SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
/X/ Preliminary Proxy Statement
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14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CHIRON CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[LOGO] April , 1996
To the Stockholders of
CHIRON CORPORATION
You are cordially invited to attend the Annual Meeting of Stockholders of
Chiron Corporation on May 16, 1996, at 10:00 a.m., which will be held in the
auditorium at our Emeryville headquarters, 1450 53rd Street, Emeryville,
California 94608.
The attached Notice of Annual Meeting and Proxy Statement explain the
business to be conducted at the Annual Meeting.
Also included in this package is Chiron's 1995 Annual Report. The Annual
Report is in summary form, containing selected financial data, our letter to
stockholders, and highlights of operations. You will find the Company's audited
consolidated financial statements enclosed as a separate brochure in a pocket at
the back of the Annual Report.
Whether or not you plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so by giving notice and voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
EDWARD E. PENHOET
EDWARD E. PENHOET,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CHIRON CORPORATION
4560 HORTON STREET
EMERYVILLE, CALIFORNIA 94608
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 1996, AT 10:00 A.M.
You are hereby notified that the Annual Meeting of Stockholders of Chiron
Corporation ("Chiron" or the "Company") will be held at 1450 53rd Street,
Emeryville, California, on Thursday, May 16, 1996, at 10:00 a.m., for the
following purposes:
1. To elect three Class III directors to hold office for three years;
2. To consider and vote upon a proposal to approve and adopt an
amendment to the Company's Restated Certificate of Incorporation to increase
the authorized number of shares of Common Stock of the Company from 100
million to 500 million;
3. To consider and vote upon a proposal to approve the Company's
amended 1991 Stock Option Plan to change the formula for granting automatic
annual stock options to non-employee directors, to add an annual grant of
automatic share rights for non-employee directors, and to add performance
units, which are restricted shares, share rights and share units awarded to
corporate vice-presidents and other executive officers which comply with the
requirements of Internal Revenue Code Section 162(m);
4. To ratify the selection of KPMG Peat Marwick LLP as independent
public accountants for the current fiscal year; and
5. To transact such other business that may properly come before the
Annual Meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on March 29, 1996 will be
entitled to vote at the Annual Meeting. A list of the stockholders entitled to
vote at the Annual Meeting will be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours for a
period of ten days prior to the meeting at the principal executive office of the
Company at 4560 Horton Street, Emeryville, California 94608.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE, AND
RETURN THE ENCLOSED PROXY IN THE REPLY ENVELOPE PROVIDED. The prompt return of
your proxy will assist us in preparing for the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM G. GREEN
WILLIAM G. GREEN,
SECRETARY
Emeryville, California
April , 1996
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 1996
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of CHIRON CORPORATION, a Delaware corporation
("Chiron" or the "Company"), for the Annual Meeting of Stockholders of Chiron
(the "Annual Meeting"), to be held in the auditorium at our Emeryville
headquarters, 1450 53rd Street, Emeryville, California 94608 at 10:00 a.m. on
May 16, 1996, and at any adjournments or postponements of the Annual Meeting.
These proxy materials were first mailed to stockholders on or about April ,
1996.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders.
Each of these proposals is described in more detail in subsequent sections of
this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
The Company has one type of security entitled to vote at the Annual Meeting,
its Common Stock (the "Common Stock"). If you were a stockholder of record of
Common Stock at the close of business on March 29, 1996, you may vote at the
Annual Meeting. Each share entitles you to one vote on each matter to come
before the Annual Meeting. On March 29, 1996, there were shares of
Common Stock issued and outstanding. The Certificate of Incorporation of the
Company does not provide for cumulative voting. If you were a stockholder of
record of Cetus Corporation common stock at the close of business on March 29,
1996, and have not exchanged your Cetus common stock for Chiron Common Stock,
you nevertheless may vote at the Annual Meeting. Each share of Cetus common
stock entitles you to 0.3 of one vote on each matter to come before the Annual
Meeting. If you were a stockholder of record of Viagene, Inc. common stock at
the close of business on March 29, 1996, and have not exchanged your Viagene
common stock for Chiron Common Stock, you nevertheless may vote at the Annual
Meeting. Each share of Viagene common stock entitles you to .095220 of one vote
on each matter to come before the Annual Meeting.
If you are unable to attend the Annual Meeting, you may vote by proxy. The
enclosed proxy is solicited by the Chiron Board of Directors and, when the proxy
card is returned properly completed, it will be voted as you direct on your
proxy card. You are urged to specify your choices on the enclosed proxy card. If
a proxy card is signed and returned without choices specified, in the absence of
contrary instructions, the shares of Common Stock represented by such proxy will
be voted "FOR" Proposals 1, 2, 3 and 4 and will be voted in the proxy holders'
discretion as to other matters that may properly come before the Annual Meeting.
You may revoke or change your proxy at any time before it is exercised at
the Annual Meeting. To do this, send a written notice of revocation or another
signed proxy with a later date than appears on the proxy you wish to revoke to
the Secretary of Chiron, William G. Green, at the Company's principal executive
office. You also may revoke your proxy by giving notice and voting in person at
the Annual Meeting.
The Company will pay the cost of soliciting these proxies, including the
printing, handling, and mailing of the proxies and related material, and the
actual expenses incurred by brokerage houses, custodians, nominees, and
fiduciaries in forwarding proxy material to the beneficial owners of stock. To
assure that holders of a majority of the stock will be present in person or by
proxy at the Annual Meeting, certain officers, directors, and regular employees
of Chiron may solicit proxies by telephone, telegraph, facsimile or in person.
These persons will receive no extra compensation for their services.
1
VOTING PROCEDURES
The three nominees for election as directors at the 1996 Annual Meeting of
Stockholders who receive the greatest number of votes cast for the election of
directors at that meeting by the holders of the Company's Common Stock, entitled
to vote at that meeting, a quorum being present, shall become directors at the
conclusion of the tabulation of votes.
The affirmative vote of the majority of shares of Common Stock having voting
power present in person or represented by proxy at the Annual Meeting is
required to adopt the proposals relating to approval of the amended Chiron 1991
Stock Option Plan and the amendment of the Company's Restated Certificate of
Incorporation.
The Inspector of Elections will treat an abstention or withholding of
authority to vote on the election of directors by a stockholder present in
person or represented by proxy at the meeting as unvoted for such purposes. The
Inspector of Elections will treat an abstention as to the proposal relating to
approval of the amended Chiron 1991 Stock Option Plan or the proposal relating
to approval of the amendment of the Company's Restated Certificate of
Incorporation by a stockholder present in person or represented by proxy at the
meeting as a vote "against" the matter for such purposes. However, pursuant to
Delaware law and the Company's Bylaws, broker non-votes as to the proposal
relating to approval of the amended Chiron 1991 Stock Option Plan or the
proposal relating to approval of the amendment of the Company's Restated
Certificate of Incorporation are treated as shares of Common Stock not present,
or represented, and not entitled to vote on such proposals, will not be counted
as votes for or against, and will not be included in calculating the number of
votes necessary for approval of such proposals.
CIBA-GEIGY TRANSACTION
Effective January 1, 1995, Ciba-Geigy Limited ("Ciba"), a Swiss corporation,
and the Company closed a transaction (the "Closing") to form a strategic
partnership. Chiron and Ciba will collaborate to discover, develop, manufacture
and market biotechnology and other healthcare products as the parties may agree
from time to time on a global scale. Under the terms of the agreement, Chiron
and Ciba will be preferred partners seeking to leverage the complementary
strengths of the two companies through cooperative approaches, but each will
remain independent to pursue projects outside of the partnership. As part of
that transaction, Ciba purchased through a partial tender offer 11,860,467
shares of the Company's outstanding Common Stock from the stockholders at $117
per share. Ciba also acquired 6,600,000 new shares of Common Stock issued by
Chiron in exchange for all of Ciba's ownership interest in Ciba Corning
Diagnostics Corp., The Biocine Company and Biocine S.p.A. These newly acquired
shares of Common Stock, when combined with the approximately 1,367,372 shares
that Ciba already held, result in Ciba owning approximately 47 percent of the
outstanding Common Stock of the Company as of February 29, 1996.
On November 20, 1994, Chiron and Ciba entered into an agreement (the
"Governance Agreement") which contains terms relating to the corporate
governance of the Company following the Closing and the acquisition and
disposition of securities of the Company by Ciba and its subsidiaries. The
Governance Agreement provides that, from and after the Closing, the Board of
Directors of the Company will be comprised of 11 directors (each, a "Director"),
and the number of directors may be increased only as described below. The
Nominating Committee of the Board of Directors (the "Nominating Committee") will
nominate persons to serve as Directors as described below, and each person so
nominated will be included in management's slate of nominees for each annual
meeting of the stockholders of the Company. The Governance Agreement further
provides that the Nominating Committee will nominate three persons to serve as
management Directors (each a "Management Director"), two of whom will be the two
most senior executives of the Company and the third of whom will be an employee
of the Company (or a person otherwise designated as a Management Director by the
Nominating Committee). In addition, Ciba will have the right to designate three
persons to serve as Directors (each, an "Investor Director"), any of whom may be
officers or employees of Ciba or its affiliates. If, however, Ciba's Percentage
Interest (as defined below) for any period is less than 30 percent but at least
20 percent, during that period Ciba will instead have the right to designate for
nomination only two Investor Directors, and, if Ciba's Percentage Interest is
less than
2
20 percent for any period, during that period Ciba will instead have the right
to designate for nomination only one Investor Director. As used herein, "Ciba's
Percentage Interest" means the percentage of voting power, determined on the
basis of the number of shares of voting stock actually outstanding, that is
controlled directly or indirectly by Ciba or any subsidiary of Ciba (other than
the Company and its subsidiaries), including by beneficial ownership. Finally,
the Nominating Committee will nominate the remaining Directors (the "Independent
Directors"), each of whom must have an outstanding reputation for personal
integrity and distinguished achievement in areas relevant to the Company and,
under the terms of the Governance Agreement, must meet certain criteria
demonstrating such person's independence from both Ciba and the Company.
Pursuant to the Governance Agreement, on January 4, 1995, the Board of Directors
elected three nominees of Ciba: Dr. Alex Krauer, Mr. Pierre Douaze and Dr.
Francois L'Eplattenier, to serve on the Board as representatives of Ciba.
Under the terms of the Governance Agreement, Ciba agreed that in any
election of directors or any meeting of stockholders of the Company called
expressly for the removal of directors, so long as the Board of Directors
includes (and will include after any such removal) the number of Investor
Directors contemplated by the Governance Agreement, Ciba and its affiliates will
be present for purposes of establishing a quorum and will vote all their shares
of voting stock (i) in favor of any nominee or director selected or removed in
accordance with the terms of the Governance Agreement, (ii) in favor of removal
of any Director in circumstances where the number of Investor Directors is more
than required under the terms of that Agreement and (iii) otherwise against the
removal of any director designated in accordance with the Governance Agreement.
In any other matter submitted to a vote of the stockholders of the Company, Ciba
may vote any or all of its shares in its sole discretion unless such matter was
approved by Ciba or a majority of the Investor Directors in accordance with the
terms of the Governance Agreement, in which case Ciba and its affiliates will
cast all their votes in favor of such matter. Because a majority of the Investor
Directors have approved the amendment of the Company's Restated Certificate of
Incorporation and the amended 1991 Stock Option Plan which are the subjects of
Proposals 2 and 3 of this Proxy Statement, the Company anticipates that Ciba
will cast all of its votes in favor of such matters at the Annual Meeting.
STANDSTILL. Under the terms of the Governance Agreement, during the period
beginning at the Closing and terminating at January 15, 2000 (the "First
Standstill Period"), Ciba has agreed that it will not, directly or indirectly,
purchase or otherwise acquire any Equity Securities (as defined below) from any
person other than the Company unless (i) such acquisition is a Market Purchase
(as defined below) and (ii) immediately after such purchase or acquisition,
Ciba's Percentage Interest would not exceed the greatest of (A) 49.9 percent,
(B) the highest Ciba's Percentage Interest resulting from any acquisition by
Ciba or its affiliates of Equity Securities that has been approved by a majority
of the Independent Directors as described below and (C) the highest Ciba's
Percentage Interest immediately following any action by the Company (including a
purchase by the Company of outstanding Equity Securities or a sale of Equity
Securities to Ciba or its affiliates by the Company) that increases Ciba's
Percentage Interest.
As defined in the Governance Agreement, "Equity Securities" means (i) the
Common Stock and any other voting stock of the Company, (ii) any securities of
the Company convertible into or exchangeable for Common Stock or other voting
stock or (iii) any options, rights or warrants (or any similar securities)
issued by the Company to acquire Common Stock or other voting stock, and "Market
Purchase" means an acquisition of Equity Securities that is within the
definition of "Rule 10b-18 Purchase" under Rule 10b-18 under the Securities
Exchange Act of 1934 (the "Exchange Act") as in effect on November 20, 1994,
that satisfies the conditions of paragraph (b) of Rule 10b-18.
During the period beginning at the end of the First Standstill Period and
terminating, if ever, at the date that Ciba and its affiliates become the
beneficial owners of all outstanding shares of Equity Securities, Ciba has
further agreed that it will not, directly or indirectly, purchase or otherwise
acquire any Equity Securities from any person other than the Company unless (i)
such acquisition is a Market Purchase and (ii) immediately after such purchase
or acquisition, Ciba's Percentage Interest would not exceed the greatest of (A)
55 percent, (B) the highest Ciba's Percentage Interest resulting from any
acquisition by Ciba or its affiliates of Equity Securities that has been
approved by a majority of the Independent Directors as
3
described below and (C) the highest Ciba's Percentage Interest immediately
following any action by the Company (including a purchase by the Company of
outstanding Equity Securities or a sale of Equity Securities to Ciba or its
affiliates by the Company) that increases Ciba's Percentage Interest.
Except with respect to a Buyout Transaction (as defined below), the
Governance Agreement provides that any other purchase or acquisition of Equity
Securities by Ciba or its affiliates from any person other than the Company will
require the approval of a majority of the Independent Directors acting solely in
the interest of the unaffiliated stockholders and in granting such approval the
Independent Directors, unless a majority of them decide otherwise, will require
a purchase price for such Equity Securities reflecting a proportionate share of
then prevailing Third Party Sale Value (as defined below), except that no such
purchase may increase Ciba's Percentage Interest above 79.9 percent.
As defined in the Governance Agreement, "Third Party Sale Value" means the
value that an unaffiliated third party would be expected (based on financial
analyses generally used by investment bankers in the preparation of a fairness
opinion for an acquisition transaction) to pay for all the Equity Securities of
the Company in an arm's-length transaction negotiated by a willing seller and a
willing buyer.
BUYOUT TRANSACTION. The Governance Agreement provides that, notwithstanding
the standstill provisions described above, at any time after the sixth
anniversary of the Closing, but as early as the fifth anniversary of the
Closing, if certain conditions exist, Ciba may propose and consummate a tender
offer, merger, sale of substantially all of the Company's assets or similar
transaction involving Ciba or one of its affiliates and the Company or the
unaffiliated stockholders that (1) offers each unaffiliated stockholder the
opportunity to dispose of all Equity Securities owned by such stockholder or
otherwise provides for the acquisition of all Equity Securities owned by such
stockholder, in each case for consideration reflecting such stockholder's
proportionate share of consideration at least equal to Third Party Sale Value
(the "Third Party Sale Value Consideration") and (2) for each class of Equity
Securities, provides the same consideration for each security within such class
(any such transaction being referred to herein as a "Buyout Transaction"). Under
the terms of the Governance Agreement, a Buyout Transaction may only be
consummated pursuant to certain procedures specified therein.
The Governance Agreement provides that until Ciba and its affiliates
beneficially own all outstanding shares of Equity Securities, Ciba and its
subsidiaries will not (i) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" to vote (as such terms are used
in the proxy rules of the Securities and Exchange Commission) or seek to advise,
encourage or influence any person or entity with respect to the voting of any
shares of capital stock of the Company, initiate, propose or otherwise solicit
stockholders of the Company for the approval of one or more stockholder
proposals or induce or attempt to induce any other individual, firm,
corporation, partnership or other entity to initiate any stockholder proposal;
or (ii) deposit any shares of voting stock into a voting trust or subject any
shares of voting stock to any arrangement or agreement with respect to the
voting of such securities or form, join or in any way participate in or
otherwise encourage the formation of, with respect to any shares of Common
Stock, any group of persons formed for the purpose of acquiring, holding, voting
or disposing of voting stock which would be required under Section 13(d) of the
Exchange Act, and the rules and regulations thereunder, to file a statement on
Schedule 13D with the Commission as a "person" within the meaning of Section
13(d)(3) of the Exchange Act if such group beneficially owned voting stock
representing more than 5 percent of any class of voting stock then outstanding.
4
PRINCIPAL STOCKHOLDERS
The following are the only persons known by Chiron to own beneficially, as
of February 29, 1996, 5 percent or more of the outstanding shares of its Common
Stock.
On February 29, 1996, there were 42,108,818 shares of Chiron Common Stock
outstanding.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
- ----------------------------------------------------------------------------- --------------- -----------
Ciba-Geigy Limited .......................................................... 19,829,949(2) 47.1%
Klybeckstrasse CH-4002
Basel, Switzerland
Jennison Associates Capital Corp. (3) ....................................... 2,220,027 5.3%
466 Lexington Avenue
New York, NY 10017
The Prudential Insurance Company of America (4) ............................. 2,227,704 5.3%
Prudential Plaza
Newark, NJ 07102-3777
- ------------------------
(1) Under the terms of the Governance Agreement, Ciba is permitted to acquire up
to 49.9 percent of the Company's Common Stock through market purchases and
to participate pro rata in certain issuances of new securities by the
Company. In addition, in certain instances, under the terms of a Market
Price Option Agreement between Ciba and the Company, Ciba is permitted to
purchase Common Stock directly from the Company upon the satisfaction of
certain conditions. See "Related Transactions" below for a further
discussion of Chiron's relationships with Ciba.
(2) Includes approximately 87,007 shares of the Company's Common Stock which
underlie a convertible subordinated note held by Ciba.
(3) According to a Schedule 13G sent to the Company, Jennison Associates Capital
Corp. ("Jennison"), an investment adviser, was the beneficial owner of
2,220,027 shares of the Company's stock at December 31, 1995. Jennison
reports sole voting power as to 271,981 shares of the Company's stock,
shared voting power as to 1,672,903 shares of the Company's stock and shared
dispositive power as to 2,220,027 shares of the Company's stock.
(4) According to a Schedule 13G sent to the Company, The Prudential Insurance
Company of America ("Prudential"), an insurance company, broker-dealer and
investment adviser, was the beneficial owner of 2,227,704 shares of the
Company's stock at December 31, 1995. Prudential reports sole voting and
dispositive power as to 200,328 shares of the Company's stock, shared voting
power as to 1,752,233 shares of the Company's stock and shared dispositive
power as to 2,027,376 shares of the Company stock.
5
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
Chiron as of February 29, 1996, by each director and nominee to the Board of
Directors, the Chief Executive Officer and the four other most highly
compensated executive officers and, as a group, by such persons and other
executive officers of Chiron. All shares are subject to the named person's sole
voting and investment power.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
- ----------------------------------------------------------------------------- ------------- ------------
Lewis W. Coleman............................................................. 14,273 *
Pierre Douaze................................................................ 4,250 *
Donald A. Glaser............................................................. 97,457 *
William G. Green............................................................. 81,369 *
Alex Krauer.................................................................. 4,250 *
Francois L'Eplattenier....................................................... 4,250 *
Edward E. Penhoet............................................................ 256,456 *
William J. Rutter............................................................ 608,628 1.4%
Henri Schramek............................................................... 15,760 *
Jack W. Schuler.............................................................. 29,603 *
Pieter J. Strijkert.......................................................... 13,656 *
Dennis L. Winger............................................................. 75,494 *
C. William Zadel............................................................. -0- *
All directors and executive officers as a group (29 persons)................. 1,667,348 4.0%
- ------------------------
(1) This disclosure is made pursuant to certain rules and regulations
promulgated by the Securities and Exchange Commission and, in certain
instances, the number of shares shown as being beneficially owned may not be
deemed to be beneficially owned for other purposes. Includes shares which
are subject to options or warrants exercisable on or before April 29, 1996,
in the following amounts: Mr. Coleman, 13,656 shares; Mr. Douaze, 4,250
shares; Dr. Glaser, 31,802 shares; Mr. Green, 70,344 shares; Dr. Krauer,
4,250 shares; Dr. L'Eplattenier, 4,250 shares; Dr. Penhoet, 163,095 shares;
Dr. Rutter, 196,694 shares; Dr. Schramek, 15,760 shares; Mr. Schuler, 28,800
shares; Dr. Strijkert, 13,656 shares; Mr. Winger, 16,473 shares; and all
directors and executive officers as a group, 896,059 shares.
(2) Percentage of outstanding Common Stock and of Common Stock that may be
acquired upon exercise of outstanding options and warrants on or before
April 29, 1996, by the persons named above and by all directors and
executive officers as a group. The asterisk (*) indicates that the shares
beneficially owned represent less than one percent of the shares
outstanding.
PROPOSAL 1:
ELECTION OF DIRECTORS
Chiron has three classes of directors serving staggered three-year terms.
Three directors presently serve in Class I, three directors in Class II and four
directors in Class III. This year, the following three directors presently
serving in Class III are nominated to be reelected for three-year terms expiring
in 1999: Dr. William J. Rutter and Messrs. Jack W. Schuler and Lewis W. Coleman.
See "Ciba-Geigy Transaction" at pp. 2-4 for a discussion of matters relating to
Ciba's voting of shares held by it and its affiliates in any election of
directors. Effective December 31, 1995, Dr. Gilbert Amelio, a Class II director,
resigned from the Board of Directors, creating a vacancy that has not yet been
filled. The Company understands that Dr. L'Eplattenier is not expected to
continue to serve as a director following consummation of the pending merger of
Ciba and Sandoz Ltd. and, accordingly, will not stand for reelection as a Class
III director. Under the Governance Agreement, Ciba may designate a successor for
Dr. L'Eplattenier. Until a successor is designated by Ciba
6
and duly nominated and elected, the position held by Dr. L'Eplattenier as a
Class III director will be vacant. If a successor is designated by Ciba and duly
nominated by the Board prior to the Annual Meeting, the proxies intend to vote
all proxies received by them for such nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
The persons named on the enclosed proxy (the "proxy holders") will vote for
election of the above-named nominees unless you have withheld authority for them
to do so on your proxy card. In the unanticipated event that a nominee is unable
to or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee named by the present Board of Directors to
fill the vacancy. As of the date of this Proxy Statement, the Board of Directors
is not aware of any nominee who is unable to or who will decline to serve as a
director. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them for the
nominees listed above.
Information as to the nominees, and as to each other director whose term
will continue after the 1996 Annual Meeting of Stockholders, is given below.
