SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 12(g)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 12(g)
of the Securities Exchange Act of 1934
For the Transition Period from _____ to _____
Commission File Number 0-26144
International Murex Technologies Corporation
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(Exact name of registrant as specified in its charter)
Province of British Columbia, Canada N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Woodlawn Road West, Guelph, Ontario, Canada N1K 1B8
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 519-836-8440
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3075 Northwoods Circle, Norcross, Georgia USA 30071
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(Former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 12(g) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of common shares outstanding as of November 12, 1996 was
16,280,196 excluding treasury shares.
Page 1 of 20
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Quarterly Report on Form 10-Q
For the Nine Months Ended September 30, 1996
Table of Contents
-----------------
Item Page
Number PART I -- FINANCIAL INFORMATION Number
------ ------
1 Financial Statements
Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1996 and 1995 5
Consolidated Statement of Changes in
Shareholders' Equity for the
Period January 1, 1995 to September 30, 1996 6
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II -- OTHER INFORMATION
1 Legal Proceedings 18
6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U. S. Dollars)
September 30, December 31,
----------------------------
1996 1995
- ---------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,774 $ 15,771
Accounts receivable, net of allowance
for doubtful accounts of $2,847
and $3,410, respectively 32,640 34,836
Inventories 20,498 16,941
Amounts due from affiliate 3,600
Prepaid and other 2,247 2,851
-----------------------------
Total current assets 66,759 70,399
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PROPERTY, PLANT AND EQUIPMENT-
at cost less accumulated depreciation
and amortization 9,718 9,231
PATENTS, TRADEMARKS AND LICENSES-
at cost less accumulated amortization 5,114 229
OTHER ASSETS 3,007 5,889
----------------------------
TOTAL $ 84,598 $ 85,748
==========================================================================
See notes to consolidated financial statements.
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September 30, December 31,
-------------------------------
1996 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $ 10 $ 44
Trade accounts payable 10,356 7,586
Accrued expenses:
Professional fees 3,640 2,502
Royalty payments 3,006 13,397
Employee related compensation 5,984 3,963
Income taxes payable 1,313 1,709
Litigation settlements 4,816 2,910
Accrued restructuring 2,100
Other 4,297 3,551
Current portion of capitalized lease
obligations 164 229
------------------------------
Total current liabilities 35,686 35,891
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DEFERRED RENT 130 80
CAPITALIZED LEASE OBLIGATIONS 154 246
SHAREHOLDERS' EQUITY
Common shares, without par value,
200,000,000 shares authorized; 16,270,662 and
16,688,931 shares issued, respectively 82,668 84,136
Additional paid-in capital 13,906 13,906
Accumulated deficit (43,495) (43,504)
Less cost of 101,043 and 532,243 common shares
held in treasury, respectively (5) (1,514)
Accumulated currency translation adjustment (4,446) (3,493)
------------------------------
Shareholders' equity 48,628 49,531
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TOTAL $ 84,598 $ 85,748
============================================================================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. Dollars, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ---------------------
1996 1995 1996 1995
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REVENUES:
Product sales $ 24,917 $ 20,683 $ 75,291 $ 68,206
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Total revenues 24,917 20,683 75,291 68,206
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COSTS AND EXPENSES:
Cost of products sold 8,556 6,937 26,911 21,788
Research and development 1,504 1,695 4,918 5,669
General and administrative 10,147 5,997 20,452 17,301
Sales and marketing 7,164 6,740 21,892 19,988
Foreign exchange loss (gain) 227 (154) 951 (936)
Royalty expense (5,916) 1,961 (3,124) 6,344
Restructuring expense 2,100 2,100
---------------------- ---------------------
Total costs and expenses 23,782 23,176 74,100 70,154
---------------------- ---------------------
Income (Loss) From Operations 1,135 (2,493) 1,191 (1,948)
Interest income 138 251 447 781
Interest expense (92) (41) (1,058) (104)
Gain on asset disposals 74 27 78 69
Settlement of litigation (3,123)
Gain (loss) on liquidation
of investee 444 (43)
Other income (expense) 21 20 125 (123)
---------------------- ---------------------
Income (loss) before income taxes 1,720 (2,236) 740 (4,448)
Income tax expense (benefit) 428 (129) 731 842
---------------------- ---------------------
NET INCOME (LOSS) $ 1,292 $ (2,107) $ 9 $ (5,290)
====================== =====================
Net income (loss) per
common share $ 0.08 $ (0.13) $ 0.00 $ (0.32)
====================== =====================
Weighted average shares
outstanding (in thousands) 16,447 16,313 16,257 16,427
====================== =====================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. Dollars, except share data)
<TABLE>
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<CAPTION>
Accumulated
Common Stock Additional Currency Total
---------------- Paid-In Accumulated Treasury Translation Shareholders'
Shares Amount Capital Deficit Shares Adjustment Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 16,778,646 $84,082 $13,906 ($36,894) ($5) ($4,585) $56,504
Issued pursuant to employee
stock purchase plan 17,375 54 54
Shares repurchased for treasury (1,509) (1,509)
Retirement of escrowed shares (107,144)
Issued in exchange for
subsidiary shares 54
Net (loss) (6,610) (6,610)
Foreign currency translation 1,092 1,092
---------- ------- ------- -------- ------ ------- -------
December 31, 1995 16,688,931 84,136 13,906 (43,504) (1,514) (3,493) 49,531
Issued pursuant to employee
stock purchase plan 12,731 40 40
Issued pursuant to employee
stock option plan 200 1 1
Retirement of treasury shares (431,200) (1,509) 1,509
Net income 9 9
Foreign currency translation (953) (953)
---------- ------- ------- -------- ------ ------- -------
September 30, 1996 16,270,662 $82,668 $13,906 ($43,495) ($5) ($4,446) $48,628
========== ======= ======= ======== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
Nine Months Ended September 30,
-------------------------------
1996 1995
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OPERATING ACTIVITIES:
Net income (loss) $ 9 $ (5,290)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,243 3,239
Gain on sale of property and equipment (78) (69)
Changes in working capital:
Accounts receivable 2,196 (1,487)
Inventories (3,557) (1,006)
Prepaid expenses and other assets (108) 1,026
Trade accounts payable 2,770 (104)
Accrued expenses (2,871) 5,025
----------------------------
Net cash provided by (used in) operating
activities 1,604 1,334
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INVESTING ACTIVITIES:
Additions to property and equipment (3,537) (3,809)
Additions to patents and licenses (5,154) (101)
Proceeds from sale of property and equipment 154 232
----------------------------
Net cash (used in) investing activities (8,537) (3,678)
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FINANCING ACTIVITIES:
Increase in borrowings under line of credit 52
Reduction of other long-term liabilities (152) (318)
Proceeds from issuance of common shares 41 46
Repurchase of shares for treasury (1,121)
----------------------------
Net cash (used in) financing activities (111) (1,341)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (953) 959
Net (Decrease) in Cash and Cash Equivalents (7,997) (2,726)
Cash and Cash Equivalents at Beginning of Period 15,771 19,213
----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,774 $ 16,487
==============================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $447 $91
Cash paid for income taxes $1,127 $1,855
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Consolidated Statements of Cash Flows (Continued)
(In thousands of U.S. Dollars)
==========================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30, 1996, IMTC retired $1,509
of shares held in treasury.
During the nine months ended September 30, 1996, a subsidiary of the
Company, Specialist Diagnostics Limited ("SDL"), entered voluntary
liquidation. Its financial statements were deconsolidated. As of September
30, 1996, IMTC and its subsidiaries represented the sole creditors,
therefore in the financial statements the subsidiary is assumed to be fully
liquidated, resulting in a receivable of $3,600. See Note 5 to the
consolidated financial statements.
Unpaid acquisition costs totaled $0 and $750 at September 30, 1996 and
1995, respectively.
