stock
option treatment, then such amendments shall also require approval, within one
(1) year before or after the adoption thereof, by the shareholders, and provided
further that if the scope of any amendment is such as to require shareholder
approval in order to comply with Rule 16b-3 under the 1934 Act, then such
amendment shall also require approval by the shareholders. Any amendment shall
not affect any Options theretofore granted and any Option agreements theretofore
executed by the Company and a Participant, unless such amendment shall expressly
so provide. No amendment shall adversely affect any Participant with respect to
an outstanding Option without the written consent of such Participant. With the
consent of the Option holder affected, the Committee may amend any outstanding
Option agreement in a manner not inconsistent with the plan, including, without
limitation, to accelerate the date of exercise of any installment of any Option.
XI. Employment Relationship
Nothing herein contained shall be deemed to prevent the Company or an
Affiliate from terminating the employment of a Participant, nor to prevent a
Participant from terminating the Participant's employment with the Company or an
Affiliate.
XII. Effective Date
This Plan first became effective as of January 8, 1982, subject to the
approval, within one (1) year after such adoption, of the shareholders of the
Company.
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<CURRENT-ASSETS> 612,325
<PP&E> 254,053
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0
0
<COMMON> 741
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<SALES> 163,173
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<CGS> 32,044
<TOTAL-COSTS> 166,553
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</TABLE>