SERVED AS
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- --------------------------------------------- --- --------------------------------------------- ---------------
CLASS III (1999 CLASS)
Lewis W. Coleman........................... 54 Senior Managing Director, Co-Director 1991
Investment Banking,
Montgomery Securities
William J. Rutter.......................... 67 Chairman, Chiron Corporation 1981
Jack W. Schuler............................ 55 Chairman, Stericycle Corporation 1991
CLASS I (1997 CLASS)
Donald A. Glaser........................... 69 Professor of Physics, of Molecular 1991
Biology, and of Neuroscience,
University of California, Berkeley
Alex Krauer................................ 65 Chairman of the Board and Chief 1995
Executive Officer, Ciba-Geigy
Limited
Pieter J. Strijkert........................ 60 Chairman of the Board, IntroGene 1987
b.v., Pharming b.v. and New Drug
Research Foundation
CLASS II (1998 CLASS)
Pierre Douaze.............................. 56 Member of the Executive Committee 1995
of management, Ciba-Geigy Limited
Edward E. Penhoet.......................... 55 President and Chief Executive Officer, 1981
Chiron Corporation
Henri Schramek............................. 77 Retired; Former Member of the 1989
Board of Directors, Ciba-Geigy
Limited
CLASS III (1999 CLASS)
LEWIS W. COLEMAN is Senior Managing Director and Co-Director of Investment
Banking at Montgomery Securities. Prior to joining Montgomery Securities, Mr.
Coleman was Vice Chairman of the Board of Directors and the Chief Financial
Officer of BankAmerica Corp. from February 1993 to December 1995. Mr. Coleman
joined Bank of America in 1986 as Executive Vice President and Chief Credit
Officer, World Banking Group. He also headed the Capital Markets Group and later
served from 1990 to 1993 as Vice Chairman of the Board and Head of the World
Banking Group at Bank of America.
7
WILLIAM J. RUTTER is a cofounder of the Company and has served as its
Chairman of the Board since the Company's inception. In 1969, Dr. Rutter joined
the faculty of the University of California, San Francisco ("UCSF"), as
Hertzstein Professor, and he served as Chairman of the Department of
Biochemistry and Biophysics at UCSF from 1969 to 1982. From August 1983 through
April 1989, in addition to his responsibilities at Chiron, Dr. Rutter was the
Director of the Hormone Research Institute at UCSF. In May 1989, Dr. Rutter
became a full-time employee of Chiron and consequently vacated the Directorship
of the Hormone Research Institute. He became Professor emeritus in 1991. Dr.
Rutter is a member of the Board of Directors of Ciba.
JACK W. SCHULER is Chairman of Stericycle Corporation, a company that
processes, sterilizes and recycles medical waste. Prior to joining Stericycle,
Mr. Schuler was President and Chief Operating Officer of Abbott Laboratories
("Abbott") from 1987 to 1989. He joined Abbott in 1972 as Director of Sales and
Marketing for the diagnostics division, and held a series of diagnostic sales
and management positions. He served on the Abbott Board of Directors from 1985
to 1989. Mr. Schuler is a member of the Board of Directors of Somatogen and
Medtronic, Inc.
CLASS I (1997 CLASS)
DONALD A. GLASER was a founder of Cetus Corporation, a member of its Board
of Directors from 1971 to 1991, and Chairman of the Board of Scientific Advisors
of Cetus. He has served on the faculty at the University of California,
Berkeley, since 1959. Dr. Glaser received a Nobel Prize in Physics in 1960.
ALEX KRAUER has been the Chairman of the Board and Chief Executive Officer
of Ciba since 1987.
PIETER J. STRIJKERT is Chairman of the Board of three Dutch companies:
IntroGene b.v., Pharming b.v. and New Drug Research Foundation. Previously, he
was a member of the Management Board of Gist-Brocades N.V., a fermentation and
pharmaceutical company headquartered in the Netherlands, from 1985 until 1993,
and was Chairman of the Supervisory Board of International Bio-Synthetics BV,
now called Bio-Specialties Division, a division of Gist-Brocades N.V.
CLASS II (1998 CLASS)
PIERRE DOUAZE has been a member of the Executive Committee of management of
Ciba since 1991 and Head of the Pharma Division of Ciba since 1989.
EDWARD E. PENHOET, a cofounder of the Company and a director since 1981, has
served as Chief Executive Officer since the Company's inception. Dr. Penhoet has
been a faculty member of the Biochemistry Department at the University of
California, Berkeley, for 24 years. Since 1983, he has been an Adjunct Professor
at that university.
HENRI SCHRAMEK became a director of the Company in April 1989. He was with
Ciba for thirty-eight years, having retired from operations in 1983 and having
served as a Member of the Board of Directors of that company from 1983 to 1988
and as Vice Chairman of the Board of Directors from 1987 until 1988.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director a retainer fee of $16,000 per
year; an additional fee of $2,000 for each meeting of the Board of Directors
attended in person; an additional fee of $500 for each telephone meeting of the
Board of Directors; and a fee of $200 per hour, to a maximum of $1,000 per day,
for time spent on meetings of Committees of the Board of Directors on days when
no meeting of the Board of Directors is held. The Company also pays each
non-employee director serving as chairman of one of the Board Committees an
additional retainer of $5,000 per year.
Under the Company's 1991 Stock Option Plan (the "Option Plan"), the
automatic option grant program provides that each non-employee director will
automatically be granted a non-statutory stock option ("Automatic Option Grant")
to purchase 3,000 shares of the Company's Common Stock on the last day of the
second quarter of each fiscal year, with an option price per share equal to the
fair market value (as defined in the plan) of the Common Stock on that annual
grant date. The option exercise price is payable in
8
cash, or in shares of Chiron Common Stock held for at least six months, or with
the proceeds of a same day sale of the option shares. Each person who is newly
elected or appointed as a non-employee member of the Board of Directors after
the effective date of the Option Plan (other than on an automatic grant date)
will receive, on the date of such election or appointment, an Automatic Option
Grant to purchase a pro rata number of shares of Common Stock. Each Automatic
Option Grant will have a term of ten years measured from its grant date and will
be exercisable at any time for all or any part of the number of granted shares.
The shares purchased under the options are subject to repurchase by Chiron at
the original exercise price in the event a non-employee director ceases to
provide service to Chiron or its subsidiaries as a director, an employee, a
consultant or an independent contractor. Chiron's repurchase right will lapse
(and the optionee's interest in the purchased shares will vest) in a series of
equal annual installments over a five-year period measured from the date of the
automatic grant, provided the optionee continues to provide such services.
Chiron's repurchase right will lapse in its entirety, and full vesting will
occur, if, while providing such services, the optionee dies or is permanently
disabled. In the event the optionee ceases to provide services to Chiron or its
subsidiaries as a director, an employee, a consultant or an independent
contractor, the option may be exercised for a period of three months after the
date of such cessation of services (12 months in the case of cessation by reason
of disability or death). Discretionary provisions of the Option Plan are not
applicable to the Automatic Option Grants. On the effective date of the Option
Plan, the terms and conditions of outstanding automatic option grants under the
Company's 1982 Stock Option Plan were conformed to the Automatic Option Grants
under the Option Plan; however, the term of the options was not extended. See
Proposal 3 below at p. 29 for a discussion of amendments to the Company's 1991
Stock Option Plan whereby the formula for granting annual automatic stock
options to non-employee directors is changed and an annual grant of automatic
share rights for non-employee directors is added.
Of the current directors, Dr. Penhoet and Dr. Rutter are not eligible to
receive Automatic Option Grants because they are employees of the Company. Mr.
Schuler has waived his right to receive these grants for so long as he serves as
consultant to the Company as described in the following paragraph.
In December 1991, the Company retained Mr. Schuler as a consultant. The
Company agreed to pay Mr. Schuler $200,000 per year of consulting, payable in
monthly increments, and granted Mr. Schuler options to acquire 40,000 shares of
Chiron Common Stock, vesting on a pro rata basis over four years.
In May 1992, the Company retained Dr. Donald Glaser to consult with and
advise the Company in the fields of general automation and technology and
neurobiology over a period of three years ending in January 1995, at an annual
retainer of not less than $45,000.
INFORMATION CONCERNING BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven meetings during
the fiscal year ended December 31, 1995. To assist in the discharge of its
responsibilities, the Board of Directors has designated four standing
committees. They are a Finance and Audit Committee (now called the "Audit
Committee"), a Compensation Committee, an Employee Stock Option Committee and a
Nominating Committee. The Governance Agreement provides that each such committee
will generally continue to have the same responsibilities as held before the
Ciba transaction. The number of Investor Directors on each committee (other than
the Nominating Committee) will generally be the same proportion of the total
membership of such committee as the number of Investor Directors is of the
entire Board of Directors.
The Audit Committee is responsible for finance, budget, audit, internal
control, accounting, and related matters. This Committee, which consisted of Mr.
Coleman, as Chairman, Dr. Amelio and Dr. Krauer, held four meetings in the
Company's last fiscal year. Following Dr. Amelio's resignation from the Board of
Directors on December 31, 1995, the Board of Directors appointed Mr. Schuler as
a member of the Audit Committee.
The Compensation Committee's principal functions are to evaluate the
performance of the Company's executive officers, to consider and plan for
executive officer succession, to review and approve executive compensation, to
review the design and competitiveness of the Company's compensation plans
generally
9
and to administer the Company's stock option, stock purchase and executive
officer variable cash compensation plans pursuant to the terms of those plans.
The members of the Compensation Committee are non-employee directors and are
ineligible to participate in any of the plans or programs which are administered
by the Committee. This Committee, which consisted of Dr. Amelio, as Chairman,
and Drs. Strijkert, Schramek and Krauer and Mr. Coleman, held four meetings in
the Company's last fiscal year. Following Dr. Amelio's resignation on December
31, 1995, the Board of Directors appointed Mr. Coleman interim chairman of the
Compensation Committee. The Board has also delegated to an Employee Stock Option
Committee, composed of Drs. Penhoet and Rutter, authority to make routine stock
option grants calculated according to the policies, procedures and methodologies
approved from time to time by the Compensation Committee to any employee or
consultant except executive officers and directors.
In February 1994, the Board of Directors established a Nominating Committee.
The Nominating Committee is responsible for matters relating to composition of
the Board of Directors including recruitment, nomination and succession. Under
the terms of the Governance Agreement, the Nominating Committee will initially
be comprised of two Independent Directors, one Management Director and one
Investor Director. After the fifth anniversary of the Closing, so long as Ciba's
Percentage Interest is at least 40 percent, an additional Investor Director will
serve on the Nominating Committee. While the Nominating Committee will act by
the vote of a majority of its members, the Governance Agreement provides that
after the fifth anniversary of the Closing, so long as Ciba's Percentage
Interest is at least 40 percent, the Management Director serving on the
Nominating Committee will not be able to break any tie vote between all the
Investor Director members, on the one hand, and all the Independent Director
members, on the other hand. In addition, after the eleventh anniversary of the
Closing, so long as Ciba's Percentage Interest is at least 49 percent, the
Governance Agreement provides that the Investor Director members of the
Nominating Committee will have a deciding vote to break any tie vote between all
the Investor Director members, on the one hand, and all the Independent Director
members, on the other hand (meaning that, with respect to any motion before the
committee, if the two Investor Director members vote one way and the two
Independent Director members vote the other way, the vote of the Investor
Directors will control). No procedure has been established by the Nominating
Committee for the consideration of nominees recommended by stockholders.
However, stockholders of Chiron are entitled to nominate candidates for director
at the Annual Meeting if they have complied with the advance notice procedures
contained in the Company's Bylaws. The Nominating Committee, which consisted of
Dr. Amelio, Mr. Coleman, Dr. Rutter, Mr. Schuler, and Dr. Krauer, held one
meeting in the Company's last fiscal year.
The Governance Agreement also contemplates the creation in the future of a
Strategic Planning Committee with certain responsibilities, described below. The
Governance Agreement provides that the Board of Directors will set and approve
measurement standards to evaluate the Company's performance for each fiscal year
of the Company. The Governance Agreement further provides that the Strategic
Planning Committee of the Board of Directors will function from and after any
fiscal year for which the Company fails to meet the applicable measurement
standards and will continue to function until the measurement standards for a
subsequent full fiscal year are fulfilled. The Strategic Planning Committee
will, under the terms of the Governance Agreement, prepare and recommend to the
Board of Directors a remedial plan intended to restore the Company to compliance
with applicable measurement standards. In the event the Company fails to meet
the measurement standards for two consecutive fiscal years, the Governance
Agreement provides that thereafter until the measurement standards for a
subsequent full fiscal year are fulfilled, in addition to the responsibilities
of the Strategic Planning Committee described above, the Strategic Planning
Committee will have the delegated power of the Board of Directors to set the
compensation and terminate the employment of the executive officers of the
Company. Under the terms of the Governance Agreement, the Strategic Planning
Committee will be comprised of the three Investor Directors, three Independent
Directors and one Management Director. While the Strategic Planning Committee
will act by the vote of a majority of its members, the Governance Agreement
provides that the Management Director serving on the Strategic Planning
Committee will not be able to break any tie vote between all the Investor
Director members, on the one hand, and all the Independent Director members, on
the other hand.
10
Each director attended more than 75 percent of the combined total meetings
of the Board of Directors and its Committees on which the director served at any
time during the year.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information for the fiscal
years ended December 31, 1993, 1994 and 1995, concerning compensation paid to or
accrued by the Company and its subsidiaries on behalf of, those persons who
were, at December 31, 1995, (i) the chief executive officer and (ii) the other
four most highly compensated executive officers of the Company ("named executive
officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARD
---------------------------------------------------- --------------- PAYOUTS
OTHER ANNUAL SECURITIES ------------
COMPENSATION UNDERLYING LTIP
NAME AND PRINICPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS (#) PAYOUTS ($)
- ------------------------------------ --------- ----------- ----------- --------------- --------------- ------------
Edward E. Penhoet .................. 1995 $ 397,917 $ 350,000 $ -- 62,175 --
President and Chief 1994 373,338 300,000 -- 35,000 --
Executive Officer 1993 323,122 247,754 -- 32,000 --
William J. Rutter .................. 1995 397,917 350,000 -- 62,175 --
Chairman 1994 373,334 300,000 -- 35,000 --
1993 322,917 247,754 -- 32,000 --
C. William Zadel (2) ............... 1995 332,923 254,198 -- 5,037 $ 325,215(3)
Vice President and Chief
Executive Officer, Ciba
Corning Diagnostics Corp.
William G. Green ................... 1995 326,667 213,200 -- 29,475 --
Senior Vice President, Secretary 1994 311,000 200,000 -- 10,000 --
and General Counsel 1993 299,621 125,750 -- 17,400 --
Dennis L. Winger ................... 1995 263,717 172,250 -- 28,675 --
Senior Vice President, Finance 1994 248,800 150,000 -- 10,000 --
and Administration, and 1993 238,750 124,860 -- 13,900 --
Chief Financial Officer
ALL OTHER
COMPENSATION
NAME AND PRINICPAL POSITION ($)(1)
- ------------------------------------ --------------
Edward E. Penhoet .................. $ 1,426,529
President and Chief 4,500
Executive Officer 7,075
William J. Rutter .................. 1,426,529
Chairman 4,500
7,075
C. William Zadel (2) ............... 1,178,929(4)
Vice President and Chief
Executive Officer, Ciba
Corning Diagnostics Corp.
William G. Green ................... 616,312
Senior Vice President, Secretary 4,500
and General Counsel 7,075
Dennis L. Winger ................... 151,319
Senior Vice President, Finance 4,500
and Administration, and 6,862
Chief Financial Officer
- ------------------------------
(1) "All Other Compensation" includes Company contributions of $4,500 under the
Company's, or as to Mr. Zadel, a subsidiary's, 401(k) Plan on behalf of each
of the named executives to match pretax elective deferral contributions
(included under Salary) made by each named executive to such plan and, as to
Mr. Zadel, also includes Company contributions of $27,389 under a
supplemental executive retirement plan, on behalf of Mr. Zadel. "All Other
Compensation" for 1995 also includes as to Drs. Penhoet and Rutter and
Messrs. Green and Winger the following cash payments from Ciba applicable to
certain options which first became exercisable in calendar year 1995: Edward
E. Penhoet -- $1,422,029; William J. Rutter -- $1,422,029; William G. Green
-- $611,812 and Dennis L. Winger -- $146,819.
(2) Mr. Zadel was employed by the Company in connection with the acquisition of
Ciba Corning Diagnostics Corp. ("CCD") in January 1995 and resigned
effective December 31, 1995.
(3) Payment under terms of long-term performance plan of CCD, a wholly-owned
subsidiary of the Company as of January 1, 1995, which plan was terminated
effective December 31, 1994.
(4) Includes $1,147,040 payable to Mr. Zadel as a result of the termination of
his employment, effective December 31, 1995. Certain additional amounts may
be payable to Mr. Zadel in certain circumstances. See "Related Transactions"
at pp. 25-26 for a discussion of Mr. Zadel's agreement with the Company.
11
OPTION GRANTS
The following table sets forth certain information regarding grants of stock
options pursuant to the Company's 1991 Stock Option Plan during the fiscal year
ended December 31, 1995, to the named executive officers. No stock appreciation
rights were granted under that plan during fiscal year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZED VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM (3)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 0% ($) 5% ($) 10% ($)
- ------------------------- ---------- ------------- ----------- ---------- ---------- ---------- ----------
Edward E. Penhoet........ 30,000 1.14% $ 62.125 2/24/05 $ 0 $1,172,103 $2,970,337
32,175 1.23% 49.750 5/18/05 0 1,006,676 2,551,113
William J. Rutter........ 30,000 1.14% 62.125 2/24/05 0 1,172,103 2,970,337
32,175 1.23% 49.750 5/18/05 0 1,006,676 2,551,113
C. William Zadel......... 5,037 0.19% 51.125 5/31/05 0 161,951 410,415
William G. Green......... 11,000 0.42% 62.125 2/24/05 0 429,771 1,089,124
18,475 0.71% 49.750 5/18/05 0 578,037 1,464,858
Dennis L. Winger......... 10,200 0.39% 62.125 2/24/05 0 398,515 1,009,915
18,475 0.71% 49.750 5/18/05 0 578,037 1,464,858
- ------------------------------
(1) The options become exercisable as to 25 percent of the granted shares on the
first anniversary of the date of grant and, for the balance, in equal
monthly installments over the 36-month period thereafter, so long as service
with the Company or one of its subsidiaries continues, except for option
grants expiring 5/18/05 which are exercisable as follows: the options become
exercisable as to 33 1/3 percent of the granted shares after each year
commencing with 1996 in which the Company satisfies the Measurement
Standards determined in accordance with the terms of the Governance
Agreement. See "Information Concerning Board Meetings and Committees" above
at pp. 9-10 for a description generally of the Measurement Standards. If the
Measurement Standards are not met in any year, the options remain
outstanding, but unvested, until the earlier of (i) 3 years of satisfaction
of the Measurement Standards or (ii) 6 years expire from the date of grant.
To the extent not already exercisable, the options generally become
exercisable in the event of an agreement to dispose of all or substantially
all of the assets or outstanding capital stock of the Company by means of
sale, merger, reorganization or liquidation. However, an outstanding option
will not be so accelerated if, in connection with such corporate
transactions, the option is either assumed or replaced with a comparable
option to purchase shares of capital stock of the successor corporation. As
a result of Mr. Zadel's resignation effective December 31, 1995, the options
shown for Mr. Zadel expired unvested at the date of his resignation.
(2) Upon exercise, the exercise price and any related tax withholding
obligations may generally be paid in cash, or, in the Compensation
Committee's discretion, in shares of Common Stock held by the optionee for
the requisite period to avoid a charge to Chiron's earnings and valued as of
the exercise date, or under certain conditions from the proceeds of a same
day sale of the shares acquired upon exercise of the option. The
Compensation Committee may also assist an optionee in the exercise of an
option by authorizing a loan from the Company for the purchase price and
related tax obligations.
(3) In accordance with Securities and Exchange Commission rules, these columns
reflect hypothetical gains or "option spreads" that would exist for the
respective options. These rules require that the gains be based on assumed
rates of annual compounded stock price appreciation of 5 percent and 10
percent from the date the options were granted over the full ten-year option
term. The market price of Chiron Common Stock in May 2005 would be $101.20
and $161.14 per share for the first group of options and $81.04 and $129.04
for the second group of options, respectively, at 5 percent and 10 percent
annual compounded rates of appreciation, regarding option grants to Drs.
Penhoet and Rutter and Messrs. Green and Winger and $83.28 and $132.61 per
share, respectively, at 5 percent and 10 percent annual compounded rates of
appreciation, regarding the option granted to Mr. Zadel. There can be no
assurance that these assumed rates of appreciation or any appreciation will
occur.
12
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides information with respect to the named executive
officers as to option exercises by them in fiscal year 1995 and the unexercised
options held by them at the end of fiscal year 1995. No stock appreciation
rights were exercised in fiscal year 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)(1)
SHARES ACQUIRED VALUE ---------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED ($)(1)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------------- ---------------- ----------- --------------- ----------- -------------
Edward E. Penhoet.............. 52,947 $4,449,279 143,438 97,790 $10,944,547 $ 5,277,659
William J. Rutter.............. 74,348 7,162,788 177,037 97,790 14,825,659 5,277,659
C. William Zadel............... 0 0 0 0 0 0
William G. Green............... 40,821 3,255,474 65,001 41,053 4,635,759 2,227,475
Dennis L. Winger............... 92,054 5,969,583 11,507 39,014 549,047 2,114,395
- ------------------------------
(1) Value realized is equal to market price of shares on date of exercise less
exercise price and value of unexercised in-the-money options is calculated
based on market price of shares at fiscal year-end ($111.3125), less
exercise price, with the following exception: with respect to options held
by the named executive officers on November 20, 1994 that first become
exercisable before or after 1995, each optionee, except Mr. Zadel, was
granted the right to surrender for cancellation, that portion of such option
relating to 37.33 percent of the underlying shares in return for a cash
payment from Ciba equal to (A) the difference between $117 per share and the
exercise price per share of such option multiplied by (B) the number of
shares with respect to which such option is so surrendered and canceled. Of
the total amounts listed under the heading "Value Realized", the following
amounts reflect the exercise of such rights by each of the named executive
officers, except Mr. Zadel,: Edward E. Penhoet, $3,814,755; William J.
Rutter, $7,162,788; William G. Green, $2,493,599; Dennis L. Winger,
$3,424,533. The FY-End Value for each of the named executive officers,
except Mr. Zadel, includes the following amounts that could be realized upon
the exercise of the above-discussed rights: Edward E. Penhoet: Exercisable
-- $1,192,068, Unexercisable -- $727,401; William J. Rutter: Exercisable --
$0, Unexercisable -- $727,401; William G. Green: Exercisable -- $0,
Unexercisable -- $220,354; Dennis L. Winger: Exercisable -- $0,
Unexercisable -- $191,214.
(2) As described below at p. 24 under "Related Transactions," under the terms of
the Investment Agreement, as amended, Ciba paid interest to officers and
directors of the Company in connection with their exercise of the payment
rights described in footnote 1, including the following amounts to the named
executive officers: Edward E. Penhoet, $128,989; William J. Rutter,
$214,295; William G. Green, $77,213; Dennis L. Winger, $90,538.
PENSION AGREEMENTS
The Company has entered into supplemental pension agreements with two named
executives: William G. Green and Dr. William J. Rutter.
Mr. Green's supplemental pension agreement is a monthly benefit for life
beginning at age 60. The benefit is based on an initial contribution of
$110,000, plus an annual contribution for each year of service until Mr. Green
is age 60, such that the annual contribution when added to the maximum employee
and Company matching contribution under the Company's 401(k) Plan and any future
retirement benefit shall not be less than $20,000. This amount shall be
increased by an assumed 7 percent interest rate compounded annually. Taking into
account certain assumptions about Internal Revenue Code limitations, and
assuming Mr. Green makes the maximum 401(k) contribution under the Chiron 401(k)
Plan, and receives the maximum matching contribution each year, the actuarial
equivalent of Mr. Green's benefit at age 65 would be $48,921 annually for life.