During the nine months ended September 30, 1995, the Company entered
into capital lease obligations of approximately $53.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Notes to Consolidated Financial Statements
(In thousands of U.S. Dollars)
==========================================================================
1. NATURE OF THE COMPANY AND BASIS OF PRESENTATION:
International Murex Technologies Corporation ("IMTC") has many
separately incorporated subsidiaries operating throughout the world
generally under the name Murex Diagnostics (the "Murex Group"). The
Murex Group develops, manufactures and markets medical diagnostic
products and provides medical services for the screening, diagnosis
and monitoring of infectious diseases and other medical conditions.
(IMTC and the Murex Group are collectively referred to herein for
consolidated financial purposes only as the "Company".)
The accompanying financial statements include IMTC and its wholly-
owned, separately incorporated subsidiaries doing business in various
territories generally under the name Murex Diagnostics; Murex
Holdings Corporation ("MHC"), a Delaware corporation; MHC's majority
owned subsidiary Murex Corporation ("Murex"), a Delaware corporation;
and Murex's wholly owned subsidiaries. Subsequent to December 31,
1995, IMTC's United Kingdom ("UK") operating business was restructured
into two companies, Murex Diagnostics Limited ("MDL") and Murex
Biotech Limited ("MBL"). MDL subsequently changed its name to
Specialist Diagnostics Limited ("SDL") (see Note 5) and entered
voluntary liquidation. Co-liquidators have been appointed. As of
September 30, 1996, IMTC and its subsidiaries represented the sole
creditors, therefore, in the financial statements, the subsidiary is
assumed to be fully liquidated. IMTC, through its subsidiary MHC,
purchased additional shares of Murex from Murex's minority
shareholders from July 1993 through August 1995, bringing its total
ownership percentage to greater than 95%. During August 1995, Murex
was merged with MHC and MHC was merged with Murex Diagnostics, Inc.
The previous minority interest's portion of Murex's continued losses
in excess of their basis has not been recorded because management
considers that it is not currently realizable.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X promulgated by the Securities and Exchange Commission.
Such financial statements do not include all disclosures required by
generally accepted accounting principles for annual financial
statement reporting purposes. However, there has been no material
change in the information disclosed in the Company's annual
consolidated financial statements dated December 31, 1995, except as
disclosed herein. Accordingly, the information contained herein
should be read in conjunction with such annual consolidated financial
statements and related disclosures. The accompanying financial
statements reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
Results of operations for the quarter and nine months ended September
30, 1996 are not necessarily indicative of results expected for an
entire year.
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2. INVENTORIES:
September 30, December 31,
1996 1995
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Raw materials and supplies . . . . . . . $5,529 $4,842
Work in process . . . . . . . . . . . . 4,704 4,292
Finished goods . . . . . . . . . . . . . 10,265 7,807
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Total inventories . . . . . . . . . . . $20,498 $16,941
======= ======
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3. CONTINGENCIES:
(a) HCV PATENT INFRINGEMENT: The Murex Group's business utilizes
newly developed technologies that include patents on processes
and devices. These types of technologies are the focal point for
the biotechnology industry. The ownership and patentability of
such processes or devices have become increasingly complex,
resulting in competitive claims of ownership within the industry.
Several subsidiaries of the Murex Group were involved in patent
infringement litigation in several countries against Chiron
Corporation ("Chiron") and Ortho Diagnostics Systems, Inc.
("Ortho") related to Chiron's hepatitis C ("HCV") test.
On August 27, 1996, the Company reached a worldwide agreement
with Chiron and Ortho concerning tests for HCV under which all
litigation between the parties permanently ceased.
The agreement grants the Company, as well as its affiliates, a
license to sell HCV Serotyping tests worldwide and licenses other
HCV tests in selected countries excluding North America, European
Economic Community members and Japan. The license under this
agreement carries a guaranteed minimum royalty for seven years.
The agreement also grants to the Chiron-Ortho joint business
rights to the Murex Sample Addition Monitor ("SAM(TM)")
technology and an option to sell the Company's HCV Serotyping
test.
The agreement provides Chiron the opportunity to acquire the
Company's HCV immunoassay business in the event the Company
receives an offer to purchase 50% or more of the combined voting
power of the Company's then outstanding securities, or if the
Company's Board of Directors approves a merger, or the sale of
all or substantially all of the Company's assets. If Chiron does
not exercise this option the Company is entitled to transfer its
rights and licenses under this agreement described above.
(b) ABBOTT PATENT INFRINGEMENT: On July 2, 1996, Murex Diagnostics
Corporation ("MDC"), a subsidiary of the Company, filed a patent
infringement suit against Abbott Laboratories ("Abbott") in the
Northern District Court of Georgia, seeking injunctive relief
against Abbott and damages for infringement of a patent held by
MDC for a particle bound binding component immunoassay. The suit
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alleges that two Abbott systems, the Abbott IMx(TM) Immunoassay
and the Abbott AxSYM(TM) System, infringe one or more claims of
the Company's patent. Preliminary motions have been filed.
(c) UNITED KINGDOM TAX DISPUTES: During October 1995, Her Majesty's
Customs and Excise Tax required MDL to pay approximately $900 in
Value Added Tax ("VAT") related to its central cost allocation
agreements with its subsidiaries. Management believed this
assessment was incorrect and lodged an appeal. During February
1996, a preliminary hearing was held and the judge ruled that
this case must be heard by a UK Tribunal. In July 1996, the UK
Tribunal ruled in the Company's favor and this assessment has
been withdrawn. In addition to receiving a refund of the $900
assessment, the Company is entitled to compound interest and
expenses related to defending its position.
During 1995, the UK Inland Revenue questioned the tax basis of
inventory, accounts receivable and property, plant and equipment
related to the 1992 purchase of assets from The Wellcome
Foundation Limited ("Wellcome".) If the Inland Revenue is
successful in its argument, a tax charge of up to $4.2 million
could arise. Management believes it has meritorious defenses
against the claims of the Inland Revenue and, therefore, has not
recorded a provision for losses related to this matter.
(d) CLASS ACTIONS: Four class action lawsuits were instituted on
behalf of all persons who had purchased IMTC's securities between
May 21, 1992 and August 19, 1992 against IMTC, two executive
officers of IMTC, and Messrs. Edward J. DeBartolo, Sr. (now
deceased) and Edward J. DeBartolo, Jr., in the Southern District
of Texas, Houston Division. In January 1993, the class actions
were voluntarily transferred to the United States District Court,
Eastern District of New York. The complaints alleged that the
defendants omitted and/or misrepresented material facts about
IMTC which resulted in artificially inflating the market price of
IMTC's securities permitting, in part, Messrs. DeBartolo, Sr. and
DeBartolo, Jr. to sell their IMTC securities in violation of the
federal and Texas securities laws. One further action alleged
violations of insider trading rules under the federal securities
laws. The defendants answered denying the allegations in the
complaints. On May 2, 1995, IMTC announced an agreement among
the parties to settle all outstanding claims for $5.4 million, a
portion of which is to be paid by IMTC. The settlement agreement
was preliminarily approved by the court in June 1996, with the
final hearing scheduled for November 1996. IMTC has accrued costs
related to this settlement, including its portion of the
settlement payment.
(e) OTHER MATTERS: In August 1992, Allen F. Campbell, as trustee for
two trusts, instituted an action against IMTC, Murex, an
executive officer of IMTC, Mr. DeBartolo, Jr., and others in the
District Court for Montgomery County, Texas. In January 1993,
the Court transferred the action to the U.S. District Court,
Northern District of Texas, and dismissed the other defendants
from the proceedings. The plaintiffs sought substantial damages,
and other relief, including rescission of certain transactions,
based upon, among other charges, alleged subrogation rights to
receive payments due under certain promissory notes payable by
Murex to Mr. DeBartolo, Jr., and alleged violations of state
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securities and corporation laws and common law fraud. A similar
suit was filed in Gwinnett County, Georgia in June 1994. On
March 24, 1995, the parties entered into a settlement agreement
whereby Allen F. Campbell, et al, dismissed both actions with
prejudice, released all parties and relinquished all shares of
stock held in Murex in return for payments over four years.