Dr. Rutter's benefit is meant to indemnify Dr. Rutter, up to an amount of
$10,000 in any twelve-month period, for any University of California pension
benefits he loses by reason of his change in status with the University from
full-time to part-time. From age 65, Dr. Rutter would receive annual payments
for life of approximately $6,084, increased each year by a 2.5 percent annual
cost of living adjustment.
In addition, at age 65, Mr. Zadel is entitled to a monthly benefit for life
of $6,046 under CCD's pension plan and supplemental retirement plan, under which
plans no further benefits are accruing.
13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during 1995, Chiron's Compensation Committee consisted of
Drs. Amelio, Strijkert, Krauer and Schramek and Mr. Coleman.
Under the Governance Agreement, subject to certain conditions, Ciba has
agreed to nominate (and, at the end of each term, renominate) Dr. Rutter,
Chairman of the Company, for election to Ciba's Board of Directors. Dr. Krauer
has been the Chairman of the Board and Chief Executive Officer of Ciba since
1987. Under the terms of the Governance Agreement, Dr. Krauer is serving on
Chiron's Compensation Committee as a designee of Ciba. See "Ciba-Geigy
Transaction" above at p. 2 and "Related Transactions" below at p. 20 for a
further description of Chiron's relationships with Ciba.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
Decisions on compensation of the Company's executive officers are made by
the Compensation Committee of the Board of Directors. All members of the
Compensation Committee during 1995 were non-employee directors. As required by
the rules of the Securities and Exchange Commission, this Compensation Committee
Report describes the matters considered generally by the Compensation Committee
in reaching its decisions regarding compensation for executive officers,
including Dr. Edward Penhoet, Chief Executive Officer; Dr. William Rutter,
Chairman; and Messrs. William Green, Dennis Winger, and C. William Zadel(2), the
executive officers, who together with Drs. Rutter and Penhoet, were the
Company's five most highly compensated executives for 1995.
COMPENSATION PHILOSOPHY
Chiron's executive compensation programs seek to accomplish several major
goals:
- To align the interests of executive officers with the long-term
interests of stockholders through participation in the
Company's stock option plan;
- To motivate executives to achieve important business and
individual performance objectives and to reward them when such
objectives are met; and
- To recruit and retain highly qualified executive officers by
offering overall compensation that is competitive with that
offered for comparable positions in other biotechnology, high
technology and pharmaceutical companies.
The Compensation Committee administers executive compensation to support
Chiron's business mission of becoming a leading biotechnology-based healthcare
company. For 1995, the Company's compensation program included the following
components: (i) a base annual salary; (ii) annual variable cash compensation,
which was provided under the 1995 Executive Officer Variable Cash Compensation
Plan (the "1995 Plan") as to those officers subject to Section 162(m) of the
Internal Revenue Code (which includes all of the Senior Executives)(3); and
(iii) long-term equity-based incentives in the form of stock options.
- ------------------------
(1) The material in this report and under the caption "Common Stock Price
Performance Graph" are not "soliciting material," are not deemed filed with
the Securities and Exchange Commission and are not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act whether made before or after the date of this
Proxy Statement and irrespective of any general incorporation language
therein.
(2) Mr. Zadel was the President of CCD until his resignation effective December
31, 1995. His compensation for 1995 was determined exclusively by: (i) the
terms of his employment when CCD was acquired by the Company effective on
January 1, 1995 and (ii) the terms of an agreement with the Company
regarding his severance discussed below at p. 25 under "Related
Transactions".
(3) The term Senior Executives means Drs. Rutter and Penhoet and Messrs. Green
and Winger. The Senior Executives, together with Mr. Zadel, were the five
most highly compensated executives of the Company for 1995.
14
COMPENSATION COMMITTEE PROCEDURES AND PERFORMANCE CONSIDERATIONS REGARDING 1995
EXECUTIVE COMPENSATION
In February of each year, the Compensation Committee meets to consider the
Company's performance and the performance of each executive officer for the
prior year. For 1995, this meeting occurred on February 22 and 23, 1996. The
Committee reviewed the performance of the Company, its business units, and the
executive officers, other than the Senior Executives, and approved base salary
recommendations for 1996 and variable cash compensation for performance in 1995
for each of them at its meeting on February 22, 1996. The Committee sought input
from Drs. Penhoet and Rutter, the Chief Executive Officer and Chairman of the
Board, regarding the performance of all other executive officers. The Committee
solicited the views of seven other executive officers of the Company regarding
the performances of Drs. Rutter and Penhoet. The Committee also met with the
remaining non-employee directors to consider further the performances of Drs.
Rutter and Penhoet. The Committee approved the base salary for 1996 for each of
the Senior Executives on February 23, 1996. It also certified the accomplishment
of the performance objective under the 1995 Plan -- an increase over 1994 of
greater than 20 percent in operating earnings before taxes, as adjusted for
certain extraordinary items. The Committee exercised its discretion as permitted
by that plan to reduce the variable compensation awards for the Senior
Executives to the levels shown in the Summary Compensation table at p. 11.
Similar meetings occurred in February 1995 to review performance of the Company
and executive officers in 1994 and to determine each executive officer's base
salary for 1995.
The Compensation Committee concluded that the Company's overall performance
in 1995 justified favorable consideration of all executive officers, including
the Senior Executives, for increases in base salary for 1996, for stock option
awards and, subject to the 1995 Plan as applied to the Senior Executives, for
awards of variable cash compensation. The Committee noted the overall financial
and operational performance of the Company in 1995 and its success in effecting
the fundamental repositioning of each of its business units for sustainable and
profitable growth and to play important strategic roles in the markets each
serves. The Committee specifically considered the following: In 1995, the
Company more than doubled in employees and sales. The acquisition and
integration of CCD into Chiron Diagnostics was accomplished while expanding the
sales and profit contribution of the diagnostics business at rates exceeding
those of the diagnostics industry as a whole. The acquisition and integration of
IOLAB into Chiron Vision nearly doubled the revenues of Chiron Vision and
positioned its cataract business strongly among the top three companies in the
market. The acquisition and integration of Viagene, Inc. into Chiron
Technologies strengthened the Company's position in a fundamental enabling
technology for pharmaceutical development. In 1995, Chiron developed and
initiated implementation of strategic initiatives in each of its business units
to continue and accelerate its transformation into a leading healthcare company
based on biotechnology.
Based on the favorable determination of Company performance, the principle
factors which were used to fix each executive officer's salary increase,
variable cash compensation award, and stock option award were the subjective
evaluation of the individual's performance and, where relevant, the performance
of the officer's business unit or functional area of responsibility and survey
information concerning corresponding elements of compensation for benchmark
positions from a survey group of comparable companies. Officers subject to the
1995 Plan were entitled to variable cash compensation determined as a result of
achievement of the performance objective established under that plan for 1995.
The stock option grants to the Senior Executives in 1995 are set forth in the
option grant table on p. 12. In determining the size of these grants, the
Committee did not consider the number of stock options previously awarded,
whether vested or unvested, or the aggregate number of outstanding stock options
held by the recipients of the current awards.
SURVEY COMPARISONS FOR 1995
The Committee continued for 1995 the Company's general approach that base
salaries for executive officers should be compared to the median (50th
percentile) of base salaries for benchmark positions in comparable companies.
Further, the Compensation Committee intends that a significant portion of total
cash compensation (salary plus variable compensation) should be in the form of a
variable annual cash award that is "at risk", dependent on individual, business
unit and overall Company performance.
15
The Company has retained Hewitt & Associates, an independent compensation
consulting firm ("Hewitt"), to evaluate the appropriateness of the Company's
executive compensation programs. That firm has provided the Compensation
Committee with survey data using analyses of benchmark positions from a group of
selected biotechnology, high technology and pharmaceutical companies ( the
"Survey Group") with whom the Company competes for the recruitment and retention
of executive personnel. Median annual sales for 1995 of the Survey Group as a
whole were $3.4 billion. The common stock performance graphs on pp. 19-20 of
this proxy statement provide stock performance information for groups of
companies that include some, but not all, of the companies included in the
Survey Group.
The survey information serves as a general reference for the Company and the
Compensation Committee. However, because of many other factors, including those
described above and the inherent lack of comparability between any individual
officer's responsibilities, performance, and value to the Company and the
average information from the Survey Group, no element of any executive officer's
compensation is determined solely or principally by reference to the survey
information. The survey information concerning base salaries of benchmark
positions shows that the Company's overall salary structure for executive
officers is slightly above the 50th percentile level of the Survey Group on a
size-adjusted basis and below the 50th percentile of the Survey Group on an
unadjusted basis. The survey information regarding total cash compensation
indicates that executive officers' total cash compensation (salary and variable
compensation) in the aggregate is in the third quartile of the Survey Group on a
size-adjusted basis and at or slightly below the median for most benchmark
positions of the Survey Group on an unadjusted basis.
LONG TERM INCENTIVES -- STOCK OPTIONS AND PERFORMANCE UNITS
The Compensation Committee believes that stock option awards under the
Company's 1991 Stock Option Plan serve to align the long-term interests of the
Company's executive officers with those of its stockholders and contribute
importantly to the recruitment and retention of executive personnel. Under the
1991 Stock Option Plan, the Company's executive officers are eligible to receive
grants of options to purchase shares of the Company's stock. The options are
generally granted upon initial employment and annually thereafter with exercise
prices generally equal to the prevailing market price at date of grant.
Therefore, stock options will have value to the executive only to the extent
that the market price for the Company's stock increases. Stock option grants
generally become exercisable or "vest" in increments over four (4) years, so
long as service of the option recipient with the Company continues.
Executive officers, including the Senior Executives, received two stock
option awards in 1995. The first of these were annual awards, as described
above, in which vesting occurs over four years of continued service with the
Company. The second award, in May 1995, represented a first step to align
long-term, equity-based incentive compensation with performance objectives. The
Senior Executives and other senior managers within the Company received
"performance-accelerated" stock options for which vesting will occur as to
one-third of the shares subject to each such option at the end of each calendar
year commencing with 1996 in which the Company meets or exceeds the "Measurement
Standards". The Measurement Standards are a set of performance objectives
determined annually by the Board of Directors to satisfy the terms of the
Governance Agreement between Chiron and Ciba. If the Measurement Standards are
not met in any year, the option vesting is not accelerated, but the options
remain outstanding and unvested, to become exercisable only upon achievement of
the Measurement Standards in a future year, or after May 2001, for those options
held by recipients then still employed by the Company.
As described in this proxy statement under Proposal 3, to strengthen further
the link between compensation and performance objectives, the Company is
amending its 1991 Stock Option Plan to provide for the award of restricted
shares, share rights and share units which become vested ONLY if and to the
extent that specific performance objectives are achieved ("performance units").
The Compensation Committee, based on Hewitt's analysis, expects that annual
stock option grants will provide long-term incentive compensation for executive
officers, including the Senior Executives, at approximately the 50th percentile
level of the Survey Group and that achievement of higher compensation through
equity-based incentives up to approximately the 75th percentile level of the
Survey Group will depend upon achievement of performance objectives. The
Committee has awarded performance units in 1996 which will vest, if at all, in
1999 based
16
upon the three-year relative total shareholder return, as measured by dividend
yield and cumulative stock price appreciation of Chiron Common Stock as compared
to two stock market indices -- The AMEX Biotechnology Index and the Standard &
Poor's Health Care Composite Index.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Penhoet has the title President and Chief Executive Officer of Chiron.
Many senior managerial responsibilities, however, are shared between Drs.
Penhoet and Rutter. Effective February 1, 1995, the Compensation Committee had
established base salaries of $400,000 for each of them, representing an increase
of approximately 6.7 percent from 1994. On February 23, 1996, the Committee
approved a variable cash compensation award under the 1995 Plan for fiscal year
1995 for Drs. Penhoet and Rutter of $350,000 each, based on the achievement in
1995 as certified by the Committee of the 1995 performance objective -- an
increase over 1994 of greater than 20 percent in operating earnings before
taxes, as adjusted for certain extraordinary items. The Committee fixed the base
salary and exercised its permitted discretion under the 1995 Plan as to Dr.
Penhoet after considering: his contribution to building long-term stockholder
value through employee development, external relations and skillful management
of corporate interactions, and his ability to work effectively with external and
internal constituencies and collaborators. The Committee fixed the base salary
and exercised its discretion under the 1995 Plan as to Dr. Rutter after
considering: his overall leadership, the contribution of his strategic vision
and the dramatic transformation of the Company's business units and strategies
in 1995. The Committee also considered corresponding elements of compensation
for comparable positions from the Survey Group. The base salary and total cash
compensation of each of Drs. Rutter and Penhoet are below the median of the
Survey Group on an absolute and a size-adjusted basis.
As described above, the Compensation Committee granted stock options to Drs.
Rutter and Penhoet, and the other Senior Executives in 1995 in the amounts set
out in the option grant table on p. 12. The awards to Drs. Penhoet and Rutter
were based on, among other things, subjective assessment of their respective
past contributions, and anticipated future contributions to the Company.
As shown in the option exercise table on p. 13 above, Dr. Penhoet exercised
stock options during 1995 that were granted to him in 1987 and which expire in
1997. The options had an exercise price per share equal to the market price of a
share of the Company's Common Stock on the date the options were granted, and
became exercisable or "vested" in increments with Dr. Penhoet's continued
employment with the Company. The amounts realized by Dr. Penhoet through
exercise of these stock options resulted solely from appreciation of the
Company's stock price during his tenure as Chief Executive Officer of the
Company. Dr. Rutter exercised no stock options in 1995. During 1995, Drs.
Penhoet and Rutter also exercised the right granted to Chiron option holders at
November 20, 1994 by Ciba to surrender certain eligible stock options for
cancellation in consideration of a cash payment from Ciba of $117 a share less
the exercise price. Compensation received as a result of such option surrender
is described in footnote 1 to the option exercise table on p. 13.
POLICY REGARDING SECTION 162(m)
Section 162(m) limits federal income tax deductions for compensation paid to
each of the chief executive officer and the four other most highly compensated
officers of a public company to $1,000,000 per year, but contains an exception
for certain performance-based compensation. The Compensation Committee expects
to continue to use the 1995 Plan, stock options and performance units awarded
under the amendments to the 1991 Stock Option Plan being proposed for
consideration by the stockholders at the 1996 Annual Meeting, in order to
preserve federal income tax deductions that might otherwise be limited by
Section 162(m), so long as the Committee considers such use to be in the best
interest of the Company and its stockholders.
The Compensation Committee, nevertheless, may award stock options, other
equity-based compensation or variable cash compensation under plans or
procedures that are not intended to qualify for exemption to the Section 162(m)
limitations. As described above under Long-Term Incentives, the Company has
developed programs to link long-term, equity-based incentive compensation to
performance objectives. The Compensation Committee has approved in concept the
implementation in 1996 and 1997 of global strategic approaches to compensation
in which: (i) a portion of each executive officer's long-term, equity-based
17
incentives will be in the form of performance units, subject to stockholder
approval of amendments to the 1991 Stock Option Plan as described in Proposal 3
of this proxy statement, and (ii) executive officer annual variable cash
compensation will be linked to achievement of annual, quantifiable "success
metrics" that grow from the Company's strategic plan and are implemented through
annually updated operating plans of the Company and each of its business units.
The Compensation Committee elected not to grant awards under the 1995 Plan for
1996, because it felt that the variable cash compensation for 1996 of all
executive officers should be administered consistently, using the Company's
"success metrics" as performance objectives. The success metrics contain
performance milestones that are insufficiently objective to satisfy Section
162(m). Accordingly, to the extent that the variable cash compensation for 1996
of any of the five most highly compensated officers, together with other
compensation that does not qualify for the performance-based exceptions, exceeds
$1,000,000 in 1997, the Company will lose a tax deduction. It is not expected
that the compensation of any executive officers will exceed $1,000,000 in 1997,
unless an officer elects to receive all or a portion of the cash payments that
may be made by Ciba to certain holders of Chiron stock options, which payments
are not exempt from the application of the Section 162(m) limitations.
COMPENSATION COMMITTEE
Lewis W. Coleman, ACTING CHAIRMAN
Alex Krauer
Henri Schramek
Pieter J. Strijkert
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COMMON STOCK PRICE PERFORMANCE GRAPH
The first graph below compares cumulative total stockholder return on the
Common Stock of Chiron for the five years ended December 31, 1995, with the
cumulative total return on the NASDAQ Global Stock Index, the Hambrecht & Quist
Health Care Stock Index, and the NASDAQ Pharmaceuticals Stock Index over the
same period.
The second graph compares cumulative total stockholder return on the Common
Stock of Chiron for the five years ended December 31, 1995, with the cumulative
total return on the Standard & Poor's Health Care Composite Index and the AMEX
Biotechnology Index over the same period. The Compensation Committee has adopted
these indices for use in measuring corporate performance as discussed above in
the Compensation Committee Report on Executive Compensation at pp. 16-17.
Subject to stockholder approval of the Amended 1991 Stock Option Plan which is
the subject of Proposal 3 in this proxy statement, the Compensation Committee
has awarded performance units in 1996 which will vest, if at all, in 1999, based
upon the 3-year relative total shareholder return, as measured by dividend yield
and cumulative stock price appreciation of Chiron Common Stock as compared to
the Standard & Poor's Health Care Composite Index and the AMEX Biotechnology
Index. For these reasons, the Company has elected to provide information
comparing the Company's total return with the newly selected indices in addition
to the indices used last year.
The graphs assume $100 were invested on December 31, 1990, in Chiron, and
each of the indices, and that dividends were reinvested. The comparisons in the
graphs are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CHIRON STOCK NASDAQ - GLOBAL STOCK INDEX NASDAQ PHARMACEUTICALS STOCK INDEX H&Q HEALTH CARE STOCK INDEX
1990 100 100 100 100
1991 159 160 266 243
1992 128 185 221 208
1993 191 214 197 162
1994 183 207 148 163
1995 251 288 271 274
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CHIRON STOCK S&P HEALTHCARE INDEX AMEX BIOTECH INDEX
1990 100 100 100
1991 159 151 291
1992 128 123 233
1993 191 109 158
1994 183 120 112
1995 251 185 182
RELATED TRANSACTIONS
From April 1987 through December 31, 1994, Chiron and an affiliate of Ciba
each owned a 50 percent equity interest in The Biocine Company, a joint venture
partnership formed for vaccine research. In 1992, Chiron and Ciba acquired the
vaccine business of Sclavo S.p.A. of Siena, Italy, and renamed this business
Biocine S.p.A. Through December 31, 1994, Chiron and Ciba each owned 50 percent
of Biocine S.p.A and shared equally in its management, profits and losses and
capital funding requirements.
In November 1994, Chiron and Ciba entered into the Investment Agreement
which provided for the creation of a strategic partnership between the two
companies and a partial tender offer by Ciba to purchase approximately 38
percent of the Company's outstanding Common Stock and the sale by Ciba to Chiron
of its interests in The Biocine Company and Biocine S.p.A as well as all of the
issued and outstanding shares of CCD ("the Ciba Biocine Business" and "CCD
Shares"), in consideration for which Chiron sold to Ciba 6,600,000 shares of
Chiron Common Stock and made a cash payment to Ciba of $24 million. The sale to
Chiron of the Ciba Biocine Business and CCD Shares was completed effective
January 1, 1995 (the "Closing").
The Investment Agreement provides that after the Closing, Ciba shall issue
to a bank selected by Ciba and reasonably acceptable to the Company (the
"Selected Bank") a guarantee for the benefit of the Company (the "Ciba
Guarantee") pursuant to which Ciba will guarantee for the benefit of the Company
a credit facility provided by the Selected Bank. The principal amount of the
Credit Facility that may be outstanding at any time is $425 million (the
"Maximum Borrowing Amount"), except that the Maximum Borrowing Amount shall be
reduced by $1.50 for each $1.00 in additional funding (up to $50 million in such
additional funding) requested by the Company under the Limited Liability Company
Agreement described below. The Company shall repay any outstanding amounts under
the Credit Facility to the extent such amounts exceed the Maximum Borrowing
Amount. The Company may not borrow or reborrow any amounts under the Credit
Facility after the fifth anniversary of the Closing unless Ciba and the Company
otherwise agree.
The Investment Agreement provides further that simultaneously with the
issuance of the Ciba Guarantee, the Company shall execute and deliver a
reimbursement agreement (the "Reimbursement Agreement")
20
pursuant to which the Company will agree to reimburse Ciba for any payments made
by Ciba pursuant to the Ciba Guarantee as well as all reasonable out-of-pocket
costs and expenses incurred by Ciba in connection with the Ciba Guarantee. The
Company's obligations under the Reimbursement Agreement will be fully
collateralized by any collateral, including equity securities of the Company,
that is reasonably acceptable to Ciba. The Reimbursement Agreement also will
contain a negative pledge covenant with respect to the collateral and such other
terms and conditions as are customary to reimbursement agreements of its type.
Pursuant to the above-described terms, in 1995, Ciba guaranteed a revolving
credit facility for the benefit of the Company in the amount of $50 million and
the Company executed a reimbursement agreement as to such amount.
In connection with the acquisition of CCD by the Company from Ciba, all
existing indebtedness of CCD and its subsidiaries to Ciba was consolidated into
a single loan from Ciba to CCD evidenced by a promissory note in the amount of
$50,760,000, maturing January 1, 2000. At December 31, 1995, interest of
$3,255,777, at a variable rate based on LIBOR, had accrued on the principal
amount outstanding under that promissory note. In addition, certain Ciba
subsidiaries engaged in the business of commercial finance make lines of credit
available to certain overseas subsidiaries of the Company. Accrued interest and
fees payable to Ciba by the Company under such credit facilities in 1995 totaled
$303,000. The interest rate and charges on both the note and these facilities
are more favorable to the Company than would be the terms reasonably available
to the Company under comparable financing from any unaffiliated institutional
lender.
To implement the research funding commitment by Ciba in the Investment
Agreement, during 1995, Ciba and the Company entered into a Limited Liability
Company Agreement, under which Ciba will purchase interests in a newly formed
Limited Liability Company (the "LLC") as a means of providing funding. The
Agreement contains the following terms: (i) during the period commencing on
December 28, 1995, and ending on December 31, 1999 (the "Funding Period"), Ciba
will fund, at Chiron's request, research and development expenses incurred by
the Company on or after January 1, 1995, for certain Funded Projects currently
under development which initially consist of adult vaccines, pediatric vaccines
and Insulin-like growth factor-I; (ii) during the Funding Period, the Company
shall be entitled to propose additional Funded Projects from time to time which
the Company wishes Ciba to fund or partially fund; (iii) subject to the
limitations set forth below, Ciba will fund its share of all development costs
of Funded Projects, which shall be 100 percent, or such lesser amount as the
parties may agree (but not in excess of the maximum funding provided for in the
Investment Agreement); (iv) the obligation of Ciba to fund Funded Projects shall
be subject to the following limitations: (a) in no event shall Ciba be obligated
to provide funding to the Company in any calendar year during the Funding Period
for Funded Projects in an amount in excess of (x) $34,000,000 in 1995, (y) $123
million in 1996 and (z) for calendar years thereafter, equal annual portions of
the remaining unexpended aggregate amount under (b) below; and (b) in no event
shall (x) the aggregate amount of funding provided to the Company by Ciba LESS
(y) the aggregate amount of any payments to or profits paid or earned by Ciba in
connection with any product or products developed in any Funded Projects at any
time during the Funding Period exceed $250,000,000; provided, however, that such
amount may be increased, at the Company's request, to up to $300,000,000 in
consideration of a reduction in the Maximum Borrowing Amount (as defined above)
at the rate of $1.00 of increased research and development funding for each
$1.50 reduction of the Credit Facility; (v) in consideration of the funding
provided by Ciba for the Funded Projects, and subject to the Company's buy-out
right described below, but without thereby guaranteeing the successful
conclusion of any project included in the Funded Projects, Ciba will receive,
through its interest in the LLC, an interest in a stream of variable royalties
in future worldwide sales from certain adult vaccines, pediatric vaccines and
Insulin-like growth factor I (the "Products") and an interest in promotional
rights, in countries other than in North America and Europe, for certain adult
vaccines; (vi) in the event that the Company requests funding for additional
Funded Projects in the future, the Company will offer Ciba, through its interest
in the LLC, the opportunity to share in additional product opportunities, which
may be in the form of royalties, profit sharing or participation in distribution
or sales activities in selected geographic markets or otherwise; and (vii) the
Company shall have the right, but not the obligation, to buy out Ciba's interest
in the LLC (including Ciba's interest in royalties, co-promotion and other
product rights) upon tender by the Company to Ciba of payment in the amount of
the Buyout Amount (as described below) provided that such right shall expire if
such tender is not made prior to January 1, 2002.