Reserves have been recorded for such payments.
In November 1992, Deacon Barclays de Zoete Wedd Limited
("DBZW")filed a lawsuit in Ontario, Canada against IMTC alleging
that IMTC has refused or neglected to pay a contractual fee to
DBZW for its assistance in the 1992 purchase of the diagnostics
division of Wellcome. The plaintiff sought payment of
approximately $1 million plus expenses. On April 12, 1996 the
parties agreed to settle all outstanding claims against each
other in return for payment by IMTC of approximately $750 during
1996. At September 30, 1996, all amounts had been paid. The
Company had accrued $750 as a cost of the acquisition during
1992.
4. INNOGENETICS AGREEMENT
During February 1996, Murex Diagnostics Corporation ("MDC") entered
into an exclusive distribution, development and license agreement with
Innogenetics N.V. ("Innogenetics") to develop and market gene probe
products for tissue typing, genetics, microbial species detection
(viral, bacterial and fungal), and mutation identification as part of
a diagnostic and patient monitoring strategy. Under the terms of the
agreement, MDC will pay $5.9 million during 1996 and $1.6 million
during 1997 to Innogenetics for the rights to distribute certain
Innogenetics' products for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics'
products. Also under this agreement, MDC is to fund agreed-upon
research and development programs, beginning in 1998 and for each of
the following 13 years, in an amount equal to 20% of the Murex Group's
net sales of Innogenetics' products. MDC is continuing to negotiate
with current Innogenetics' distributors to expedite the transfer of
business.
5. RESTRUCTURING, RENAMING, AND VOLUNTARY LIQUIDATION OF MUREX
DIAGNOSTICS LIMITED
During the first quarter of 1996, one of IMTC's UK subsidiaries, MDL
was restructured to maximize tax and operational efficiencies. MDL
retained the business encompassing the sale in the UK of all HCV
products and the manufacturing of the HCV Serotyping test. All other
MDL business was sold to another of IMTC's UK subsidiaries, MBL.
Subsequent to the restructuring, MDL was renamed SDL. SDL entered
voluntary liquidation following the British High Court ruling that an
interim cash security of $9.3 million be posted by SDL relating to its
ongoing patent litigation with Chiron and Ortho (see Note 3 (a)). Co-
liquidators have been appointed. As of September 30, 1996, IMTC and
its subsidiaries represented the sole creditors, therefore in the
consolidated financial statements the subsidiary is assumed to be
fully liquidated.
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6. RESTRUCTURING ACCRUAL
During September 1996, the Company recorded a restructuring charge of
$2.1 million before tax. The restructuring was driven by the need to
reposition the Company for its movement into the patient monitoring
business. The world-wide plan will result in personnel reductions of
approximately 50 people from various functions. The restructuring
provision consists predominantly of estimated costs for employee
severance and other benefits.
7. RECONCILIATION OF CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("CANADIAN GAAP" AND U.S. GAAP")
There were no differences between Canadian GAAP and U.S. GAAP during
the year ended December 31, 1995 and the quarter and nine months ended
September 30, 1996.
8. SUBSEQUENT EVENT
On November 12, 1996, the Company entered into a three year $15
million asset-based line of credit facility which is collateralized by
the accounts receivable and inventory of its U.S., U.K., and Barbados
subsidiaries. This line of credit bears interest at LIBOR plus 2.5% or
prime.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Nine Months Ended September 30, 1996
Part I - Financial Information
__________________________________________________________________________
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts expressed in U.S. Dollars)
FINANCIAL CONDITION
During the three and nine months ended September 30, 1996, IMTC and
the Murex Group (collectively referred to herein for consolidated financial
purposes only as the "Company"), earned income from operations and
maintained positive working capital.
Litigation and Technology Disputes
As discussed in the Note 3 to the consolidated financial statements,
IMTC and several of the Murex Group have been involved in several lawsuits,
including technology patent issues, which have now been settled. The
Company is not presently the defendant in any material judicial proceeding.
As discussed in Note 3, the Company has remaining obligations related to
these matters, which have been accrued in the consolidated financial
statements. The Company continues to defend one UK Inland Revenue claim and
is vigorously pursuing its patent infringement suit against Abbott
Laboratories, both of which are discussed below. For more complete
information refer to Note 3 of the consolidated financial statements.
On July 2, 1996, Murex Diagnostics Corporation ("MDC"), a subsidiary
of the Company, filed a patent infringement suit against Abbott
Laboratories seeking injunctive relief against Abbott and damages for
infringement of a patent held by MDC for a particle bound binding component
immunoassay. The suit alleges that two Abbott systems, the Abbott IMx
Immunoassay and the Abbott AxSYM System, infringe one or more claims of the
patent.
During 1995, the UK Inland Revenue questioned the tax basis of
inventory, accounts receivable and property, plant and equipment related to
the 1992 purchase of assets from Wellcome. If the Inland Revenue is
successful in its argument, a tax charge of up to $4.2 million could arise.
Management believes it has meritorious defenses against the claims of the
Inland Revenue and, therefore, has not recorded a provision for losses
related to this matter.
Liquidity and Capital Resources
The Company has sufficient cash resources and adequate working capital
to carry on its current business and meet existing capital requirements.
The Company earned income from operations during the quarter and nine
months ended September 30, 1996. Working capital totaled $31,073,000 at
September 30, 1996. On November 12, 1996, the Company entered into a three
year $15 million asset-based line of credit facility which is
collateralized by the accounts receivable and inventory of its U.S., U.K.
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and Barbados subsidiaries. This line of credit bears interest at LIBOR plus
2.5% or prime.
The Company's working capital and capital requirements will depend
upon numerous factors, the results of research and development, the levels
of resources devoted to the establishment and expansion of marketing and
manufacturing, technological developments, and the timing and costs of
obtaining approvals for new products. Depending on the outcome of these
factors, the Company may need to raise additional funds in the future for
use to fund acquisitions, complete products in development, and for general
purposes. There are no assurances that such funds will be available on
favorable terms, if at all.
As discussed in Note 3 of the consolidated financial statements, IMTC
had agreed to settle the class action and Campbell litigations during the
first quarter of 1995. These settlements will result in future payments of
approximately $2,800,000, which amounts have been accrued.
On April 12, 1996, the parties in Deacon Barclays de Zoete Wedd
litigation agreed to settle all outstanding claims against each other in
return for payment by IMTC of approximately $750,000 during 1996. At
September 30, 1996, all amounts had been paid. The Company had accrued
$750,000 as a cost of the acquisition during 1992.
During the first quarter of 1995, IMTC commenced a stock repurchase
program to acquire up to 5% of its outstanding common shares. Pursuant to
the program, IMTC purchased shares until January 1996 in the open market
and through other transactions, subject to share availability at prices
deemed appropriate. IMTC purchased 431,200 shares prior to the termination
of this program.
During February 1996, MDC entered into an exclusive distribution,
development and license agreement with Innogenetics to develop and market
gene probe products for tissue typing, genetics, microbial species
detection (viral, bacterial and fungal), and mutation identification as
part of a diagnostic and patient monitoring strategy. Under the terms of
the agreement, MDC will pay $5.9 million during 1996 and $1.6 million
during 1997 to Innogenetics for the rights to distribute certain
Innogenetics' products for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics' products.
Also under this agreement, MDC shall fund agreed-upon research and
development programs, beginning in 1998 and for each of the following 13
years under this agreement, in an amount equal to 20% of the Murex Group's
net sales of Innogenetics' products.
The Company anticipates that its current capital resources and the
line of credit discussed in Note 8 of the consolidated financial statements
will enable it to maintain planned operations for the foreseeable future
subject to management's ability to acquire new technologies and continue
innovations to reduce the impact of the loss of certain HCV sales. The
various subsidiaries in the Murex Group plan to continue to utilize their
assets, the anticipated profitable financial results of operations and the
proceeds from the Abbott licensing agreement to provide access to
additional working capital financing and to obtain equipment lease
financing, as and when required. The United States operating subsidiary
established a $1 million working capital line of credit in early 1995. As a
condition of the line of credit described in Note 8, this facility is no
longer available.