21
The "Buyout Amount" means, as of the time of tender the amount equal to (i) the
sum of all payments made by Ciba to the Company to purchase interests in the LLC
prior to such time, PLUS (ii) interest on such amount at LIBOR from the date of
payment to the date of tender, LESS (iii) the aggregate amount of all payments
or profits received by Ciba in distributions from the LLC and in co-promotion
profits, LESS (iv) interest on the amount referenced in (iii) at LIBOR. The
Company shall be entitled to make the payment of the Buyout Amount in the form
of cash or Common Stock, or a combination of the two. In the event of a buyout,
Ciba retains certain distribution rights with respect to adult vaccines as to
which it has then exercised its promotion rights. Under the terms of the Limited
Liability Company Agreement, the Company received $27 million of funding from
Ciba during 1995. Chiron anticipates receiving substantial additional funding
from Ciba in future periods, pursuant to the terms of the Agreement.
Ciba and the Company have also entered into the Cooperation and
Collaboration Agreement regarding research and development collaborations,
marketing and manufacturing arrangements, access of each party to the other
party's technology and reciprocal most favored nation rights regarding certain
licenses. The agreement provides a mechanism by which either party may make
specific proposals for areas of research and development collaboration with the
other and retain a 90-day right of first negotiation with respect to such areas.
Neither party to such agreement has the right to enter into any material
research and development collaboration related to the Company's strategic
mission with any third party if such third party's only material contribution to
the collaboration is expected to be funding, unless such party has first offered
the other party the opportunity to enter into such collaboration on the same
terms as such third party, provided that such restrictions shall not apply to
collaborations with non-commercial sources of funding, including grants, or to
financing arrangements with third parties in which the consideration to the
third party is the return on financing. In addition, under the Cooperation and
Collaboration Agreement, the parties have (x) a reciprocal right of first
refusal with respect to marketing certain products developed by the other party
or with respect to which the other party has the right to market and (y) a
reciprocal right of first negotiation with respect to manufacturing certain
products developed by the other party or with respect to which the other party
has the right to manufacture.
The first collaboration project between the Company and Ciba contemplated
under the Cooperation and Collaboration Agreement is in the field of
combinatorial chemistry. In November 1995, the Company and Ciba entered into a
collaboration agreement under which Ciba will pay $26.0 million to Chiron, over
a five-year period and subject to certain adjustments, in exchange for a
non-exclusive, perpetual license to utilize Chiron's combinatorial chemistry
techniques. In addition, the parties will collaborate to utilize combinational
chemistry technology to identify potential products in selected target areas.
The agreement provides for research funding by Ciba, and certain upfront,
milestone and royalty payments, as well as product commercialization rights for
both parties. In the fourth quarter of 1995, Chiron received a payment from Ciba
of $5.5 million under the terms of the agreement.
Under the Governance Agreement, so long as Ciba has the right to designate
for nomination at least one Investor Director, subject to certain exceptions, if
the Board of Directors authorizes the issuance of any Equity Securities after
the Closing, Ciba will have the right to purchase its Pro Rata Share of such
securities. As used herein, "Pro Rata Share" means the fraction of an entire
issuance of securities, the numerator of which shall be the number of shares of
Common Stock owned by Ciba and its affiliates (other than the Company and its
subsidiaries) immediately prior to such issuance of such securities and the
denominator of which shall be the aggregate number of shares of Common Stock
outstanding immediately prior to such issuance of such securities. If Ciba shall
elect to purchase any such securities, such securities will be issued and sold
to Ciba by the Company at the same time and on the same terms and conditions as
the new securities are issued and sold to third parties (except that, if such
securities are issued for consideration other than cash, Ciba shall pay the fair
market value thereof, as determined in accordance with the Governance
Agreement).
Ciba and the Company have also entered into the Market Price Option
Agreement pursuant to which Ciba shall have the right to purchase shares
directly from the Company under the circumstances described below. Pursuant to
the Market Price Option Agreement, the Company granted to Ciba Biotech
Partnership, Inc., an affiliate of Ciba ("Ciba Biotech") an irrevocable option
(the "Option") to purchase on each
22
exercise closing date, on the terms and subject to the conditions set forth
therein, up to the number of newly-issued shares (the "Option Shares") equal, as
of the related Exercise Date (as defined below), to the number of Shares that
Ciba would be permitted to purchase from persons other than the Company as of
such Exercise Date under the Governance Agreement.
The Market Price Option Agreement provides that the Option may be exercised
by Ciba Biotech (or its designee, which designee must be Ciba or a direct or
indirect wholly-owned subsidiary of Ciba), in whole or in part, at any time, or
from time to time (the date of any such exercise being referred to as an
"Exercise Date"), during the period beginning upon the Closing and ending on the
date that Ciba and its affiliates become the beneficial owners of all
outstanding shares of Equity Securities, so long as an Exercise Condition (as
defined below) shall exist on such Exercise Date; provided, however, that Ciba
Biotech may not exercise the Option at any time unless it owns Equity Securities
representing at least 30 percent of the aggregate number of votes entitled to be
voted in an election of directors of the Company by all the outstanding voting
stock. The Option may be repeatedly exercised by Ciba Biotech; provided,
however, that each exercise of the Option for fewer than the maximum number of
Shares then issuable pursuant to an exercise of the Option shall be for at least
that number of shares that results in a purchase price of $1,000,000.
Pursuant to the Market Price Option Agreement, an "Exercise Condition" shall
exist if any of the following conditions are satisfied: (i) Ciba Biotech
concludes that it is in any way legally (including as a result of any
regulation) restricted from purchasing or otherwise acquiring any Equity
Securities from any person other than the Company, including any restriction
resulting from Ciba Biotech's possession of any non-public material information
regarding the Company; (ii) Ciba Biotech concludes that there is insufficient
liquidity in the open market to permit it to (A) purchase on the open market the
amount of Equity Securities it desires to purchase within the time period during
which it desires to make such purchases or (B) make such purchases within such
time period without such purchases unduly affecting the price of any of such
Equity Securities, in which case the Option may be exercised to the extent of
such insufficient liquidity as determined by Ciba Biotech, or (iii) Ciba's
Percentage Interest is below 50 percent and Ciba Biotech desires, and is
permitted under the Governance Agreement, to increase Ciba's Percentage Interest
to a percentage exceeding 50 percent; provided that if as of any Exercise Date
the only existing Exercise Condition is the condition specified in clause (iii)
above, then Ciba Biotech shall not purchase through the exercise of the Option
on such date any Shares that would increase Ciba's Percentage Interest to
greater than 51 percent. The purchase price for any Shares purchased pursuant to
an exercise of the Option shall be the Fair Market Value of such shares.
Ciba and the Company have also entered into the Subscription Agreement
pursuant to which the Company shall have the right, exercisable at any time and
from time to time during the eleven year period following the Closing, to
require Ciba Biotech to acquire Common Stock of the Company directly from the
Company at Fair Market Value (as defined below) up to the Subscription Amount.
"Subscription Amount" means, initially $500,000,000, and thereafter, such amount
as reduced by the aggregate price paid from time to time after the Closing by
Ciba Biotech or any of its affiliates to the Company or any subsidiary of the
Company for each purchase from the Company or any subsidiary of the Company of
any Equity Securities of the Company by any of them, whether pursuant to the
Market Price Option Agreement, the Governance Agreement, the Subscription
Agreement or otherwise except for (i) purchases by Ciba Biotech or its
affiliates in connection with collaborations entered into by Ciba Biotech or its
affiliates and the Company in accordance with the terms of the Cooperation and
Collaboration Agreement or (ii) Equity Securities issued to Ciba or its
affiliates in accordance with the terms of the Limited Liability Company
Agreement. Ciba Biotech's obligation to purchase any shares pursuant to the
Subscription Agreement will be subject to the satisfaction as of the applicable
closing date of certain conditions.
Except as described in the second paragraph of "Related Transactions" above
at p. 20, in fiscal year 1995, Ciba did not purchase any securities from the
Company pursuant to the Market Price Option Agreement, the Governance Agreement,
the Subscription Agreement or otherwise.
The Governance Agreement provides that the Company will not enter into any
material transaction with Ciba or any of its affiliates after the Closing (other
than those expressly contemplated by the Investment
23
Agreement, the Governance Agreement or any other Ancillary Agreement) unless a
majority of the Independent Directors or holders of a majority of the voting
power of the voting stock which is held by unaffiliated stockholders approve
such transaction.
The Company and subsidiaries received revenue of $10,348,800 in 1995 from
sales of products and services to Ciba, including revenue of $6,721,800 for
promotional services provided in connection with the sale of Ciba's product
Aredia-Registered Trademark-.
In connection with the acquisition of CCD from Ciba by the Company, Ciba
agreed that Ciba and its subsidiaries would continue for a reasonable period to
provide to CCD and its subsidiaries administrative and similar services and
incidental research and development services. Such services are required to be
provided at Ciba's cost. Use of Ciba services has been expanded where Ciba has
been determined to be the best available source for a particular service or
phased out where more attractive alternative sources for a service have been
identified. In 1995, the Company paid Ciba $195,000 for purchasing and
distribution support, $832,000 for overseas office support, $640,000 for data
processing, telecommunications and information services and $550,000 for
research and development services. For 1996, budgeted payments to Ciba for these
services are approximately $196,000 for purchasing and distribution support,
$738,000 for overseas office support, $872,000 for data processing,
telecommunications and information services and $165,000 for research and
development services.
In fiscal year 1995, Biocine S.p.A., a subsidiary of the Company, incurred
approximately $662,000 of commissions on the sale of vaccines by Ciba and its
affiliates. In addition, Biocine S.p.A. earned approximately $507,000 in
interest income during fiscal year 1995 from an interest-bearing deposit in a
financing subsidiary of Ciba.
Under the terms of the Investment Agreement, all holders of options to
acquire shares of Common Stock under Chiron's 1991 Stock Option Plan on November
20, 1994, including executive officers and directors of the Company, were
granted certain cash payment rights in connection with the Ciba transaction.
Each optionee was granted the right to receive a cash payment from Ciba with
respect to options outstanding on November 20, 1994, equal to (A) 37.33 percent
of the number of shares of Common Stock with respect to which each such option
would first become exercisable in calendar year 1995 multiplied by (B) the
difference between $117 per share and the exercise price per share of such
option with respect to such shares ("1995 Cash Payments"). In fiscal year 1995,
the Company paid 1995 Cash Payments to eligible option holders totaling
approximately $24,124,000 and Ciba reimbursed the Company for such amounts as
well as payroll taxes totaling approximately $1,453,000 associated with the
payments. With respect to the remaining shares of Common Stock subject to each
such option (i.e., those shares with respect to which the option first becomes
exercisable before or after 1995), each optionee was granted the right,
exercisable at any time during which such option remains outstanding and is
exercisable with respect to such shares, to surrender for cancellation that
portion of such option relating to 37.33 percent of such shares in return for a
cash payment from Ciba equal to (A) the difference between $117 per share and
the exercise price per share of such option multiplied by (B) the number of
shares with respect to which such option is so surrendered and canceled ("Option
Participation Payment"). In fiscal year 1995, Ciba paid approximately
$59,541,000 to eligible option holders in connection with the surrender for
cancellation of such options and reimbursed the Company for payroll taxes
totaling approximately $1,447,000 associated with the payments.
The grant and exercise of any 1995 Cash Payment or Option Participation
Payment right with respect to any executive officer (i.e., an officer subject to
Section 16 of the Exchange Act) or director of the Company was approved by the
Compensation Committee and was made subject to stockholder approval of the grant
of such right at the Company's 1995 stockholder meeting, which approval was
received on May 18, 1995. Under the terms of the Investment Agreement, as
amended, Ciba agreed that once stockholder approval was obtained, Ciba would
make all such payments to executive officers and directors to which such persons
would have been entitled at the Closing, increased at a rate of 6 percent per
annum calculated from the Closing to the date such payment was actually made by
Ciba, provided that such increased payments were
24
required only for payment rights exercised within 5 business days after
stockholder approval was obtained. Under this provision, Ciba made cumulative
interest payments of approximately $845,000 to the Company's executive officers
and directors in connection with their exercise of payment rights.
The Company agreed that if any of the above-described cash payments by Ciba
to Chiron executive officers, alone or when aggregated with other compensation
payable to any such executive officers, constitute an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code and/ or would
subject such individuals to a tax under Section 4999 of the Internal Revenue
Code, the Company may pay such executive officers such additional amount or
amounts as shall be necessary to assure that, on any date, the net after-tax
amount realized by such executive officers from the compensation paid as a
result of such cash payments from Ciba plus such additional amount shall equal
the net after-tax amount that such individuals would have realized from the cash
payment from Ciba if such additional tax were not imposed.
During 1995, in connection with the Company's acquisition of CCD from Ciba,
the Company and Ciba each contributed $12.5 million to pay transitional costs to
preserve through the date of the acquisition the value of retirement benefits
earned by CCD employees under its defined benefit retirement plan. In addition,
Ciba and the Company each contributed approximately $500,000 to resolve
transitional issues affecting CCD's employee post-retirement life insurance
benefits.
In 1990, the Company entered into agreements with Bios Chile ("Bios"), a
Chilean biotechnology company in which Dr. Pablo Valenzuela, Senior Vice
President, holds an ownership interest. Dr. Bernardita Mendez, Vice President,
Regulatory and Quality Affairs, who is married to Dr. Valenzuela, is the
daughter of the general manager of Bios. Under the agreements, as amended: (a)
Dr. Valenzuela will be permitted to contribute up to 20 percent of his work time
in any year to Bios; (b) Chiron acquired 19 percent of the outstanding stock of
Bios upon payment of $100,000, plus an option to acquire up to 50 percent of the
outstanding stock upon payment of an additional $100,000; (c) Chiron will
contribute equipment to Bios with a value of $250,000 in the first year of the
agreement and $50,000 a year for ten years thereafter; (d) Chiron will pay a
maximum of $25,000 per year for each of the next ten years for reasonable costs
and expenses incurred by Dr. Valenzuela while performing services for Bios. In
return, Bios will perform research services for Chiron valued at not less than
$200,000 in the first year of the agreement and $50,000 a year for ten years
thereafter. The agreement between the companies further contemplates the supply
of certain biotechnological services and supplies by Bios to Chiron having a
value of no less than $100,000 in each of the three years following its
effective date. Chiron will have the right to commercialize, outside Latin
America, any product of Bios and Bios will have the right to sell certain Chiron
reagents for research purposes. In fiscal year 1995, the Company paid to Bios a
total of $78,100 under various provisions of the above-mentioned agreements.
Under a separate letter of intent relating to development of protocols for the
Company's subsidiary CCD, CCD made a payment to Bios of $25,000 in fiscal year
1995. The Company anticipates that a definitive agreement between CCD and Bios
will be signed, under the terms of which Bios would undertake the research work
agreed upon for a fee of approximately $125,000.
Mr. Lewis Coleman, a director of the Company, was Chief Financial Officer of
BankAmerica Corp. until December 1995. During fiscal year 1995, the Company paid
approximately $74,000 to a BankAmerica Corp. subsidiary in fees incurred in the
ordinary course of business in connection with the management of a portion of
Chiron's investment portfolio. The Company also maintains routine banking
relationships with Bank of America N.T. & S.A., a subsidiary of BankAmerica
Corp. The Company believes that fees and costs associated with all of these
services are customary and reasonable in relation to the services rendered.
Mr. Jack W. Schuler, a director of the Company, is chairman of Stericycle
Corporation, a company that processes, sterilizes and recycles medical waste.
During fiscal year 1995, the Company and its subsidiaries paid approximately
$93,000 to Stericycle for services rendered.
Mr. C. William Zadel, Vice President and Chief Executive Officer of CCD
until his resignation on December 31, 1995, entered into an agreement with the
Company in June 1995 regarding the termination of his employment which provides
the following: (i) in lieu of any payment for 1995 under CCD's long-term
incentive plan, CCD agreed to pay him $171,200 following the termination of his
employment; (ii) on January 1, 1996, and January 1, 1997, CCD agreed to pay him
lump sum payments of $650,560 and $325,280,
25
respectively, which amounts represent approximately 18 months of salary and
target short-term and long-term cash compensation; (iii) in the event he has not
accepted a successor position by July 1997, CCD will pay him a monthly severance
amount of $54,213 per month up to 6 months and $28,533 per month up to an
additional 6 months, until he accepts a successor position, but in no event for
more than 12 months in the aggregate; (iv) until he accepts a successor
position, CCD will maintain in effect for his benefit the medical, dental and
life insurance coverage he held in June 1995, but in no event for more than 30
months after the termination of his employment; and (v) in lieu of his
participating in the post-retirement medical program established for eligible
CCD employees following the acquisition of CCD by the Company, the Company will
pay him a lump sum of $33,000.
In September 1990, Mr. William Green, Senior Vice President, Secretary and
General Counsel, entered into an agreement with the Company which provides that
the Company will maintain life insurance for him in the amount of $500,000 and
that in the event Mr. Green's contributions or premiums associated with health
or dental insurance exceed $4,500 in any year, the Company will pay the excess.
Mr. Green's agreement with the Company further provides that in the event the
Company terminates his employment without cause, all options to purchase shares
of Common Stock of the Company granted to Mr. Green on his date of hire will
immediately vest. All such options had vested in accordance with their terms by
December 31, 1995.
Pursuant to the provisions of an executive loan program adopted by the Board
of Directors to promote stock ownership by executive officers ("Executive Loan
Program"), in December 1995, the Company provided a loan of $351,250 to Mr.
Green to enable him to purchase 10,000 shares of Chiron Common Stock through the
exercise of a stock option. Mr. Green agreed: (1) to pledge to the Company
10,000 shares of Chiron Common Stock acquired by him as security for the loan
and (2) that the shares will be subject to an additional restriction on transfer
which will lapse as to fifty (50) percent of the shares after one year and the
remainder after two years. The loan bears an interest rate of 8.5 percent and is
due in full on or prior to December 29, 1997. As of December 31, 1995, the
amount outstanding on the loan to Mr. Green, including interest, was $351,250.
During the fiscal year ended December 31, 1995, the largest aggregate amount of
indebtedness outstanding on the loan was $351,250.
The Company has made several loans to Dr. Dino Dina, Vice President,
Virology and Vaccine Development, and President, Chiron Biocine Company, to
assist him in the rebuilding of his residence following its destruction in the
October 1991 Oakland/Berkeley fire and pending resolution of insurance coverage
disputes. In December 1992 and January 1993, the Company loaned Dr. Dina a total
of $200,000 at a variable prime interest rate. The loan was due in full on or
prior to December 8, 1995. On April 1, 1993, the Company loaned Dr. Dina an
additional $200,000 at a variable prime interest rate. The loans were secured by
a second deed of trust on the property and a pledge of stock whereby Dr. Dina
granted Chiron a security interest in 10,000 shares of Chiron Common Stock owned
by him. On April 12, 1994, Dr. Dina partially repaid the loans made in December
1992 and January 1993. On January 31, 1995, Dr. Dina repaid in full the amounts
outstanding on the two remaining loans. The largest aggregate amount of
indebtedness outstanding during the fiscal year ended December 31, 1995 on the
two loans to Dr. Dina was $296,543.
Pursuant to the provisions of the Executive Loan Program, in December 1993,
the Company provided a loan of $408,000 to Dr. Dina to enable him to purchase
34,000 shares of Chiron Common Stock through the exercise of a stock option. Dr.
Dina agreed: (1) to pledge to the Company 34,000 shares of Chiron Common Stock
acquired by him as security for the loan; (2) that the shares would be subject
to an additional restriction on transfer which would lapse as to fifty (50)
percent of the shares after one year and the remainder after two years and (3)
that in the event he left the employ of the Company prior to the lapse of the
transfer restriction, for any reason other than death or permanent disability,
the shares then subject to a restriction on transfer would be subject to
repurchase by the Company at the original stock option exercise price. The loan
bore an interest rate equal to the average yield on the Company's aggregate
investment portfolio adjusted quarterly and was due in full on or prior to
December 8, 1998. On January 31, 1995, Dr. Dina repaid in full the amount
outstanding on this loan. During the fiscal year ended December 31, 1995, the
largest aggregate amount of indebtedness outstanding on the loan to Dr. Dina was
$428,100.
26
In September 1994, the Company provided a loan of $200,000 to Dr. William J.
Link, Vice President of the Company and Chief Executive Officer of Chiron Vision
Corporation, to assist him in financing his principal residence. The loan has a
fixed interest rate of 7.75 percent and is due in full on or prior to September
2, 1999. The loan is secured by a second deed of trust on the property. As of
December 31, 1995, the amount outstanding on the loan to Dr. Link, including
interest, was $203,875. The largest aggregate amount of indebtedness outstanding
during the fiscal year ended December 31, 1995 on the loan to Dr. Link was
$203,875.
In October 1993, the Company provided a loan of $400,000 to Dr. Mickey S.
Urdea, Vice President, Nucleic Acid Systems Research and Development, to assist
him in the renovation of a residence. The loan bears an interest rate equal to
the average yield on the Company's aggregate investment portfolio adjusted
quarterly. In December 1995, Dr. Urdea partially repaid the amount outstanding
on the loan and the Company agreed to extend the due date of the remaining
amount from October 11, 1995, to October 11, 1996. The loan is secured by a
second deed of trust on the property. As additional security for the loan, Dr.
Urdea has agreed to transfer to the Company stock underlying vested stock
options to purchase 3,000 shares of Chiron Common Stock held by him when
acquired. As of December 31, 1995, the amount outstanding on the loan to Dr.
Urdea, including interest, was $335,832. The largest aggregate amount of
indebtedness outstanding during the fiscal year ended December 31, 1995 on the
loan to Dr. Urdea was $392,818.
In October and November 1992, prior to his becoming an executive officer of
the Company, the Company provided two loans totaling $183,000 to Mr. Robert
Blackburn, Vice President and Chief Patent Counsel, to assist him in the
purchase of a primary residence. The first loan for $133,000 had a variable
prime interest rate, was due in full on or prior to April 25, 1995, and was
secured by a pledge of stock whereby Mr. Blackburn granted Chiron a security
interest in 36,000 shares of Chiron Common Stock underlying stock options held
by him. The second loan for $50,000 had a variable prime interest rate, was due
in full on or prior to April 25, 1995, and was secured by a second deed of trust
on the property. On April 18, 1995, Mr. Blackburn repaid in full the amounts
outstanding on the two loans. The largest aggregate amount of indebtedness
outstanding during the fiscal year ended December 31, 1995 on the two loans to
Mr. Blackburn was $187,151.