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Management Outlook
The litigation problems discussed above did have a significant impact
on the Company's overall operations in the past. With the final resolution
of these matters as described in Note 3 of the consolidated financial
statements, management is positioned to concentrate on the progress of the
overall business and operations of the Murex Group. The key to growth is
the ability to identify new needs in the marketplace, and to expeditiously
meet these needs through access to appropriate innovations and
technologies, and to rapidly incorporate them into the Murex Group's
product line. However, there can be no assurance that Murex Group will
successfully add a significant number of new products to its product line.
The Innogenetics distribution, development and licensing agreement
discussed above gives the Murex Group access to the rapidly growing gene
probe market for monitoring patients and the identification of viral and
bacterial mutations and species. The DNA probe technology provided by
Digene under the 1993 and 1994 agreements has yielded a new CMV product
which may contribute to future earnings. Recent Murex Group product
innovations, such as SAM, serotyping and the new product HTLV should also
contribute to future sales growth.
In addition to relying on research and development and licensing of
core technologies, management's operation strategy will focus on quality,
customer service, reducing costs and improving cash flows.
This report contains or refers to forward-looking information
including future revenues, products, and income and is based upon current
expectations that involve a number of business risks and uncertainties.
Among the factors that could cause actual results to differ materially from
any forward-looking statement include, but are not limited to,
technological innovations of competitors, changes in health care
regulations, litigation claims, changes in foreign economic conditions or
currency translation product acceptance or changes in government regulation
of the Company's products, as well as other factors discussed in other
Securities and Exchange Commission filings for the Company.
__________________________________________________________________________
RESULTS OF OPERATIONS
Product sales for the quarter and nine months ended September 30, 1996
were $24,917,000 and $75,291,000 versus $20,683,000 and $68,206,000 for the
comparable prior year periods. The increase in product sales during the
first nine months of 1996 was a result of the newly-acquired Innogenetics'
product line, growth of sales in Eastern Europe, South America and
Southeastern Asia and the acquisition of the Company's Canadian
distributor. These increases were partially offset by unfavorable foreign
exchange rates. As a result of the Chiron and Ortho settlement, sales of
the Company's HCV products, excluding the HCV Serotyping tests will be
discontinued in Italy, France and Spain effective June 30, 1997. However,
management believes that this settlement will not result in a decrease in
worldwide sales of its HCV products in 1997.
Gross profit on product sales for the nine months ended September 30,
1996 was 64.3% compared with 68.1% for 1995. Cost of products sold grew
$5,123,000 because of increased sales, increased use of direct
-16-
<PAGE>
distributors, especially for the newly-acquired Innogenetics' products,
which caused an erosion of the Company's gross profit margin and increased
product sales of purchased-in products which have lower gross profit
margins. Margins should significantly improve as the Innogenetics sales by
direct distributors are replaced with direct Company sales which produce
stronger margins.
Total costs and expenses, excluding cost of products sold, of
$15,226,000 and $47,189,000 for the quarter and nine months ended September
30, 1996, respectively, reflect a net decrease of $1,013,000 and $1,177,000
over the quarter and nine months ended September 30, 1995. General and
administrative expenses have increased $4,150,000 and $3,151,000 from the
quarter and nine months ended September 30, 1995, respectively, to
$10,147,000 and $20,452,000 for the corresponding 1996 periods. These
increases are due to legal, employee compensation and other expenses
associated with settling the Company's HCV patent litigation during the
third quarter of 1996. Sales and marketing expenses of $7,164,000 and
$21,892,000 reflect increases of $424,000 and $1,904,000 over the third
quarter and first nine months of 1995. This increase was a result of
increased presence by the Murex Group in the German, Eastern European,
African, Middle Eastern and South American markets. Furthermore, the
Company is preparing to launch several new products, including a test for
HIV reverse transcriptase mutations. Foreign exchange loss was $227,000
and $951,000 for the quarter and nine months ended September 30, 1996,
respectively, versus gains of $154,000 and $936,000 reported for the
comparable prior year periods. The 1996 foreign exchange losses were caused
predominately by the strengthening of the British pound in relation to U.S.
and German currencies as well as the weakening of the South African rand.
The 1995 foreign exchange gain was a result of the weakening of the Italian
Lira versus other European currencies. The Company's Italian subsidiary
billed other European customers in their local currencies. As the Lira
weakened against these currencies, the Italian subsidiary recognized a gain
on its receivables from its European customers. As a result of the
settlement with Chiron and Ortho, a reversal was made to royalty accruals
made in prior years, which produced a $5.9 million net credit to royalty
expense. During September 1996, the Company recorded a restructuring
charge of $2.1 million before tax. The restructuring was driven by the need
to reposition the Company for its movement into the patient monitoring
business. The world-wide plan will result in personnel reductions of
approximately 50 people from various functions. The restructuring provision
consists predominantly of estimated costs for employee severance and other
benefits.
Interest expense increased $51,000 and $954,000 from the third quarter
and first nine months of 1995 to $92,000 and $1,058,000 for the quarter and
nine months ended September 30, 1996, respectively, due to the factoring of
Italian receivables to fund the agreement with Innogenetics. The gain
(loss) on liquidation of investee represents SDL's net loss for the quarter
and nine months ended September 30, 1996, net of the estimated gain upon
ultimate liquidation. As of September 30, 1996, IMTC and its subsidiaries
represented the sole creditors of SDL, therefore, in the financial
statements the subsidiary is assumed to be fully liquidated. The net effect
of this assumed liquidation was a $444,000 gain.
-17-
<PAGE>
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Nine Months Ended September 30, 1996
Part II - Other Information
___________________________________________________________________________
ITEM 1 - LEGAL PROCEEDINGS
See Note 3 to the consolidated financial statements for information
regarding the settlement of the Chiron and Ortho litigation and current
legal proceedings.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
Exhibit 10 Agreement among Chiron Corporation, Johnson &
Johnson/Ortho Diagnostics Systems, Inc. and
International Murex Technologies Corporation dated
August 27, 1996. (Without Exhibits)
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
2. Reports on Form 8-K
None
-18-
<PAGE>
SIGNATURE
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.
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
(Registrant)
Date: November 14, 1996 By: /s/ C. Robert Cusick
----------------------- -------------------------------
C. Robert Cusick, Vice Chairman
and Chief Financial Officer
Date: November 14, 1996 By: /s/ Jill A. Gilmer
----------------------- -------------------------------
Jill A. Gilmer, Secretary
-19-
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
10 Agreement among Chiron Corporation, Johnson
& Johnson/Ortho Diagnostics Systems, Inc. and
International Murex Technologies Corporation
dated August 27, 1996. (Without Exhibits)
11 Statement Regarding Computation of Per Share
Earnings
27 Financial Data Schedule
Exhibit 10
CONFIDENTIAL
------------
1. This Agreement is made this 27th day of August 1996 among:
(A) Chiron Corporation of 4560 Horton Street, Emeryville,
California, United States of America ("Chiron
Corporation") on its behalf and on behalf of its
Affiliates (collectively "Chiron").
(B) Johnson & Johnson/Ortho Diagnostics Systems Inc. of
Route 202 Raritan, New Jersey, United States of America
("ODSI") on its behalf and on behalf of its Affiliates
(collectively "Ortho").
(C) International Murex Technologies Corporation of Du
Moulin Black, 10th Floor, 595 Howe Street, Vancouver,
BC, V6C2T5, Canada ("IMTC") on its behalf and on behalf
of its Affiliates (collectively "Murex").
(D) Chiron Corporation, ODSI and IMTC are collectively the
"Parties".
2. The following terms bear the following meanings for the
purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any
other Person who or which directly, or indirectly through
one or more intermediaries or otherwise, is controlled by,
or is under common Control with such specified Person.