In February 1994, in connection with his recruitment and relocation, the
Company provided a loan of $450,000 to Dr. David Martin, Senior Vice President,
and President, Chiron Therapeutics until April 30, 1995, to assist him in the
purchase of a residence. The loan bore a variable prime interest rate and was
due in full on or prior to February 9, 1999. The loan was secured by a second
deed of trust on Dr. Martin's property in Pennsylvania. Dr. Martin left the
Company in April 1995 and all amounts outstanding on Dr. Martin's note were
repaid on his behalf. The largest aggregate amount of indebtedness outstanding
during the fiscal year ended December 31, 1995 on the loan to Dr. Martin was
$474,645.
In August 1994, the Company provided a loan of $200,000 to Mr. Dennis L.
Winger, Senior Vice President and Chief Financial Officer, to assist him in the
purchase of real property. The loan bore an interest rate of 7.25 percent and
was due in full on or prior to June 1, 1996. The loan was secured by a second
deed of trust on Mr. Winger's residence. In July 1995, Mr. Winger repaid the
loan in full. The largest aggregate amount of indebtedness outstanding during
the fiscal year ended December 31, 1995 on the loan to Mr. Winger was $200,000.
In January 1995, prior to his becoming an executive officer of the Company,
the Company provided a loan of $150,000 to Mr. Mario Lorenzoni, Vice President
and Chief Executive Officer of Biocine S.p.A. The loan bore an interest rate of
8.5 percent and was due in full on or prior to March 30, 1995. The loan was
secured by a pledge of stock whereby Mr. Lorenzoni granted Chiron a security
interest in 4,316 shares of Chiron Common Stock underlying stock options held by
him. Mr. Lorenzoni repaid the loan in full in February 1995. The largest
aggregate amount of indebtedness outstanding during the fiscal year ended
December 31, 1995 on the loan to Mr. Lorenzoni was $151,398.
In July 1995, the Company's subsidiary Chiron b.v. provided a loan of
$150,000 to Mr. Alain Herrera, Vice President and President, Chiron b.v., to
assist him in the purchase of real property. The loan bore an
27
interest rate of 5.5 percent and was due in full on or prior to July 10, 1998.
The loan was secured by a second deed of trust on Mr. Herrera's residence. Mr.
Herrera repaid the loan in full in October 1995. The largest aggregate amount of
indebtedness outstanding during the fiscal year ended December 31, 1995 on the
loan to Mr. Herrera was $149,026.
The Company has indemnification agreements with directors that (i) confirm
the present indemnity provided to them by the Company's Bylaws and give them
assurances that this indemnity will continue to be provided despite future
changes in the Bylaws and (ii) provide that, in addition, the directors shall be
indemnified to the maximum extent permitted by law against all expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
or paid by them in any action or proceeding, including any action by or in the
right of the Company, on account of their service as a director, officer or
similar official of any other company or enterprise when they are serving in
such capacities at the request of the Company. The indemnification agreements
further provide that expenses incurred by a director in such cases shall be paid
by the Company in advance, subject to the director's obligation to reimburse the
Company in the event it is ultimately determined that the director is not
entitled to be indemnified for such expenses under any of the provisions of the
indemnification agreement. However, no indemnity will be provided to any
director under the agreements as described in clause (ii) of the first sentence
of this paragraph on account of conduct which is finally adjudged to be
knowingly fraudulent, deliberately dishonest, or to constitute willful
misconduct. In addition, no indemnification will be provided if a final court
adjudication shall determine that such indemnification is not lawful, or in
respect of any suit in which judgment is rendered against a director for an
accounting of profits made from a purchase or sale of securities of the Company
in violation of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or of any similar statutory provision, or on account of any
remuneration paid to a director which is finally adjudged to have been paid in
violation of law. The indemnification agreements also contain provisions
designed to protect the Company from unreasonable settlements or redundant legal
expenditures.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO CHIRON RESTATED
CERTIFICATE OF INCORPORATION
On February 23, 1996, the Chiron Board approved, subject to stockholder
approval, an amendment to Chiron's Restated Certificate of Incorporation (the
"Chiron Certificate") increasing the number of shares of Common Stock that
Chiron is authorized to issue from 100 million to 500 million (the "Amendment").
The Chiron Board has determined that an increased number of authorized
shares of Chiron Common Stock is in the best interest of the Company and its
stockholders. Chiron intends to use authorized and unissued shares of Chiron
Common Stock for various corporate purposes, including, but not limited to,
possible future financing and acquisition transactions, possible
recapitalization through a stock split or stock dividend, and other corporate
purposes. Authorized and unissued shares of Chiron Common Stock may be issued
for the foregoing purposes by the Chiron Board without further Chiron
stockholder action being necessary unless the issuance is in connection with a
transaction for which stockholder approval is otherwise required under
applicable law, regulation or agreement.
Pursuant to the Fifth Article of the Chiron Certificate, Chiron is
authorized to issue 100 million shares of Common Stock. If the Amendment is
approved, such number will be increased to 500 million. As of February 29, 1996,
there were 42,108,818 outstanding shares of Chiron Common Stock. An additional
10,955,202 shares of Chiron Common Stock have been reserved for issuance upon
exercise of stock options, warrants and upon conversion of Chiron's and Cetus's
Debentures convertible into Chiron Common Stock on or before 2000 and 2002,
respectively, unless previously redeemed.
If this proposal is adopted by Chiron stockholders, the first sentence of
the Fifth Article of the Chiron Certificate and Subpart 2 of said Fifth Article
will read as follows:
FIFTH: This corporation is authorized to issue two classes of
shares to be designated, respectively, "Preferred Stock" and
"common stock". The total number of shares which this corporation
is authorized to issue is five hundred five million (505,000,000).
Five
28
million (5,000,000) shares shall be Preferred Stock and five
hundred million (500,000,000) shares shall be common stock. The
Preferred Stock shall have a par value of $0.01 per share; the
common stock shall have a par value of $0.01 per share.
2. COMMON STOCK
The common stock may be issued from time to time in one or more
series. Four Hundred Ninety-nine million five hundred thousand
(499,500,000) shares of common stock are designated "Common
Stock." All other series of common stock shall collectively
consist of five hundred thousand (500,000) shares and shall be
designated, as a group, "Restricted Common Stock."
The full text of the Fifth Article of the Chiron Certificate reflecting the
Amendment is attached as Annex 1 and is incorporated by reference.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT TO CHIRON RESTATED CERTIFICATE OF
INCORPORATION.
The affirmative vote of a majority of the shares of Common Stock having
voting power present in person or represented by proxy, a quorum being present,
is necessary to approve the Amendment to Chiron's Restated Certificate of
Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO
CHIRON'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER
OF SHARES OF COMMON STOCK OF THE COMPANY FROM 100 MILLION TO 500 MILLION.
PROPOSAL 3:
APPROVAL OF AMENDED STOCK OPTION PLAN
GENERAL
The Board of Directors has adopted, subject to stockholder approval,
amendments to the Chiron 1991 Stock Option Plan ("Plan" or "1991 Plan"), which
include:
(1) Changes to the automatic annual stock option grant program of the Plan,
which implement a new formula for determining the number of shares underlying
the automatic stock options granted to non-employee directors. The Plan
currently provides for the automatic annual grant to non-employee directors of
stock options on 3,000 shares of Common Stock. As amended, this annual automatic
grant will be calculated based upon the average stock price of the Common Stock
over the preceding 12-month period. Based on this average stock price, if annual
stock options to each non-employee director had been granted on February 29,
1996, 1289 shares of Common Stock would have been subject to each such option.
The amended Plan also provides for additional automatic awards to non-employee
directors in the form of "automatic share rights."
(2) The provision of performance units, which are restricted shares, share
rights and share units awarded to corporate vice presidents and other executive
officers designated by the Compensation Committee ("162(m) executives") which
comply with the requirements of Internal Revenue Code ("Code") Section 162(m)
("performance units"). The performance units would vest based on the attainment
of one or more pre-established performance goals over a specified performance
period. The administration of the performance units is intended to satisfy all
requirements imposed by Section 162(m) to prevent the application of the $1
million annual deduction limit on executive compensation to certain awards under
the Plan.
The 1991 Plan was adopted originally by the Board of Directors ("Board") on
June 14, 1991, and, as subsequently amended, was approved by stockholders on
December 10, 1991, May 13, 1993, and May 18, 1995. Any awards granted under the
amended provisions of the Plan will be granted subject to stockholder approval.
If stockholder approval is not obtained, awards under the Plan will continue to
be granted in accordance with the Plan provisions in effect before the Board
adopted the amendments. As of January 1, 1996, approximately 3986 employees
(including officers and directors), 28 independent contractors and
29
consultants, and 8 non-employee directors are eligible to participate in the
Plan. The Plan, as proposed to be amended ("Amended Plan"), is attached as Annex
2, to which reference is made for a complete statement of the Plan provisions.
The market price of Chiron Common Stock on February 29, 1996 was $111.375. The
following summary of certain Amended Plan provisions is qualified, in its
entirety, by reference to the Amended Plan.
GENERAL DESCRIPTION OF CHIRON 1991 STOCK OPTION PLAN AS AMENDED
Pursuant to Securities and Exchange Commission rules, the Plan is described
below in its entirety, incorporating the proposed amendments.
PURPOSE
The purpose of the Plan is to enable Chiron to attract and retain employees,
including officers and directors, non-employee directors, independent
contractors and consultants and to offer incentives and rewards that will
encourage such individuals to acquire a proprietary interest in the Company, to
build value for stockholders, and to continue in the service of the Company and
its subsidiaries.
ADMINISTRATION
The Plan is administered by a committee or committees (the "Committee")
appointed by the Board from among its members. Administration of the Plan with
respect to officers subject to Section 16 of the Exchange Act will be by members
who are "disinterested persons" as that term is defined in Rule 16b-3 under that
Act. With respect to establishing, administering and certifying performance
units, the composition of the Committee is intended to comply with Code Section
162(m). The Committee is generally authorized to construe and interpret the
Plan, to establish appropriate rules and regulations, to select employees,
independent contractors and consultants of the Company and its subsidiaries for
participation and to specify the terms of awards granted under the Plan. Members
of the Committee may be removed by the Board. In determining the terms,
conditions and amount of each award, the Committee may take into account various
criteria, including, among others, salary grade and individual and Company
performance.
Chiron will pay all costs of administration of the Plan. The cash proceeds
received by Chiron from the issuance of shares pursuant to the Plan will be used
for general purposes.
SHARES AND TERM
The stock subject to awards granted under the Plan is Chiron's authorized
but unissued or reacquired Common Stock ("Common Stock") or shares of one or
more series of Chiron's authorized but unissued or reacquired Restricted Common
Stock (in the aggregate, "Company Stock"). The rights, preferences and
privileges, together with restrictions and limitations, and the number of shares
of each series of Restricted Common Stock issuable under the Plan, will be set
forth in Chiron's Certificate of Determination of Preferences of Common Stock as
in effect from time to time during the term of the Plan. The Company may
repurchase shares in the open market or otherwise.
Initially, the stockholders approved for issuance under the Plan, 4,500,000
shares of Company Stock in addition to the shares of Company Stock previously
authorized by stockholders and remaining for issuance under the Chiron
Corporation 1982 Stock Option Plan ("1982 Plan") and the Chiron Corporation 1984
Non-Qualified Plan ("Non-Qualified Plan") on December 10, 1991 (897,204 shares).
Except as otherwise limited by the terms of this Plan, this amount will be
subject to adjustment annually, without further stockholder approval, commencing
on January 1, 1992, to authorize the grant of awards upon that number of
additional shares of Company Stock equal to 1.50 percent of the number of Chiron
Common Equivalent Shares outstanding as of the end of the preceding fiscal year.
"Chiron Common Equivalent Shares" are the total number of shares of Common Stock
outstanding plus the total number of shares of Common Stock issuable upon
conversion or exercise of outstanding warrants, options and convertible
securities. Not more than 4,500,000 shares of Company Stock, plus the number of
shares of Company Stock remaining for issuance under Chiron's 1982 Plan and
Chiron's Non-Qualified Plan on the effective date of this Plan may be subject to
Incentive Stock Options ("ISO") granted under this Plan. In no event will more
than 500,000 shares of Restricted Common Stock be issued under this Plan.
30
To the extent that an option expires or is terminated, or is canceled or
forfeited for any reason (other than surrendered for a cash appreciation
payment) without having been exercised in full, any remaining shares allocable
to the unexercised portion of such option shall again become available for
subsequent grants under the Plan. To the extent that a share right or share unit
expires or is terminated, or is canceled or forfeited for any reason without
being paid in cash or shares of Company Stock, any remaining shares allocable to
the unpaid portion of such share right or share unit shall become available
again for subsequent grants under the Plan. Restricted shares that have been
issued but forfeited or repurchased by the Company shall not be available for
the grant of new awards under the Plan. Shares attributable to the payment of a
share unit in cash, and the payment of cash or a cash appreciation distribution
upon the surrender or exercise of a stock option, or the payment of cash in lieu
of shares under a restricted share or a share right, and shares forfeited or
repurchased by Chiron pursuant to its forfeiture and repurchase rights under the
Plan will not be available for subsequent grants under the Plan.
No individual may receive awards under the Plan over its term with respect
to more than 1 million shares of Common Stock.
ELIGIBILITY
Employees, including officers and directors, non-employee directors,
consultants and independent contractors of the Company or its subsidiaries, are
eligible to receive awards under the Plan. 162(m) executives may receive
performance unit awards in addition to or in lieu of other awards granted under
the Plan. Non-employee directors are eligible only for automatic awards, as
described below.
GRANTS TO AWARD HOLDERS OF STOCK OPTIONS, RESTRICTED SHARES, SHARE RIGHTS, SHARE
UNITS, AND PERFORMANCE UNITS
The Committee may, from time to time, grant awards to one or more award
holders that it determines is eligible to participate in the Plan. An award may
be in the form of a stock option, restricted share, share right, share unit, or
performance unit.
In order to assist an award holder in the acquisition of Company Stock
pursuant to an award, the Committee may authorize the Company to extend secured
or unsecured credit to the award holder (other than pursuant to the automatic
award provisions of the Plan). The Committee may also permit an award holder to
elect to have shares of the Company's Common Stock held by the award holder for
the requisite period to avoid a charge to the Company's earnings ("Previously
Owned Shares") applied to satisfy any withholding tax obligation incurred in
connection with the award and may require or permit a portion of any Common
Stock otherwise issuable under an award to be paid in cash instead of stock and
applied to such a withholding tax obligation.
STOCK OPTIONS
Under the terms of the Plan, the Committee may grant an ISO, which satisfies
the requirements of Section 422 of the Code, or a non-statutory option ("NSO"),
which is not intended to satisfy the requirements of Section 422 of the Code.
The Committee may determine the number of shares of Company Stock issuable
under an option as well as the exercise date, the exercise price, and the
exercise period of an option. However, the exercise price of an option may not
be less than eighty-five percent (85 percent) of the fair market value (as
defined in the Plan) of the option shares on the date of the grant of the
option, or in the case of an ISO, one hundred percent (100 percent) of the fair
market value of the option shares on the date of the option grant. Generally,
effective August 13, 1993, except for substitute options as defined in the 1991
Plan, fair market value of a share of Common Stock on any relevant date will be
the average between the reported high and reported low price on the date in
question of one share of Common Stock on the Nasdaq National Market System,
rather than being based on a ten (10) day average as had previously been used to
determine fair market value under the 1991 Plan.
The duration of an option may not exceed ten years. Notwithstanding the
foregoing, substitute options (defined below) will have exercise prices, terms
and conditions determined in accordance with the relevant
31
option agreements and adjusted, where applicable, for their conversion to
options on Chiron Common Stock, and the terms of automatic option grants will be
as described under "Automatic Awards to Non-Employee Directors."
Following stockholder approval of the 1991 Plan and upon consummation of the
mergers between Chiron and Cetus, Protos, and Chiron Ophthalmics, outstanding
options under those companies' stock option plans and Chiron's prior option
plans (including related limited stock appreciation rights) were converted, in
the manner and at the exchange ratio specified in the merger agreements, into
options to acquire Common Stock under this Plan. On the Effective Date of the
Plan, outstanding automatic option grants under the Chiron 1982 Plan were
conformed, other than to extend the term, to the automatic option grants under
the Plan. Collectively, these options will be known as "substitute options."
The exercise price is generally payable in full in cash or, in the
Committee's discretion, in Previously Owned Shares or, under certain conditions,
the proceeds of a same day sale of the award shares, or by means of the
extension of secured or unsecured credit to the optionee.
RESTRICTED SHARES, SHARE RIGHTS, AND SHARE UNITS
Restricted shares, share rights, and share units may be granted
independently of other compensation or in lieu of compensation that would
otherwise be paid in cash or stock options, whether at the election of the award
holder or otherwise. The number of restricted shares, share rights or share
units to be awarded in lieu of any cash compensation amount or number of stock
options shall be determined by the Committee in its sole discretion and need not
be equal to such foregone compensation in fair market value. Restricted shares,
share rights and share units may be awarded in tandem with stock options, so
that a portion of such award becomes payable or becomes free of restrictions
only if and to the extent that the tandem options are not exercised or are
forfeited, subject to such terms and conditions as the Committee may specify.
The terms, conditions and restrictions to which restricted shares, share rights
and share units are subject will be determined in the sole discretion of the
Committee, and may vary from grant to grant. The Committee shall determine
whether any consideration is to be received by the Company or its subsidiaries
as a condition precedent to the issuance of restricted shares or shares issued
pursuant to share rights.
With respect to restricted shares and share rights, the Committee may
provide award holders with an election to receive a percentage of the total
value of the Company Stock subject to their restricted shares or share rights in
the form of a cash payment, subject to such terms, conditions and restrictions
as the Committee shall specify.
A. Restricted Shares
Restricted shares are shares of Company Stock, the retention and transfer of
which is subject to terms and conditions (based on performance standards,
periods of service or otherwise) determined by the Committee. At the time the
restricted share award is made, the Committee will establish a restriction
period applicable to such award. Generally, the award holder will have the right
to enjoy all stockholder rights during the restriction period, except that a
breach of the terms and conditions established by the Committee pursuant to the
restricted share award will cause a repurchase or forfeiture of the restricted
share award.
B. Share Rights
A share right consists of the right, subject to terms and conditions (based
on performance standards, periods of service or otherwise) as the Committee
shall establish, to receive shares of Company Stock, and if determined by the
Committee, cash dividend equivalents.
C. Share Units
A share unit consists of the right to receive an amount in cash equal to the
fair market value of one share of Company Stock on the date of valuation of the
unit, including, if determined by the Committee, a cash dividend equivalent,
less such amount, if any, as the Committee shall specify. The Committee shall
determine the terms and conditions (based on performance standards, periods of
service or otherwise), if any, to which any such payment will be subject. The
award holder shall not be entitled to any interest in or to any dividend,
voting, or other rights of a stockholder.
32
D. Performance Units
Effective March 8, 1996, 162(m) executives are eligible to receive
performance units which consist of a restricted share, share right or share unit
that vests upon the attainment of pre-set performance goals (established by the
Committee) over a specified performance period. The Committee administering
performance units is intended to satisfy the requirements of Code Section
162(m). The Committee may provide for different levels of payouts based on
relative performance toward a performance goal. Final payouts are subject to the
approval of the Committee, and the Committee has the absolute discretion to
reduce or cancel, but not increase, any payout.
Performance units may be based on one or more of the following criteria over
a specified period: total shareholder return; the achievement of a specified
closing or average closing price of Common Stock; the absolute or percentage
increase in the closing or average closing price of Common Stock and/or one or
more of the following measures of the Company's net income for the specified
performance period determined in accordance with generally accepted accounting
principles as consistently applied by the Company: absolute net income or a
percentage or absolute dollar increase in net income, earnings per share or a
percentage or absolute dollar increase in earnings per share, or return on
assets employed or equity or a percentage or absolute dollar increase in return
on assets employed or equity; or the Company's absolute gross revenues or a
percentage or absolute dollar increase in gross revenues for the specified
performance period determined in accordance with generally accepted accounting
principles as consistently applied by the Company. The performance units may be
based on the Company's performance alone, or the Company's performance may be
measured against variously weighted published benchmark indices that the
Committee determines are representative of the Company's peer group, which
indices may include the Standard & Poor's Health Care Composite Index, the
Standard & Poor's Health Care Diversified Index, the AMEX Biotechnology Index,
among others.
For purposes of the Plan, net income and gross revenues shall be net income
and gross revenues of the Company and its consolidated subsidiaries as reported
by the Company and certified by its independent public accountants, but the
Committee in fixing any goal may exclude any or all of the following if they
have a material effect on annual net income or gross revenues: events or
transactions that are either unusual in nature or infrequent in occurrence (such
as restructuring/reorganization charges, the purchase or sale of in process
technology, the sale or discontinuance of a business segment, the sale of
investment securities, losses from litigation, the cumulative effect of changes
in accounting principles, and natural disasters), depreciation, interest or
taxes.
CORPORATE TRANSACTIONS
In the event of an agreement to dispose of all or substantially all of the
assets or outstanding capital stock of the Company by means of a sale, merger,
reorganization, or liquidation ("Corporate Transaction"), each of the following
awards will be automatically accelerated so that (1) options become fully
exercisable with respect to the total number of shares purchasable under the
options, (2) restrictions on restricted shares will be eliminated, and the
shares will immediately vest, and (3) share rights and share units will
immediately vest and become payable. The Committee may also provide for the
automatic termination of repurchase rights upon the occurrence of a Corporate
Transaction.
However, the terms and conditions of any outstanding award will not be
changed if the award is either assumed by the successor corporation, or replaced
with a comparable award by the successor corporation.
AUTOMATIC AWARDS TO NON-EMPLOYEE DIRECTORS
On the last business day of the second quarter of each fiscal year of the
Company after March 8, 1996 ("automatic grant date"), each incumbent, continuing
non-employee director (including each director newly elected or appointed on the
automatic grant date) will automatically receive an NSO ("automatic option
grants") to purchase that number of whole shares of Common Stock determined by
dividing $100,000 by the average stock price of a share of Common Stock over the
preceding 12-month period. Each person who is newly elected or appointed as a
non-employee director on a date other than an automatic grant date will
33
receive, on the date of such election or appointment, an automatic option grant
to purchase a pro rata number of shares of Common Stock, depending on the number
of months the non-employee director will serve as a director before the next
automatic grant date.
Each automatic option grant will have the following terms: (1) the exercise
price will be equal to the fair market value of the Common Stock on the date of
grant, payable in cash, or in shares of Common Stock held at least six months,
or with the proceeds of a same day sale of the option shares; (2) the term of
the option will be ten years; (3) the option will expire if not exercised within
ninety days after the optionee ceases to serve as a director, an employee, a
consultant, or an independent contractor, or within twelve months after the
optionee ceases to provide such services due to disability or death, (4) each
automatic option grant will be exercisable at any time for all or any part of
the number of granted shares, and (5) the shares will be subject to repurchase
by the Company at the original exercise price if a non-employee director ceases
to provide services to Chiron or its subsidiaries as a director, an employee, a
consultant or an independent contractor.