"Control" means, as to any Person, the ability, whether
exercised or not, to direct or to influence, directly or
indirectly the management, affairs, policies or business
practices of such Person, whether through the ownership of
securities, through contract or other agreement, through
proxy or other instrument, through a course of conduct or a
business relationship, or otherwise. Without limiting the
generality of the foregoing, a Person shall conclusively be
deemed to have the "ability" to "direct or to influence" the
"management, affairs, policies, or business practices" of
another Person if (i) such Person, or an Affiliate of such
Person, "beneficially owns" (within the meaning of Rule 13d-
3 under the Securities Exchange Act of 1934, as amended)
twenty percent (20%) or more of any class of securities of
the other Person, or (ii) such Person, or an Affiliate of
such Person, has the ability, directly or indirectly, and
whether exercised or not, through the ownership of
securities, through contract or other agreement, through
proxy or other instrument, or otherwise, to elect or
appoint, or cause the election or appointment of, a
representative to the Board of Directors, or other similar
managing body, of the other Person; provided, that
notwithstanding anything to the contrary contained herein,
Ciba-Geigy Limited shall not be deemed an "Affiliate" of
Chiron for purposes of this Agreement. "Controlled",
"controlling" and other derivations of "control" shall have
a correlative meaning.
"Chiron's HCV Patents" means (a) the patents and patent
applications (or patents granted pursuant to such
applications) set out in Schedule 1 hereto, and any
divisionals, continuations, continuations-in-part, reissues,
and foreign counterparts thereof, and (b) any other patent,
patent application, divisional, continuation, continuation-
in-part, reissue, or foreign counterpart thereof having a
priority date or an earliest effective patent application
filing date that is on or before the effective date of this
Agreement or based upon an invention reduced, to practice
prior to the date of this Agreement, which is owned or
controlled with right to sublicense by Chiron or Ortho as of
the date of this Agreement and which contains a valid claim
that (i) is specifically directed to HCV antigens, HCV
antibodies, HCV antigen substitutes, HCV antibody
substitutes, or immunoassays or kits for the detection,
typing or determination of HCV, and (ii) is infringed by any
HCV Product.
<PAGE>
"HCV Antibody" means any antibody, or fragment thereof, or
other anti-ligand immunologically reactive with HCV or a
portion of HCV and which is used to diagnose or screen for
hepatitis.
"HCV Antigen" means any peptide, polypeptide or ligand which
reacts immnologically with antibodies which are
immunologically reactive with HCV or a portion of HCV and
which is used to diagnose or screen for hepatitis.
"HCV Kit" means the following HCV Products manufactured and
sold by or on behalf of Murex: VK45, VK46, VK47, VK48, VK68,
HC01 and HC02.
"HCV Product" means each immunoassay, immunoassay kit or
immunoassay test configuration, the manufacture, use or sale
of which utilise or contains one or more HCV Antigen, HCV
Antibody, HCV Antigen substitute or HCV Antibody substitute.
For purposes of this definition, the term "immunoassay"
refers to both antigen/ immunoglobulin binding, and other
ligand/anti-ligand binding phenomena, excluding nucleic acid
hybridisation. The term "HCV Product" includes, without
limitation, HCV Kits, HCV ELISA test kits, HCV Western blot
kits, HCV immunoblot kits, HCV serotyping immunoassay kits,
agglutination assays, radioimmunoassays, and the like.
"Licensed Subsidiary" means any corporation, partnership
(general or limited), limited liability company or joint-
stock company of which IMTC owns, directly or indirectly,
more than fifty percent (50%) of the voting and
participating profit interests.
"Person" means any individual, corporation, partnership
(general or limited), limited liability company, limited
liability partnership, firm, joint venture, association,
company, affiliation, joint-stock company, trust, estate,
unincorporated organisation, governmental or regulatory
body, or any other entity, association, organisation, or
vehicle of any type whatsoever.
"The UK Proceedings" means the infringement proceedings
relating to infringement of UK Patent No. 2,212,511, Action
Numbers CH 1992 C No 1513 and CH 1993 C No. 6942.
The "Dutch Proceedings" mean proceedings: in the District
Court in The Hague, docket No. 96/1034; in the Court of
Appeals in The Hague, docket No. 95/0813, appeal by SDL to
the Decision of the President of The Hague District Court of
8 May 1995; and in the Supreme Court of The Netherlands,
docket No. 16.206, appeal in caseation, filed by SDL against
the Decision of the Court of Appeals in The Hague of 7
December 1995.
The "German Proceedings" mean infringement proceedings in
the District Court in Dusseldorf, official file number 4 0
357/93 and in the Higher Regional Court in Dusseldorf,
official file number 2 U 12/95, and nullity proceedings in
the Federal Court of Munich, official file number 3 Ni
40/94.
The "Italian Proceedings" mean the proceedings between
Chiron Corporation, ODSI and Murex Diagnostic S.p.A and Alfa
Biotech S.p.A. in the Court of Rome General Register No.
58441/94.
The "Belgian Proceedings" mean the appeal by Murex
Diagnostics N.V. against the decision of the Judge of
Seizures of Dendermonde of February 24th 1995.
The "Australian Patent Infringement Proceedings" mean
Proceedings No. G1 06 of 1994 commenced in the Federal Court
of Australia, New South Wales District Registry, General
Division.
<PAGE>
The "Australian Anti-Trust and Compulsory Licence
Proceedings" mean Proceedings No. G380 of 1996 in the
Federal Court of Australia, New South Wales District
Registry, General Division.
Save where the context otherwise requires words importing
the singular number include the plural and vice versa.
3. IMTC on behalf of Murex agrees to pay Chiron on behalf of
Chiron and Ortho the sum [ ].
4. Subject as otherwise provided herein:
(a) Chiron and Ortho severally agree, undertake and
covenant to indemnify and hold Murex its directors,
officers, employees, distributors, servants, partners
and agents, together with their heirs, executors
administrators, successors and assigns, harmless and
free from liability and suit, including all costs,
damages, expenses and liabilities whatsoever (including
legal expenses when incurred) arising out of any claim
by any other licensee of Chiron's HCV Patents or any
Chiron collaborator relating to any past or current
infringement of Chiron's HCV Patents by Murex, its
directors, officers, employees, distributors, servants,
partners or agents.
(b) Chiron and Ortho each hereby releases and discharges
Murex its directors, officers, employees, distributors,
servants, partners and agents together with their
heirs, executors, administrators, successors and
assigns for all actions, causes of action, suits,
debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialities, covenants, contracts,
controversies, agreements, obligations, promises,
variances, trespasses, damages, judgements, extents,
executions, claims and demands whatsoever, in law,
admiralty or equity, whether known or unknown, which
Chiron or Ortho, or their successors and assigns, ever
had, now have or hereafter can, shall, or may have
against Murex and the other parties described above,
with respect to or arising out of Chiron's HCV Patents,
including such litigation and proceedings specifically
listed in clause 7 below, from the beginning of the
world to and including the day of the date of this
Agreement.
(c) Murex hereby releases and discharges Chiron and Ortho
and their respective directors, officers, employees,
distributors, servants, licensees, partners and agents
together with their heirs, executors, administrators,
successors and assigns for all actions, causes of
action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialities, covenants,
contracts, controversies, agreements, promises,
obligations, variances, trespasses, damages,
judgements, extents, executions, claims and demands
whatsoever, in law, admiralty or equity, whether known
or unknown, which Murex, or its successors and assigns,
ever had, now have or hereafter can, shall, or may have
against Chiron or Ortho or the other parties described
above, arising out of or relating to Chiron's HCV
Patents, including such litigation and proceedings
specifically listed in clause 7 below, from the
beginning of the world to and including the day of the
date of this Agreement.
(d) In the event that Alfa Biotech S.p.A. ("Alfa") notifies
Chiron and Ortho that they wish to discontinue their
involvement in the Italian Proceedings, Chiron and
Ortho will release Alfa on terms similar to those
-----------------
* Brackets denotes where information was deleted due to the
confidential nature of the material.