The Company's repurchase rights will lapse and the optionee's interest in
the purchased shares will vest in equal annual installments over five years from
the date of grant, provided the optionee continues to provide services to the
Company. However, the optionee will be immediately and fully vested upon death
or disability.
Each incumbent, continuing non-employee director elected or appointed before
March 8, 1996, who is serving as such on the first automatic grant date
occurring after that date, will automatically be granted, (i) on that first
automatic grant date, the right to receive shares of Common Stock ("automatic
share right") for the number of whole shares purchasable with $40,000 ("$40,000
share right"), and (ii) on each subsequent automatic grant date while the
individual is serving as a non-employee director, an automatic share right to
purchase the number of whole shares purchasable with $25,000 ("$25,000 share
right"). Each non-employee director newly elected or appointed after March 8,
1996 will automatically be granted a $40,000 share right on the date of such
election or appointment. On each automatic grant date occurring after the new
director's election or appointment and while the individual is serving as a
non-employee director, the non-employee director will automatically be granted a
$25,000 share right. However, if the non-employee director is newly elected or
appointed on a date other than an automatic grant date, then on the first
automatic grant date occurring after such election or appointment, the
non-employee director will be granted a pro rated $25,000 share right, based on
the number of months the individual served as a non-employee director before
such automatic grant date. The dollar values will be subject to cost-of-living
increases.
The share rights will vest in equal annual installments over five years from
the date of grant, and shares will be issued in satisfaction of the share
rights, provided the non-employee director continues to provide services to the
Company. However, the non-employee director will be immediately and fully vested
upon death or disability.
ADJUSTMENTS
Options, restricted shares, share rights, share units, and any agreements
evidencing such awards shall be subject to adjustment by the Committee as to the
number and, if applicable, price of shares of stock or other consideration
obligation subject to such awards in the event of changes in the outstanding
stock due to a change in the corporate or capital structure of the Company. In
the event of any such change in the outstanding stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
CANCELLATION AND REGRANT OF OPTIONS
Under the Plan, the Committee has the authority to effect at any time, with
the consent of the affected option holders, the cancellation of any or all
options outstanding under this Plan, the prior Cetus Stock Option Plans, the
Protos Corporation 1988 Stock Option Plan, the Chiron Ophthalmics, Inc. 1986
Stock Option Plan, the 1982 Plan and the Non-Qualified Plan (the "Prior Plans")
(other than options granted
34
under the automatic option grant provisions of these plans) and to grant in
substitution therefor new options for the same or different number of shares
with an exercise price not less than 85 percent of fair market value on the new
grant date or 100 percent of fair market value if the new option is to be an
ISO.
SURRENDER OF OPTIONS FOR CASH OR STOCK
The Committee in its discretion may implement an option surrender program
under the Plan through which one or more optionees may, under the terms and
conditions established by the Committee, be granted the right to surrender all
or part of an unexercised option for an appreciation distribution equal to the
difference between the fair market value of the shares at the surrender date and
the option price payable thereon. Such distribution may be made in shares of
Company Stock valued at fair market value on the date of surrender, in cash, or
partly in shares and partly in cash, as the Committee, in its sole discretion,
may decide. The option surrender provisions are not applicable to the automatic
option grant provisions of the Plan.
REPURCHASE RIGHTS
The Committee in its discretion may establish as a term of one or more
awards granted under the Plan that the Company (or its assigns) will have
repurchase rights, exercisable upon the award holder's termination of employment
with, or cessation of services for, the Company and its subsidiaries. The
Committee will also have the authority to provide for the automatic termination
of the Company's repurchase rights, in whole or in part, thereby accelerating
the vesting of any or all of the purchased shares (other than purchased shares
obtained pursuant to the automatic option grant provisions of this Plan) upon
the occurrence of a Corporate Transaction.
RIGHT OF FIRST REFUSAL
The Committee in its discretion may establish as a term of one or more
awards granted under the Plan that the Company has a right of first refusal with
respect to the proposed disposition by the award holder (or any successor in
interest by reason of purchase, gift or other mode of transfer) of any shares of
Company Stock acquired by the award holder. The instrument evidencing such right
of first refusal will specify the terms and conditions of that right.
SPECIAL CASH PAYMENTS RELATED TO CIBA-GEIGY TRANSACTION
All holders of options to acquire shares of Common Stock under the 1991 Plan
on November 20, 1994 were granted certain cash payment rights in connection with
the Ciba transaction.
Each optionee was granted the right to receive a cash payment from Ciba with
respect to options outstanding on November 20, 1994, equal to (A) 37.33 percent
of the number of shares of Common Stock with respect to which each such option
would first become exercisable in calendar year 1995 multiplied by (B) the
difference between $117 per share and the exercise price per share of such
option with respect to such shares. The portion of each option which underlies
each such cash payment is not canceled upon the optionee's receipt of the
payment from Ciba.
With respect to the remaining shares of Common Stock subject to each such
option (i.e., those shares with respect to which the option first becomes
exercisable before or after 1995), each optionee was granted the right,
exercisable at any time during which such option remains outstanding and is
exercisable with respect to such shares, to surrender for cancellation that
portion of such option relating to 37.33 percent of such shares in return for a
cash payment from Ciba equal to (A) the difference between $117 per share and
the exercise price per share of such option multiplied by (B) the number of
shares with respect to which such option is so surrendered and canceled.
The grant of such rights, which were made with respect to 1,858,776 optioned
shares, was in addition to, and does not count against, the limits on the number
of shares with respect to which other awards under the Plan may be made to all
individuals and/or a single individual. All payments in respect of such rights
were made by Ciba. The Company has agreed that if the payment under any right
would subject a recipient to an excise tax on excess parachute payments under
Code Section 4999 ("Section 4999"), the Company would make such further cash
payment to the recipient as would be necessary to provide the recipient with the
35
same after-tax amount that he or she would have received in the absence of such
excise tax. The Company does not believe that any payments under the rights
constitute excess parachute payments. However, because neither final regulations
nor other definitive guidance has been issued under Section 4999 relating to the
type of transaction that triggers the application of that provision and the type
and value of rights that constitute excess parachute payments, there can be no
assurance that payments to certain officers and 1-percent stockholders of the
Company will not constitute excess parachute payments.
NEW PLAN BENEFITS
Since the performance units proposed provide various criteria from which the
Committee may choose to determine awards, it is not possible to determine the
benefits or amounts that will be received, or would have been received by
eligible individuals in the form of performance units.
Since automatic stock option grants to new non-employee directors are
potentially pro rated, and since it is not possible to foresee when and whether
a non-employee director will be appointed or elected during the year, it is not
possible to determine the amount of awards eligible non-employee directors will
receive if the Plan is approved by stockholders. For the Company's fiscal year
January 1, 1995 through December 31, 1995, the non-executive directors as a
group received automatic stock options on 24,750 shares of Common Stock, with an
average exercise price of $64.3674 per share. If the presently proposed
amendment had been effective for such period, they would have received automatic
stock options on 14,666 shares of Common Stock, with an average exercise price
of $64.51 per share, and automatic share rights to receive 5,142 shares of
Company Common Stock.
The following tables contain information for the Company's fiscal year
January 1, 1995 through December 31, 1995 about (i) stock options granted under
the Plan, and (ii) special cash rights granted in connection with the Ciba
transaction to the named executive officers and directors and groups indicated.
STOCK OPTIONS GRANTED UNDER THE PLAN IN 1995
AVERAGE EXERCISE
NUMBER OF SHARES PRICE
NAME AND POSITION SUBJECT TO OPTIONS(#) OF OPTIONS ($)
- --------------------------------------------------------------------- --------------------- --------------------
Edward E. Penhoet ................................................... 62,175 $ 55.7210
President and Chief Executive Officer
William J. Rutter ................................................... 62,175 $ 55.7210
Chairman
C. William Zadel .................................................... 5,037 $ 51.1250
Vice President and Chief Executive Officer,
Ciba Corning Diagnostics Corp.
William G. Green .................................................... 29,475 $ 54.3683
Senior Vice President, Secretary and
General Counsel
Dennis L. Winger .................................................... 28,675 $ 54.1519
Senior Vice President, Finance &
Administration, and Chief Financial Officer
Current executive officers as a group ............................... 484,948 $ 53.8437
(21 persons)
Non-Executive Director Group ........................................ 24,750 $ 64.3674
(8 persons)
All employees, including all current officers ....................... 2,115,261 $ 67.9554
who are not executive officers, as a group
(3993 employees)
36
SPECIAL CASH RIGHTS RELATED TO CIBA-GEIGY TRANSACTION
AGGREGATE
DOLLAR NUMBER
NAME AND POSITION VALUE ($)(1) OF RIGHTS(#)(2)
- ------------------------------------------------------------------------------ ----------------- ---------------
Edward E. Penhoet ............................................................ $ 7,156,223 86,613
President and Chief Executive Officer
William J. Rutter ............................................................ 9,312,818 107,146
Chairman
C. William Zadel ............................................................. 0 0
Vice President and Chief Executive Officer,
Ciba Corning Diagnostics Corp.
William G. Green ............................................................. 3,325,765 43,830
Senior Vice President, Secretary and
General Counsel
Dennis L. Winger ............................................................. 3,762,567 45,522
Senior Vice President, Finance &
Administration, and Chief Financial Officer
Current executive officers as a group ........................................ 40,587,683 522,292
(21 persons)
Non-Executive Director Group ................................................. 2,948,249 44,238
(8 persons)
All employees, including current officers .................................... 78,585,810 1,292,246
who are not executive officers,
as a group (3993 persons)
- ------------------------
(1) Based upon difference between $117 per share and exercise price of option to
which each right relates.
(2) Of the rights in the table granted to the named executive officers and
directors and groups indicated, the following number of rights at the dollar
value indicated applicable to options which would first become exercisable
in calendar year 1995 do not require that the optionee surrender for
cancellation the portion of each option underlying each such right: Edward
E. Penhoet -- 19,501 rights ($1,422,029); William J. Rutter -- 19,501 rights
($1,422,029); William G. Green -- 8,687 rights ($611,812); Dennis L. Winger
-- 3,008 rights ($146,819); current executive officers as a group -- 97,548
rights ($6,133,432); non-executive director group -- 7,541 rights
($452,840); all employees, including all current officers who are not
executive officers, as a group -- 302,596 rights ($16,810,283).
AMENDMENT OR TERMINATION
The Board may amend, suspend or discontinue the Plan at any time. However
the performance goals established for Performance Units may not be modified.
Generally, the provisions of the Plan concerning automatic option awards may
only be amended once every six months unless necessary to comply with the Code.
Without stockholder approval, the Board may not (1) materially modify the
requirements for eligibility and participation in the Plan, (2) materially
increase the number of shares which may be subject to awards granted under the
Plan (except as provided above), or (3) make any other change with respect to
which the Board determines that stockholder approval is required by applicable
law or regulatory standards.
To the extent not inconsistent with the Plan, the Committee may modify or
waive the terms of any outstanding award.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of certain federal income tax
consequences of the Plan. This description does not purport to be complete.
37
The Company will be entitled to a business expense deduction equal to the
ordinary income recognized by an optionee on exercise of an NSO. The ordinary
income recognized will be equal to the excess of the fair market value of the
purchased shares on the date of recognition over the exercise price. Generally,
the date of recognition will be the date the option is exercised or, if later,
the first date shares acquired on exercise are not subject to a substantial risk
of forfeiture.
The Company will also be entitled to a business expense deduction equal to
the ordinary income recognized by an optionee due to a "disqualifying
disposition" of stock acquired pursuant to an ISO. A disqualifying disposition
occurs if an optionee disposes of the acquired shares within two years of the
date of the option grant, or within one year of the date the shares are acquired
by the optionee. In the case of a disqualifying disposition, the optionee will
generally recognize ordinary income in the year of disposition, in an amount
equal to the amount of ordinary income the optionee would have recognized from
the exercise of the option had the option been an NSO at the time of exercise.
To the extent that the aggregate fair market value (determined as of the
respective date or dates of grant) of shares with respect to which options that
would otherwise be ISOs are exercisable for the first time by any individual
during any calendar year exceeds the sum of $100,000, such options will be
treated as NSOs. To the extent that an option may be surrendered for a special
cash payment from Ciba, it will generally not qualify as an ISO.
A recipient of restricted shares may be taxed in one of two ways. The award
holder either: (1) pays tax when the restrictions lapse, or (2) makes a special
election to pay tax in the year the grant is made. The value of the award for
tax purposes is the fair market value of the shares at the applicable time, less
any consideration paid by the award holder for the shares. This value is taxed
as ordinary income. When the award holder is taxed, the Company receives a tax
deduction at the same time and for the same amount. If an award holder elects to
be taxed at grant, when the restrictions lapse, there will be no further tax
consequences attributable to the awarded stock until sale or other disposition
of the stock. However, dividends in cash and stock will be treated as follows:
a. if the above special tax election has been made, cash dividends paid
to the award holder will be taxable dividend income to the award holder when
paid, but the Company will not be entitled to any corresponding deduction;
and
b. if such election has not been made, the award holder will have
taxable compensation income and the Company a corresponding deduction when
the dividends are paid.
A recipient of share rights paid in stock recognizes no taxable income at
the time of grant. However, when the conditions precedent to the issuance of
shares pursuant to such share rights are satisfied, the award holder would
recognize ordinary income equal to the fair market value on the date of issuance
of the shares less any consideration paid by the award holder. Any cash dividend
equivalent paid to holders of share rights is ordinary income. The Company will
be entitled to a deduction equal to the award holder's ordinary income
recognized pursuant to the issuance of shares under the award in the year
recognized by the award holder.
A recipient of a share unit recognizes no taxable income at the time of
grant. Whether a share unit is paid in cash or shares of Company Stock, the
award holder will have ordinary income and the Company will have a corresponding
deduction when the award is paid. The measure of such income and deduction will
be the fair market value of the shares at the time of payment.
If an award is accelerated as a result of a Corporate Transaction, all or a
portion of the value of the award at that time may be a parachute payment for
purposes of the Internal Revenue Code's excess parachute provisions. Those
provisions generally provide that if parachute payments exceed three times an
award holder's average compensation for the five tax years preceding the
Corporate Transaction, the Company loses its deduction and the recipient is
subject to a 20 percent excise tax for the amount of the parachute payments in
excess of such average compensation.
38
A special cash payment from Ciba will constitute taxable income to the
recipient at the time of payment. The Company believes that, subject to the
limits of Section 162(m) of the Internal Revenue Code (applicable to certain
officers of the Company, as discussed below), the Company will be entitled to a
deduction for the amount of each such payment.
ACCOUNTING TREATMENT
The following is a summary of certain accounting consequences of awards
under generally accepted accounting principles. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"). This
standard defines a fair value based method of accounting for stock-based
employee compensation plans; however, it also allows an entity to continue to
measure compensation cost for those plans using the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"). Under the
fair value based method, compensation cost is measured at the grant date based
on the fair value of the award and is recognized over the service period, which
is usually the vesting period. Under Opinion 25, compensation cost is recognized
based on the difference, if any, between the market price of the stock and the
amount an employee must pay to acquire the stock. The Company has elected to
continue accounting for compensation cost arising from its stock-based
compensation plans under the Opinion 25 approach, which serves as a basis for
the following description.
An option granted with an exercise price less than the fair market value of
the option shares on the date of grant will give rise to compensation expense
equal to the difference between the fair market value of the shares on the date
of grant and the exercise price. The expense will be accrued as the optionee
vests in the option or the shares purchasable under the option. Option grants at
100 percent of fair market value will not result in any charge to the Company's
earnings.
The grant of restricted stock or share rights will generally result in
compensation expense equal to the market value of the underlying shares of
Common Stock on the date of grant (less any consideration paid therefor). This
expense will generally be amortized over the term of the vesting in such awards,
but the expense may be subject to periodic adjustment depending on performance
criteria and other factors. In the case of certain performance criteria, the
recognition and measurement of the expense may be delayed until the performance
criteria are attained or are likely to be attained.
Generally, the fair market value of a share unit on the date of grant (less
any consideration paid therefor) will be accrued as an expense and, at the end
of each fiscal quarter thereafter, the amount (if any) by which the fair market
value of the unit has increased or decreased from the amount previously accrued
will be recorded as an adjustment to compensation expense. In the case of
certain vesting or performance criteria, the expense may be amortized or the
recognition and measurement of the expense may be delayed until the performance
criteria are attained or are likely to be attained.
The number of outstanding options, restricted stock and share rights will be
a factor in determining earnings per share on a fully diluted basis.
For fiscal years beginning with the Company's 1996 fiscal year, FAS No. 123
requires the Company to disclose, in footnotes to the Company's financial
statements, the impact that options and other awards granted under the Plan
would have had on the Company's reported earnings were the fair value of those
awards treated as compensation expense.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Recently enacted Section 162(m) of the Internal Revenue Code limits federal
income tax deductions for compensation paid after 1993 to the chief executive
officer and the four other most highly compensated officers of a public company
to $1 million per year, but contains an exception for performance-based
compensation that satisfies certain conditions.
The Company believes that stock options granted to its executives with an
exercise price equal to or greater than the fair market value of Common Stock on
the date of grant, and performance units described in this proposal, will
qualify for the performance-based compensation exception to the deduction limit,
assuming that the Amended Plan is approved by stockholders.
39
The cash payments made by Ciba will not be exempt from application of
Section 162(m). As a result, if the amount of any such payment to any of the
five executive officers of the Company subject to Section 162(m) in any fiscal
year, together with other compensation paid to such officer in such fiscal year
that is not exempt from the limitations of Section 162(m), exceeds $1 million,
the Company will not be entitled to a deduction for the amount of such excess.
VOTE REQUIRED FOR APPROVAL OF THE AMENDED CHIRON 1991 STOCK OPTION PLAN
The affirmative vote of a majority of the shares of Common Stock having
voting power present in person or represented by proxy, a quorum being present,
is necessary to approve the Amended Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDED PLAN TO
CHANGE THE FORMULA FOR GRANTING AUTOMATIC ANNUAL STOCK OPTIONS TO NON-EMPLOYEE
DIRECTORS, TO ADD AN ANNUAL GRANT OF AUTOMATIC SHARE RIGHTS FOR NON-EMPLOYEE
DIRECTORS, AND TO ADD PERFORMANCE UNITS, WHICH ARE RESTRICTED SHARES, SHARE
RIGHTS AND SHARE UNITS AWARDED TO CORPORATE VICE-PRESIDENTS AND OTHER EXECUTIVE
OFFICERS WHICH COMPLY WITH THE REQUIREMENTS OF INTERNAL REVENUE CODE SECTION
162(m).
PROPOSAL 4:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG Peat Marwick LLP to serve as
independent public accountants for Chiron for the current fiscal year.
Ratification by the stockholders will be sought for the selection by the Board
of Directors of KPMG Peat Marwick LLP as independent public accountants to audit
the accounts and records of Chiron for the fiscal year ending December 31, 1996,
and to perform other appropriate services. Representatives of KPMG Peat Marwick
LLP are expected to be present at the Annual Meeting to respond to appropriate
questions and to make a statement if the representatives so desire. In the event
that a majority of the shares voting on the matter at the Annual Meeting does
not vote for ratification of the selection of KPMG Peat Marwick LLP, the Board
of Directors will reconsider such selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
determines that such a change would be in the best interest of the Company.
On March 7, 1994, the Finance and Audit Committee of the Company's Board of
Directors, by delegated authority of the Board of Directors, approved the
engagement of the independent certified public accounting firm of KPMG Peat
Marwick LLP to audit the consolidated financial statements of the Company for
the year ended December 31, 1994. Accordingly, the engagement of Ernst & Young
LLP as the Company's independent auditors was discontinued effective upon
conclusion of the audit of the Company's consolidated financial statements for
the year ended December 31, 1993. The audit of the Company's consolidated
financial statements for the year ended December 31, 1993 was completed on
February 25, 1994.
The reports of Ernst & Young LLP on the Company's consolidated financial
statements for each of the two fiscal years in the period ended December 31,
1993 did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's consolidated financial
statements for each of the two fiscal years ended December 31, 1992 and 1993,
and the subsequent interim period prior to March 7, 1994, there were no
disagreements between the Company and Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst & Young
LLP, would have caused Ernst & Young LLP to make reference to the matter in
their reports.
There were no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)) during the two fiscal years ended December 31, 1992 and 1993, and
the subsequent interim period prior to March 7, 1994.
The Company did not consult with KPMG Peat Marwick LLP during the two years
or subsequent interim period prior to March 7, 1994, on either the application
of accounting principles or type of opinion KPMG Peat Marwick LLP might issue on
the Company's financial statements.
40
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY KPMG
PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1996.
The affirmative vote of the holders of a majority of the shares represented
and voting on the matter will be required to ratify the selection of KPMG Peat
Marwick LLP.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10 percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission.
Officers, directors and greater than 10 percent stockholders are required by
Securities and Exchange Commission regulation to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for fiscal year 1995, the Company believes
that all its officers and directors complied with all filing requirements
applicable to them with respect to transactions during fiscal year 1995 except
that Dr. Amelio filed late a Form 4 to reflect the sale, on September 8, 1995,
of 124 shares of Chiron Common Stock and Dr. Gerber, after termination of his
status as a Company officer, filed late a Form 4 to reflect his exercise and
subsequent sale of 9,046 shares of Chiron Common Stock underlying such options.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered for inclusion in the
Company's Proxy Statement for next year's Annual Meeting of Stockholders must be
received at the Company's principal executive office by December 20, 1996. Such
proposals may be included in next year's Proxy Statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter that may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, the enclosed proxy card gives authority to the
persons listed on the card to vote at their discretion in the best interest of
the Company.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company has chosen again this year to print summary financial
information for the fiscal year ended December 31, 1995 in its 1995 Annual
Report, a copy of which is enclosed with this proxy material. The full audited
consolidated financial statements of the Company and its subsidiaries and other
required financial disclosures appear in a brochure enclosed inside the back
cover of the Annual Report.
Dated: April , 1996 BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM G. GREEN
William G. Green,
SECRETARY
41
ANNEX 1
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF CHIRON CORPORATION
Article FIFTH of the Restated Certificate of Incorporation is amended to
read in full as follows:
FIFTH: This corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "common stock." The total number
of shares which this corporation is authorized to issue is five hundred five
million (505,000,000). Five million (5,000,000) shares shall be Preferred Stock
and five hundred million (500,000,000) shares shall be common stock. The
Preferred Stock shall have a par value of $0.01 per share; the common stock
shall have a par value of $0.01 per share.
1. PREFERRED STOCK.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is expressly authorized, in the resolution or resolutions
providing for the issuance of any wholly unissued series Preferred Stock, to
fix, state and express the powers, rights, designations, preferences,
qualifications, limitations and restrictions thereof, including without
limitation: the rate of dividends upon which and the times at which dividends of
shares of such series shall be payable and the preference, if any, which such
dividends shall have relative to dividends on shares of any other class or
classes or any other series of stock of the corporation; whether such dividends
shall be cumulative or noncumulative, and if cumulative, the date or dates from
which dividends on shares of such series shall be cumulative; the voting rights,
if any, to be provided for shares of such series; the rights, if any, which the
holders of shares of such series shall have in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation; the rights, if any, which the holders of shares of such series
shall have to convert such shares into or exchange such shares for shares of
stock of the corporation, and the terms and conditions, including price and rate
of exchange of such conversion or exchange; and the redemption rights (including
sinking fund provisions), if any, for shares of such series; and such other
powers, rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may desire to so fix. The Board of
Directors is also expressly authorized to fix the number of shares constituting
such series and to increase or decrease the number of shares of any series prior
to the issuance of shares of that series and to increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series, but
not to decrease such number below the number of shares outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
2. COMMON STOCK.
The common stock may be issued from time to time in one or more series. Four
hundred ninety-nine million five hundred thousand (499,500,000) shares of common
stock are designated "Common Stock." All other series of common stock shall
collectively consist of five hundred thousand (500,000) shares and shall be
designated, as a group, "Restricted Common Stock."