<PAGE>
contained in subclause (d) above upon receipt of a
release from Alfa on terms similar to those contained
in subclause (c) above.
5. [Reserved]
6. IMTC shall obtain the agreement of the joint liquidators of
Specialist Diagnostics Limited (in liquidation) ("SDL"): (a)
to withdraw SDL's petition for leave to appeal to the House
of Lords in the UK proceedings, (b) to terminate SDL's
involvement in and to abandon any of SDL's claims related to
any of the proceedings listed below in clause 7 and (c) to
terminate SDL's involvement in any opposition to Chiron's
European Patent No 318216 by foregoing any appeal of the
Opposition Division's decision and filing an express
abandonment of its opposition all of which shall be
evidenced by the delivery to Chiron Corporation of a letter
from the joint liquidators in a form reasonably satisfactory
to Chiron and Ortho, subject only to delivery by or on
behalf of Chiron and Ortho of the confirmation referred to
in Clause 11 below.
7. Chiron Corporation and ODSI shall apply simultaneously with
the joint liquidators of SDL to withdraw their petition for
leave to appeal to the House of Lords in the UK Proceedings.
Further the Parties shall procure the prompt and permanent
termination on the terms set out below in this clause 7 of:-
(a) the UK Proceedings;
(b) the European Patent Office Proceedings in respect of
Chiron's EP patent 318216;
(c) the Dutch Proceedings;
(d) the German Proceedings;
(e) the Italian Proceedings (other than as to Alfa, unless
Alfa elects to enter into cross-releases with Chiron
and Ortho as provided in clause 4(d));
(f) the Belgian Proceedings;
(g) the Australian Patent Infringement Proceedings and any
and all opposition to Chiron HCV Patents in Australia;
(h) the Australian Anti-Trust and Compulsory Licence
Proceedings;
(i) any other proceeding (whether current, pending or
threatened) whatsoever or wheresoever concerning
Chiron's HCV Patents (including, but not limited to,
proceedings in which validity, infringement,
inventorship or licensing are at issue) involving
Murex, its directors, officers, employees,
distributors, servants, licensees, partners or agents;
and in all cases such termination shall be on the basis that:
(i) all orders for costs outstanding shall be deemed
discharged;
(ii) there shall be no further provision for the payment of
money or costs or the granting of other relief whether
legal or equitable;
(iii) any court or tribunal or registry or like fees required
to be paid to bring about the termination shall be met
equally by Chiron Corporation and/or ODSI on the one
hand and IMTC on the other;
(iv) All injunctions will remain outstanding and fully
enforceable by Chiron and Ortho; provided that Chiron
<PAGE>
and Ortho agree not to enforce such injunctions unless
the arbitrators, in accordance with the arbitration
provisions of clause 17 of this Agreement, have
determined that Murex is in breach of this Agreement
and that injunctive relief is appropriate.
8. Murex will not itself, directly or indirectly, actively
participate in or initiate (or assist any Person in
participating in or initiating) any proceedings or
investigations arising in any way from the alleged
licensing, pricing or business policies of Chiron and Ortho
relating to Chiron's HCV Patents provided that nothing
herein shall prevent Murex responding to any lawful requests
for information from any relevant investigating authority
referenced in clause 13 or from enforcing the provisions of
this Agreement in accordance with its terms.
9. Neither Chiron nor Ortho will wilfully make or assist any
Person in making any untrue statement, whether written or
oral, disparaging Murex's HCV Products that materially,
adversely impacts the HCV immunodiagnostics business of
Murex, and Murex will not wilfully make or assist any Person
in making any untrue statement, whether written or oral,
disparaging Chiron' s or Ortho's HCV Products that
materially, adversely impacts the HCV immunodiagnostics
business of Chiron or Ortho. In the event that either
Chiron or Ortho, on the one hand, or Murex, on the other,
seeks to contend that other party is in material breach of
the foregoing provision written notice to that effect shall
be delivered to the President of the other parties setting
out in detail the particulars of the alleged breach. In the
event that Chiron or Ortho, on the one hand, or Murex, as
the case may be, shall assert that the other party
thereafter has wilfully persisted in the breach and has
failed within 30 days of receipt of written notice to take
immediate and reasonable measures to bring the breach to an
end, then the provisions of clause 17 below as to
arbitration shall apply, and if the arbitrators determine
that Chiron, Ortho, or Murex is in wilful material breach of
such provision, the arbitrators shall award such damages or
equitable relief as they determine appropriate. Such
arbitral award shall be the aggrieved party's sole remedy
for breach of this provision.
10. In the event that, despite Murex's compliance with clause 8
above and clause 13 below, the European Commission or other
competent authority deems Chiron's HCV Patents to be an
essential facility or technology that must be freely
licensed, Murex will not be barred by virtue of this
Agreement from seeking a licence from Chiron and Ortho and
Chiron and Ortho shall not unreasonably discriminate against
Murex in awarding any such license.
11. Upon the obtaining of the joint liquidators' agreement
pursuant to clause 6 above, Chiron and Ortho shall forthwith
withdraw their claims in the liquidation of SDL and release
to the joint liquidators of SDL the sum of [ ] held by
Bristows Cooke and Carpmael in respect of costs in the UK
Proceedings and shall give a confirmation to the joint
liquidators in such form as they shall reasonably require.
12. It is further agreed that:
(a) Save as permitted by clauses 15 and 16 Murex will not
henceforth infringe any of Chiron's HCV Patents in the
following territories (the "Excluded Territories"):
Japan, USA, Canada, Mexico, Switzerland, Norway,
Iceland and Liechtenstein and all the current countries
of European Union which, for the avoidance of any
doubt, are listed at Schedule 2.
(b) For territories other than the Excluded Territories set
out above (the "Permitted Territories"), Chiron and
Ortho grant to IMTC and the Licensed Subsidiaries a
non-exclusive license under Chiron's HCV Patents for
the life of Chiron's HCV Patents to make, have made,
<PAGE>
use and sell HCV Products in the Permitted Territories.
The grant of such license shall be further evidenced by
a license agreement to be agreed upon by the parties
[ ], which license agreement shall include the
following economic terms:
(i) For the first seven years, IMTC, on behalf of
IMTC and the Licensed Subsidiaries, shall pay to
Chiron, on behalf of Chiron and Ortho, a [ ]
commencing September 30, 1996.
(ii) In year seven and thereafter, IMTC, on behalf
of IMTC and Licensed Subsidiaries shall pay to
Chiron, on behalf of Chiron and Ortho, a royalty
on sales of all HCV Kits and all other HCV
Products which are covered by a Chiron HCV Patent
in countries in which a Chiron HCV Patent is
issued to Chiron[ ]. Such license be non-
transferable and not subject to sublicense, and
shall include warranties, representations, and
indemnities typical of such licenses. For the
avoidance of doubt: in year seven, and only year
seven, royalties shall be payable under both
subclauses (i) and (ii) of this clause 12(b).
(iii) Notwithstanding anything to the contrary
contained in this clause 12(b), during the first
six years of this Agreement the royalty payable on
sales to an unaffiliated third parties of HCV
Products in [ ]. Thereafter the royalty will
be[ ]. During the first six years of this
Agreement, such royalty shall be creditable
against royalties owed under clause 12(b)(i).