3. RESTRICTED COMMON STOCK.
(a) AUTHORITY OF BOARD TO FIX RIGHTS OF RESTRICTED COMMON STOCK. The Board
of Directors is expressly authorized, in the resolution or resolutions providing
for the issuance of any wholly unissued series of Restricted Common Stock, to
fix, state and express, within the limits expressed hereinbelow, the powers,
designations, preferences and rights of the Restricted Common Stock, and the
qualifications, limitations or restrictions thereof. The Board of Directors is
also expressly authorized to fix the number of shares constituting such series
and to increase or decrease the number of shares of any series prior to the
issuance of shares of that series and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
to decrease such number below the number of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
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(b) SPECIFIC RIGHTS. The rights, preferences, privileges and restrictions
of the Common Stock and Restricted Common Stock shall be identical in all
respects, except as follows, or, for the Restricted Common Stock, as fixed and
determined by the Board of Directors within the limitations which follow:
i) CONVERSION RIGHTS. The Restricted Common Stock may be convertible
into or exchangeable for Common Stock, at a conversion or exchange ratio of
not more than one share of Common Stock for each share of Restricted Common
Stock and upon such other terms and conditions as the Board of Directors may
establish.
ii) VOTING RIGHTS. Subject to the special voting rights (if any) of
the Preferred Stock set forth or determined as provided in this Article
FIFTH, each holder of Common Stock of this corporation shall be entitled to
one vote for each share of such stock outstanding in the name of such holder
on the books of this corporation on the record date designated for the
purpose of such vote, and each holder of Restricted Common Stock of the
corporation shall be entitled, for each share of such Restricted Common
Stock outstanding in the name of such holder on the books of the corporation
on the record date designated for the purpose of such vote, to the number of
votes as has been fixed by the Board of Directors, but the vote per share of
Restricted Common Stock shall not be more than the proportionate vote of the
Common Stock into which such Restricted Common Stock is convertible or
exchangeable.
iii) DIVIDEND RIGHTS. Subject to the prior rights (if any) of the
holders of the Preferred Stock as to dividends, the holders of outstanding
shares of Common Stock and Restricted Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of the assets
of the corporation at the time legally available therefor, dividends at the
rate determined by the Board of Directors; provided, however, that the
dividend on each share of Restricted Common Stock shall be less than the
proportionate dividend on each share of Common Stock into which it is
convertible or exchangeable.
iv) LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of this corporation either voluntarily or involuntarily, but
subject to the liquidation preference (if any) of the holders of Preferred
Stock by reason of their ownership thereof, the holders of Common Stock and
Restricted Common Stock shall be entitled to receive pro rata the remaining
assets of the corporation available for distribution to shareholders except
that the amount per share paid in liquidation on each share of Restricted
Common Stock shall be less than the proportionate amount per share paid on
each share of the Common Stock into which it is convertible or exchangeable.
v) ADJUSTMENTS. The Board of Directors shall make appropriate
adjustments to the conversion or exchange ratio and to the voting, dividend
and liquidation rights of the Restricted Common Stock in the event of any
stock split, stock dividend or similar transaction affecting the number of
outstanding shares of Common Stock or Restricted Common Stock without the
corporation's receipt of consideration thereof.
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ANNEX 2
CHIRON 1991 STOCK OPTION PLAN
[AS AMENDED AUGUST 14, 1993, APRIL 11, 1994, FEBRUARY 24, 1995 AND MARCH 8,
1996]
I. PURPOSES
This Chiron 1991 Stock Option Plan ("Plan") is intended to enable Chiron
Corporation ("Corporation") to attract and retain the following individuals by
offering them incentives and rewards, in the form of options, restricted shares,
share rights, share units and performance units ("awards") which will encourage
them to acquire a proprietary interest in the Corporation, to continue in the
service of the Corporation or its subsidiaries, and to provide incentive to
build value for stockholders: (a) employees (including officers and directors)
of the Corporation and its subsidiaries, (b) non-employee members of the Board
of Directors of the Corporation ("Board"), and (c) consultants and independent
contractors who perform valuable services for the Corporation and its
subsidiaries.
In addition, the Plan is intended to permit the Corporation to satisfy its
obligations in connection with options it will assume pursuant to the terms of
the Agreement and Plan of Merger dated as of July 21, 1991 by and among the
Corporation, Chiron Acquisition Subsidiary, Inc., and Cetus Corporation
("Agreement"). Upon consummation of the transactions described in the Agreement
("Merger"), the Plan will supersede Cetus Corporation's Amended and Restated
Common Stock Option Plan and Cetus Corporation's Non-Employee Directors' Stock
Option Plan ("Cetus Prior Plans"). Upon stockholder approval, this Plan will
also supersede the following Chiron prior plans: the Protos Corporation 1988
Stock Option Plan (upon the merger of Protos into Chiron), the Chiron
Ophthalmics, Inc. 1986 Stock Option Plan (upon the merger of Chiron Ophthalmics
into a wholly owned subsidiary of Chiron), the Corporation's 1982 Stock Option
Plan and the Corporation's 1984 Non-Qualified Stock Option Plan (collectively,
"Chiron Prior Plans").
II. ADMINISTRATION
The Plan will be administered by a committee or committees appointed by the
Board and consisting of one or more members of the Board. The Board may delegate
the responsibility for administration of the Plan with respect to designated
classes of award holders to different committees, subject to such limitations as
the Board deems appropriate. With respect to any matter, the term "Committee,"
when used in this Plan, will refer to the committee that has been delegated
authority with respect to such matter. Members of a committee will serve for
such term as the Board may determine, and will be subject to removal by the
Board at any time.
(a) 16(b) The composition of any committee responsible for administration
of the Plan with respect to award holders who are subject to the trading
restrictions of Section 16(b) of the Securities Exchange Act of 1934 ("1934
Act") with respect to securities of the Corporation will comply with the
applicable requirements of Rule 16b-3 of the Securities and Exchange Commission.
(b) 162(m) The composition of any committee responsible for establishing,
administering, and certifying performance goals for awards granted under the
Plan that are intended to comply with Internal Revenue Code ("Code") Section
162(m) ("performance units") will comply with the applicable requirements of
Code Section 162(m) and the regulations promulgated thereunder.
(c) AUTHORITY. Any committee appointed by the Board will have full
authority to administer the Plan within the scope of its delegated
responsibilities, including authority to interpret and construe any relevant
provision of the Plan, to adopt such rules and regulations as it may deem
necessary, and to determine the terms and conditions of awards made under the
Plan (which need not be identical). Decisions of a committee made within the
discretion delegated to it by the Board will be final and binding on all persons
who have an interest in the Plan.
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III. ELIGIBILITY FOR AWARDS
(a) DISCRETIONARY AWARDS. From time to time the Committee may, in its
discretion, select individuals from among the following categories to receive
awards under the Plan:
(1) EMPLOYEES. The Committee may select employees of the Corporation
or its subsidiaries (including officers, whether or not they are also
members of the Board).
(2) CONSULTANTS AND INDEPENDENT CONTRACTORS. The Committee may select
consultants and independent contractors whose services tend to contribute
materially to the success of the Corporation or its subsidiaries or whose
services may reasonably be anticipated to so contribute.
(b) PERFORMANCE UNITS. Corporate vice-presidents and other executive
officers ("162(m) executives") will be eligible to receive performance units in
addition to, or in lieu of, other discretionary awards granted under the Plan.
(c) AUTOMATIC GRANTS. Members of the Board who are not employees of the
Corporation or its subsidiaries will receive awards in accordance with, and only
in accordance with, the Plan's automatic award provisions.
(d) SUBSTITUTE OPTIONS. Upon consummation of the Merger, outstanding
options under the Cetus Prior Plans (including related Limited Stock
Appreciation Rights) will be converted, in the manner and at the exchange ratio
specified in the Agreement, into substitute options under this Plan to acquire
Common Stock (as defined below). Upon stockholder approval and, with regard to
the Protos prior plan options and the Chiron Ophthalmics prior plan options,
consummation of the relevant mergers, outstanding options under the Chiron Prior
Plans will be converted into options under this Plan. These options will
preserve the exercise price of the outstanding options as adjusted, in the case
of options under the Protos Corporation 1988 Stock Option Plan and the Chiron
Ophthalmics, Inc. 1986 Stock Option Plan, to reflect the substitution of Common
Stock. These options will also preserve the other terms and conditions of the
outstanding options; provided, however, that on the Effective Date of this Plan,
outstanding automatic option grants under the Corporation's 1982 Stock Option
Plan will be conformed, other than to extend the term, to the Automatic Option
Grants under this Plan. Collectively, these options will be known as "Substitute
Options."
IV. STOCK SUBJECT TO THE PLAN
(a) CLASS. The stock subject to awards under the Plan is (i) the
Corporation's authorized but unissued or reacquired Common Stock ("Common
Stock"), or (ii) shares of one or more series of the Corporation's authorized
but unissued or reacquired Restricted Common Stock, in the aggregate, "Company
Stock." In connection with the grant of awards under the Plan, the Corporation
may repurchase shares in the open market or otherwise.
(b) AGGREGATE AMOUNT
(1) SHARES. Subject to adjustment under Sections IV(c) and IV(b)(3),
the aggregate maximum number of shares of Company Stock that may be subject
to awards under the Plan is 4,500,000 plus the number of shares of Company
Stock remaining for issuance on the Effective Date of this Plan under the
Corporation's 1982 Stock Option Plan and the Corporation's 1984
Non-Qualified Stock Option Plan. Notwithstanding the foregoing, as of
January 1 of each fiscal year after 1991, the aggregate number of shares of
Company Stock that may be subject to awards under the Plan will be increased
by 1.50% of the number of Chiron Common Equivalent Shares outstanding as of
December 31 of the preceding fiscal year. The maximum number of shares of
Company Stock with respect to which awards may be granted to any employee
during the term of the Plan is 1,000,000 shares. Subject to adjustment under
Sections IV(c) and IV(b)(3), not more than 4,500,000 shares of Company Stock
plus the number of shares of Company Stock remaining for issuance on the
Effective Date of this Plan under the Corporation's 1982 Stock Option Plan
and the Corporation's 1984 Non-Qualified Stock Option Plan may be subject to
Incentive Options (as defined below) granted under the Plan after the
Effective Date. "Chiron Common Equivalent Shares" are the total number of
outstanding shares of Common Stock plus the total
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number of shares of Common Stock issuable upon conversion or exercise of
outstanding warrants, options and convertible securities. In no event will
more than 500,000 shares of Restricted Common Stock, whether in a single
series or in multiple series, be subject to award under the Plan.
(2) RESTRICTED COMMON STOCK. Shares of Restricted Common Stock may be
issued under the Plan in one or more separate series. The rights,
preferences and privileges, together with the restrictions and limitations
and the number of shares, of each series of Restricted Common Stock issuable
under the Plan will be set forth in the Corporation's Certificate of
Determination of Preferences of Common Stock ("Certificate") as in effect
from time to time during the term of the Plan. Shares of each series of
Restricted Common Stock will be convertible or exchangeable into shares of
Common Stock in accordance with the terms and provisions of the Certificate
applicable to that series.
(3) REUSE OF SHARES. If any outstanding option under the Chiron Prior
Plans, the Cetus Prior Plans or this Plan (including the Substitute Options)
expires or is terminated or canceled for any reason (including pursuant to
Section X of the Plan but other than pursuant to surrender of the option for
a cash payment in accordance with Section XIII of the Plan) before being
exercised for the full number of shares to which it applies, then the shares
allocable to the unexercised portion of such option will not be charged
against the limitations of Section IV(b)(1) and will become available for
subsequent grants under the Plan. To the extent that a share right or share
unit expires or is terminated, or is canceled or forfeited for any reason
without being paid in cash or shares of Company Stock, any remaining shares
allocable to the unpaid portion of such share right or share unit shall not
be charged against the limitations of Section IV(b)(1) and will become
available again for subsequent grants under the Plan. Shares subject to any
option or portion of an option surrendered in accordance with the "Surrender
of Options for Cash or Stock" provisions of this Plan, shares for which a
cash payment is made in lieu thereof under a restricted share, share unit or
share right, and shares forfeited to or repurchased by the Corporation
pursuant to its forfeiture and repurchase rights under this Plan will not be
available for subsequent awards under the Plan.
(c) ADJUSTMENTS. In the event any change is made to the Company Stock
subject to the Plan (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change in corporate or capital structure of the Corporation)
then, unless such change results in the termination of all awards, the Committee
will make appropriate adjustments to the kind and maximum number of shares
subject to the Plan, the kind and maximum number of shares for which options are
to be granted to non-employee directors, and the kind and number of shares and,
where applicable, price per share of stock subject to outstanding awards.
V. TERMS AND CONDITIONS OF OPTIONS
Stock options granted under the Plan may, in the Committee's discretion, be
either incentive stock options ("Incentive Options") qualifying under Section
422 of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"),
or nonstatutory options. Individuals who are not employees of the Corporation or
its subsidiaries may only be granted nonstatutory options. Options will be
evidenced by instruments in such form as the Committee may from time to time
approve. These instruments will conform to the following terms and conditions
and, in the discretion of the Committee, may contain such other terms,
conditions and restrictions as are not inconsistent with the following:
(a) OPTION PRICE. The option price per share will be fixed by the
Committee, but in no event will the option price per share be less than
eighty-five percent (85%) of the Fair Market Value of the option shares on the
date of the option grant; provided, however, that in no event will the option
price per share of an Incentive Option be less than one hundred percent (100%)
of the Fair Market Value of the option shares on the date of the option grant.
Notwithstanding the foregoing, Substitute Options will have an option price per
share determined pursuant to Section III(d) of this Plan.
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(b) NUMBER OF SHARES, TERM AND EXERCISE
(1) TERM AND NUMBER. Each option granted under the Plan will be
exercisable on such date or dates, during such period, and for such number
of shares of Company Stock as the Committee determines and sets forth in the
instrument evidencing the option. No option granted under the Plan will have
an expiration date that is more than 10 years after the date of the option
grant.
(2) EXERCISE. After any option granted under the Plan becomes
exercisable, it may be exercised by notice to the Corporation at any time
prior to the termination of such option. Except as authorized by the
Committee in accordance with Section VIII, the option price for the number
of shares for which the option is exercised will become due and payable upon
exercise.
(3) PAYMENT. The option price will be payable in full in cash
(including cash equivalents); provided, however, that the Committee may,
either at the time the option is granted or at the time it is exercised and
subject to such limitations as it may determine, authorize payment of all or
a portion of the option price in one or a combination of the following
alternative forms:
(i) a promissory note authorized pursuant to Section VIII;
(ii) full payment in shares of Common Stock valued as of the exercise
date and held for the requisite period to avoid a charge to the
Corporation's earnings; or
(iii) by delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale or loan proceeds to pay the option price.
(c) TERMINATION OF SERVICES. The Committee will determine and set forth in
each option whether the option will continue to be exercisable, and the terms
and conditions of such exercise, on and after the date that an optionee ceases
to be employed by, or to provide services to, the Corporation or its
subsidiaries. The date of termination of an optionee's employment or services
will be determined by the Committee, which determination will be final.
(d) INCENTIVE OPTIONS. Options granted under the Plan that are intended to
be Incentive Options will be subject to the following additional terms and
conditions:
(1) DOLLAR LIMITATION. To the extent that the aggregate Fair Market
Value (determined as of the respective date or dates of grant) of shares
with respect to which options that are granted after 1986 and that would
otherwise be Incentive Options are exercisable for the first time by any
individual during any calendar year under the Plan (or any other plan of the
Corporation, a parent or subsidiary corporation or predecessor thereof)
exceeds the sum of $100,000 (or such greater amount as may be permitted
under the Internal Revenue Code), whether by reason of acceleration or
otherwise, such options will not be treated as Incentive Options. In making
such a determination, options will be taken into account in the order in
which they were granted. The aggregate Fair Market Value (as of the
respective date or dates of grant) of shares of the Corporation (or parent
or subsidiary corporation) for which Incentive Options could be granted to
any one individual in a single calendar year before 1987 could not exceed
$100,000 at the time of grant, plus unused carryovers from the immediately
preceding three calendar years.
(2) 10% STOCKHOLDER. If any employee to whom an Incentive Option is to
be granted pursuant to the provisions of the Plan is, on the date of grant,
the owner of stock (determined with application of the ownership attribution
rules of Section 424(d) of the Internal Revenue Code) possessing more than
ten percent (10%) of the total combined voting power of all classes of stock
of his or her employer corporation or of its parent or subsidiary
corporation ("10% Stockholder"), then the following special provisions will
apply to the option granted to such individual:
(i) The option price per share of the stock subject to such Incentive
Option will not be less than one hundred ten percent (110%) of the Fair
Market Value of the option shares on the date of grant; and
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(ii) The option will not have a term in excess of five (5) years from
the date of grant.
(3) SEQUENTIAL EXERCISE. No Incentive Option granted before January 1,
1987 may be exercised while there remains outstanding any other Incentive
Option to purchase shares of the Corporation (or its parent or subsidiary
corporation) which was granted at an earlier date to the optionee.
(4) PARENT AND SUBSIDIARY. For purposes of this Section V(d) "parent
corporation" and "subsidiary corporation" will have the meaning attributed
to those terms, as they are used in Section 422(b) of the Internal Revenue
Code.
(e) WITHHOLDING
(1) OBLIGATION. The Corporation's obligation to deliver stock
certificates upon the exercise of an option will be subject to the option
holder's satisfaction of all applicable federal, state and local income and
employment tax withholding requirements.
(2) PAYMENT. In the event that an option holder is required to pay to
the Corporation an amount with respect to income and employment tax
withholding obligations in connection with exercise of an option, the
Committee may, in its discretion and subject to such limitations and rules
as it may adopt, permit the option holder to satisfy the obligation, in
whole or in part, by delivering shares of Common Stock already held by the
option holder or by making an irrevocable election that a portion of the
total value of the shares subject to the option be paid in the form of cash
in lieu of the issuance of Company Stock, and that such cash payment be
applied to the satisfaction of the withholding obligations.
VI. RESTRICTED SHARES, SHARE RIGHTS AND SHARE UNITS
(a) NATURE OF AWARDS
(1) RESTRICTED SHARES. A restricted share granted under the Plan shall
consist of shares of Company Stock, the retention and transfer of which is
subject to such terms, conditions and restrictions (whether based on
performance standards or periods of service or otherwise and including
repurchase and/or forfeiture rights in favor of the Corporation) as the
Committee shall determine. The terms, conditions and restrictions to which
restricted shares are subject shall be evidenced by instruments in such form
as the Committee may from time to time approve and may vary from grant to
grant. The Committee shall have the absolute discretion to determine whether
any consideration (other than the services of the potential award holder) is
to be received by the Corporation or its subsidiaries as a condition
precedent to the issuance of restricted shares.
(2) SHARE RIGHTS. A share right granted under the Plan shall consist
of the right, subject to such terms, conditions and restrictions (whether
based on performance standards or periods of service or otherwise), to
receive a share of Company Stock (together with cash dividend equivalents if
so determined by the Committee) as the Committee shall determine and shall
be evidenced by instruments in such form as the Committee may from time to
time approve. The Committee shall have the absolute discretion to determine
whether any consideration (other than the services of the potential award
holder) is to be received by the Corporation or its subsidiaries as a
condition precedent to the issuance of shares pursuant to share rights. The
terms, conditions and restrictions to which share rights are subject may
vary from grant to grant.
(3) SHARE UNITS. A share unit granted under the Plan shall consist of
the right to receive an amount in cash equal to the Fair Market Value of one
share of Company Stock on the date of valuation of the unit (together with
cash dividend equivalents if so determined by the Committee) less such
amount, if any, as the Committee shall specify. The date of valuation and
payment of cash under a share unit and the conditions, if any, to which such
payment will be subject (whether based on performance standards or periods
of service or otherwise) shall be determined by the Committee. The terms,
conditions and restrictions to which share units are subject may vary from
grant to grant.
(b) WITHHOLDING. The Committee may require, or permit an award holder to
elect, that a portion of the total value of the shares of Common Stock subject
to restricted shares or share rights held by one or more award holders be paid
in the form of cash in lieu of the issuance of Company Stock and that such cash
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payment be applied to the satisfaction of the federal, state and local income
and employment tax withholding obligations that arise at the time the restricted
shares and share rights become free of all restrictions under the Plan.
(c) CASH PAYMENTS. The Committee may provide award holders with an
election to receive a percentage of the total value of the Company Stock subject
to restricted shares or share rights in the form of a cash payment, subject to
such terms, conditions and restrictions as the Committee shall specify.
(d) ELECTIVE AND TANDEM AWARDS. The Committee may award restricted shares,
share rights and share units independently of other compensation or in lieu of
compensation that would otherwise be paid in cash or stock options, whether at
the election of the potential award holder or otherwise. The number of
restricted shares, share rights or share units to be awarded in lieu of any cash
compensation amount or number of stock options shall be determined by the
Committee in its sole discretion and need not be equal to such foregone
compensation in Fair Market Value. In addition, restricted shares, share rights
and share units may be awarded in tandem with stock options, so that a portion
of such award becomes payable or becomes free of restrictions only if and to the
extent that the tandem options are not exercised or are forfeited, subject to
such terms and conditions as the Committee may specify.
(e) MODIFICATION OF AWARDS. Except to the extent an award is granted as a
performance unit, the Committee may, in its sole discretion, modify or waive any
or all of the terms, conditions or restrictions applicable to any outstanding
restricted share, share right or share unit; provided, however, that no such
modification or waiver shall, without the consent of the holder of an
outstanding award, adversely affect the holder's rights thereunder.
(f) PERFORMANCE UNITS. Effective March 8, 1996, the Committee may grant
restricted shares, share rights and share units to 162(m) executives that comply
with the requirements of Code Section 162(m). Performance units will become
payable or vest upon attainment of specified performance goals over a specified
performance period.
(1) PERFORMANCE GOALS. The Committee will determine the Corporation
performance goal or goals that must be met to achieve the maximum payout
within the shorter of the first 90 days of the specified performance period
over which the performance goal or goals will be measured, or 25% of such
performance period. The Committee may establish a goal based on more than
one performance criteria, or may establish multiple goals, but any payout
must be based on the satisfaction of at least one goal. The Committee may
provide for different levels of payouts based on relative performance toward
a performance goal.
(2) PERFORMANCE CRITERIA. Performance units may be based on one or
more of the following performance criteria: total shareholder return; the
achievement of a specified closing or average closing price of Common Stock;
the absolute or percentage increase in the closing or average closing price
of Common Stock and/or one or more of the following measures of the
Corporation's net income for the specified performance period determined in
accordance with generally accepted accounting principles as consistently
applied by the Corporation: absolute net income or a percentage or absolute
dollar increase in net income, earnings per share or a percentage or
absolute dollar increase in earnings per share, or return on assets employed
or equity, or a percentage or absolute dollar increase in return on assets
employed or equity; or the Corporation's absolute gross revenues or a
percentage or absolute dollar increase in gross revenues for the specified
performance period determined in accordance with generally accepted
accounting principles as consistently applied by the Corporation. The awards
may be based on the Corporation's performance alone, or the Corporation's
performance may be measured against variously weighted published benchmark
indices that the Committee determines are representative of the
Corporation's peer group, which indices may include the Standard & Poor's
Health Care Composite Index, the Standard & Poor's Health Care Diversified
Index and the AMEX Biotechnology Index, among others.