(c) Effective immediately and continuing until such time as
such license agreement is executed, Chiron and Ortho
and their successors and assigns, on the same economic
terms applicable to a license under clause 12(b)(i) and
(ii), grant to IMTC and the Licensed Subsidiaries and
their distributors and agents and their respective
directors, officers, employees, executors,
administrators, successors and assigns immunity from
suit for infringement, liability for damages or
compensation and for all actions, causes of action,
suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialities, obligations
covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgements,
extents, executions, claims and demands whatsoever, in
law, admiralty or equity, whether known or unknown,
which Chiron or Ortho, or their successors and assigns,
ever had, now have or hereafter can, shall, or may have
against Murex and the other parties described above,
(the "Actions") in respect of Chiron's HCV Patents and
relating to the manufacture, use and/or sale of the HCV
Kits by Murex in the Permitted Territories for so long
as any of Chiron's HCV Patents shall subsist. Chiron
and Ortho agree fully to indemnify IMTC and the
Licensed Subsidiaries and their respective directors,
officers, employees, distributors, servants, and agents
together with the heirs, executors, administrators,
successors and assigns harmless and free from liability
and suits, including all costs, damages, expenses, and
liabilities whatsoever (including reasonable legal
expenses when incurred) arising out of any claim by any
licensee of Chiron's HCV Patents or any Chiron
collaborator of infringement by IMTC or its Licensed
Subsidiaries of Chiron's HCV Patents (including but not
limited to losses occasioned by the grant of injunctive
or similar relief and/or the payment of any monetary
compensation).
(d) In the event that any territory in the Permitted
Territories becomes a member of the European Union or
<PAGE>
the EEA, then such territory will be included in the
definition of the Excluded Territories upon payment to
IMTC or as it may direct of such amount as it shall
certify to be [ ]in respect of HCV
Products otherwise permitted under clause (b) above, as
follows:
[ ]
(e) Murex grants to Chiron and Ortho a non-exclusive,
worldwide, fully paid-up, patent and know-how license
to any technology owned by Murex relating to or
concerning the Sample Addition Monitor. The grant of
such license shall be further evidenced by a license
agreement to be agreed in conjunction with the license
referred to in clause 12(b).
13. Murex will not itself and will not directly or indirectly
assist any Person to bring or prosecute any proceedings
relating to the validity, inventorship, ownership, control
or licensing of any of Chiron's HCV Patents (including the
compulsory licensing thereof). Notwithstanding the
foregoing (or any other provisions of this Agreement), Murex
shall not be prevented from responding to any lawful
requests for information from any governmental,
supragovernmental or other authority which can legally
require Murex to respond. In the event that either Chiron
or Ortho seeks to contend that Murex is in material breach
of the foregoing provision written notice to that effect
shall be delivered to the President of IMTC setting out in
detail the particulars of the alleged breach. In the event
that Chiron or Ortho shall assert that Murex thereafter has
wilfully persisted in such material breach and has failed
within 30 days of receipt of written notice to take
immediate and reasonable measures to bring such material
breach to an end, then the provisions of clause 17 below as
to arbitration shall apply, and if the arbitrators determine
that Murex is in wilful material breach of such provision,
the license (and, if still applicable, freedom from suit)
granted or to be granted to Murex under clause 12(b) shall
automatically terminate.
14. In the event that Murex seeks to contend that Chiron or
Ortho is in wilful material breach of clause 12(b) or the
license granted thereunder, written notice to that effect
shall be delivered to the Presidents of Chiron and Ortho
setting out in detail the particulars of the alleged breach.
In the event that Murex shall assert that Chiron or Ortho
has thereafter wilfully persisted or acquiesced in such
material breach or has failed within 30 days of receipt of
written notice to take immediate and reasonable measures to
bring such material breach to an end, the provisions of
clause 17 shall apply and if the arbitrators determine that
Chiron or Ortho is in wilful material breach of clause 12(b)
or the license granted thereunder, the license granted to
IMTC and the Licensed Subsidiaries under clause 12(b) shall
thereafter be [ ] effective from the date of such wilful
material breach.
15. It is further agreed that:
(a) Chiron and Ortho grant to IMTC and the Licensed
Subsidiaries a world-wide non-exclusive licence, which
shall be non-transferable and without the right to
grant sublicenses, under Chiron's HCV Patents to make,
have made, use and sell HCV Products for determining
HCV serotypes for the life of such patents, such
licence bearing a royalty rate of [ ] of all
such products sold by IMTC and the Licensed
Subsidiaries, provided, however, that in the event
Chiron and Ortho elect to enter into an agreement for
the worldwide private label sale of Murex's HCV
serotyping products, such license shall be [ ]
and the agreement for such private label sale shall
provide that Murex shall sell such HCV serotyping
products to Chiron and Ortho at [ ] to
customers purchasing like quantities. The grant of
<PAGE>
such license shall be further evidenced by a license
agreement to be agreed in conjunction with the license
referred to in clause 12(b).
Chiron and Ortho acknowledge that IMTC and the Licensed
Subsidiaries have the right to conduct research and
preclinical development related to HCV in the United
Kingdom.
Murex hereby grants to Chiron and Ortho the right, in
their sole discretion, to require IMTC and the Licensed
Subsidiaries to take, within two years from the date of
this Agreement, a non-exclusive license under Chiron's
HCV Patents for the life of such patents to manufacture
HCV Products in the United Kingdom for the sole purpose
of exporting such HCV Products to the Permitted
Territories and with no right to sell, distribute or
dispose of such HCV Products to or in the Excluded
Territories. IMTC, on behalf of IMTC and the Licensed
Subsidiaries, shall pay to Chiron, on behalf of Chiron
and Ortho, [ ]. Such license shall be on
the same economic terms as the license granted under
clause 12(b).
16. In order to enable the smooth transfer of HCV business to
Ortho or such other supplier as determined by Murex's
customer, Murex shall be permitted to cease selling its HCV
Products in the Excluded Territories in a timely and
efficient manner [ ]. During such transfer period
Murex will work with Ortho to effect a smooth transfer of
business including the use of instrumentation used by
customers to run HCV assays. Murex shall pay to Chiron on
behalf of Chiron and Ortho of [ ].
17. Any disagreement or dispute that shall have arisen among the
parties with respect to this Settlement Agreement must be
referred to and settled by final and binding arbitration to
be held in New York, New York, and conducted expeditiously
in accordance with the Patent Arbitration Rules, as from
time to time amended and in effect (the "Rules"), of the
American Arbitration Association ("AAA"). Provided however
-------- -------
that notwithstanding the foregoing, nothing contained in
this Section 17 shall restrict the right of Murex its
directors, officers, employees, distributors, servants,
partners or agents to join Chiron and Ortho, or to require
that Chiron and Ortho be joined, as a party to any action or
proceeding, brought against Murex or any other indemnitee in
any forum whatsoever, in respect of which Murex claims a
right to indemnification under clause 4(a) or 12(b) of this
Agreement. Judgement upon award having been rendered by the
arbitrators may be entered in any court (i) having
jurisdiction thereof, (ii) having jurisdiction over the
party against whom enforcement thereof is sought, or (iii)
having jurisdiction over any such party's assets. The
procedures and law applicable during the arbitration of any
controversy, dispute or claim will be both the Rules and the
internal laws of the State of New York (excluding, and
without regard to, its or any other jurisdictions rules
concerning any conflict of laws). In any arbitration
pursuant to this Agreement, the award or decision must be
rendered by at least a majority of the members of an
arbitration panel consisting of three (3) members, one of
whom will be appointed by each of Murex on the one part and
Chiron and Ortho on the second part and the third of whom
will be the chairman of the panel and will be appointed by
mutual agreement of the two party appointed arbitrators.
All arbitrators must be persons who are not employees,
agents, or former employees or agents of any party. In the
event of failure of the two party-appointed arbitrators to
agree within sixty (60) days after submission of the dispute
to arbitration upon the appointment of the third arbitrator,
the third arbitrator will be appointed by the AAA in
accordance with the Rules. In the event that any of the
Parties hereto fails to appoint an arbitrator within thirty
(30) days after submission of the dispute to arbitration,
such arbitrator, as well as the third arbitrator, will be
<PAGE>
appointed by the AAA in accordance with the Rules. The
arbitrator shall have the power to issue injunction relief
for appropriate purposes, including specific performance,
but shall not award punitive damages. As part of the
resolution of the arbitration, the arbitration panel shall
award reasonable costs to the prevailing party, or apportion
costs if no party prevails on all issues.
18. Confidentiality Provision
The Parties agree to keep the terms of this Agreement
confidential with exception of such information which in the
opinion of counsel to the disclosing party is required to be
disclosed by applicable law, rule, regulation or generally
accepted accounting practice, including any rules of
applicable stock exchanges and other self-regulatory
authorities or organisations; Provided however that in the
-------- -------
event a party shall be required to disclose any of the terms
of this Agreement, whether pursuant to subpoena, deposition,
interrogatory, or otherwise or a party shall otherwise
propose to disclose any of the terms of this Agreement
(except in connection with such party's required disclosures
under any applicable securities laws, the rules of any
applicable stock exchange or other self regulatory authority
or organization or other reporting requirements) such
disclosing party shall provide the other Parties with prompt
written notice of such requirement so that the other Parties
may seek a protective order or other appropriate remedy
and/or waive compliance with the terms of this Agreement.
No prior written notice shall be required in connection with
any party's required compliance with applicable securities
laws, the rules of any applicable stock exchange or other
self-regulatory authority or organization or other reporting
requirements. Notwithstanding the foregoing, any party
shall be permitted to submit this Agreement as evidence in
any proceeding including, without limitation, any
notification of this Agreement pursuant to clause 19 below
or in connection with any dispute between or among the
Parties. The provisions of this Clause 18 shall not
restrict a party from making any disclosure of any terms of
this Agreement to the extent such terms become generally
available to the public (other than as a result of a
disclosure by such party in violation of this Agreement) or
to the extent such disclosure relates to the right to
manufacture, market and/or to sell in such territory.
19. Chiron and Ortho shall have the right in their discretion to
notify this Agreement to the European Commission. Murex
shall promptly provide any reasonably necessary information
and perform any reasonably necessary acts upon request to
permit such notification.
20. If one or more provisions contained in this Agreement shall
be invalid, illegal or unenforceable in any respect under
any applicable law or regulation the validity, legality and
enforceability of the remaining provisions shall not be
affected or impaired in any way. The Parties to this
Agreement shall replace the aforementioned invalid, illegal
or unenforceable provisions by valid, legal and enforceable
provisions as close in terms as possible to the replaced
provisions so as to take effect from the date hereof. In
the event the Parties cannot agree on the terms of such
replacement provisions, such replacement provisions will be
determined by arbitration as provided herein.
21. Schedule 4 sets out the form of agreed Press Release as an
exception to the general confidentiality provisions.
22. Each party warrants that it has any and all necessary power
to enter into this Agreement, both for it and its
Affiliates.
23. Remedies and Waivers
No delay or omission on the part of the Parties in
exercising any right,
<PAGE>
power, or remedy (whether in whole or in part) under this
Agreement shall:
(i) impair such right, power or remedy; or
(ii) operate as a waiver thereof.
24. Further Assurance
Each of the Parties shall, from time to time on being
required to do so by another, now or at any time in the
future, do or procure the doing of all such acts and/or
execute or procure the execution of all such documents in a
form satisfactory to the others as may reasonably be
considered necessary for giving full effect to this
Agreement.
25. Entire Agreement
This Agreement contains the entire agreement of the Parties
regarding the subject matter hereof and supersedes all prior
agreements, understandings and negotiations regarding the
same. The Parties acknowledge that there have been various
statements, both oral and written, pertaining to the making
of this Agreement and the Parties' performance hereunder.
The Parties agree that none of them has relied on any such
statements, but instead have relied upon the representations
and warranties explicitly set forth herein. This Agreement
may not be changed, modified, amended or supplemented except
by a written instrument signed by the Parties hereto.
26. This Agreement shall be governed by the law of New York,
USA, without regard to its conflict of law provisions.
Infringement shall be governed by the law of the country in
which infringement is at issue.
27. Change in Control
In the event that IMTC experiences one or more of the
following events (a "Change in Control"):
(i) Any person or group (other than Chiron or Ortho or
a group including one of them or a Person owning more
than five percent of the combined voting power of Murex
as of the date hereof, as described in Schedule 3
hereto) becomes, or makes an offer to become, after the
date hereof, whether by tender or exchange offer or
otherwise the beneficial owner, directly or indirectly,
of securities of IMTC representing 50% or more of the
combined voting power of IMTC's then outstanding voting
securities; or
(ii) The Board of Directors of IMTC approve a plan of
merger, consolidation, or liquidation (which would not
result in IMTC being the continuing entity) or the sale
or disposition of all or substantially all of IMTC's
assets,
then, IMTC shall promptly notify Chiron and Ortho in
writing, describing such event in reasonable detail and
shall offer Chiron and Ortho the option, to be exercised in
writing within fifteen (15) business days to purchase at
fair value the HCV immunoassay business of IMTC, such value
to take into account, among other things, I the diminution
in value of IMTC's overall business without, or the loss of
the opportunity to sell, the HCV immunoassay business.
28. Assignment
No party shall be entitled to assign its rights as a
licensee under this Agreement without the prior written
consent of the other parties hereto; provided, however, that
any party may assign its rights as a licensee, subject to
<PAGE>
clause 27, (i) a Person into which such party shall merge or
consolidate or (ii) a Person who acquires all or
substantially all of such party's assets.
<PAGE>
AGREED BY
CHIRON CORPORATION
By: /s/ Edward E. Penhote
-------------------------------
Title:
JOHNSON & JOHNSON
By: /s/ S Harris
-------------------------------
Title: Asst. Secy./Gen. Counsel
ORTHO DIAGNOSTIC SYSTEMS INC.
By: /s/ J. W.
-------------------------------
Title: President
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
By: /s/ F. Michael P. Warren /s/ C. Robert Cusick
------------------------------- CFO
Title: Chairman
Exhibit 11
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
COMPUTATIONS OF EARNINGS PER SHARE (1)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
Weighted average shares outstanding
during the period 16,168 16,306 16,164 16,424
Shares issuable upon assumed exercise
of stock options and warrants, less
amounts assumed repurchased under
treasury stock method(2) 279 7 93 3
------ ------ ------ ------
Total common shares and common
shares equivalents 16,447 16,313 16,257 16,427
====== ====== ====== ======
Net income (loss) $1,292 ($2,107) $9 ($5,290)
====== ====== ====== ======
Primary per share amount $0.08 ($0.13) $0.00 ($0.32)
====== ====== ====== ======
FULLY DILUTED(3)
Total common shares and common
share equivalents 16,447 16,313 16,257 16,427
Additional shares issuable upon
assumed exercise of stock options
and warrants, less amounts assumed
repurchased under treasury stock
method(2) 395 132
------ ------ ------ ------
Total 16,842 16,313 16,389 16,427
====== ====== ====== ======
Net income (loss) $1,292 ($2,107) $9 ($5,290)
====== ====== ====== ======
Fully diluted per share amount $0.08 ($0.13) $0.00 ($0.32)
====== ====== ====== ======
(1) Weighted average share and dollar amounts, except per share amounts,
are stated in thousands
(2) Shares issued from assumed exercise of options and warrants include
the number of incremental shares which result from applying the
"treasury stock method" for options and warrants, APB Opinion
No. 15, paragraph 36. The options and warrants are antidilutive in
1995 and are not included in the calculation.
(3) This calculation is submitted in accordance with 17 CFR 229.601(b)(11)
although not required by APB Opinion No. 15 because it results in
dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,774
<SECURITIES> 0
<RECEIVABLES> 35,487
<ALLOWANCES> 2,847
<INVENTORY> 20,498
<CURRENT-ASSETS> 66,759
<PP&E> 25,514
<DEPRECIATION> 15,796
<TOTAL-ASSETS> 84,598
<CURRENT-LIABILITIES> 35,686
<BONDS> 0
0
0
<COMMON> 82,668
<OTHER-SE> (34,040)
<TOTAL-LIABILITY-AND-EQUITY> 84,598
<SALES> 75,291
<TOTAL-REVENUES> 75,291
<CGS> 26,911
<TOTAL-COSTS> 74,100
<OTHER-EXPENSES> (607)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1058
<INCOME-PRETAX> 740
<INCOME-TAX> 731
<INCOME-CONTINUING> 9
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