For purposes of this Plan, net income and gross revenues shall be net income
and gross revenues of the Corporation and its consolidated subsidiaries as
reported by the Corporation and certified by its
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independent public accountants, but the Committee in fixing any goal may
exclude any or all of the following if they have a material effect on annual
net income or gross revenues: events or transactions that are either unusual
in nature or infrequent in occurrence (such as restructuring/reorganization
charges, the purchase or sale of in process technology, the sale or
discontinuance of a business segment, the sale of investment securities,
losses from litigation, the cumulative effect of changes in accounting
principles, and natural disasters), depreciation, interest or taxes.
(3) REDUCTION OR CANCELLATION OF PERFORMANCE UNITS. Final payouts are
subject to the approval of the Committee, and the Committee has the absolute
discretion to reduce or cancel any payout.
VII. AUTOMATIC AWARDS TO DIRECTORS
(a) OPTIONS. Effective March 8, 1996, non-employee members of the Board
("Eligible Directors") will automatically be granted nonstatutory options
("Automatic Options") to purchase the number of shares of Common Stock
determined as set forth below (subject to adjustment under Section IV(c) hereof)
on the dates and terms set forth below:
(1) OPTION GRANTS. On the last business day of the second quarter of
each fiscal year of the Corporation ("Automatic Grant Date"), each
continuing Eligible Director (including each Eligible Director who is newly
elected or appointed on the Automatic Grant Date) will receive an Automatic
Option to purchase that number of whole shares of Common Stock determined by
dividing $100,000 by the Average Stock Price on the Automatic Grant Date.
(2) PRO RATA OPTION GRANTS. Each person who is newly elected or
appointed as an Eligible Director on a date other than an Automatic Grant
Date, will receive, on the date of such election or appointment, an
Automatic Option to purchase a pro rata number of whole shares of Common
Stock determined by multiplying $8,333.33 by the number of whole calendar
months between the date of the Eligible Director's election or appointment
and the next Automatic Grant Date, and dividing that number by the Average
Stock Price on the grant date.
(3) ADVISORY COUNSELLORS. Advisory Counsellors of Cetus will not
qualify for Automatic Options.
(4) TERMS AND CONDITIONS. The terms and conditions applicable to each
Automatic Option will be as follows:
(i) PRICE. The option price per share will be equal to one hundred
percent (100%) of the Fair Market Value of one share of Common Stock on
the date of grant.
(ii) TERM. Each Automatic Option will have a term of ten (10)
years, measured from the date of grant, and will be exercisable at any
time during the term for all or any part of the covered shares; provided,
however, that no Automatic Options may be exercised prior to approval of
the Plan by the Corporation's stockholders.
(iii) REPURCHASE. The shares purchased under the Automatic Options
will be subject to repurchase by the Corporation at the original exercise
price in the event an optionee ceases to provide services to the
Corporation or its subsidiaries as a director, an employee, a consultant
or an independent contractor. The Corporation's repurchase rights will
lapse, and the optionee's interest in the purchased shares will vest, in
a series of equal annual installments over the five-year period measured
from the grant date, provided the optionee continues to provide such
services. In addition, the Corporation's repurchase right will lapse in
its entirety, and the Automatic Options will become fully vested should
one or more of the following events occur while the optionee is providing
such services: (A) the optionee's death, or (B) the optionee's permanent
disability.
(iv) PAYMENT. Upon exercise of the Automatic Option, the option
price for the purchased shares will become payable immediately in cash or
in shares of Common Stock that the optionee has held for at least six (6)
months. Payment may also be made by delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Corporation the amount of sale proceeds to pay
the option price.
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(v) CESSATION. In the event the optionee ceases to provide
services to the Corporation or its subsidiaries as a director, an
employee, a consultant or an independent contractor, the Automatic Option
may be exercised, within the term of the Automatic Option, for a period
of three (3) months after the date of such cessation (twelve (12) months
in the case of cessation by reason of disability or death). In the case
of death, the Automatic Option may be exercised within such period by the
estate or heirs of the optionee.
(b) SHARE RIGHTS. Effective March 8, 1996, Eligible Directors will
automatically be granted share rights ("Automatic Share Rights") to receive the
number of shares of Common Stock determined as set forth below (subject to
adjustment under Section IV(c) hereof) on the dates and terms set forth below:
(1) NEW DIRECTORS. Each newly elected or appointed Eligible Director
will be granted, on the date of such election or appointment, an Automatic
Share Right to purchase that number of whole shares determined by dividing
$40,000 by the Average Stock Price on the grant date.
(2) CONTINUING DIRECTORS.
(i) FULL GRANTS. Subject to Subsection VII(b)(2)(ii) below, on each
Automatic Grant Date each incumbent, continuing Eligible Director will be
granted an Automatic Share Right to receive that number of whole shares of
Common Stock determined by dividing $25,000 by the Average Stock Price on
the Automatic Grant Date. Notwithstanding the foregoing, on the Automatic
Grant Date occurring in June 1996, each continuing Eligible Director elected
or appointed before March 8, 1996, will be granted an Automatic Share Right
to receive that number of whole shares determined by using the $40,000 in
lieu of the $25,000 figure.
(ii) PRO RATA GRANTS. If an Eligible Director is newly elected or
appointed on a date other than an Automatic Grant Date, on the immediately
succeeding Automatic Grant Date, such Eligible Director will be granted a
pro rata Automatic Share Right to receive the number of whole shares of
Common Stock determined by multiplying the number of whole calendar months
since the Eligible Director's election or appointment by $2,083.33 and
dividing the product by the Average Stock Price on the Automatic Grant Date.
(3) ADVISORY COUNSELLORS. Advisory Counsellors of Cetus will not
qualify for Automatic Share Rights.
(4) TERMS AND CONDITIONS. The terms and conditions applicable to each
Automatic Share Right will be as follows:
(i) TERM. Each Automatic Share Right will have a term of five (5)
years, measured from the grant date.
(ii) VESTING. The Automatic Share Right will vest in a series of
equal annual installments over the five-year period measured from the
grant date, provided the Eligible Director continues to provide services
to the Corporation or its subsidiaries as a director, an employee, a
consultant or an independent contractor. Shares of Common Stock will be
issued in satisfaction of the Automatic Share Right as the Automatic
Share Right vests. In addition, full vesting will occur should one or
more of the following events occur while the Eligible Director is
providing such services: (A) the Eligible Director's death, or (B) the
Eligible Director's permanent disability.
(iii) CESSATION. In the event the Eligible Director ceases to
provide services to the Corporation or its subsidiaries as a director, an
employee, a consultant or an independent contractor, the Automatic Share
Right shall terminate with respect to the unvested portion of the Award.
(c) COST-OF-LIVING INCREASES. Each dollar value used in this Article VII
will be subject to annual cost-of-living increases. The increases will be based
on the Consumer Price Index, and will occur automatically beginning with the
1997 Automatic Grant Date.
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(d) AVERAGE STOCK PRICE. Average Stock Price means the average closing
price of one share of Common Stock as reported on the Nasdaq National Market
System for the previous twelve month period ending on the last day of the month
before the grant date of the award.
VIII. LOANS AND INSTALLMENT PAYMENTS
In order to assist an award holder (including an employee who is an officer
or director of the Corporation) in the acquisition of shares of Company Stock
pursuant to an award granted under the Plan (other than pursuant to the
Automatic Award provisions of this Plan), the Committee may authorize, at either
the time of the grant of an award or the time of the acquisition of Company
Stock pursuant to the award (i) the extension of a loan to the award holder by
the Corporation, (ii) the payment by the award holder of the purchase price, if
any, of the Company Stock in installments, or (iii) the guarantee by the
Corporation of a loan obtained by the award holder from a third party. The terms
of any loans, guarantees or installment payments, including the interest rate
and terms of repayment, will be subject to the discretion of the Committee.
Loans, installment payments and guarantees may be granted without security, the
maximum credit available being the purchase price, if any, of the Company Stock
acquired plus the maximum federal and state income and employment tax liability
that may be incurred in connection with the acquisition.
IX. ASSIGNABILITY
No award granted under the Plan is assignable or transferable by the award
holder other than by Will or by the laws of descent and distribution, and during
the lifetime of the award holder, only the award holder may exercise options or
exercise the rights provided under awards granted under the Plan.
X. CANCELLATION AND NEW GRANT OF OPTIONS
The Committee will have the authority to effect, at any time and from time
to time, with the consent of the affected option holders, the cancellation of
any or all outstanding options under the Plan, a Cetus Prior Plan or a Chiron
Prior Plan (other than options granted under automatic option grant provisions
of these plans) and to grant in substitution therefor new options under the Plan
covering the same or different numbers of shares, but having an option price per
share not less than eighty-five percent (85%) of the Fair Market Value on the
new grant date or, in the case of an Incentive Option, one hundred percent
(100%) of the Fair Market Value on the new grant date (or, in the case of an
Incentive Option granted to a 10% Stockholder, one hundred ten percent (110%) of
such Fair Market Value). If one or more of the cancelled options is an Incentive
Option granted before 1987 under a Cetus Prior Plan or a Chiron Prior Plan, then
such option will, solely for purposes of the "sequential exercise" rule
applicable to outstanding Incentive Options granted before 1987, be considered
to be outstanding until the expiration date initially specified for the option
term of such option.
XI. ACCELERATION AND TERMINATION OF AWARDS
(a) ACCELERATION. In the event of an agreement to dispose of all or
substantially all of the assets or outstanding capital stock of the Corporation
by means of a sale, merger, reorganization, or liquidation, each award will be
automatically accelerated so that (1) options become fully exercisable with
respect to the total number of shares purchasable under the options; provided,
however, that the exercise of accelerated Incentive Options granted prior to
1987 will remain subject to any limitations imposed by the Internal Revenue
Code's sequential exercise rule, (2) restrictions on restricted shares will be
eliminated, and the shares will immediately vest, and (3) share rights and share
units will immediately vest and become payable. The Committee may also provide
for the automatic termination of repurchase rights upon the occurrence of such
an event.
(b) NO ACCELERATION. No acceleration of awards will occur if the terms of
the agreement require as a prerequisite to the consummation of any such sale,
merger, reorganization or liquidation that each such award will be either
assumed by the successor corporation or parent thereof or be replaced with a
comparable award subject to shares of the successor corporation or parent
thereof. The determination of such comparability will be made by the Committee,
and its determination will be final, binding and conclusive.
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Upon consummation of the sale, merger, reorganization or liquidation
contemplated by the agreement, all awards, whether or not accelerated, will
terminate unless assumed pursuant to a written agreement by the successor
corporation or parent thereof.
(c) CORPORATE STRUCTURE. The grant of awards under this Plan will in no
way affect the right of the Corporation to adjust, reclassify, reorganize, or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
XII. VALUATION
With regard to all Substitute Options, Fair Market Value will be determined
in accordance with the relevant option plan documents on the date that the
outstanding options were granted. With regard to awards granted under this Plan,
for all valuation purposes under the Plan, the Fair Market Value of a share of
Common Stock or Restricted Common Stock (as the case may be) on any relevant
date will be determined in accordance with the following provisions:
(a) If the Common Stock or Restricted Common Stock is not at the time
listed or admitted to trading on any stock exchange, but is traded in the
over-the-counter market, the Fair Market Value will be the average between
the reported high price and the reported low price of one share of Common
Stock or Restricted Common Stock (as the case may be) on the date in
question in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system.
(b) If the Common Stock or Restricted Common Stock is at the time listed
or admitted to trading on any stock exchange, then the Fair Market Value
will be the average between the reported high price and the reported low
price of one share of Common Stock or Restricted Common Stock (as the case
may be) on the date in question on the stock exchange that is the primary
market for the stock, as such prices are officially quoted on such exchange.
(c) If the Common Stock or Restricted Common Stock (as the case may be)
is at the time neither listed nor admitted to trading on any stock exchange
nor traded in the over-the-counter market, or if the Committee determines
that neither subparagraph (a) nor subparagraph (b) above reflects Fair
Market Value of the stock and the award was not granted pursuant to the
Plan's Automatic Award provisions, then the Fair Market Value will be
determined by the Committee after taking into account such factors as the
Committee deems appropriate, or in the case of Automatic Awards, by an
independent third party valuation.
XIII. SURRENDER OF OPTIONS FOR CASH OR STOCK
(a) STOCK APPRECIATION RIGHTS. If, and only if the Committee, in its
discretion, elects to implement an option surrender program under the Plan, one
or more option holders may, upon such terms and conditions as the Committee may
establish at the time of the option grant or at any time thereafter, be granted
the right to surrender all or part of an unexercised option in exchange for a
distribution equal in amount to the difference between (i) the Fair Market Value
(at date of surrender) of the shares for which the surrendered option or portion
thereof is at the time exercisable and (ii) the aggregate option price payable
for such shares. The distribution to which an option holder becomes entitled
under this Section may be made in shares of Common Stock or Restricted Common
Stock, valued at Fair Market Value at the date of surrender, in cash, or partly
in shares and partly in cash, as the Committee, in its sole discretion, deems
appropriate. The option surrender provisions of this Section will not apply to
options granted pursuant to the Automatic Option Grant provisions of this Plan.
(b) LIMITED STOCK APPRECIATION RIGHTS. If outstanding options of Cetus for
which Substitute Options are issued pursuant to Section III(d) have Limited
Stock Appreciation Rights ("LSARs") attached thereto, then each such LSAR shall
be honored by the Corporation in accordance with its terms and remain
exercisable for a period of 60 days following the date that stockholders of
Cetus approve the Merger; provided, however, that if the LSAR was originally
granted within 6 months of the date that Cetus stockholders approve the Merger,
then the LSAR will be exercisable for a period of 60 days following expiration
of such six-month period. Upon expiration of the applicable 60-day period, each
such LSAR not
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previously exercised shall expire. Upon exercise of an LSAR, the related option
will be cancelled, and Chiron will pay to the LSAR holder an amount in cash for
each share with respect to which the LSAR is exercised determined in accordance
with the terms of the Cetus Prior Plans.
XIV. REPURCHASE RIGHTS
The Committee may, in its discretion, establish as a term of one or more
awards granted under the Plan that the Corporation (or its assigns) will have
the right, exercisable upon the award holder's termination of employment with,
or cessation of services for, the Corporation and its subsidiaries, to
repurchase at the original price paid, if any, for such shares of (1) Company
Stock acquired by the award holder pursuant to the granted award, or (2) Common
Stock into which acquired Restricted Common Stock may have been converted or for
which Restricted Common Stock may have been exchanged. Any such repurchase right
will be exercisable by the Corporation (or its assigns) upon such terms and
conditions (including provisions for the expiration of such right in one or more
installments) as the Committee may specify in the instrument evidencing such
right. The Committee will also have full power and authority to provide for the
automatic termination of the Corporation's repurchase rights, in whole or in
part, thereby accelerating the vesting of any or all of the purchased shares
(other than purchased shares obtained pursuant to the Automatic Award provisions
of this Plan) upon the occurrence of any change in control specified in Article
XI.
XV. RIGHT OF FIRST REFUSAL
The Committee may, in its discretion, establish as a term of one or more
awards granted under the Plan that the Corporation has a right of first refusal
with respect to the proposed disposition by the award holder (or any successor
in interest by reason of purchase, gift or other mode of transfer) of any shares
of (1) Company Stock acquired by the award holder pursuant to the granted award,
or (2) Common Stock into which purchased Restricted Common Stock may have been
converted or for which acquired Restricted Common Stock may have been exchanged.
Any such right of first refusal will be exercisable by the Corporation or its
assigns in accordance with the terms and conditions specified in the instrument
evidencing such right.
XVI. EFFECTIVE DATE AND TERM OF PLAN
(a) EFFECTIVE DATE. The Plan became effective on December 10, 1991, the
date it was approved by the Corporation's stockholders. The Plan as amended is
effective March 8, 1996, subject to approval by the Corporation's stockholders.
Any awards granted under the amended provisions of the Plan adopted March 8,
1996 will be granted subject to approval by the Corporation's stockholders. If
such stockholder approval of the amendments is not obtained by March 7, 1997,
then the Plan will continue in accordance with the Plan provisions in effect on
March 7, 1996.
(b) TERM. Incentive Options may be granted under the Plan only within ten
years of the Effective Date of the Plan. Subject to this limitation, the
Committee may grant awards under the Plan at any time after the Effective Date
of the Plan and before the Plan is terminated by the Board.
XVII. AMENDMENT OR DISCONTINUANCE
(a) BOARD. The Board may amend, suspend or discontinue the Plan in whole
or in part at any time; provided, however, that (a) except to the extent
necessary to qualify as Incentive Options any or all options granted under the
Plan that are intended to so qualify, such action may not, without the consent
of the award holder, adversely affect rights and obligations with respect to
awards outstanding under the Plan; (b) the provisions of the Plan concerning the
eligibility of non-employee members of the Board for awards and the amount,
price and timing of Automatic Option Grants under this Plan may not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code or rules thereunder; and (c) the Board may not, without
the approval of the Corporation's stockholders (1) materially increase the
number of shares of Company Stock subject to awards under the Plan (unless
necessary to effect the adjustments required under Section IV(c)), (2)
materially modify the eligibility requirements for awards under the Plan, or (3)
make any other change with respect to which the Board determines that
stockholder approval is required by applicable law or regulatory standards.
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(b) COMMITTEE. The Committee will have full power and authority to modify
or waive any or all of the terms, conditions or restrictions applicable to any
outstanding award (other than Automatic Option Grants), to the extent not
inconsistent with the Plan.
(c) SUBSTITUTE OPTIONS. Substitute Options will be subject to amendment in
accordance with the terms of this Plan.
XVIII. NO OBLIGATION
Nothing contained in the Plan (or in any award granted under this Plan, a
Chiron Prior Plan or a Cetus Prior Plan) shall confer upon any employee,
consultant, or independent contractor any right to continue in the employ of, or
to provide services to, the Corporation or any affiliate or constitute a
contract or agreement of employment or for the provision of services, or
interfere in any way with the right of the Corporation or an affiliate to reduce
such employee's, consultant's or independent contractor's compensation from the
rate in existence at the time of the granting of an award or to terminate such
employee's, consultant's or independent contractor's employment or services at
any time, with or without cause; but nothing contained in the Plan or in any
award granted under this Plan shall affect any contractual rights of an employee
pursuant to a written employment agreement.
XIX. USE OF PROCEEDS
The cash proceeds received by the Corporation pursuant to awards granted
under the Plan will be used for general corporate purposes.
XX. COMPLIANCE
(a) FEDERAL AND STATE LAWS. No option may be exercised, and the
Corporation will not be obligated to issue stock under any award unless, in the
opinion of counsel for the Corporation, such exercise and issuance is in
compliance with all applicable federal and state securities laws. As a condition
to the grant of any award, or to the issuance of stock under any award, the
Committee may require that the award holder agree to comply with such provisions
of federal and state securities laws as may be applicable to such grant, or to
the sale of stock acquired pursuant to the Plan, and that the award holder
deliver to the Corporation a written agreement, in form and substance
satisfactory to the Corporation and its counsel, implementing such agreement.
(b) INFORMATION. The Corporation will furnish to each award holder
participating in the Plan (other than a key employee or a director) a copy of
the Corporation's Annual Report to Stockholders for the most recent fiscal year,
and additional copies will be furnished, without charge, to such award holders
upon request to the Secretary of the Corporation.
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APPENDIX A
SPECIAL PROVISIONS RELATED TO 1995 CIBA-GEIGY TRANSACTION
Those persons holding options to acquire shares of Common Stock under the
Corporation's 1991 Stock Option Plan on November 20, 1994 are granted the
following rights ("Rights") with respect to each such option:
(i) the right to receive upon the closing of the tender offer contemplated
under the Investment Agreement entered into on such date among the Corporation
and Ciba-Geigy Limited, Ciba-Geigy Corporation and Ciba Biotech Partnership,
Inc. (the "Closing") a cash payment equal to (A) 37.33% of the number of shares
of Common Stock with respect to which each such option would first become
exercisable in calendar year 1995 multiplied by (B) the difference between $117
per share and the exercise price per share of such option with respect to such
shares and
(ii) with respect to the remaining shares of Common Stock subject to each
such option, the right, exercisable at any time after the later of the Closing
or the date that such an option first becomes exercisable with respect to such
shares, to surrender that portion of such option relating to 37.33% of such
shares in return for a cash payment equal to (A) the difference between $117 per
share and the exercise price per share of such option multiplied by (B) the
number of shares with respect to which such option is so surrendered. However,
the grant and exercise of any such right with respect to any officer or director
subject to Section 16 of the Securities Exchange Act of 1934 shall be subject to
stockholder approval of the grant of such rights at the Corporation's 1995
stockholder meeting. The grant of such rights, which are made with respect to
1,858,776 optioned shares shall be in addition to, and shall not count against,
the aggregate and annual limits on the number of shares with respect to which
other awards under the Plan may be made to all individuals and/or a single
individual.
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CHIRON CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. William J. Rutter and Dr. Edward E.
Penhoet, and each of them, with full power of substitution, the proxies of
the undersigned to vote all shares of Common Stock of Chiron Corporation (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at 1450 53rd Street, Emeryville,
California, on May 16, 1996 at 10:00 a.m., and at any adjournments or
postponements thereof, with the same force and effect as the undersigned
might or could do if personally present thereat:
I PLAN TO ATTEND
THE MEETING
/ /
1. ELECTION OF DIRECTORS / / FOR all nominees listed below
(THE BOARD OF DIRECTORS (except as marked to the contrary
RECOMMENDS A VOTE FOR.) below.)
/ / WITHHOLD AUTHORITY
to vote for all nominees listed
below.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL
NOMINEES, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.
Dr. William J. Rutter - Mr. Jack W. Schuler - Mr. Lewis W. Coleman
2. Proposal to approve and adopt an amendment to the Company's Restated
Certificate of Incorporation to increase the authorized number of shares of
Common Stock of the Company from 100 million to 500 million, as set forth
in the Chiron Corporation Proxy Statement for the Annual Meeting of
Stockholders to be held May 16, 1996. (The Board of Directors recommends
a vote FOR.)
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve amended Chiron 1991 Stock Option Plan to change the
formula for granting automatic annual stock options to non-employee
directors, to add an annual grant of automatic share rights for
non-employee directors and to add performance units, which are restricted
shares, share rights and share units awarded to corporate vice-presidents
and other executive officers which comply with the requirements of Internal
Revenue Code Section 162(m), as set forth in the Chiron Corporation Proxy
Statement for the Annual Meeting of Stockholders to be held May 16, 1996.
(The Board of Directors recommends a vote FOR.)
/ / FOR / / AGAINST / / ABSTAIN
(Continued on reverse side)
4. Proposal to ratify the selection of KPMG Peat Marwick LLP as independent
public accountants for the Company for the fiscal year ending December 31,
1996. (The Board of Directors recommends a vote FOR.)
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
Dated_______________________________1996
(Be Sure to Date Proxy)
_________________________________________
(Signature)
_________________________________________
(Signature)
Please sign exactly as name appears at
left. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized person. If a partner-
ship, please sign in full partnership
name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE