SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-15006
T CELL SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3191702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
119 Fourth Avenue, Needham, Massachusetts 02194
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (617) 433-0771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
common stock, par value $.001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates as of March
13, 1997 was $44,402,815 (excludes shares held by directors and executive
officers). Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the actions of the management or policies of the Registrant, or that such
person is controlled by or under common control with the Registrant. The number
of shares of common stock outstanding at March 13, 1997 was: 24,946,601 shares.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1997, are incorporated by reference into Part
III of this Form 10-K.
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements contained in this report, including Part I, Item 1: Business,
that are not historical facts may be forward-looking statements that are subject
to a variety of risks and uncertainties. There are a number of important factors
that could cause the actual results to differ materially from those expressed in
any forward-looking statements made by the Company. These factors include, but
are not limited to: (i) the Company's ability to successfully complete product
research and development, including pre-clinical and clinical studies, and
commercialization; (ii) the Company's ability to obtain substantial additional
funding; (iii) the Company's ability to obtain required governmental approvals;
(iv) the Company's ability to attract manufacturing, sales, distribution and
marketing partners and other strategic alliances; and (v) the Company's ability
to develop and commercialize its products before its competitors.
PART I
Item 1. BUSINESS
A. General
T Cell Sciences, Inc. ("T Cell " or "TCS") is a biopharmaceutical company
engaged in the discovery and development of innovative drugs targeting diseases
of the immune, inflammatory and vascular systems. The Company's technology
platforms are based on its understanding of the ways in which the body triggers
its natural defense mechanisms. The Company's lead therapeutic program is
focused on developing compounds that inhibit the inappropriate activation of the
complement cascade, a vital part of the body's immune defense system. The
Company has also established programs for the discovery and development of
small-molecule immunoregulatory therapeutic compounds, for the prevention of
immune rejection of transplanted organs and the treatment of autoimmune
disorders, and for the development of a therapeutic vaccine for the treatment of
atherosclerosis. As described below, in 1996 the Company realigned certain of
its operations to focus on these three ongoing therapeutic drug discovery
programs.
In March 1996, the Company sold the operations and research product line of its
wholly owned subsidiary, T Cell Diagnostics, Inc. ("TCD") to Endogen, Inc.
("Endogen"), while retaining the TRAx(R) diagnostic product franchise (see
Section C: "Diagnostic Business"). T Cell has outsourced distribution and
manufacture of TRAx products, which are used primarily in the monitoring of T
cell levels in HIV-infected individuals.
Also in March 1996, T Cell announced a series of collaboration agreements
designed to utilize the Company's proprietary T cell screening and functional
assay technology platform to identify small-molecule immunoregulatory
therapeutic compounds (see Section B: "Therapeutic Drug Discovery Programs",
Item 2. "Small-Molecule Immunoregulators"). The Company entered into a strategic
alliance with ArQule, Inc., which provides access to ArQule's proprietary,
non-peptidic small-molecule arrays. The Company signed a collaborative agreement
with MYCOsearch, Inc. (which was subsequently acquired by Oncogene Sciences,
Inc.), which enables T Cell to screen that company's natural products libraries.
In May 1996, the Company completed a reorganization of senior management to
reflect its focus on therapeutic drug discovery. T Cell appointed Una S. Ryan,
Ph.D., as President and Chief Operating Officer and announced that Norman W.
Gorin had joined the Company as Vice President, Finance and Chief Financial
Officer. Subsequently, in August, the Company also named Dr. Ryan Chief
Executive Officer.
In August 1996, the Company completed a financing, raising approximately $10.9
million through the sale of 5.0 million shares of common stock in a public
follow-on offering.
In September 1996, the National Institutes of Health ("NIH") awarded the Company
a $100,000, phase I Small Business Innovation Research ("SBIR") grant for the
development of its cholesterol-lowering cholesteryl ester transfer protein
("CETP") vaccine for the prevention of atherosclerosis. (See Section B:
"Therapeutic Drug Discovery Programs" Item 3. "CETP Vaccine"). The funds will be
used to develop a rat atherosclerosis model. In February 1997, the NIH awarded T
Cell a second phase I SBIR grant to develop a novel DNA vaccine. In preclinical
studies, rabbits treated with the vaccine showed an increase in HDL (high-
density lipoprotein, or
<PAGE>
"good" cholesterol) and exhibited significantly fewer atherosclerotic lesions in
their blood vessels compared with untreated rabbits.
In December, the Company amended its collaboration with Astra AB, initiated in
1992 to develop products based on the Company's T cell antigen receptor ("TCAR")
program (see Section B: "Therapeutic Drug Discovery Programs" Item 4. "T Cell
Antigen Receptor"). The program has identified several compounds for evaluation
as potential treatments for multiple sclerosis. Under the amended agreement, the
Company has discontinued internal funding of the program and could receive
royalties from product sales, as well as upfront and milestone payments which
may total up to $4 million as certain clinical and commercial milestones are
achieved.
B. Therapeutic Drug Discovery Programs
1. Complement Inhibition
T Cell's lead therapeutic program is focused on developing compounds that
inhibit a part of the immune system called the complement system. The complement
system is a series of proteins that are important initiators of the body's acute
inflammatory response against disease, infection and injury. Excessive
complement activation also plays a role in chronic inflammatory conditions. When
complement is activated, it helps to identify and eliminate damaged tissue. In
certain situations, however, excessive complement activation may destroy viable
and healthy tissue and tissue which, though damaged, might recover. This
excessive response compounds the effects of the initial injury or introduces
unwanted tissue destruction in clinical situations such as organ transplants,
other surgeries and treatment for heart attacks. Many independent published
studies have reported that the Company's lead compound, TP10, a soluble form of
naturally occurring Complement Receptor 1 (sCR1), effectively inhibits the
activation of the complement cascade in animal models. The Company believes that
regulation of the complement system could have therapeutic and prophylactic
applications in several acute and chronic conditions, including adult
respiratory distress syndrome ("ARDS"), reperfusion injury, organ transplant,
multiple sclerosis, Alzheimer's disease, rheumatoid arthritis and lupus. In the
United States, several million people are afflicted with these
complement-mediated conditions.
T Cell started the complement program in 1988. From 1989 through 1994, TP10 was
under development in a joint program with SmithKline Beecham, p.l.c., ("SB") and
Yamanouchi Pharmaceutical Co. ("YPC"). During 1994, TCS and SB negotiated
various amendments to the agreement and, in February 1995, the two companies
agreed to a mutual termination by which T Cell regained all rights to the
program except for co-marketing rights in Japan and Taiwan that are retained by
SB and YPC.
Under T Cell's direction, in 1995, the first phase I clinical trial of TP10 in
24 patients at risk for ARDS was completed. Results of this trial were presented
in October 1995 at The American College of Chest Physicians meeting. A second
phase I safety trial for reperfusion injury was completed in December 1995 in 25
patients with first-time myocardial infarctions. This study was presented at the
American Heart Association's Joint Conference on Thrombosis, Arteriosclerosis
and Vascular Biology in February 1996. In each trial, TP10 demonstrated
excellent safety and pharmacokinetic profiles with no drug- related adverse
events, had a terminal phase half-life of at least 72 hours and was able to
inhibit complement activity in a dose-dependent, escalating activity profile.
Based on these favorable results, in January 1996 TCS initiated a phase IIa
trial in patients with established ARDS. This trial is an open-label,
single-dose feasibility trial to determine the potential for efficacy of TP10 in
reducing neutrophil accumulation in the lung and improved clinical outcome of
patients with ARDS. During the second half of 1996, the Company initiated a
series of steps, including broadening enrollment criteria, to modify this trial
to improve the rate of patient accrual. The Company also began enrolling
patients in a Phase I/II clinical trial in patients with reperfusion injury
following lung transplantation in August 1996. This study is a randomized,
placebo-controlled, double-blind trial consisting of single dosages of 10 mg/kg
of TP10 as an intravenous infusion over 30 minutes. The trial is being conducted
at multiple centers in North America and is intended to include a total of 60
patients with end-stage pulmonary disease who are undergoing lung transplant
surgery. The Company anticipates completing both of these trials in the second
half of 1997.
<PAGE>
In addition to TP10, TCS has identified other product candidates to inhibit
activation of the complement system. The lead candidate under research
evaluation is a modified form of sCR1 (TP10) which has been changed to add the
sLex carbohydrate structures. sLe(x) is a sugar structure which mediates binding
to selectin proteins, which appear on the surface of activated endothelial cells
as a pre-inflammatory event. Selectin-mediated binding of neutrophils to
activated endothelial cells is a critical event in inflammation. The combined
sCR1sLe(x) molecule has demonstrated increased functional benefits in in vitro
and early in vivo experiments. During 1996, the Company confirmed the presence
of the desired carbohydrate structures and their function in in vivo experiments
and confirmed the presence of both anti-complement and selectin-binding
functions in in vitro experiments.
sCR1sLe(x) may create new and expanded opportunities for the Company in
complement and selectin-dependent indications such as stroke and myocardial
infarction. The Company believes that this sCR1sLe(x) has the ability to target
the complement-inhibiting CR1 to the site of inflammation and, at the same time,
inhibit the leukocyte/endothelial cell adhesion process.
2. Small Molecule Immunoregulators (SMIR)
As a direct result of over thirteen years of experience working with T cells and
building on the Company's evaluation capabilities in molecular and cellular
immunology and small-animal immunology models, the Company has developed a
proprietary screening platform that it uses to identify small-molecule compounds
which can regulate T cell activation. These whole cell screens are based on
signal transduction and gene regulation directed to cytokine gene targets. T
cell activation plays an important role in solid organ transplant rejection as
well as in certain autoimmune diseases. The Company is seeking to develop an
alternative treatment to existing immunosuppressants such as Cyclosporin and
FK506 which, due to their toxicity, have limited application in chronic
conditions. Despite this limitation, worldwide sales of Cyclosporin in 1995
exceeded $1 billion. TCS' basic approach is to combine the biological skills and
proprietary screens it has developed with the small-molecule libraries created
by other biotechnology companies.
In March 1996, T Cell announced a series of collaboration agreements designed to
utilize the Company's proprietary T cell screening and functional assay
technology platform to identify small-molecule immunoregulatory therapeutic
compounds. The Company entered into a strategic alliance with ArQule, Inc.,
which provides access to ArQule's proprietary non-peptidic small-molecule
arrays. The Company also signed a collaborative agreement with MYCOsearch, Inc.,
(which was subsequently acquired by Oncogene Sciences, Inc.) which enables T
Cell to screen that company's natural products libraries. Under each agreement,
T Cell and its partners will share rights to compounds identified using T Cell's
screens. As of March 14, 1997, the Company has identified one immunostimulator
hit and 20 immunosuppressor hits from screening activities with four distinct
compound libraries from these two companies. Further research directed to
pinpointing the mechanisms of activity and optimizing potency is underway.
3. CETP Vaccine
The Company is developing a therapeutic vaccine against endogenous cholesteryl
ester transfer protein ("CETP") which may be useful in reducing risk factors for
atherosclerosis. CETP is a key intermediary in the balance of high-density
lipoprotein ("HDL" or "good" cholesterol) and low-density lipoprotein ("LDL" or
"bad" cholesterol). T Cell is developing a vaccine to stimulate an immune
response against CETP which it believes may improve the ratio of HDL to LDL and
reduce the potential of atherosclerosis. The Company has conducted studies of
rabbits which had been administered the CETP vaccine and fed a high-cholesterol,
high-fat diet. In these studies, vaccine-treated rabbits exhibited an increase
in the level of HDL over 70-day and 108-day periods and exhibited relatively
lesion-free blood vessels, while a control group of untreated rabbits showed no
increase in HDL levels and developed significant blood vessel lesions. These
studies have demonstrated, in animal models, the Company's ability to break
immune tolerance, produce autoreactive antibodies to CETP, elevate HDL levels
and reduce lesions.
<PAGE>
Atherosclerosis is one of the leading causes of morbidity and mortality in the
United States and most of the Western world. Current pharmacologic treatments
require daily administration and can result in high costs and poor patient
compliance. In 1995, the market for cholesterol-lowering drugs exceeded $4
billion worldwide. A vaccine directed at lowering CETP activity, such as the one
being developed by the Company, may offer several advantages over conventional
approaches, including not requiring daily dosing, lessened expense, reduced side
effects, and improved patient compliance.
In September 1996, the National Institutes of Health (NIH) awarded the Company a
$100,000, phase I Small Business Innovation Research (SBIR) grant for the
development of a rat atherosclerosis model, affording better comparison to human
atherosclerosis. In February 1997, the NIH awarded T Cell a second phase I SBIR
grant to develop a novel DNA vaccine to reduce CETP.
4. T Cell Antigen Receptor (TCAR)
In early 1992, TCS entered into a joint development program with Astra AB to
develop products resulting from TCS' proprietary TCAR technology, which utilizes
the T cell antigen receptor for selectively targeting the T cells involved in
autoimmune diseases such as multiple sclerosis and rheumatoid arthritis. The
original agreement was modified in December 1993 with Astra assuming all
responsibility for the development of the lead antibody products and TCS
retaining leadership of the first peptide product candidate. Under the original
and modified agreements, TCS received funding support of approximately $15
million in the early years with the potential of up to $17 million of additional
funding based on clinical progress. By the end of 1995, T Cell had received
substantially all of the original funding payments.
In June 1996, the Company suspended further internal funding of the research and
development of the TCAR program. In December 1996, the Company amended its
agreement with Astra to transfer certain of its rights to the TCAR technology,
including two therapeutic products, TM27-monoclonal and TP12-peptide, to Astra,
who will be solely responsible for further clinical development and
commercialization. Under the amended agreement, TCS could receive royalties from
product sales, as well as upfront and milestone payments which may total up to
$4 million as certain clinical milestones are achieved.
C. Diagnostic Business
In March 1996, the Company realigned certain of its operations and sold the
operations and research product line of its wholly owned subsidiary, T Cell
Diagnostics, Inc. ("TCD") to Endogen, Inc. ("Endogen") for $3.0 million, while
retaining the Company's TRAx(R) diagnostic product franchise. T Cell received a
five year convertible subordinated note for $2.0 million combined with a buy-out
of approximately $1 million of facility and equipment lease obligations. The
note was convertible to Endogen stock at T Cell's option at a price of $4.63 per
share. T Cell recognized a gain on this transaction of $0.3 million. On February
10, 1997, T Cell received approximately $1.8 million following the conversion of
the remaining balance of the Endogen note into shares of Endogen common stock,
which were subsequently sold.
T Cell retained all rights to the TRAx product franchise and has agreed to
source the manufacture of TRAx kits from Endogen in a separate supply contract.
TCD signed a sales and distribution contract for the United States market with
Diamedix Corporation in December 1995. Diamedix is a wholly owned subsidiary of
Ivax Corporation with a history of selling enzyme immunoassays in the in vitro
diagnostics market. The contract covers the TRAx CD4 and CD8 microtiter plate
format products. The Company has deferred filing a 510(K) application with the
Food and Drug Administration (FDA) for clearance to market TRAx CD8 in the
United States while it focuses on establishing a partnership for the TRAx
technology.
D. Patents and Proprietary Rights
The successful development and marketing of products by the Company will depend
in part on its ability to create and maintain intellectual property, including
patent rights. The Company has established a proprietary patent position in the
areas of complement inhibitor molecules and diagnostic technologies, and is the
owner or exclusive
<PAGE>
licensee of numerous patents and pending applications around the world,
including 11 U.S. patents. Although the Company continues to pursue patent
protection for its products, no assurance can be given that any pending
application will issue as a patent, that any issued patent will have a scope
which will be of commercial benefit or that the Company will be able to
successfully enforce its patent position against competitors.
In the area of complement molecules, T Cell has an exclusive license to patent
rights, which it co-owns with The Johns Hopkins University and Brigham & Women's
Hospital, covering CR1 inventions. These rights are based in part on the work of
Dr. Douglas Fearon and include U.S. patents which claim the nucleic acid
sequences of recombinant CR1, soluble CR1 (sCR1) and active fragments, and
pharmaceutical uses of CR1. TCS also owns or has rights to a number of other
patent applications relating to CR1, sCR1sLe(x) and other complement inhibitor
molecules.
In April 1996, the Company announced that it had licensed portions of its patent
and technology rights regarding CR1 (Complement Receptor 1) to CytoTherapeutics,
Inc. for use in CytoTherapeutics' cell-based products for the delivery of
therapeutic substances to the central nervous system.
In December 1996, the Company amended its agreement with Astra AB to transfer
certain of its patent rights and licenses to the TCAR technology to Astra AB.
This transfer includes patent applications which have resulted to date in U.S.
patents covering the DNA, protein, protein fragments and antibodies relating to
the Alpha TCAR and the DNA, full-length proteins and antibodies relating to Beta
TCAR, and two European patents covering Beta TCAR inventions. In addition, the
Company has transferred recent filings on new T cell antigen receptor inventions
resulting from the partnership with Astra.
In the area of diagnostics, T Cell is the owner of several patent rights
relating to the TRAx CD4 and CD8 and other applications of the TRAx product
technologies. The first U.S. patent covering TRAx CD4 and CD8 products was
issued on June 11, 1996.
The Company is aware that others, including universities and companies, have
filed patent applications and have been granted patents in the United States and
other countries which claim subject matter potentially useful or necessary to
the commercialization of the Company's products. The ultimate scope and validity
of existing or future patents which have or may be granted to third parties, and
the availability and cost of acquiring rights to those patents which are
necessary to the manufacture, use or sale of the Company's products presently
cannot be determined by the Company.
Trade secrets and confidential know-how are important to the Company's
scientific and commercial successes. Although the Company takes measures to
protect its proprietary information, there can be no assurance that others will
not either develop independently or obtain access to this information.
E. Competition
The Company is engaged in a rapidly expanding area of biotechnology in which
research is being conducted worldwide by universities, public and private
institutions and biotechnology and pharmaceutical companies. A number of these
entities are developing product candidates which may become competitors of the
Company's products in development. Several such companies are involved in
product development efforts aimed at treatments for autoimmune diseases and
inflammatory conditions and some are specifically developing products based on T
cell receptors and the human complement system. There can be no assurance that
the Company's products will be commercialized or that other companies,
universities and public and private foundations, among others, many of which
have greater financial resources than the Company, will not be able to develop
competing proprietary positions or products.
The Company's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary technology and products, and secure sufficient capital resources to
fund product ideas to commercialization. There can be no assurance that the
Company will be successful in its efforts in these areas.
<PAGE>
F. Government Regulation
The product testing, manufacture, safety and efficacy requirements, labeling,
storage, record keeping, approval, advertising, promotion and sale of the
Company's present and future products are closely regulated by federal and other
governmental authorities. The FDA and comparable government agencies in foreign
countries have established mandatory procedures and safety and efficacy
standards which must be met before the appropriate authority approves the
clinical testing, manufacturing and marketing of a human health care product.
The steps required before a pharmaceutical product may be marketed in the United
States include (i) in vitro and in vivo preclinical testing, (ii) submission to
the FDA of an Investigational New Drug application (IND) and clearance to begin
human clinical trials, (iii) adequate human clinical trials to establish the
safety and efficacy of the drug, (iv) the submission of a New Drug Application
("NDA") or Product License Application ("PLA") to the FDA, and (v) FDA approval
of the NDA or PLA prior to commercial sale or shipment of the product. In
addition to obtaining FDA approval for each product, each drug manufacturing
establishment must be registered with, and approved by, the FDA.
The steps required before an in vitro diagnostic product may be marketed in the
United States include (i) clinical trials which demonstrate that the product's
results are substantially equivalent to results obtained from a product
currently on the market, or if no product is currently marketed for the intended
use, then clinical trials which correlate assay results with the intended
clinical use, (ii) the submission of a 510(k) or Premarket Approval ("PMA")
application to the FDA, and (iii) FDA clearance to market the product. Under a
510(k) or PMA, the facility in which products are produced must comply with Good
Manufacturing Practices.
The Company's present and future business activities are and will be subject to
regulation under additional federal, state and local laws and regulations,
including regulations by the U.S. Environmental Protection Agency and the U.S.
Occupational Safety and Health Administration. The Company also will be subject
to widely varying foreign regulations governing clinical trials and
pharmaceutical sales. Whether or not FDA approval has been obtained, approval of
a product by the comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time may
be longer or shorter than that required for FDA approval. The Company intends to
rely on foreign licensees to obtain regulatory approvals to market products in
foreign countries.
Regulatory approval often takes a number of years and involves the expenditure
of substantial resources. Approval times also depend on a number of factors,
including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials.
G. Employees; Scientific Consultants
As of March 15, 1997, the Company employed 43 full time persons, 16 of whom have
doctoral degrees. Of these employees, 33 were engaged in or directly supported
research and development.
T Cell has also retained a number of scientific consultants and advisors in
various fields and has entered into consulting agreements with each of them.
These consultants include the members of the Scientific Advisory Board: Dr. Mark
Davis, Stanford University; Dr. Tak Mak, Ontario Cancer Institute; Dr. Peter
Ward, University of Michigan School of Medicine; Dr. Hans Wigzell, Karolinska
Institute; Dr. Peter Henson, National Jewish Center for Immunology and
Respiratory Medicine; and Dr. Peter Libby, Brigham and Women's Hospital.
<PAGE>
Item 2. PROPERTIES
In September 1994, TCS relocated its headquarters and therapeutic research
operations to existing laboratory and office space in Needham, Massachusetts,
under a short-term lease and sublease for approximately 33,000 square feet. In
October 1994, TCD relocated to Woburn, Massachusetts under a five-year lease for
approximately 27,000 square feet. This lease was assigned to Endogen, Inc. in
March 1996 in connection with the sale of the research products business and
operations of TCD.
In May 1996, TCS entered into a long term lease for its headquarters and
therapeutic research operations space in Needham, Massachusetts. Under this
agreement, the Company leased approximately 54,000 square feet of which it
subleased 13,000 square feet to a tenant. The Company is obligated to pay base
annual rent and occupancy costs of approximately $676,000 until June 1997 and of
approximately $756,000 until the end of the initial term of April 2002.
Aggregate rental payments for the year ended December 31, 1996 for this facility
were approximately $672,000 and for December 31, 1995 were approximately
590,000. Concurrent with the May 1996 lease agreement, the Company entered into
an agreement to sublease excess space for a four-year term. Under the sublease
agreement, the Company will receive base annual subrental income of
approximately $110,000 until June 1998 and approximately $134,000 until the end
of the initial term of April 2000.
Item 3. LEGAL PROCEEDINGS
In December 1994, the Company filed a lawsuit against the landlord of its former
Cambridge, Massachusetts headquarters for damages it has incurred as a result of
the forced evacuation and relocation of its operations in 1994 due to air
quality problems. The defendants in this lawsuit have counterclaimed alleging
that the Company has breached its lease obligations. In August 1996, the court
ordered a bifurcated non-jury trial on the limited issues of whether the
fireproofing in the building degraded and whether it contaminated the space. The
bifurcated trial commenced on November 20, 1996, and closing arguments were
heard on January 13, 1997. The judge has not yet entered his findings on the
bifurcated issues. Until the Court enters its findings, the Company is unable to
assess what impact the findings will have on the trial of the issue of T Cell's
liability under the lease.
The Company's insurance carrier had agreed to reimburse the Company for certain
legal expenses associated with defense of certain of the counterclaims, under a
reservation of rights. On March 14, 1996, the insurance carrier moved to
intervene in this action for a declaration that the allegations contained in the
pleadings are not covered under the Company's policy of insurance. The Court
allowed the motion to intervene on May 20, 1996. The judge allowed the carrier's
motion for summary judgment over T Cell's opposition on November 21, 1996. The
Court has not yet entered the order on the docket. Once such order is entered, T
Cell expects to appeal the ruling.
In July 1995, the bank holding a mortgage on the building containing the
Company's former facilities filed a lawsuit in a different state court against
the Company to collect rents it alleges are due to the bank, instead of the
landlord, as a result of an agreement pertaining to the financing of the initial
build-out of the Cambridge facility in 1987. The Company has added its former
landlord as a third party defendant on a claim for indemnification in the event
the Company is not successful in its defense. A motion for summary judgment
filed by the bank was denied by the court.
The Company brought suit in July 1995 against its insurance carrier and the
policy underwriter for a judgment that the Company is entitled to insurance
coverage for its property and business interruption losses incurred as a result
of the forced evacuation and relocation. This lawsuit has been dismissed as a
result of a November 1995 settlement agreement.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted in the Nasdaq National Market under the symbol TCEL. The following table
sets forth the high and low closing sales prices for the Company's common stock
as reported by Nasdaq.
High Low
Fiscal Period
Year Ended December 31, 1995
1Q (Jan. 1 - March 31, 1995) $3.50 $2.38
2Q (April 1 - June 30, 1995) 4.38 2.63
3Q (July 1 - Sep. 30, 1995) 5.38 2.88
4Q (Oct. 1 - Dec. 31, 1995) 4.38 2.50
Year Ended December 31, 1996
1Q (Jan. 1 - March 31, 1996) $3.38 $2.50
2Q (April 1 - June 30, 1996) 4.38 2.63
3Q (July 1 - Sep. 30, 1996) 3.75 1.94
4Q (Oct. 1 - Dec. 31, 1996) 2.38 1.59
As of March 13, 1997, there were approximately 692 shareholders of record of the
Company's common stock. The price of the Common Stock was $1.8125 as of the
close of March 13, 1997. The Company has not paid any dividends on its common
stock since its inception and does not intend to pay any dividends in the
foreseeable future. Declaration of dividends will depend, among other things,
upon the operating and future earnings of the Company, the capital requirements
of the Company and general business conditions.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for the years ended
December 31, 1996, 1995, 1994 and 1993, and for the year ended April 30, 1992,
have been derived from the audited consolidated financial statements of the
Company. All amounts in thousands except per share data.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS Year Ended Year Ended
OF OPERATIONS DATA December 31, April 30,
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1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Product Sales, Product Development
and Distribution Agreements $ 1,115 $ 3,963 $ 6,968 $ 9,018 $ 8,916
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 6,036 8,005 8,697 9,438 7,956
Other Operating Expense 6,832 7,821 9,365 8,841 7,417
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expense 12,868 15,826 18,062 18,279 15,373
- -------------------------------------------------------------------------------------------------------------------
Non-Operating Income (Expense), Net 963 3,605 (490) 1,193 1,562
- -------------------------------------------------------------------------------------------------------------------
Net Loss Before Minority Interest (10,790) (8,258) (11,584) (8,068) (4,895)
Minority Interest Share of Loss -- -- -- 310 246
- -------------------------------------------------------------------------------------------------------------------
Net Loss $(10,790) $ (8,258) $ (11,584) $ (7,758) $ (4,649)
===================================================================================================================
Net Loss Per Common Share $ (0.50) $ ( 0.47) $ (0.68) $ (0.56) $ (0.35)
===================================================================================================================
Weighted Average Common
Shares Outstanding 21,693 17,482 17,053 13,931 13,109
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE
SHEET DATA December 31, April 30,
- --------------------------------------------------------------------------------------------------- ---------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Working Capital $ 11,673 $ 11,208 $ 15,027 $ 26,088 $ 20,880
Total Assets 17,224 18,532 20,685 33,067 27,023
Other Long Term Obligation -- 182 500 500 --
Accumulated Deficit (57,129) (46,339) (38,081) (26,497) (15,107)
Total Stockholders' Equity 15,619 16,000 17,586 29,134 23,090
</TABLE>
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements contained in the following, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations, that are not
historical facts may be forward-looking statements that are subject to a variety
of risks and uncertainties. There are a number of important factors that could
cause the actual results to differ materially from those expressed in any
forward-looking statements made by the Company. These factors include, but are
not limited to: (i) the Company's ability to successfully complete product
research and development, including pre-clinical and clinical studies, and
commercialization; (ii) the Company's ability to obtain substantial additional
funding; (iii) the Company's ability to obtain required governmental approvals;
(iv) the Company's ability to attract manufacturing, sales, distribution and
marketing partners and other strategic alliances; and (v) the Company's ability
to develop and commercialize its products before its competitors.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
T Cell Sciences' principal activity since its inception has been research and
product development conducted on its own behalf, as well as through joint
development programs with several pharmaceutical companies. The Company was
incorporated in the State of Delaware in December 1983.
A significant portion of the Company's revenue has consisted of payments by
others to fund sponsored research, milestone payments under joint development
agreements, payments for material produced for preclinical studies, sales of
test kits and antibodies and interest earned on investments. Certain portions of
the collaborative payments are received in advance, recorded as deferred revenue
and recognized when earned in later periods.
Inflation and changing prices have not had a significant effect on continuing
operations and are not expected to have any in the near future.
OVERVIEW
The Company initiated efforts during the first half of 1996 to focus its
business operations on the development of proprietary therapeutic products. On
March 5, 1996, the Company sold the operations and research product line of its
wholly owned subsidiary, T Cell Diagnostics, Inc. ("TCD"), excluding the TRAx(R)
product franchise and related assets, to Endogen, Inc. ("Endogen") for a
purchase price of approximately $2,900,000. In June 1996, the Company
reorganized its senior management with the appointment of Una S. Ryan, Ph.D.,
its Chief Scientific Officer, to the position of President and Chief Operating
Officer. Dr. Ryan was subsequently appointed to the position of Chief Executive
Officer in August 1996. The Company also appointed Norman W. Gorin as Vice
President, Finance and Chief Financial Officer.
In an effort to strengthen the Company's financial position and to provide
additional resources to focus on the discovery and development of innovative
drugs targeting the immune and inflammatory systems, the Company successfully
completed a public offering of 5,000,000 shares of its common stock in August
1996. The public stock offering yielded net proceeds of $10,069,000 which the
Company anticipates using to fund ongoing clinical trials for its lead
therapeutic program, research and development programs for its preclinical
product candidates and for general working capital requirements.
The Company's lead therapeutic program is focused on developing compounds that
inhibit complement activation which is part of the body's immune defense system.
In January 1996, the Company initiated a Phase IIa clinical trial for the
evaluation of the Company's lead therapeutic compound, TP10, in patients with
adult respiratory distress syndrome. In July 1996, the Company initiated a Phase
I/II clinical trial, using TP10, to prevent reperfusion injury in patients
receiving lung transplants. The Company is also engaged in the discovery and
development of T cell activation inhibitors for the prevention of transplant
rejection and autoimmune diseases, and a vaccine for the management of
atherosclerosis. In September 1996, the Company was awarded a $100,000 Phase I
Small Business Innovation Research (SBIR) grant from the National Institute of
Health (NIH).
<PAGE>
The funds from the grant will contribute to the development of a rat
atherosclerosis model. A second Phase I SBIR grant from the NIH was awarded to
the Company in February 1997. Funding from the grant will contribute to the
development of a novel DNA vaccine. Both grants are contributing to the
Company's program for the development of a vaccine for the management of
atherosclerosis.
The Company has in the past developed and produced both therapeutic and
diagnostic products. While the Company will continue the development of its
proprietary TRAx technology, it has deferred filing a 510(K) application with
the Food and Drug Administration (FDA) for clearance to market TRAx CD8 in the
United States, and is focusing its efforts on establishing a partnership for the
TRAx technology. In June 1996, the Company suspended further internal funding of
the research and development of its T cell antigen receptor ("TCAR")
therapeutics program, developed jointly with its partner Astra AB ("Astra"). The
Company amended its agreement with Astra, in December 1996, to transfer certain
of its rights to the TCAR technology to Astra who will be solely responsible for
further clinical development and commercialization. Under the amended agreement,
the Company could receive future milestone and royalty payments upon Astra's
successful development and commercialization of the TCAR technology. In
conjunction with these developments, the Company wrote off certain capitalized
patent costs related to the TCAR technology, incurring a $1,752,000 charge to
earnings in the second quarter of 1996.
RESULTS OF OPERATIONS
The Company reported a net loss of $10,790,000 or $0.50 per share for the year
ended December 31, 1996, compared with a net loss in 1995 of $8,258,000 or $0.47
per share and a net loss of $11,584,000 or $0.68 per share in 1994. The
operating results for 1996 reflect total revenue, including interest income, of
$1,795,000 (a 60.7% decrease compared to the same period in 1995) offset by
total operating costs of $12,868,000 (an 18.7% decrease compared to 1995). The
operating results for 1995 reflect total revenue, including interest income, of
$4,568,000 (a 45.2% decrease compared to the same period in 1994) offset by
total costs of $15,826,000 (a 12.4% decrease compared to the same period in
1994). The net operating results for 1996 include a charge to earnings of
$1,752,000 for the write-off of certain capitalized patent costs relating to the
Company's TCAR program and a $425,000 charge to earnings resulting from a
severance agreement with the Company's former President and Chief Executive
Officer. Excluding these charges, the net operating loss for 1996, including
interest income, decreased 21.0% or $2,362,000 compared to 1995.
In 1996, revenue from collaborative product development and distribution
agreements of $591,000 decreased 63.3% from $1,609,000 in 1995 and 84.2% from
$3,737,000 in 1994. The declines are primarily due to reductions in funding from
Astra in accordance with the 1992 agreement for the joint development and
marketing of therapeutic products resulting from T Cell Sciences' proprietary
TCAR technology. As part of the agreement, as amended in December 1993, the
responsibility for future development and manufacturing of the two initial
monoclonal antibody candidates shifted to Astra while the Company continued to
be responsible for the initial peptide candidate. In December 1996, the
agreement was further amended, transferring certain of the Company's rights to
the TCAR technology to Astra who will be solely responsible for further clinical
development and commercialization. The Company received a $100,000
non-refundable execution fee in connection with the amended agreement which is
included in product development revenue in 1996. Also, included in product
development revenue in 1996 is a $100,000 non-refundable execution fee
associated with an agreement granting CytoTherapeutics, Inc. a worldwide,
nonexclusive license to the Company's technology and patent rights relating to
Compliment Receptor 1 in return for a series of milestone payments and
royalties. In 1996 the Company did not have any distribution agreement revenue
compared to $175,000 in 1995 and $715,000 in 1994. These revenues represent
signing fees or milestone payments related to distribution and marketing
agreements for TRAx products with Diamedix Corporation ("Diamedix") in 1995 and
Yamanouchi Pharmaceutical Co., Ltd. and INCSTAR Corporation in 1994.
Product sales revenue for 1996, 1995 and 1994 was $523,000, $2,354,000 and
$3,231,000, reflecting a decline of 77.8% and 27.1%, respectively, when compared
to the prior year. The decrease in product sales for 1996 compared to the prior
year is attributable to the sale of the research products and operations of TCD
to Endogen in
<PAGE>
March 1996 which resulted in research product sales for the first two months of
the year only, compared to twelve months in 1995. Sales of research products
decreased in 1995 compared to 1994 due to a shift in the Company's sales focus
toward the launch of TRAx CD4, combined with increasing competition with certain
preclinical products and continued weakness in the international diagnostic
product market. TRAx CD4 received marketing clearance from the U.S. Food and
Drug Administration in May 1995. Sales growth has continued to be slow with
minimal TRAx product sales for 1996 and 1995.
Cost of product sales amounted to $359,000, 68.5% of product sales, $1,879,000,
79.8% of product sales and $2,008,000, 62.2% of product sales for 1996, 1995 and
1994, respectively. The fluctuation in gross margin is the result of several
factors including: costs associated with the inefficiencies of producing
products at lower volumes, the disruption and change in facilities during 1994
and costs associated with replacing the manufacturing facility in 1995, costs
related to staff reductions in the third quarter of 1995 and expenses to
increase manufacturing proficiency in anticipation of increased sales volume
associated with the TRAx CD4 test kit.
Research and development expense was $6,036,000 for 1996 compared to $8,005,000
for 1995, reflecting a 24.6% decrease. The decrease is primarily due to the sale
of the research products and operations of TCD in March 1996, combined with the
full-year impact of a restructuring program implemented in the third quarter of
1995, and was partially offset by costs associated with a Phase IIa clinical
trial initiated in January 1996 and a Phase I/II clinical trial which began
patient accrual in August 1996. Both clinical trials are evaluating the
Company's lead product candidate, TP10. Research and development expense
decreased 8.0% from $8,697,000 in 1994 to $8,005,000 in 1995 primarily due to
cost containment programs implemented in 1994 combined with a restructuring
program implemented in the third quarter of 1995. Costs associated with two
Phase I clinical trials evaluating the use of TP10 partially offset the effects
of the Company's cost containment programs and restructuring in 1995.
General and administrative expense of $5,957,000 increased 37.1% for the year
ended December 31, 1996 compared to 1995. Excluding the $425,000 charge
resulting from the severance agreement with the Company's former President and
Chief Executive Officer in June 1996 and the $1,752,000 write-off of certain
capitalized patent costs, general and administrative costs decreased 13.0% or
$563,000 compared to last year. General and administrative expense for the year
ended December 31, 1995 was $4,344,000 compared to $4,346,000 in 1994.
Marketing and sales costs decreased 67.7% in 1996 to $516,000 compared to
$1,598,000 in 1995. The decrease is primarily due to the sale of the research
products and operations of TCD to Endogen in March 1996 which resulted in two
months of marketing and sales costs relating to research product sales, compared
to twelve months in 1995. Marketing and sales costs in 1996 included marketing
costs relating to the TRAx product franchise. Marketing and sales costs
increased 13.2% for 1995 compared to 1994. The increase is primarily due to
marketing costs associated with the launch of the TRAx CD4 test kit during the
latter half of 1995.
Facility relocation expense represents costs incurred directly associated with
the forced evacuation of the Company's former Cambridge facility due to air
quality problems. The Company incurred incremental costs when it vacated its
Cambridge facility and moved to alternative temporary sites, including costs to
physically move property, establish computer and telephone networks at alternate
sights and legal and other costs directly resulting from vacating the facility
and terminating the lease. The amount recorded in 1994 was $688,000. Also
included in 1994 is $911,000 to write off the net book value of leasehold
improvements at the Cambridge facility.
Other non-operating income of $963,000 in 1996 includes a $283,000 gain
recognized from the sale of the research products and operations to Endogen and
interest income of $680,000. Other non-operating income of $3,605,000 in 1995,
includes $2,900,000 received from the settlement of a lawsuit the Company
brought against its insurance carrier and interest income of $605,000. Other
non-operating expense, of $490,000 in 1994, includes losses recognized on
redemption of the Company's short-term bond fund, the change in net asset value
of its short-term bond fund during the year and interest and dividend income of
$1,362,000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at December 31, 1996 is $12,592,000
compared to $12,275,000 (including short-term restricted cash of $958,000) at
December 31, 1995. Cash used in operations was $9,676,000 in 1996 , compared
with $7,948,000, which was partially offset by $2,900,000 received from the
settlement of the lawsuit, and $8,633,000, adjusted to exclude facility
relocation expense, during the twelve months ended December 31, 1995 and 1994,
respectively.
The Company received a convertible subordinated note receivable in the principal
amount of $2,003,000 in connection with the sale of the research products and
operations of TCD to Endogen. Payments were due in ten semi-annual installments
commencing September 1, 1996 with interest receivable thereon at the rate of 7%
per annum. A principal payment of $200,000 was received, in accordance with the
terms of the note, on September 1, 1996, reducing the outstanding principal
amount to $1,803,000 at December 31, 1996. The outstanding principal amount of
the note was convertible at any time at the option of the Company into shares of
common stock of Endogen. On February 10, 1997 the Company converted the
outstanding principal balance of $1,803,000 into shares of common stock of
Endogen and subsequently sold the shares.
During 1994, the Company entered into an agreement providing the Company with
the right to lease up to $2,000,000 of equipment for up to a five-year term. The
lease arrangement requires that the Company maintain certain restrictive
covenants, determined at the end of each fiscal quarter. At September 30, 1995
the Company's cash, cash equivalents and short-term investment balance was below
the $10,000,000 minimum covenant requirement. As a result, and in accordance
with the lease agreement, the Company pledged cash as collateral equal to the
amount outstanding on the lease, which is to remain in a certificate of deposit
until the end of the lease, or as otherwise agreed by the lessor and the
Company. Total cash on deposit, and considered restricted at December 31, 1996
was $685,000 compared to $1,808,000 at December 31, 1995. In March 1996, the
Company repaid approximately $980,000 of the outstanding cash payments due under
the lease in conjunction with the sale of the research products and operations
of its subsidiary.
In December 1994, the Company filed a lawsuit in the Superior Court of
Massachusetts against the landlord of its former Cambridge, Massachusetts
headquarters, to recover the damages incurred by the Company resulting from the
evacuation of the building, due to air quality problems which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant has filed counterclaims, alleging the Company has breached its lease
obligations. In a separate lawsuit, the landlord's mortgagee has filed claims
against the Company for payment of the same rent alleged to be owed. A motion
for summary judgment filed by the bank was denied by the court. Due to the
current stage of the lawsuits, a range of potential losses, cannot be estimated
at this time. Accordingly, no accrual has been made in the financial statements
relative to any potential effects on the Company's future operating results. A
significant adverse settlement could have a negative impact on the future
operating results of the Company.
The Company believes its current cash and cash equivalents, combined with
anticipated net cash provided by operations will be sufficient to meet working
capital requirements into 1998. These requirements will depend on several
factors including, but not limited to, the progress and costs associated with
research and development programs; preclinical and clinical studies; time and
costs associated with obtaining regulatory approval; timing and scope of
collaborative arrangements; long term facility costs; and expenses and outcome
of pending litigation on the air quality problem. The Company will consider
alternative sources of funding and capital when available and appropriate.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Index to Consolidated Financial Statements
and Supplementary Schedules 15
Report of Independent Accountants 16
Consolidated Balance Sheet at December 31, 1996 and 17
December 31, 1995
Consolidated Statement of Operations for the Years Ended 18
December 31, 1996, December 31, 1995 and December 31, 1994 18
Consolidated Statement of Stockholders' Equity for the Years 19
Ended December 31, 1996, December 31, 1995 and
December 31, 1994
Consolidated Statement of Cash Flows for the Years Ended 20
December 31, 1996, December 31, 1995, and
December 31, 1994
Notes to Consolidated Financial Statements 21
<PAGE>
Report of Independent Accountants
To The Board of Directors and Shareholders of
T Cell Sciences, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of T Cell
Sciences, Inc., and its subsidiary at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
ended December 31, 1996 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
February 18, 1997
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents, Including Restricted
Cash of $0 and $958,025 $ 12,591,770 $ 12,275,217
Accounts Receivable, Net of the Allowance for Doubtful
Accounts of $0 and $17,187 19,541 339,167
Current Portion Convertible Note Receivable 400,596 --
Inventories 23,947 403,293
Prepaid and Other Current Assets 241,527 541,411
- -----------------------------------------------------------------------------------------------------
Total Current Assets 13,277,381 13,559,088
Property and Equipment, Net 511,640 1,172,137
Restricted Cash 685,000 850,000
Convertible Note Receivable 1,402,085 --
Other Assets 1,347,579 2,951,062
- -----------------------------------------------------------------------------------------------------
Total Assets $ 17,223,685 $ 18,532,287
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 325,970 $ 724,944
Accrued Expenses 1,278,488 1,504,586
Deferred Revenue -- 121,083
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 1,604,458 2,350,613
- -----------------------------------------------------------------------------------------------------
Collaborator Advance -- 181,573
- -----------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 3 and 14)
Stockholders' Equity:
Common Stock, $.001 Par Value; 50,000,000 Shares
Authorized; 24,965,416 and 24,946,601 Issued
and Outstanding in 1996, respectively; 19,904,706
and 19,882,730 Issued and Outstanding in 1995, respectively 24,966 19,905
Additional Paid-In Capital 72,791,819 62,399,255
Less: 18,815 and 21,976 Common Treasury Shares at Cost (68,938) (80,523)
Accumulated Deficit 57,128,620) (46,338,536)
- ------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 15,619,227 16,000,101
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 17,223,685 $ 18,532,287
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE:
Product Development and
Distribution Agreements $ 591,246 $ 1,608,677 $ 3,737,143
Product Sales 523,254 2,354,377 3,230,815
-------------------------------------------------------------------------------------------
Total Operating Revenue 1,114,500 3,963,054 6,967,958
-------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Cost of Product Sales 358,644 1,879,387 2,008,279
Research and Development 6,036,498 8,004,598 8,697,174
General and Administrative 5,956,619 4,343,764 4,345,972
Marketing and Sales 516,001 1,597,888 1,411,420
Facility Relocation -- -- 1,598,609
-------------------------------------------------------------------------------------------
Total Operating Expense 12,867,762 15,825,637 18,061,454
-------------------------------------------------------------------------------------------
Operating Loss (11,753,262) (11,862,583) (11,093,496)
Non-Operating Income (Expense), Net 963,178 3,604,634 (490,055)
-------------------------------------------------------------------------------------------
Net Loss $ (10,790,084) $(8,257,949) $(11,583,551)
===========================================================================================
Net Loss Per Common Share $ (0.50) $ (0.47) $ (0.68)
===========================================================================================
Weighted Average Common
Shares Outstanding 21,693,351 17,482,143 17,053,443
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Treasury Total
Common Stock Paid-In Stock Accumulated Stockholders'
Shares Par Value Capital Cost Deficit Equity
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 17,049,697 $17,050 $55,739,278 $(125,075) $(26,497,036) $29,134,217
Issuance at $2.13 to $5.25
per Share upon Exercise
of Stock Options 4,525 4 13,302 -- -- 13,306
Employee Stock Purchase
Plan Issuance at $2.13
per Share -- -- (26,437) 48,144 -- 21,707
Net Loss for the Year
Ended December 31, 1994 -- -- -- -- (11,583,551) (11,583,551)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 17,054,222 $17,054 $55,726,143 $ (76,931) $(38,080,587) $17,585,679
Issuance at $.60 to $4.25
per Share upon Exercise
of Stock Options 88,668 89 244,664 -- -- 244,753
Employee Stock Purchase
Plan Issuance at $2.13
and $2.71 per Share -- -- (23,169) 47,864 -- 24,695
Private Placement Proceeds 2,550,000 2,550 6,102,332 -- -- 6,104,882
Issuance at $1.65 upon
Exercise of Stock Warrants 211,816 212 349,285 -- -- 349,497
Purchase of 16,466 Shares of
Treasury Stock at Cost -- -- -- (51,456) -- (51,456)
Net Loss for the Year
Ended December 31, 1995 -- -- -- -- (8,257,949) (8,257,949)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 19,904,706 $19,905 $62,399,255 $ (80,523) $(46,338,536) $16,000,101
Issuance at $.60 to $3.56
per Share upon Exercise
of Stock Options 60,710 61 161,643 -- -- 161,704
Employee Stock Purchase
Plan Issuance at $2.71
per Share -- -- (3,019) 11,585 -- 8,566
Net Proceeds from Stock Issuance 5,000,000 5,000 10,063,652 -- -- 10,068,652
Compensation Expense Associated
with Stock Options -- -- 170,288 -- -- 170,288
Net Loss for the Year
Ended December 31, 1996 -- -- -- -- (10,790,084) (10,790,084)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 24,965,416 $24,966 $72,791,819 $(68,938) $(57,128,620) $15,619,227
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
Increase in Cash and Cash Equivalents 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (10,790,084) $ (8,257,949) $(11,583,551)
Adjustments to Reconcile Net Loss to Cash
used by Operating Activities:
Depreciation and Amortization 464,756 719,573 844,741
Write-off of Leasehold Improvements -- -- 910,812
Losses on Short-term Investments -- -- 1,851,782
Decrease in Collaborator Advance (181,573) (318,427) --
Write-off of Capitalized Patent Costs 1,751,626 -- --
Compensation Expense Associated with Stock Options 170,288 -- --
Gain on Sale of Research Products and Operations of
T Cell Diagnostics, Inc. (282,980) -- --
Changes in Assets and Liabilities:
Accounts Receivable (24,364) 132,657 22,429
Inventories 14,135 5,973 (7,288)
Prepaid and Other Current Assets 119,686 18,734 (270,753)
Accounts Payable and Accrued Expenses (796,203) (369,322) (401,237)
Deferred Revenue (121,083) 121,083 (433,000)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (9,675,796) (7,947,678) (9,066,065)
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of Short-term Investments -- -- (1,190,608)
Redemption of Short-term Investments -- 8,539,666 13,983,558
Acquisition of Property and Equipment (135,246) (577,263) (770,344)
Increase in Patents and Licenses (507,463) (1,216,884) (493,885)
(Increase) Decrease in Long-Term Restricted Cash 165,000 (850,000) --
Payment Received on Convertible Note Receivable 200,297 -- --
Other 30,839 10,352 (4,435)
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (246,573) 5,905,871 11,524,286
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net Proceeds from Stock Issuance 10,077,218 6,129,577 21,707
Proceeds from Exercise of Stock Options 161,704 244,753 13,306
Proceeds from Exercise of Stock Warrants -- 349,497 --
Purchases of Treasury Stock -- (51,456) --
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 10,238,922 6,672,371 35,013
- ------------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 316,553 4,630,564 2,493,234
Cash and Cash Equivalents at Beginning of Period 12,275,217 7,644,653 5,151,419
- ------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 12,591,770 $ 12,275,217 $ 7,644,653
========================================================================================================================
Cash, Cash Equivalents, Short-term Investments and Marketable
Securities at End of Period $ 12,591,770 $ 12,275,217 $ 16,184,319
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Business
T Cell Sciences, Inc. (the "Company") is a biopharmaceutical company engaged in
the discovery and development of innovative drugs targeting diseases of the
immune, inflammatory and vascular systems. The Company develops and
commercializes products on a proprietary basis and in collaboration with
established pharmaceutical partners, including Astra AB and Yamanouchi
Pharmaceutical Co., Ltd.
In March 1996, the Company sold substantially all of the assets of its
wholly-owned subsidiary, T Cell Diagnostics, Inc. ("TCD") while retaining all
rights to the TRAx(R) product franchise. The Company will continue to
commercialize the TRAx line of diagnostic products which are used in the
detection and monitoring of immune-related disorders.
(B) Basis of Presentation
The financial statements include the accounts of T Cell Sciences, Inc. and its
wholly owned subsidiary, T Cell Diagnostics, Inc. All intercompany transactions
have been eliminated. Certain prior year information was reclassified to conform
with the current year presentation.
(C) Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. Short-term investments are those
with maturities in excess of three months but less than one year. All cash
equivalents and short-term investments have been classified as available for
sale and are reported at fair market value with unrealized gains and losses
included in stockholders' equity.
The Company invests its nonoperating cash in debt instruments of financial
institutions, government entities and corporations, and mutual funds. The
Company has established guidelines relative to credit ratings, diversification
and maturities that maintain safety and liquidity.
Included in cash and cash equivalents at December 31, 1995 is $958,000 of
short-term restricted cash (see Note 3).
(D) Fair Value of Financial Instruments
The Company enters into various types of financial instruments in the normal
course of business. Fair values for cash, cash equivalents, short-term
investments, accounts and notes receivable, accounts payable and accrued
expenses approximate carrying value at December 31, 1996 and 1995, due to the
nature of these instruments and the relatively short maturity of these
instruments.
(E) Revenue Recognition
The Company has entered into separate agreements with corporate collaborators
for the performance of certain specified product developments. The product
development agreements provide for periodic nonrefundable payments which are
recognized as revenue as the work is performed. Cash payments received by the
Company in advance of performing the work are recorded as deferred revenue. The
Company has received nonrefundable fees at the time of signing agreements as
payment for entering into the agreement. These signing fees are recognized as
revenue when received. Revenues from product sales are recorded when the product
is shipped.
(F) Research and Development Costs
Research and development costs are expensed as incurred.
<PAGE>
(G) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(H) Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the related assets using the straight-line method. Laboratory
equipment and office furniture and equipment are depreciated over a five year
period and computer equipment is depreciated over a three year period. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
noncancelable term of the related lease.
(I) Licenses, Patents and Trademarks
Included in other assets are the costs of purchased licenses and certain costs
associated with patents and trademarks which are capitalized and amortized over
the shorter of the estimated useful lives or ten years using the straight-line
method. The Company periodically evaluates the recoverability of these assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of ("SFAS 121")."
(J) Loss Per Share
Net loss per share of common stock is based on the weighted average number of
common shares outstanding during each period. Common stock equivalents are not
included for any period presented, as their effect is antidilutive.
(K) Stock Compensation
The Company's employee stock option plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" (see Note 9).
(L) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at December 31, 1996 and 1995 and the reported
amounts of revenue and expense for the years ended December 31, 1996, 1995 and
1994. Actual results could differ from those estimates.
2. SHORT-TERM INVESTMENTS AND RESTRICTED CASH
The Company currently invests in only high quality, short-term investments which
are considered highly liquid and are available to support current operations. At
December 31, 1996 and 1995, the Company's investments met the definition of cash
equivalents and were recorded at cost, which approximated fair value in all
material respects. At December 31, 1994, the Company's investments were
comprised of certain debt and equity securities and were classified as
available-for-sale.
Proceeds from maturities and other sales of securities for the year ended
December 31, 1994 were $13,984,000, the related gross realized losses on such
sales were $879,000 and gross realized gains were immaterial. Additionally, in
December 1994, the Company decided, as a result of the duration and extent of
the unrealized losses on its bond fund, that the unrealized loss was other than
temporary and realized a loss of $973,000. In February 1995, the Company
liquidated its investment in the bond fund; actual losses incurred approximated
the amount recognized in 1994.
In accordance with the terms of the Company's operating lease agreement, the
Company has pledged as collateral $685,000 and $1,808,000 at December 31, 1996
and 1995, respectively. At December 31, 1996, the amount
<PAGE>
pledged as collateral is recorded as long-term restricted cash and at December
31, 1995 $958,000 is recorded as short-term restricted cash and is included in
cash equivalents and $850,000 is recorded as long-term restricted cash. In March
1996, the Company repaid a portion of the outstanding obligation under the
operating lease in conjunction with the of the research products and operation
of TCD (see Note 16). As a result, the amount required as collateral was reduced
to $850,000.
3. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
December 31, December 31,
1996 1995
-------------------------------
Laboratory Equipment $ 2,054,966 $ 2,800,649
Office Furniture and Equipment 751,547 953,189
Leasehold Improvements 219,496 614,616
------------------------------
Property and Equipment, Total 3,026,009 4,368,454
Less Accumulated Depreciation and Amortization (2,514,369) (3,196,317)
------------------------------
Property and Equipment, Net $ 511,640 $ 1,172,137
------------------------------
Depreciation expense related to equipment and leasehold improvements was
approximately $291,000, $465,000 and $649,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
In May 1996, the Company entered into a six-year lease for laboratory and office
space in Needham, Massachusetts. The lease replaced two-year lease and sublease
agreements entered into in March 1995 for the same location and increased the
amount of office and laboratory space available. Concurrent with the May 1996
lease, the Company entered into an agreement to sublease excess space for a
four-year term and provided the subtenant with the right to extend the sublease
for up to an additional two years. In March 1996, the Company sold certain
property and equipment to Endogen as part of the sale of the research products
and operations of TCD. In addition, certain lease obligations of the Company
were assigned to Endogen in conjunction with the sale (see Note 16).
Obligations for base rent, net of sublease income, under these and other
noncancelable operating leases as of December 31, 1996 are approximately as
follows:
Year ending December 31,1997 $ 829,000
1998 849,000
1999 846,000
2000 819,000
2001 763,000
Thereafter 252,000
-------------
Total minimum lease payments $ 4,358,000
-------------
The Company's total rent expense was approximately $903,000, $1,100,000 and
$1,100,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
In August 1994, the Company entered into a lease agreement providing the Company
with the right to lease up to $2,000,000 of equipment for up to a five-year
term. The lease agreement requires that the Company maintain certain restrictive
covenants determined at the end of each fiscal quarter. At September 30, 1995
the Company's cash and cash equivalents balance was below the $10,000,000
minimum covenant requirement. As a result, in accordance with the lease
agreement, the Company pledged cash as collateral to the lessor equal to the
amount outstanding on the lease which is to remain in a certificate of deposit
until the end of the lease or as otherwise agreed by the lessor and the Company.
At December 31, 1996, $685,000 is recorded as long-term restricted cash and at
December 31, 1995, $958,000 and $850,000 is recorded as short-term and long-term
restricted cash,
<PAGE>
respectively. In March 1996, the Company repaid approximately $980,000 of the
outstanding payments due under the lease in conjunction with the sale of the
research products and operations of TCD.
4. OTHER ASSETS
Other assets include the following:
December 31, December 31,
1996 1995
-------------------------------------
Capitalized Patent Costs $1,570,530 $3,272,109
Accumulated Amortization (397,907) (577,624)
-------------------------------------
Capitalized Patent Costs, Net 1,172,623 2,694,485
Other Non Current Assets 174,956 256,577
-------------------------------------
$1,347,579 $2,951,062
=====================================
During the second quarter of 1996, as part of the Company's realignment of
certain of its operations, the Company suspended internal funding of the
research and development of its T cell antigen receptor program pending
completion of negotiations to transfer certain of its patent and license rights
related to such technology to Astra AB. In June 1996, in accordance with SFAS
121, the Company evaluated and subsequently wrote off approximately $1,752,000
of capitalized patent costs relating to its T cell antigen receptor program
which is included in the Company's operating expense in general and
administrative.
Amortization expense for the years ended December 31, 1996, 1995 and 1994
relating to the capitalized costs of purchased licenses and patents and
trademarks was approximately $174,000, $254,000 and $196,000, respectively.
5. ACCRUED EXPENSES
Accrued expenses include the following:
December 31, December 31,
1996 1995
----------------------------------
Accrued License Fees $ 55,000 $ 47,584
Accrued Funded Research -- 19,350
Accrued Royalties -- 13,809
Accrued Payroll and Employee Benefits 208,444 210,961
Accrued Relocation Expenses -- 79,725
Accrued Clinical Trials 364,765 195,944
Accrued Patent Costs 58,614 228,981
Accrued Consulting 95,958 --
Other Accrued Expenses 495,707 708,232
----------------------------------
$1,278,488 $1,504,586
==================================
<PAGE>
6. INCOME TAXES
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
Income tax benefit:
Federal $ 3,696,048 $ 2,984,812 $3,705,826
State 388,031 354,821 1,013,701
--------------------------------------------------
4,084,079 3,339,633 4,719,527
Deferred tax assets
valuation allowance (4,084,079) (3,339,633) (4,719,527)
--------------------------------------------------
$ -- $ -- $ --
==================================================
Deferred tax assets are comprised of the following at December 31:
December 31, December 31,
1996 1995
----------------------------------
Net Operating Loss Carryforwards $ 21,346,733 $ 17,207,019
Tax Credit Carryforwards 3,043,880 2,921,484
Other 981,784 1,159,815
----------------------------------
Gross Deferred Tax Assets 25,372,397 21,288,318
Deferred Tax Assets
Valuation Allowance (25,372,397) (21,288,318)
----------------------------------
$ -- $ --
==================================
In reconciliation between the amount of reported income tax expenses and the
amount computed using the U.S. Statutory rate of 35% follows:
1996 1995 1994
---------------------------------------------
Loss at Statutory Rates $ (3,776,529) $(2,890,282) $(4,054,243)
Research and Development Credits (189,381) (255,752) (165,657)
State tax benefit, net of federal
tax liabilities (337,425) (231,249) (573,354)
Other 219,256 37,650 73,727
Benefit of losses and credits
not recognized, increase in
valuation allowance 4,084,079 3,339,633 4,719,527
---------------------------------------------
$ -- $ -- $ --
=============================================
The Company has provided a full valuation allowance for deferred tax assets as
management has concluded that it is more likely than not that the Company will
not recognize any benefits from its net deferred tax asset. The timing and
amount of future earnings will depend on numerous factors, including the
Company's future profitability. The Company will assess the need for a valuation
allowance as of each balance sheet date based on all available evidence.
At December 31, 1996, the Company has U.S. net operating loss carryforwards of
$55,460,217, U.S. capital loss carryforwards of $1,852,324, and U.S. tax credits
of $2,508,351 which expire at various dates from 1999 through 2010.
<PAGE>
Under the Tax Reform Act of 1986, certain substantial changes in the Company's
ownership could result in an annual limitation on the amount of net operating
loss carryforwards, research and development tax credits, and capital loss
carryforwards which could be utilized.
7. STOCKHOLDERS' EQUITY
(A) Public and Private Stock Offerings
On August 26, 1996, the Company completed a public offering of 5,000,000 newly
issued shares of common stock. Net proceeds were approximately $10,069,000 after
deducting all associated expenses.
On November 7, 1995, the Company completed a private placement of 2,550,000
newly issued shares of common stock. Net proceeds were approximately $6,100,000
after deducting all associated expenses.
(B) Preferred Stock
At December 31, 1996 and 1995, the Company had authorized preferred stock
comprised of 1,163,102 shares of convertible Class B and 3,000,000 shares of
convertible Class C of which 350,000 shares has been designated as Class C-1
Junior Participating Cumulative, the terms of which are to be determined by the
Company's Board of Directors. There was no preferred stock outstanding at
December 31, 1996 and 1995.
(C) Stock Options and Employee Stock Purchase Plans
Stock Options
The Company's 1991 Stock Compensation Plan (the "1991 Plan"), which is an
amendment and restatement of the Company's 1985 Incentive Option Plan, permits
the granting of incentive stock options (intended to qualify as such under
Section 422A of the Internal Revenue Code of 1986, as amended), non-qualified
stock options, stock appreciation rights, performance share units, restricted
stock and for other awards of restricted stock in lieu of cash bonuses to
employees, consultants and outside directors.
The Plan allows for a maximum of 3,700,000 shares of common stock to be issued
prior to December 1, 2001. The Board of Directors determines the term of each
option, option price, number of shares for which each option is granted and the
rate at which each option is exercisable. The term of each option cannot exceed
ten years (five years for options granted to holders of more than 10% of the
voting stock of the Company). The exercise price of stock options shall not be
less than the fair market value of the common stock at the date of grant (110%
of fair market value for options granted to holders of more than 10% of the
voting stock of the Company).
In December 1995, the Company canceled 211,405 stock options and regranted
169,123 stock options resulting in a 42,282 decrease in options outstanding in
connection with a repricing offer to non-officer employees, most of whom were
long-term employees.
Employee Stock Purchase Plan
The 1994 Employee Stock Purchase Plan (the "1994 Plan") was adopted on June 30,
1994. All full time employees of the Company are eligible to participate in the
1994 Plan. A total of 150,000 shares are reserved for issuance under this plan.
An employee may participate voluntarily in any offering for up to 15% of their
compensation to purchase up to 500 shares per year and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
common stock in an offering is 85% of the lower of its fair market value at the
beginning of the offering period or the applicable exercise date.
<PAGE>
A summary of the Stock Compensation Plan option activity for the years ended
December 31, 1996, 1995 and 1994 is as follows:
1996 1995
Weighted Weighted
Average Exercise Average Exercise
----------------------------------------------
Shares Price Shares Price
- -------------------------------------------------------------------------------
Outstanding at January 1, 2,516,313 $5.82 2,559,820 $6.42
Granted 472,600 2.82 620,523 3.06
Exercised (60,710) 2.66 (88,668) 2.45
Canceled (625,007) 3.39 (575,362) 6.05
- -------------------------------------------------------------------------------
Outstanding at December 31, 2,303,196 $5.94 2,516,313 $5.82
================================================================================
At December 31,
Options exercisable 1,740,310 1,498,401
Available for grant 678,762 571,516
Weighted average fair value
of options granted during
year $1.26 $1.36
================================================================================
The following table summarizes information about the stock options outstanding
at December 31, 1996:
Options Outstanding
-----------------------------------------------------
Number Weighted Average
Outstanding at Remaining Weighted Average
Range of Exercise Prices December 31, 1996 Contractual Life Exercise Price
- ------------------------- ----------------- ----------------- -----------------
$ 2.03 - 2.75 555,650 7.28 $ 2.46
2.94 - 3.19 621,308 6.36 3.03
3.25 - 6.13 492,238 4.97 4.53
6.25 - 12.38 434,000 2.77 9.70
20.00 - 20.00 200,000 0.41 20.00
- -------------------------------------------------------------------------------
$ 2.03 - 20.00 2,303,196
===============================================================================
Options Exercisable
---------------------------------------------------
Number
Exercisable at Weighted Average
Range of Exercise Prices December 31, 1996 Exercise Price
- ------------------------- ------------------------- -------------------------
$ 2.03 - 2.75 338,834 $ 2.46
2.94 - 3.19 345,873 3.03
3.25 - 6.13 428,228 4.54
6.25 - 12.38 427,375 9.74
20.00 - 20.00 200,000 20.00
- -------------------------------------------------------------------------------
$ 2.03 - 20.00 1,740,310
===============================================================================
<PAGE>
Fair Value Disclosures
Had compensation cost for the Company's option plans been determined based on
the fair value at the grant dates, consistent with SFAS 123, the Company's net
loss, and net loss per share for the years ending December 31, 1996 and 1995
would be as follows:
1996 1995
--------------------------------------------------------
Net Loss:
As reported $10,790,084 $8,257,949
Pro forma $11,269,924 $8,471,362
Net Loss Per Share:
As reported $0.50 $0.47
Pro forma 0.52 0.48
The fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1996 1995
---------------------------------------------------------------------
Expected dividend yield 0% 0%
Expected stock price volatility 51% 51%
Risk-free interest rate 4.9% - 6.7% 5.4% - 7.5%
Expected option term 2.6 Years 2.6 Years
Because the determination of the fair value of all options granted includes an
expected volatility factor in addition to the factors detailed in the table
above and, because additional option grants are expected to be made each year,
the above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
(D) Shareholder Rights Plan
On November 10, 1994, the Company's Board of Directors declared a dividend of
one preferred share purchase right for each share of common stock outstanding.
Each right entitles the holder to purchase from the Company one-one thousandth
of a share of Series C-1 Junior Participating Cumulative Preferred Stock (a
"Unit"), par value $.01 at a price of $16.00 per one-one thousandth of a share,
subject to certain adjustments. The Units are exercisable only if a person or a
group acquires 15% or more of the outstanding common stock of the Company or
commences a tender offer which would result in the ownership of 15% or more of
the Company's outstanding common stock. Once a Unit becomes exercisable, the
plan allows the Company's shareholders to purchase common stock at a substantial
discount. Unless earlier redeemed, the Units expire on November 10, 2004. The
Company is entitled to redeem the Units at $.01 per Unit subject to adjustment
for any stock split, stock dividend or similar transaction.
As of December 31, 1996 the Company has authorized the issuance of 350,000
shares of Series C-1 Junior Participating Cumulative Preferred Stock for use in
connection with the shareholder rights plan.
(E) Severance Agreement Charge
On May 29, 1996 the Company announced changes in it senior management. As part
of the reorganization, the Company recorded a $425,000 charge to earnings
resulting from a severance agreement with the Company's former President and
Chief Executive Officer. The charge included a $255,000 severance payment and a
non-cash charge of approximately $170,000 relating to the acceleration of
certain stock option vesting rights.
<PAGE>
8. RESEARCH AND LICENSING AGREEMENTS
The Company has entered into licensing agreements with several universities and
research organizations. Under the terms of these agreements, the Company has
received licenses or options to license technology, certain patents or patent
applications. The Company is required to make payments of nonrefundable license
fees and royalties which amounted to approximately $205,000, $200,000 and
$336,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
9. PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENTS
The Company's product development revenues were received from contracts with
different organizations. Total revenue received by the Company in connection
with these contracts for the years ended December 31, 1996, 1995 and 1994 were
approximately $600,000, $1,600,000 and $3,700,000, respectively. A summary of
these contracts is as follows:
(A) Astra AB
In January 1992, the Company entered into a product development and distribution
agreement with Astra AB ("Astra"), a worldwide pharmaceutical company
headquartered in Sodertalje, Sweden, for the joint development and marketing of
therapeutic products resulting from T Cell Sciences' proprietary T cell antigen
receptor ("TCAR") technology. The products developed exclusively and jointly
with Astra were monoclonal antibodies and protein-derived immunomodulators that
may have efficacy in treating autoimmune diseases such as multiple sclerosis,
Crohn's disease, and rheumatoid arthritis. Revenue recognized for the years
ended December 31, 1996, 1995 and 1994 was $272,000, $1,400,000 and $3,000,000,
respectively.
In June 1996, the Company suspended further internal funding of the research and
development of the TCAR program. In December 1996, the Company further amended
its agreement with Astra to transfer certain of its rights to the TCAR
technology to Astra, who will be solely responsible for further development and
commercialization. Under the amended agreement, the Company has received an
initial signing fee of $100,000 and could receive future milestone and royalty
payments upon Astra's successful development and commercialization of the TCAR
technology.
Included in revenue for the years ended December 31, 1996 and 1995, is $182,000
and $318,000, respectively, from the reduction of the collaborator advance
liability. The funds were advanced from Astra for the expansion of additional
research space dedicated to joint TCAR product research. The collaborator
advance liability was reduced based on the amended agreement.
(B) CytoTherapeutics
In April 1996, the Company licensed portions of its patent and technology rights
regarding CR1 (Complement Receptor 1) to CytoTherapeutics, Inc. for use in
CytoTherapeutics' cell-based products for the delivery of therapeutic substances
to the central nervous system. Under the agreement, the Company granted
non-exclusive rights for the use of CR1 in any encapsulated-cell product. The
license does not include rights to use CR1 for therapeutic effects. The Company
received a $100,000 signing fee and will receive additional milestone payments
and royalty payments from commercialized products resulting from the license.
(C) Yamanouchi Pharmaceutical Co., Ltd.
In December 1986 the Company entered into an agreement with Yamanouchi
Pharmaceutical Co., Ltd. ("YPC") for the development and marketing of certain
diagnostic products in Japan and in April 1989, the Company executed a new joint
development agreement for several new diagnostic products for Japan. In May
1992, the Company expanded its relationship with YPC to include a product
marketing arrangement for Japan and Taiwan related to several TRAx products in
development. Revenues of approximately $500,000 were recognized under these
agreements for the year ended December 31, 1994.
<PAGE>
(D) Diamedix Corporation
In December 1995, the Company received a $175,000 signing fee associated with a
distribution agreement with Diamedix Corporation to market TRAx CD4 and TRAx CD8
microtiter plate diagnostic kits to clinical diagnostic laboratories in the
United States. The Company retains the rights to sell kits to certain research
laboratories and pharmaceutical companies.
(E) SmithKline Beecham, p.l.c
In 1989, the Company signed an exclusive development and distribution contract
for TP10 (sCR1) with SmithKline Beecham. The Company entered into a new
agreement in October 1994, with SmithKline Beecham, superseding the original
agreement. Under the new agreement, the Company regained exclusive rights to
sCR1 in North America, including clinical development and marketing rights and
SmithKline Beecham was granted an option for clinical development and marketing
of injectable sCR1 outside of North America. The Company and SmithKline Beecham
mutually agreed to terminate the October agreement in February 1995, with no
future financial obligations to either party.
(F) INCSTAR
In March 1994, the Company received a $250,000 signing fee associated with a
distribution agreement with INCSTAR Corporation to market TRAx CD4 and TRAx CD8
kits in North America, Europe and most other countries of the world. During
1995, the Company and INCSTAR Corporation mutually agreed to terminate the
agreement without any future financial obligations.
10. NON-OPERATING INCOME(EXPENSE)
Non-Operating income(expense) includes the following:
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------------------------------------
Interest and Dividend Income $680,198 $604,634 $1,361,727
Gain on Sale of Portion of Diagnostic
Business 282,980 -- --
Settlement of Lawsuit -- 2,900,000 --
Gain on Sale of Investments -- 100,000 --
Realized Loss on Sale of Investments -- -- (878,924)
Other than Temporary Loss on
Writedown of Investment -- -- (972,858)
---------------------------------------
$963,178 $3,604,634 $(490,055)
========================================
11. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, the Board of
Directors adopted, effective May 1990, a tax-qualified deferred compensation
plan for employees of the Company. Participants may make tax deferred
contributions up to 15%, or $9,500, of their total salary in 1996. The Company
may, at its discretion, make contributions to the plan each year matching up to
1% of the participant's total annual salary. Company contributions amounted to
$33,000, $39,000 and $42,000 for the years ended December 31, 1996, 1995 and
1994.
<PAGE>
12. FOREIGN SALES
Foreign Sales:
- --------------
Product sales were generated geographically as follows:
Net Product Sales for the
Twelve Months Ended Europe USA Asia Other Total
- ------------------- ------ --- ---- ----- -----
December 31, 1996 $ 145,000 $ 240,000 $130,000 $ 8,000 $ 523,000
December 31, 1995 732,000 992,000 491,000 139,000 2,354,000
December 31, 1994 1,187,000 1,455,000 526,000 63,000 3,231,000
13. FACILITY RELOCATION EXPENSE
In June 1994, the Company temporarily vacated its headquarters building at 38
Sidney Street in Cambridge, Massachusetts due to air quality problems within the
building causing a significant number of employees to experience skin and
respiratory irritation. During the third quarter of 1994, the Company determined
that it could not return to the building and ensure the protection of its
employees health. As a result, the Company moved its headquarters to Needham,
Massachusetts and its diagnostic subsidiary to Woburn, Massachusetts. The costs
to physically move property and establish computer and telephone networks at
alternate sights, write-off the net book value of leasehold improvements and
legal and other costs directly associated with vacating the Sidney Street
location are included in operating expense as Relocation Expense.
The total amount charged to relocation expense was included in the Company's
property and business interruption claims with its insurer. In July 1995, the
Company brought suit against its insurance carrier and the policy underwriter
for a judgment that the Company is entitled to insurance coverage for its
property and business interruption losses incurred as a result of the forced
evacuation and relocation. In November 1995, the Company received $2,900,000 as
a result of a settlement agreement and the lawsuit was dismissed.
14. LITIGATION
In December 1994, the Company filed a lawsuit in the Superior Court of
Massachusetts against the landlord of its former Cambridge, Massachusetts
headquarters, to recover the damages incurred by the Company resulting from the
evacuation of the building, due to air quality problems which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant has filed counterclaims, alleging the Company has breached its lease
obligations. The court ordered a limited trial between the Company and the
landlord on certain factual issues which began on November 20, 1996. Closing
arguments for the limited trial were heard on January 13, 1997. The court has
not yet entered its findings on the limited trial. Until the court enters its
findings, the Company is unable to assess what impact the findings will have on
the trial of the issue of the Company's liability under the lease. In a separate
lawsuit, the landlord's mortgagee has filed claims against the Company for
payment of the same rent alleged to be owed. A motion for summary judgment filed
by the bank was denied by the court. Due to the current stage of the lawsuits, a
range of potential losses, cannot be estimated at this time. Accordingly, no
accrual has been made in the financial statements relative to any potential
effects on the Company's future operating results. A significant adverse
settlement could have a negative impact on the future operating results of the
Company.
<PAGE>
The Company's insurance carrier was reimbursing the Company for certain legal
expenses associated with the counterclaims, under a reservation of rights. The
Company's insurance carrier filed a motion for summary judgment seeking a
determination of noncoverage. The Company filed an opposition to the insurer's
motion for summary judgment. On November 21, 1996, the court allowed the
carrier's motion for summary judgment over the Company's opposition. The Company
expects to appeal the ruling once it has been entered into the court records.
15. RELATED PARTY TRANSACTION
During 1995, the Company entered into a Placement Agency Agreement with a firm
whereby the Company paid $165,000 in fees for the private placement of stock of
the Company with certain investors. A Managing Director of the firm is also a
Director of the Company.
16. SALE OF PORTION OF DIAGNOSTIC BUSINESS
On March 5, 1996 the Company sold to Endogen, Inc. the research products and
operations of TCD for a purchase price of approximately $2,880,000, while
retaining the TRAx diagnostic product franchise. The consideration for this sale
was paid in the form of a convertible subordinated note receivable (the
"Convertible Note") in the principal amount of $2,003,000 and a combination of
cash and a short-term note used to repay approximately $980,000 of obligations
under the Company's operating lease. The Convertible Note was due in semi-annual
installments over a five year period commencing September 1, 1996 with interest
receivable thereon at a rate of 7% per annum. A principal payment of $200,000
was received, in accordance with the terms of the note, on September 1, 1996,
reducing the outstanding principal amount to $1,803,000 at December 31, 1996.
The outstanding principal balance of the Convertible Note was convertible at any
time at the option of the Company into shares of common stock of Endogen. On
February 10, 1997, the Company converted the outstanding principal balance, or
$1,803,000, of the Convertible Note into shares of Endogen commons stock which
it subsequently sold. Additionally, the Company may receive a royalty on certain
of Endogen's sales of research products.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company's Form 8-K dated February 10, 1994, reporting a change of the
Company's independent accountant effective February 10, 1994, is hereby
incorporated by reference.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the Sections "Proposal 1 - Election of Directors" and
"Management" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1997, is hereby incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the Section "Management" of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 13, 1997 is
hereby incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the Section "Beneficial Ownership of Common Stock" of the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 13, 1997, is hereby incorporated by reference.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the Sections "Proposal 1 - Election of Directors" and
"Management" of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1997, is hereby incorporated by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this Form 10-K:
(1) Financial Statements:
See "Index to Consolidated Financial Statements" at Item 8.
(2) Financial Statement Schedules:
Schedules are omitted since the required information is not applicable or
is not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
No. Description Page No.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement of Merger among the Company, T Cell Incorporated by reference to the Company's
Acquisition Corp. and T Cell Diagnostics, report on form 8-K filed September 22, 1993
Inc. dated August 20, 1993 relating to
reconsolidation of the Company's subsidiary
2.2 Asset Purchase Agreement among Endogen, Inc., Incorporated by reference to the Company's
T Cell Diagnostics, Inc., with the Company report on form 8-K filed March 20, 1996
dated March 4, 1996
3.1 Third Restated Certificate of Incorporation Incorporated by reference to the Company's
of the Company Annual Report on Form 10-K for the year ended
April 30, 1991
3.2 Certificate of Amendment of Third Restated Incorporated by reference to the Company's
Certificate of Incorporation of the Company Annual Report on Form 10-K for the year ended
December 31, 1992
3.3 Certificate of Designation for series C-1 Incorporated by reference to the Company's
Junior Participating Cumulative Preferred Annual Report on Form 10-K for the year ended
Stock December 31, 1994
3.4 Amended and Restated By-Laws of the Company Incorporated by reference to the Company's
as of November 10, 1994 report on Form 8-K dated November 10, 1994
4.1 Form of Purchase Agreement dated November 23, Incorporated by reference to Exhibit 10.1 of
1993 relating to the Company's private the Company's Registration Statement on Form
placement of Common Stock S-3 (Reg. No. 33-72172)
4.2 Shareholder Rights Agreement dated November Incorporated by reference to the Company's
10, 1994 between the Company and State Street report on Form 8-K dated November 10, 1994
Bank and Trust Company as Rights Agent
4.3 Form of Stock Purchase Agreement dated Incorporated by reference to Exhibit 10.1 of
October 27, 1995 relating to the Company's the Company's Registration Statement on Form
private placement of Common Stock S-3 (Reg. No. 33-64021)
4.4 Form of Stock Purchase Agreement dated Incorporated by reference to Exhibit 10.1 of
November 3, 1995 relating to the Company's the Company's Registration Statement on Form
private placement of Common Stock S-3 (Reg. No. 33-64021)
10.1 Amended and Restated 1991 Stock Compensation Incorporate by reference to the Company's
as of April 1, 1995 Annual Report on Form 10K for the fiscal year
ended December 31, 1995
<PAGE>
10.2 1994 Employee Stock Purchase Plan Incorporated by reference to the Company's
Registration Statement on Form S-8 filed
June 8, 1994
10.3 Product Development and Distribution Incorporated by reference to the Company's
Agreement between Astra AB and the Company report on Form 8-K filed on February 13, 1992
dated January 30, 1992, portions of
which are subject to confidential treatment
10.4 Commercial Lease Agreement of October 15, Incorporated by reference to the Company's
1994 between T Cell Diagnostics, Inc. and Annual Report on Form 10-K for the year ended
Cummings Properties Management December 31, 1994
10.5 Performance Plan of the Company Incorporated by reference to the Company's
Annual Report on Form 10-K for the transition
period ended December 31, 1992
10.6 Employment Agreement between the Company and Incorporated by reference to the Company's
Alan W. Tuck dated February 6, 1992 Annual Report on Form 10-K for the transition
period ended December 31, 1992
10.7 Consulting Agreement between the Company and Page ____
Patrick C. Kung dated January 1, 1997
10.8 Form of Agreement relating to Change of Incorporated by reference to the Company's
Control Annual Report on Form 10-K for the transition
period ended December 31, 1992
10.9 Termination Agreement between the Company and Incorporated by reference to the Company's
SmithKline Beecham p.l.c. relating to sCR1 report on Form 8-K filed April 27, 1995
dated April 7, 1995, portions of which are
subject to confidential treatment
10.10 Pledge Agreement between the Company and Incorporated by reference to the Company's
Fleet Credit Corporation dated October 24, Quarterly Report on Form 10-Q for September 1995
dated September 30, 1995
10.11 Employment Agreement between the Company and Page ____
Una S. Ryan, Ph.D. dated May 28, 1996
10.12 Severance Agreement between the Company and Page ____
Norman W. Gorin dated June 1, 1996
10.13 Consulting Agreement between the Company and Page ____
James D. Grant dated May 28, 1996
10.14 Second Amended and Restated Product Page ____
Development and Distribution Agreement
between Astra AB and the Company dated May 1,
1996 portions of which are subject to a
request for confidential treatment
10.15 Commercial Lease Agreement of May 1, 1997 Incorporated by reference to the Company's
between the Company and Fourth Avenue report on Form 10-Q for the quarterly period
Ventures Limited ended September 30, 1996
16.0 Letter regarding Change in Certifying Incorporated by reference to the Company's
Accountant report on Form 8-K dated February 10, 1994
21.0 List of Subsidiaries Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1993
23.0 Consent of Independent Accountants Page ___
27.0 Financial Data Schedule Page ____
</TABLE>
(B) Reports on Form 8-K.
During 1996, the following reports on Form 8-K were filed: Form 8-K dated March
5, 1996 and Form 8-K dated May 29, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
T CELL SCIENCES, INC. Date
by: /s/ Una S. Ryan March 21, 1997
-----------------------------------
Una S. Ryan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Una S. Ryan President, Chief Executive Officer March 21, 1997
-------------------------
(Una S. Ryan)
/s/ Norman W. Gorin Vice President, Finance and Chief March 21, 1997
------------------------- Financial Officer
(Norman W. Gorin)
/s/ James D. Grant Chairman of the Board and Director March 21, 1997
-------------------------
(James D. Grant)
/s/ Patrick C. Kung Vice Chairman of the Board and Director March 21, 1997
-------------------------
(Patrick C. Kung)
/s/ John P. Munson Director March 21, 1997
-------------------------
(John P. Munson)
/s/ Thomas R. Ostermueller Director March 21, 1997
-------------------------
(Thomas R. Ostermueller)
/s/ John Simon Director March 21, 1997
-------------------------
(John Simon)
/s/ Harry H. Penner, Jr. Director March 21, 1997
-------------------------
(Harry H. Penner, Jr.)
</TABLE>
Exhibit 10.7
CONSULTING AGREEMENT
THIS AGREEMENT, dated this 1st of January 1997, between DR. PATRICK C.
KUNG, residing at 5 Joseph Comee Road, Lexington, Massachusetts 02173 (the
"Consultant"), and T CELL SCIENCES, INC., with its headquarters at 119 Fourth
Avenue, Needham, Massachusetts 02194 (the "Company").
WHEREAS the Company wishes to retain the services of the Consultant as
a consultant, to include the Consultant's services as Vice Chairman of the
Company's Board of Directors (the "Board), for the period and upon the terms and
conditions hereinafter set forth; and
WHEREAS the Consultant desires to consult with the Company in such
capacity upon such terms and conditions;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and the Consultant hereby agree to amend the Agreement as
follows:
1. Consulting Duties.
------------------
The Consultant hereby agrees to consult exclusively with the Company in the
following fields:
(a) Actively contribute to the further development and advancement of TCAR
products by assisting the Company in meeting its obligation in the
Company's agreements with Astra AB, providing scientific counsel to
the Company's scientists, and helping the Company evaluate competitive
technologies and products;
(b) Assist the Company's management in technical evaluation of new
scientific and product opportunities in East Asia; and
(c) Assist the Company in establishing business contact in Southeast Asia;
and
(d) Interact with the Company's Scientific Advisory Board and, provided he
is duly nominated and elected, be an active Director of the Board.
<PAGE>
2. Compensation and Expenses.
--------------------------
In consideration for Consultant's services hereunder (including his services as
Director of the Board):
(a) The Company shall pay the Consultant a total of $2,500 per month,
payable on a monthly basis.
(b) The Company agrees to pay the costs of continuing medical and dental
benefits elected by the Consultant until April 30, 1997 under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").
(c) The Consultant shall be reimbursed by the Company for reasonable
travel, lodging and meal expenses incurred by him in connection with
performing his services hereunder in accordance with the Company's
policy at the time.
(d) The Company will furnish the Consultant with office space at the
Company's Needham office reasonably commensurate with his position and
work schedule at the Company.
(e) The Consultant shall be eligible for non-employee Director stock
option grants pursuant to the Company's Amended and Restated 1991
Stock Compensation Plan.
3. Termination.
------------
The term of this Agreement shall be for a period of twelve (12) months, subject
to renewal by mutual agreement in writing. Either party shall have the right to
terminate this Agreement at any time after giving three (3) months written
notice. The provisions of Paragraphs 4 and 5 shall survive an termination or
expiration of this Agreement.
4. Confidentiality.
----------------
(a) Consultant shall treat as confidential any proprietary, confidential
or secret information relating to the business or interests of the
Company, including, without limitation, its organizational structure,
operations, business plans, technical projects, research data or
results, inventions, trade secrets, customer lists or other work
product developed by or for the Company whether on the premises of the
Company or elsewhere ("Confidential Information"). Consultant shall
not disclose in any manner or in any forum or make use of in any way
or manner any Confidential Information other than in performing the
services required of him under this Agreement or as required by law,
without the prior written consent of the Company.
(b) The provisions of this Paragraph 4 shall not apply to any proprietary,
confidential or secret information, which is, at the commencement of
the Agreement or at some later date, publicly known under
circumstances involving no breach of this Agreement or is lawfully and
in good faith made available to Consultant without restriction as to
disclosure by a third party.
(c) Any and all inventions and discoveries, whether or not patentable,
which Consultant conceives or makes during the term of this Agreement
and any extensions thereof, and which are a direct result of work
performed hereunder, shall be the sole and exclusive property of the
Company. Consultant shall promptly execute any and all applications,
assignments or other instruments which an officer of the Company or
its Board shall deem necessary or useful in order to apply for and
obtain Letters Patent in the United States and all foreign countries
for said inventions and discoveries and in order to assign and convey
to his employment by the Company the sole and exclusive right, title
and interest in and to said patent inventions, discoveries, patent
applications and patents thereon. The Company will bear the cost of
prosecution of all such patent applications in the United States
Patent Office an in the patent offices of foreign countries.
(d) Consultant and the Company agree that any breach of this Paragraph 4
will cause the Company irreparable harm for which the Company will
have no adequate remedy at law. As a result, the Company will be
entitled to the issuance by an arbitrator or court of competent
jurisdiction of an injunction, restraining order or other equitable
relief in favor of itself restraining Consultant from committing or
continuing in any such violation. Any right to obtain an injunction,
restraining order or other equitable relief hereunder shall not be
deemed to be a waiver of any right to assert a claim or remedy which
the Company may have under this Agreement or otherwise at law or in
equity.
(e) The Company acknowledges that the Consultant is employed by Global
Pharma, Ltd. and that this Paragraph 4 is not intended to compromise
Consultant's relationship with Global Pharma, Ltd.
<PAGE>
5. Limitation on Competition.
--------------------------
(a) For so long as Consultant is consulting with the Company and for a
period of one year thereafter, Consultant shall not, without the prior
written consent of the Board of Directors, participate, engage, or be
interested in whether as a director, officer, employee, advisor,
consultant, stockholder, partner, joint venture, owner or in any other
capacity, whether directly or indirectly, any business engaged in the
development, production or sale of any products or services related to
the T Cell Sciences' programs.
(b) During the term of this Agreement, and for a period of one year
thereafter, Consultant shall not, directly or indirectly, solicit,
raid, entice or otherwise induce any employee of the Company or any of
its subsidiaries or affiliated companies to be employed by a
competitor of the Company.
(c) Consultant acknowledges that the foregoing restrictions are fair and
reasonable and that this breach, or threatened or attempted breach, of
any provision of this Paragraph 5 would cause irreparable harm to the
Company, no compensation in money damages, and that the Company shall
be entitled in addition to other applicable remedies, to a temporary
and permanent injunction and a decree for specific performance of the
terms of this Paragraph 5 without being required to prove damages or
furnish any bond or other security.
(d) The Company agrees that the Consultant's employment by Global Pharma,
Ltd. does not apply to this Paragraph 5.
6. Miscellaneous.
--------------
Enforceability.
- ---------------
If the provisions of this Agreement shall be deemed invalid or unenforceable as
written, it shall be construed, to the greatest extent possible, or modified, to
the extent allowable by law, in a manner which shall render it valid and
enforceable and any limitation on the scope of duration of any such provision
necessary to make it valid and enforceable shall be deemed to be part thereof;
no invalidity or unenforceability shall affect any other portion of this
Agreement unless the provision deemed to be so invalid or unenforceable is a
material element of this Agreement, taken as a whole.
<PAGE>
Notices.
- --------
All notices which either party is required or permitted to give to the other
shall be given by express, registered or certified mail, addressed to the
address referred to above, or at such other place as a party may from time to
time designate in writing, or by personal delivery.
Waivers.
- --------
No waiver by either party of any breach or nonperformance of any provision or
obligation of this Agreement shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision of this Agreement.
Entire Agreement; Amendments.
- -----------------------------
This instrument is the entire agreement of the parties with respect to the
subject matter hereof and supersedes the Consulting Agreement dated January 1,
1996 between the parties. This Agreement may not be amended, supplemented,
canceled or discharged except by a written instrument executed by both of the
parties hereto.
Nonassignability.
- -----------------
This Agreement and the rights and obligations hereunder are personal to the
Company and Consultant and are not assignable or transferable to any other
person, firm or corporation.
Governing Law.
- --------------
This Agreement will be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts applicable to agreements made and to be
performed entirely within such state.
IN WITNESS WHEREOF, the parties below have executed this Agreement
effective as of the date set forth above.
T CELL SCIENCES, INC. DR. PATRICK C. KUNG
By: By:
Una S. Ryan, Ph.D.
President and CEO
Exhibit 10.11
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), made as of the 28th day of
May 1996 (the "Effective Date"), by and between T Cell Sciences, Inc., a
Massachusetts corporation with its main office in Needham, Massachusetts (the
"Company") and Una S. Ryan, Ph.D. (the "Executive").
WITNESSETH
In consideration of the mutual covenants contained herein, the Company and
the Executive agree as follows:
1. Employment. The Company agrees to employ the Executive and the Executive
agrees to be employed by the Company on the terms and conditions hereinafter set
forth.
2. Capacity. The Executive shall initially serve the Company as its President,
Chief Operating Officer and Chief Scientific Officer and shall serve the Company
in such other or additional offices in which the Executive may be requested to
serve by the Board of Directors of the Company (the "Board"). In such capacity
or capacities, the Executive shall perform such services and duties in
connection with the business, affairs and operations of the Company as may be
assigned or delegated to her from time to time by or under the authority of the
Board.
3. Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement (the "Term") shall be one (1) year from the Effective
Date and shall be renewed automatically for periods of one (1) year commencing
on the anniversary of the Effective Date and on each subsequent anniversary
thereafter, unless either the Executive or the Company gives written notice to
the other not less than sixty (60) days prior to the date of any such
anniversary of such party's election not to extend the Term.
4. Compensation and Benefits. The regular compensation and benefits payable to
the Executive under this Agreement shall be as follows:
a. Salary. For all services rendered by the Executive under this Agreement,
the Company shall pay the Executive a salary (the "Salary") at the annual rate
of Two Hundred Forty Thousand Dollars ($240,000), subject to increase from time
to time in the discretion of the Board or the Compensation Committee of the
Board (the "Compensation Committee"). The Salary shall be payable in periodic
installments in accordance with the Company's usual practice for its senior
executives.
b. Bonus. The Executive shall be entitled to participate in the Performance
Incentive Plan as established by the Board in accordance with and subject to the
terms and
<PAGE>
conditions established in the sole discretion of the Board. The Executive will
be eligible to earn up to an amount equal to thirty percent (30%) of her then
current Salary each year under the Performance Incentive Plan.
c. Regular Benefits. The Executive shall be entitled to participate in any
employee benefit plans, medical insurance plans, life insurance plans,
disability income plans, retirement plans, vacation plans, expense reimbursement
plans and other benefit plans which the Company may from time to time have in
effect for all or most of its senior executives. Such participation shall be
subject to the terms of the applicable plan documents, generally applicable
policies of the Company, applicable law and the discretion of the Board, the
Compensation Committee or any administrative or other committee provided for in
or contemplated by any such plan. Nothing contained in this Agreement shall be
construed to create any obligation on the part of the Company to establish any
such plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
d. Stock Options. The Executive shall be eligible to participate in the T
Cell Sciences, Inc. Amended and Restated 1991 Stock Compensation Plan (the
"Stock Plan"), as adopted by the Board and as approved by the stockholders of T
Cell and as may be amended, modified or terminated from time to time, in
accordance with its terms and the terms of any individual Stock Option Agreement
entered into by and between the Company and the Executive in accordance with the
Stock Plan.
e. Exclusivity of Salary and Benefits. The Executive shall not be entitled
to any payments or benefits other than those provided under this Agreement.
5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board, devote the Executive's full business time, best efforts and business
judgment, skill and knowledge to the advancement of the Company's interests and
to the discharge of the Executive's duties and responsibilities under this
Agreement. The Executive shall not engage in any other business activity, except
as may be approved by the Board; provided, that nothing in this Agreement shall
be construed as preventing the Executive from:
a. investing the Executive's assets in any company or other entity in a
manner not prohibited by Section 7(e) and in such form or manner as shall not
require any material activities on the Executive's part in connection with the
operations or affairs of the companies or other entities in which such
investments are made; or
b. engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the Executive's
duties and responsibilities under this Agreement.
2
<PAGE>
6. Termination and Termination Benefits. Notwithstanding the provisions of
Section 3, the Executive's employment under this Agreement shall terminate under
the following circumstances set forth in this Section 6.
a. Termination by the Company for Cause. The Executive's employment under
this Agreement may be terminated for cause without further liability on the part
of the Company effective immediately upon a vote of the Board and written notice
to the Executive. Only the following shall constitute "cause" for such
termination:
(i) dishonest statements or acts of the Executive with respect to the
Company or any affiliate of the Company;
(ii) the commission by or indictment of the Executive for (A) a felony
or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or
fraud ("indictment," for these purposes, meaning an indictment,
probable cause hearing or any other procedure pursuant to which an
initial determination of probable or reasonable cause with respect to
such offense is made);
(iii) gross negligence, willful misconduct or insubordination of the
Executive with respect to the Company or any affiliate of the Company;
or
(iv) material breach by the Executive of any of the Executive's
obligations under this Agreement, which breach results in a material
injury to the Company.
b. Termination by the Executive. The Executive's employment under this
Agreement may be terminated by the Executive by written notice to the Board at
least sixty (60) days prior to such termination. Upon receipt of such notice,
the Company may elect to provide the Executive with pay in lieu of notice. For
purposes of this Section 6(b), the Company is only required to pay the Executive
an amount equal to her Salary pro rated for the period of time for which the
Company waives notice.
c. Termination by the Company Without Cause. Subject to the payment of
Termination Benefits pursuant to Section 6(e), the Executive's employment under
this Agreement may be terminated by the Company without cause upon written
notice to the Executive.
d. Change in Control. The Executive's employment under this Agreement may
be terminated by the Executive for Good Reason within one (1) year of a Change
in Control by written notice to the Board; provided, that the Executive shall
provide the Board with written notice of any such Good Reason at least thirty
(30) days in advance of a voluntary
3
<PAGE>
termination of employment and the Company shall have the opportunity to remedy
or cure the asserted basis for any such Good Reason voluntary termination within
such thirty-day period.
(i) "Change in Control" shall have the meaning set forth in Section 1.2
of the Stock Plan, without regard to the Board's right to revoke a
resolution declaring that a Change in Control has occurred.
(ii) "Good Reason" shall mean:
(A) the assignment to the Executive of any duties substantially
inconsistent with the Executive's position or status as an officer
immediately prior to the Change in Control or any alteration in
the nature or status of the Executive's responsibilities to a
significantly lesser position;
(B) material reduction in the Executive's Salary, incentive
compensation, or benefits or perquisites as in effect immediately
prior to the Change in Control;
(C) the relocation of the principal place of the Executive's
employment after the Change in Control to a location more than 50
miles from the principal place of the Executive's employment as
of the Effective Date without the Executive's written consent; or
(D) the failure by the Company to assign this Agreement to any
successor pursuant to Section 14.
e. Certain Termination Benefits. Unless otherwise specifically provided in
this Agreement or otherwise required by law, all compensation and benefits
payable to the Executive under this Agreement shall terminate on the date of
termination of the Executive's employment under this Agreement. Notwithstanding
the foregoing, in the event of termination of the Executive's employment with
the Company pursuant to Section 6(c) or (d) above, the Company shall provide to
the Executive the following termination benefits ("Termination Benefits"):
(i) continuation of the Executive's Salary at the rate then in effect
pursuant to Section 4(a); and
(ii) continuation of group health plan benefits to the extent
authorized by and consistent with 29 U.S.C. ss.1161 et seq. (commonly known
as "COBRA"), with the cost of the regular premium for such benefits shared
in the same relative
4
<PAGE>
proportion by the Company and the Executive as in effect on the date of
termination, unless the termination of employment pursuant to Section 6(c)
or 6(d) occurs within one year of a Change in Control, in which case the
Company shall pay all premiums.
The Termination Benefits set forth in (i) and (ii) above shall continue for
twelve (12) months after the date of termination; provided, that in the event
that the Executive is terminated pursuant to Section 6(c) at any time other than
within one (1) year after a Change in Control and the Executive thereafter
commences any employment or self-employment during the period during which the
Executive is entitled to receive Termination Benefits (the "Termination Benefits
Period"), the remaining amount of Salary due pursuant to Section 6(e)(i) for the
period from the commencement of such employment or self-employment to the end of
the Termination Benefits Period shall be reduced by an amount equal to the
amount the Executive earns as a result of such employment or self-employment and
the payments provided under Section 6(e)(ii) shall cease effective as of the
date the Executive becomes eligible for health benefits pursuant to such other
employment or self-employment. The Company's liability for Salary continuation
pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay
due or otherwise paid to the Executive pursuant to any severance pay plan or
stay bonus plan of the Company. Notwithstanding the foregoing, nothing in this
Section 6(e) shall be construed to affect the Executive's right to receive COBRA
continuation entirely at the Executive's own cost to the extent that the
Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 6(e)(ii) ceases. The Executive
shall be obligated to give prompt notice of the date of commencement of any
employment or self-employment during the Termination Benefits Period and shall
respond promptly to any reasonable inquiries concerning any employment or
self-employment in which the Executive engages during the Termination Benefits
Period.
It is the intention of the Executive and of the Company that no payments by the
Company to or for the benefit of the Executive under this Agreement or any other
agreement or plan, if any, pursuant to which the Executive is entitled to
receive payments or benefits shall be nondeductible to the Company by reason of
the operation of Section 280G of the Internal Revenue Code ("Code") relating to
parachute payments or any like statutory or regulatory provision. Accordingly,
and notwithstanding any other provision of this Agreement or any such agreement
or plan, if by reason of the operation of said Section 280G or any like
statutory or regulatory provision, any such payments exceed the amount which can
be deducted by the Company, such payments shall be reduced to the maximum amount
which can be deducted by the Company. To the extent that payments exceeding such
maximum deductible amount have been made to or for the benefit of the Executive,
such excess payments shall be refunded to the Company with interest thereon at
the applicable Federal rate determined under Section 1274(d) of the Internal
Revenue Code, compounded annually, or at such other rate as may be required in
order that no such payments shall be nondeductible to the Company by reason of
the operation of said Section 280G or any like statutory or
5
<PAGE>
regulatory provision. To the extent that there is more than one method of
reducing the payments to bring them within the limitations of said Section 280G
or any like statutory or regulatory provision, the Executive shall determine
which method shall be followed, provided that if the Executive fails to make
such determination within forty-five (45) days after the Company has given
notice of the need for such reduction, the Company may determine the method of
such reduction in its sole discretion.
f. Disability. If the Executive shall be disabled so as to be unable to
perform the essential functions of the Executive's then existing position or
positions under this Agreement with or without reasonable accommodation, the
Board may remove the Executive from any responsibilities and/or reassign the
Executive to another position with the Company for the remainder of the Term or
during the period of such disability. If the period of disability extends for
more than six (6) months, the Company may terminate the Executive's employment
without further liability on the part of the Company. If any question shall
arise as to whether during any period the Executive is disabled so as to be
unable to perform the essential functions of the Executive's then existing
position or positions with or without reasonable accommodation, the Executive
may, and at the request of the Company shall, submit to the Company a
certification in reasonable detail by a physician selected by the Company to
whom the Executive or the Executive's guardian has no reasonable objection as to
whether the Executive is so disabled or how long such disability is expected to
continue, and such certification shall for the purposes of this Agreement be
conclusive of the issue. The Executive shall cooperate with any reasonable
request of the physician in connection with such certification. If such question
shall arise and the Executive shall fail to submit such certification, the
Company's determination of such issue shall be binding on the Executive. Nothing
in this Section 6(f) shall be construed to waive the Executive's rights, if any,
under existing law including, without limitation, the Family and Medical Leave
Act of 1993, 29 U.S.C. ss.2601 et seq. and the Americans with Disabilities Act,
42 U.S.C. ss.12101 et seq.
g. Death or Retirement. The Executive's employment under this Agreement
will be deemed to have terminated without further liability on the part of the
Company if the Executive dies or retires.
7. Confidential Information, Noncompetition and Assignment.
a. Confidential Information. As used in this Agreement, "Confidential
Information" means information belonging to the Company which is of value to the
Company in the course of conducting its business and the disclosure of which
could result in a competitive or other disadvantage to the Company. Confidential
Information includes, without limitation, financial information, reports, and
forecasts; inventions, improvements and other intellectual property; trade
secrets; know-how; designs, processes or formulae; research data or results,
inventions, cell lines or products; software; market or sales information or
plans; customer lists; and business plans, prospects and opportunities (such as
possible acquisitions or
6
<PAGE>
dispositions of businesses or facilities) which have been discussed or
considered by the management of the Company. Confidential Information includes
information developed by the Executive in the course of the Executive's
employment by the Company, as well as other information to which the Executive
may have access in connection with the Executive's employment. Confidential
Information also includes the confidential information of others with which the
Company has a business relationship. Notwithstanding the foregoing, Confidential
Information does not include information in the public domain, unless due to
breach of the Executive's duties under Section 7(a). The Executive understands
and agrees that the Executive's employment creates a relationship of confidence
and trust between the Executive and the Company with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Company and after its termination, the Executive will keep in confidence and
trust all such Confidential Information, and will not use or disclose any such
Confidential Information without the written consent of the Company, except as
may be necessary in the ordinary course of performing the Executive's duties to
the Company.
b. Assignment of Rights. Any and all information, data, inventions,
discoveries, materials, notebooks and other work product which the Executive
conceives, develops or acquires during her employment with the Company or within
six (6) months after the termination of Executive's employment with the Company,
which directly or indirectly relates to work performed for the Company shall be
the sole and exclusive property of the Company. The Executive shall promptly
execute any and all documents necessary and take such further actions as the
Company may deem necessary to assign any and all of the Executive's right, title
and interest in such property to the Company. The Executive may publish research
results after the Company, in its sole discretion, has reviewed, for purposes of
determining patentability and maintaining trade secrets, and has approved the
proposed publication.
c. Intellectual Property. During the Executive's employment at the Company,
the Executive shall promptly assist with and execute any and all applications,
assignments or other documents which an officer or director of the Company shall
deem necessary or useful in order to obtain and maintain patent, trademark or
other intellectual property protection for the Company's products or services.
After the termination date of her employment with the Company, the Executive
shall use reasonable efforts to assist the Company on intellectual property
matters as they relate to her employment, and the Company shall reasonably
compensate the Executive for her time and expense.
d. Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Company or are produced
by the Executive in connection with the Executive's employment will be and
remain the sole property of the Company. The Executive will return to the
Company all such materials and property as and when requested by the Company. In
any event, the Executive will return all such materials and property
7
<PAGE>
immediately upon termination of the Executive's employment for any reason. The
Executive will not retain with the Executive any such material or property or
any copies thereof after such termination.
e. Noncompetition and Nonsolicitation. During the Term and for one (1) year
thereafter, the Executive (i) will not, directly or indirectly, whether as
owner, partner, shareholder, consultant, agent, employee, co-venturer or
otherwise, engage, participate, assist or invest in any Competing Business (as
hereinafter defined); (ii) will refrain from directly or indirectly employing,
attempting to employ, recruiting or otherwise soliciting, inducing or
influencing any person to leave employment with the Company (other than
terminations of employment of subordinate employees undertaken in the course of
the Executive's employment with the Company); and (iii) will refrain from
soliciting or encouraging any customer or supplier to terminate or otherwise
modify adversely its business relationship with the Company. The Executive
understands that the restrictions set forth in this Section 7(e) are intended to
protect the Company's interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that such
restrictions are reasonable and appropriate for this purpose. For purposes of
this Agreement, the term "Competing Business" shall mean a business enterprise,
whether for profit or not for profit, engaged in the research, development or
marketing or products or services in or relating to T Cell antigen receptor,
complement receptor or other technology fields or business in which the Company
is engaged or the Company has investigated entering during the Executive's
employment. Notwithstanding the foregoing, the Executive may own up to one
percent (1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Competing Business.
8. Third-Party Agreements and Rights. The Executive hereby confirms that the
Executive is not bound by the terms of any agreement with any previous Company
or other party which restricts in any way the Executive's use or disclosure of
information or the Executive's engagement in any business. The Executive
represents to the Company that the Executive's execution of this Agreement, the
Executive's employment with the Company and the performance of the Executive's
proposed duties for the Company will not violate any obligations the Executive
may have to any such previous Company or other party. In the Executive's work
for the Company, the Executive will not disclose or make use of any information
in violation of any agreements with or rights of any such previous Company or
other party, and the Executive will not bring to the premises of the Company any
copies or other tangible embodiments of non-public information belonging to or
obtained from any such previous employment or other party.
9. Litigation and Regulatory Cooperation. During and after the Executive's
employment, the Executive shall cooperate fully with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired
8
<PAGE>
while the Executive was employed by the Company. The Executive's full
cooperation in connection with such claims or actions shall include, but not be
limited to, being available to meet with counsel to prepare for discovery or
trial and to act as a witness on behalf of the Company at mutually convenient
times. During and after the Executive's employment, the Executive also shall
cooperate fully with the Company in connection with any investigation or review
of any federal, state or local regulatory authority as any such investigation or
review relates to events or occurrences that transpired while the Executive was
employed by the Company. The Company shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in connection with the Executive's
performance of obligations pursuant to this Section 9.
10. Injunction. The Executive agrees that it would be difficult to measure any
damages caused to the Company which might result from any breach by the
Executive of the promises set forth in Section 7, and that in any event money
damages would be an inadequate remedy for any such breach. Accordingly, subject
to Section 11 of this Agreement, the Executive agrees that if the Executive
breaches, or proposes to breach, any portion of this Agreement, the Company
shall be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate preliminary equitable relief to restrain any
such breach without showing or proving any actual damage to the Company.
11. Arbitration of Disputes. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators, except that the
arbitrator shall apply the law as established by decisions of the U.S. Supreme
Court, the Court of Appeals for the First Circuit and the U.S. District Court
for the District of Massachusetts in deciding the merits of claims and defenses
under federal law or any state or federal anti-discrimination law, and any
awards to the Executive for violation of any anti-discrimination law shall not
exceed the maximum award to which the Executive could be entitled under the
applicable (or most analogous) federal anti-discrimination or civil rights laws.
In the event that any person or entity other than the Executive or the Company
may be a party with regard to any such controversy or claim, such controversy or
claim shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. This Section 11 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 11 shall not preclude
either party from pursuing a court action for the sole purpose of obtaining a
temporary restraining order or other preliminary equitable relief in
circumstances in which such relief is appropriate, including,
9
<PAGE>
without limitation, pursuant to Section 10; provided, that any other relief
shall be pursued through an arbitration proceeding pursuant to this Section 11.
12. Consent to Jurisdiction. To the extent that any court action is permitted
consistent with or requested to enforce Section 7, 10 or 11 of this Agreement,
the parties hereby consent to the jurisdiction of the Superior Court of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court action,
the Executive (a) submits to the personal jurisdiction of such courts; (b)
consents to service of process; and (c) waives any other requirement (whether
imposed by statute, rule of court, or otherwise) with respect to personal
jurisdiction or service of process.
13. Integration. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
14. Assignment; Successors and Assigns, Etc. Neither the Company nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, that the Company may assign its rights under this Agreement
without the consent of the Executive in the event that the Company shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
15. Enforceability. If any portion or provision of this Agreement (including,
without limitation, any portion or provision of any section of this Agreement)
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of any party to require the
performance of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
17. Notices. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and delivered in person
or sent by a nationally recognized overnight courier service or by registered or
certified mail, postage prepaid, return
10
<PAGE>
receipt requested, to the Executive at the last address the Executive has filed
in writing with the Company or, in the case of the Company, at its main offices,
attention of the Chief Executive Officer, and shall be effective on the date of
delivery in person or by courier or three (3) days after the date mailed.
18. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Company.
19. Governing Law. This is a Massachusetts contract and shall be construed under
and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without giving effect to the conflict of laws principles of such
Commonwealth.
20. Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute one and the same document.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized officer, and by the Executive, as of the
Effective Date.
T CELL SCIENCES, INC.
By:
- ------------------------ ---------------------------
Date James D. Grant, Chairman
- ------------------------ --------------------------------
Date Executive
11
Exhibit 10.12
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (this "Agreement"), made as of the 28th day of May
1996 (the "Effective Date"), by and between T CELL SCIENCES, INC., a
Massachusetts corporation with its main office in Needham, Massachusetts (the
"Company") and NORMAN W. GORIN (the "Executive").
WHEREAS the Company wishes to retain the services of the Executive as its
Chief Financial Officer subject to the terms of this Agreement; and
WHEREAS the Executive wishes to perform such services for the Company
subject to the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Company and the Executive hereby agree as follows:
1. Termination by the Company Without Cause. Subject to the payment of
Termination Benefits pursuant to Section 4, the Executive's employment with
the Company may be terminated by the Company without cause upon written
notice to the Executive.
2. Change in Control. The Executive's employment may be terminated by the
Executive for Good Reason within one (1) year of a Change in Control by
written notice to the Board; provided, that the Executive shall provide the
Board with written notice of any such Good Reason at least thirty (30) days
in advance of a voluntary termination of employment and the Company shall
have the opportunity to remedy or cure the asserted basis for any such Good
Reason voluntary termination within such thirty-day period.
(i) "Change in Control" shall have the meaning set forth in Section 1.2 of
the T Cell Sciences, Inc. Amended and Restated 1991 Stock Compensation
Plan, without regard to the Board's right to revoke a resolution
declaring that a Change in Control has occurred.
(ii) "Good Reason" shall mean:
(A) the assignment to the Executive of any duties substantially
inconsistent with the Executive's position or status as an
officer immediately prior to
<PAGE>
the Change in Control or any alteration in the nature or status
of the Executive's responsibilities to a significantly lesser
position;
(B) material reduction in the Executive's salary, incentive
compensation, or benefits or perquisites as in effect immediately
prior to the Change in Control;
(C) the relocation of the principal place of the Executive's
employment after the Change in Control to a location more than 50
miles from the principal place of the Executive's employment as
of the Effective Date without the Executive's written consent; or
(D) the failure by the Company to assign this Agreement to any
successor pursuant to Section 9.
3. Termination by the Executive. The Executive's employment may be terminated
by the Executive by written notice to the Board at least thirty (30) days
prior to such termination. Upon receipt of such notice, the Company may
elect to provide the Executive with pay in lieu of notice. For purposes of
this Section 3, the Company is only required to pay the Executive an amount
equal to his salary pro rated for the period of time for which the Company
waives notice. Upon termination of employment under this Section 3, the
Company shall not be required to provide the Executive with the benefits
set forth in Section 4.
4. Termination Benefits. Unless otherwise specifically provided in this
Agreement or otherwise required by law, all compensation and benefits
payable to the Executive shall terminate on the date of termination of the
Executive's employment with the Company. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Company
pursuant to Section 1 or 2 above, the Company shall provide to the
Executive the following termination benefits ("Termination Benefits"):
a. continuation of the Executive's Salary at the rate in effect at the
date of termination;
b. continuation of group health plan benefits to the extent authorized by
and consistent with 29 U.S.C.ss.1161 et seq. (commonly known as
"COBRA"), with the cost of the regular premium for such benefits
shared in the same relative proportion by the Company and the
Executive as in effect on the date of termination, unless the
termination of employment pursuant to Section 1 or 2 occurs
2
<PAGE>
within one year of a Change in Control, in which case the
Company shall pay all premiums; and
c. outplacement counseling and other services to be provided by Drake,
Beam & Morin or such other firm as the Company may reasonably
determine, for a period not to exceed six (6) months following the
date of termination of the Executive's employment with the Company, up
to a maximum amount of $7,500.
The Termination Benefits set forth in (a) and (b) above shall continue for
twelve (12) months after the date of termination; provided, that in the event
that the Executive is terminated pursuant to Section 1 at any time other than
within one (1) year after a Change in Control and the Executive thereafter
commences any employment or self-employment during the period during which the
Executive is entitled to receive Termination Benefits (the "Termination Benefits
Period"), the remaining amount of Salary due pursuant to Section 4(a) for the
period from the commencement of such employment or self-employment to the end of
the Termination Benefits Period shall be reduced by an amount equal to the
amount the Executive earns as a result of such employment or self-employment and
the payments provided under Section 4(b) shall cease effective as of the date
the Executive becomes eligible for health benefits pursuant to such other
employment or self-employment. The Company's liability for Salary continuation
pursuant to Section 4(a) shall be reduced by the amount of any severance pay due
or otherwise paid to the Executive pursuant to any severance pay plan or stay
bonus plan of the Company. Notwithstanding the foregoing, nothing in this
Section 4 shall be construed to affect the Executive's right to receive COBRA
continuation entirely at the Executive's own cost to the extent that the
Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 4(b) ceases. The Executive shall
be obligated to give prompt notice of the date of commencement of any employment
or self-employment during the Termination Benefits Period and shall respond
promptly to any reasonable inquiries concerning any employment or
self-employment in which the Executive engages during the Termination Benefits
Period.
It is the intention of the Executive and of the Company that no payments by the
Company to or for the benefit of the Executive under this Agreement or any other
agreement or plan, if any, pursuant to which the Executive is entitled to
receive payments or benefits shall be nondeductible to the Company by reason of
the operation of Section 280G of the Internal Revenue Code ("Code") relating to
parachute payments or any like statutory or regulatory provision. Accordingly,
and notwithstanding any other provision of this Agreement or any such agreement
or plan, if by reason of the operation of said Section 280G or any like
statutory or regulatory provision, any such payments exceed the amount which can
be deducted by the Company, such payments shall be reduced to the maximum amount
which can be deducted by the Company. To the extent that payments exceeding such
maximum deductible amount have been made to or for the benefit of the Executive,
such excess
3
<PAGE>
payments shall be refunded to the Company with interest thereon at the
applicable Federal rate determined under Section 1274(d) of the Internal Revenue
Code, compounded annually, or at such other rate as may be required in order
that no such payments shall be nondeductible to the Company by reason of the
operation of said Section 280G or any like statutory or regulatory provision. To
the extent that there is more than one method of reducing the payments to bring
them within the limitations of said Section 280G or any like statutory or
regulatory provision, the Executive shall determine which method shall be
followed, provided that if the Executive fails to make such determination within
forty-five (45) days after the Company has given notice of the need for such
reduction, the Company may determine the method of such reduction in its sole
discretion.
5. Litigation and Regulatory Cooperation. After the Executive's employment,
the Executive shall cooperate fully with the Company in the defense or
prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Executive was employed by
the Company. The Executive's full cooperation in connection with such
claims or actions shall include, but not be limited to, being available to
meet with counsel to prepare for discovery or trial and to act as a witness
on behalf of the Company at mutually convenient times. After the
Executive's employment, the Executive also shall cooperate fully with the
Company in connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation or review
relates to events or occurrences that transpired while the Executive was
employed by the Company. The Company shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in connection with the
Executive's performance of obligations pursuant to this Section 5.
6. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out
of the termination of the Executive's employment (including, without
limitation, any claims of unlawful employment discrimination whether based
on age or otherwise) shall, to the fullest extent permitted by law, be
settled by arbitration in any forum and form agreed upon by the parties or,
in the absence of such an agreement, under the auspices of the American
Arbitration Association ("AAA") in Boston, Massachusetts in accordance with
the Employment Dispute Resolution Rules of the AAA, including, but not
limited to, the rules and procedures applicable to the selection of
arbitrators, except that the arbitrator shall apply the law as established
by decisions of the U.S. Supreme Court, the Court of Appeals for the First
Circuit and the U.S. District Court for the District of Massachusetts in
deciding the merits of claims and defenses under federal law or any state
or federal anti-discrimination law, and any awards to the Executive for
violation of
4
<PAGE>
any anti-discrimination law shall not exceed the maximum award to which the
Executive could be entitled under the applicable (or most analogous)
federal anti-discrimination or civil rights laws. In the event that any
person or entity other than the Executive or the Company may be a party
with regard to any such controversy or claim, such controversy or claim
shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. This Section 6 shall be
specifically enforceable. Notwithstanding the foregoing, this Section 6
shall not preclude either party from pursuing a court action for the sole
purpose of obtaining a temporary restraining order or other preliminary
equitable relief in circumstances in which such relief is appropriate;
provided, that any other relief shall be pursued through an arbitration
proceeding pursuant to this Section 6.
7. Consent to Jurisdiction. To the extent that any court action is permitted
consistent with or requested to enforce Section 6 of this Agreement, the
parties hereby consent to the jurisdiction of the Superior Court of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court
action, the Executive (a) submits to the personal jurisdiction of such
courts; (b) consents to service of process; and (c) waives any other
requirement (whether imposed by statute, rule of court, or otherwise) with
respect to personal jurisdiction or service of process.
8. Integration. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
9. Assignment; Successors and Assigns, Etc. Neither the Company nor the
Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent of the
other party; provided, that the Company may assign its rights under this
Agreement without the consent of the Executive in the event that the
Company shall effect a reorganization, consolidate with or merge into any
other corporation, partnership, organization or other entity, or transfer
all or substantially all of its properties or assets to any other
corporation, partnership, organization or other entity. This Agreement
shall inure to the benefit of and be binding upon the Company and the
Executive, their respective successors, executors, administrators, heirs
and permitted assigns.
10. Enforceability. If any portion or provision of this Agreement (including,
without limitation, any portion or provision of any section of this
Agreement) shall to
5
<PAGE>
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of
such portion or provision in circumstances other than those as to which it
is so declared illegal or unenforceable, shall not be affected thereby, and
each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
11. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
12. Notices. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and delivered in
person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to
the Executive at the last address the Executive has filed in writing with
the Company or, in the case of the Company, at its main offices, attention
of the Chief Executive Officer, and shall be effective on the date of
delivery in person or by courier or three (3) days after the date mailed.
13. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative
of the Company.
14. Governing Law. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of The Commonwealth of
Massachusetts, without giving effect to the conflict of laws principles of
such Commonwealth.
15. Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be taken to be an
original; but such counterparts shall together constitute one and the same
document.
[Remainder of Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized officer, and by the Executive, as of the
Effective Date.
T CELL SCIENCES, INC.
By:
- ----------------------------- ---------------------------
Date Una S. Ryan, President
- ----------------------------- -------------------------------
Date Executive
7
Exhibit 10.13
CONSULTING AGREEMENT
--------------------
This CONSULTING AGREEMENT (this "Agreement"), made as of the 28th day of
May, 1996 by and between T CELL SCIENCES, INC., a Delaware corporation (the
"Company") and JAMES D. GRANT (the "Consultant").
WITNESSETH
In consideration of the mutual covenants contained herein, the Company and
the Consultant hereby agree as follows:
1. Consulting Responsibilities.
----------------------------
Effective as of May 28, 1996, the Company hereby retains the Consultant as
a consultant to the Company. This consulting capacity shall be in addition
to the Consultant's responsibilities as Chairman of the Board and outside
director of the Company's Board of Directors. The Consultant's consulting
duties shall be under the direction of the President and Chief Executive
Officer and shall include, without limitation:
(a) Advising the Company on relationships with the FDA in connection with
the preparation for clinical trials and other matters.
(b) Working with the NIH and other government agencies on behalf of the
Company.
(c) Serving on the IBA Board of Directors in an individual capacity and as
a representative of the Company.
(d) Meeting with investor groups about the Company.
(e) Undertaking specific projects for the Company at the request of the
Company's Board of Directors.
The Consultant agrees to devote as much time to the Company as is
reasonably necessary for the performance of these duties.
2. Compensation; Expenses.
-----------------------
(a) In consideration for serving as an outside director, the Consultant
shall receive the same monetary and stock option compensation as that
received by other outside directors of the Company.
1
<PAGE>
(b) In consideration for serving as Chairman of the Board for so long as
the Consultant shall so serve, the Consultant shall receive the sum of
$30,000 per year or such other amount as shall be determined by the
Board of Directors from time to time, in its sole discretion.
(c) In consideration for serving as consultant to the Company in
accordance with this Agreement, the Consultant shall receive the sum
of $30,000 per year payable in twelve equal installments of $2,500 on
the first business day of each month. At any time during the term of
this Agreement, the Board of Directors, in its sole discretion, may
increase or decrease the amount of consideration paid to the
Consultant for his consulting duties.
(d) The Company shall reimburse the Consultant for reasonable travel,
lodging and meal expenses incurred by him in connection with the
performance of his consulting duties in accordance with the Company's
reimbursement policies applicable at the time, and shall be entitled
to the use of secretarial services at the Company consistent with his
consulting duties for the Company.
3. Confidentiality; Inventions.
----------------------------
(a) Beginning on the date hereof and at any time hereafter, the Consultant
shall treat as confidential any proprietary, confidential or secret
information relating to the business or interests of the Company,
including, without limitation, its organizational structure,
operations, business plans, technical secrets, projects, research data
or result, inventions, trade secrets, projects, research data or
results, inventions, trade secrets, customer lists or other work
product developed by or for the Company whether on the premises of the
Company or elsewhere ("Confidential Information"). Beginning on the
date hereof and at any time hereafter, the Consultant shall not
disclose in any manner or in any forum or make use of in any way or
manner any Confidential Information other than in performing the
services required of him under this Agreement or as required by law,
without the prior written consent of the Company. The provisions of
this Subparagraph (a) shall not apply to any Confidential Information
which is (i) publicly known under circumstances involving no breach of
this Agreement or (ii) lawfully and in good faith made available to
the Consultant by a third party without restrictions as to disclosure.
2
<PAGE>
(b) Any and all inventions and discoveries, whether or not patentable,
which the Consultant conceives or makes during the term of this
Agreement and any extensions thereof, and which are a direct result of
work performed hereunder, shall be the sole and exclusive property of
the Company. The Consultant shall promptly execute any and all
applications, assignments or other instruments which an officer of the
Company or its Board of Directors shall deem necessary or useful in
order to apply for and obtain Letters Patent in the United States and
all foreign countries for said inventions and discoveries and in order
to assign and convey to the Company the sole and exclusive right,
title and interest in and to said inventions, discoveries, patent
applications and patents thereon. The Company will bear the cost of
preparation of all such patent applications and assignments, and the
cost of prosecution of all such patent applications in the United
States Patent Office and in the patent offices of foreign countries.
4. Conflict of Interest.
---------------------
The Consultant represents that execution of this Agreement and the
performance of the consulting services hereunder does not and will not
breach any other agreement, arrangement, obligation, understanding or
employment relationship with a third party. During the term of this
Agreement, the Consultant agrees not to enter into any consulting or
employment relationship with a third party that directly relates to the
products under development at the Company.
5. Term and Termination.
---------------------
This Agreement shall be effective as of May 28, 1996 and shall expire on
May 29, 1999 (the "Expiration Date") unless extended by mutual agreement in
writing. The Consultant, in his sole discretion, may terminate this
Agreement upon sixty (60) days written notice to the Company. The Company
may not terminate this Agreement before the Expiration Date. Expiration or
termination of this Agreement for consulting services shall have no impact
on the Consultant's rights and obligations as a member of the Board of
Directors of the Company.
6. Governing Law.
---------------
This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
---------------------------
James D. Grant
T CELL SCIENCES, INC.
By:________________________
Una S. Ryan, Ph.D.
President and
Chief Executive Officer
4
Exhibit 10.14
*** Indicates portions subject to a request for confidential treatment and
filed separately with the Commission.
SECOND AMENDED AND RESTATED PRODUCT DEVELOPMENT
AND DISTRIBUTION AGREEMENT
This Second Amended and Restated Product Development and Distribution Agreement
(the "Agreement") is made as of this 1st day of May, 1996,
by and between
ASTRA AB, formerly known as AB ASTRA, a corporation organized under the laws of
Sweden, having its principal office at Vastra Malarehamnen 9, S-151 36
Sodertalje, Sweden ("ASTRA"),
and
T CELL SCIENCES INC., a corporation organized under the laws of the State
of Delaware, U.S.A., having its principal place of business at 119 Fourth
Avenue, Needham, MA 02194-0771 U.S.A. ("TCS").
R E C I T A L S:
This Agreement was originally made as of January 30, 1992, amended by Amendment
No. 1 dated as of June 30, 1992, and amended and restated by the First Amended
and Restated Product Development and Distribution Agreement dated as of December
10, 1993 ("First Amended and Restated Agreement"). The parties intend in this
Agreement to further amend and restate the prior Agreement and to supersede the
prior Agreement, as amended and restated, including the TCAR Division Amendment.
TCS possesses rights to developments and technology, patents, patent
applications and know-how (including without limitation patents, patent
applications and know-how relating to compounds described in Exhibit F hereto)
and certain biological processes, all of which constitute TCAR Technology.
ASTRA and TCS have been and are working jointly and exclusively with one
another, using their respective skilled personnel and facilities for the further
development of TCAR Technology into Products suitable for commercial sale in the
Field of Use.
1(28)
<PAGE>
The parties have been and are cooperating with each other and using their
resources, expertise and capabilities to assist in the discovery and development
of Agents and Products, and they have been and are using their regulatory,
manufacturing and marketing expertise and capabilities in the pharmaceutical
industry to develop, manufacture, market and distribute Products as described
herein.
The parties now desire to restructure the collaboration by transferring with
exception for certain retained rights all rights in TCAR Technology held by TCS
to ASTRA and by ASTRA assuming responsibility for (a) maintaining and expanding
TCAR Technology, (b) developing Agents and Products, and (c) otherwise employing
its regulatory, manufacturing, marketing and sales expertise to develop,
manufacture, market and sell Products, subject to the rights of and obligations
to TCS and to the other conditions set forth herein.
Each party intends to perform its obligations under this Agreement in good
faith, in a commercially reasonable, diligent and workmanlike manner.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and for other consideration, the receipt and adequacy of which is hereby
acknowledged, the parties agree as follows:
1 CERTAIN DEFINITIONS
Certain capitalized terms used herein are defined as follows:
"Affiliate" shall mean, with reference to a particular Person, (i) any Person
owning or controlling, directly or indirectly, fifty-one percent (51%) or more
of the voting capital shares or similar voting rights of such Person; and (ii)
any Person fifty-one percent (51%) or more of the voting capital shares or
similar voting rights of which is owned or controlled, directly or indirectly,
by such Person. For the purpose of this Agreement the term ASTRA shall include
Affiliates of ASTRA and the term TCS shall include Affiliates of TCS.
"Agent" shall mean a TCAR molecule or an antibody, particularly a monoclonal
antibody reacting against a TCAR, as well as any fragment, derivative,
conjugate, analogue, salt or salt complex of either of the foregoing and leading
to inactivation, elimination or reduction of body levels of T cells carrying the
TCAR, such as the proteins conceptually described in the various TCS Patents and
University Patents.
2(28)
<PAGE>
"Effective Date" shall mean May 1, 1996.
"Exclusive" shall mean, when used in connection with a specific grant of a right
hereunder, that the granting party shall have no further right to grant to Third
Parties or Affiliates the same right, and itself retains no such rights in
respect of same, and for the term of the grant, unless such rights are
specifically retained by the grantor.
"Field of Use" shall mean the therapeutic or prophylactic use of Agents and
Products for all indications of use. Field of Use shall not include diagnostic
uses of Agents, Products or TCAR Technology.
"IND" shall mean an Investigational New Drug application, as defined by the
United States Food and Drug Act, or its equivalent under the laws of any other
country.
"Institutes Standby License" shall mean the Stand-by licenses referred to in
Exhibit D.
"NDA" shall mean a New Drug application as defined by the United States Food and
Drug Act, or the equivalent application for approval to market and/or sell
Product under the laws of any other country.
"Net Sales" shall mean the gross amounts (i) invoiced by ASTRA for sales of
Products to any Person unrelated to ASTRA, such as a wholesaler or hospital, and
(ii) invoiced by ASTRA for royalty and lump-sum payments from licensing/sub-
licensing rights under the TCS Patents and/or University Patents to any Person
unrelated to ASTRA, all less the following:
- trade and/or quantity discounts actually allowed and taken
- returns and cash discounts
- retroactive price reductions
- sales and similar taxes
- freight handling, distribution costs separately billed
"Patent Period" shall mean on a country by country basis and with respect to
each Product or Agent the expiration of the last to expire of any issued TCS
Patent and University Patent in the market where the Product or Agent is
intended to be administrated to a patient and where such patent contains a valid
claim covering (i) Product or such Agent per se or (ii) a composition of matter
containing a therapeutically effective amount of such Product or Agent or (iii)
one or more genes or genetic material from which the Product or Agent is
expressed or (iv) the therapeutic use of such Agent or Product, as opposed to
3(28)
<PAGE>
claims merely covering, e.g. production methods or pharmaceutical formulations.
"Person" shall mean any individual, estate, trust, partnership, joint venture,
association, firm, corporation, company or other legal entity.
"Product" shall mean each and any form of an Agent or combinations of Agents or
solely for purposes of Article 8 any other product covered by a valid claim in
the TCS Patents or University Patents anywhere in the Territory for which
material for non-exploratory, non-clinical or clinical documentary studies has
been produced not later than December 31, 2005 and which before or thereafter
has been approved by a regulatory authority of any country for commercial
marketing and sale in that country (including price approval if necessary) for
any indication in the Field of Use.
"Protected Agent" shall mean an Agent covered by a valid claim in the TCS
Patents or University Patents anywhere in the Territory prior to or after the
Effective Date.
"Service Agreement" shall mean the Agreement between the parties exhibited to
this Agreement as Exhibit E.
"TCAR" shall mean a T cell antigen receptor, which is a heterodimeric protein
molecule expressed by human T cells that is capable of recognition both of
antigens and major histocompatility proteins. The gene encoding the T cell
antigen receptor protein is encoded by DNA possessing at least three of the
following four gene segments: Variable, Joining, Diversity and Constant (as such
terms are defined in the Encyclopedia of Human Biology published by Academic
Press U.S.A (copyright 1991)).
"TCAR Technology" shall mean TCS Patents, University Patents and any and all
information, know-how, material or living material including without limitation
biological, pharmacological, preclinical, clinical, chemical, biochemical,
toxicological, formulation, manufacturing and production information and
know-how (in the form of laboratory notebooks, reports or in any other form and
whether or not patentable) developed, acquired or licensed to date by TCS and
relevant to an Agent or Product, or relevant to the manipulation or other use,
production or manufacture of either TCARs, Agents or Products. TCAR Technology
shall include, but not be limited to, all items listed in Exhibits A, B, C, D
and F.
"TCS Licenses" means the licenses referenced on Exhibit D hereto. It is
specifically agreed that the T Cell Antigen Receptor Monoclonal Antibody
License Agreement of February 6, 1990 between Dr. Arthur Boylston and T Cell
4(28)
<PAGE>
Sciences, Inc is not included in the TCS Licenses.
"TCS Patents" shall mean issued patents and patent applications listed in
Exhibit A and future patents resulting from such applications as well as any and
all divisions, continuations, continuations-in-part, extensions including
Supplementary Protection Certificates and reissues of all such patents and
patent applications.
"Term" shall have the meaning set forth in Paragraph 9.1 hereof.
"Territory" shall mean the entire world.
"Third Party" shall mean any Person other than the parties to this Agreement and
their Affiliates.
"University Patents" shall mean issued patents and patent applications listed in
Exhibit B and future patents resulting from such applications as well as any and
all divisions, continuations, continuations-in-part, extensions including
Supplementary Protection Certificates and reissues of all such patents and
patent applications.
2 SCOPE OF THE AGREEMENT
2.1 Product Development Within the Field of Use
-------------------------------------------
ASTRA and TCS desire that ASTRA uses the technology, information
and know-how (a) developed by the parties' cooperative effort,
skilled personnel and facilities as of and prior to the Effective
Date, or (b) contributed by the parties to the collaboration,
including, but not limited to, the TCAR Technology, for the
further development of Agents and Products suitable for commercial
sale in the Field of Use, including, but not limited to:
(a) conducting research and development to identify and select
Agents; and
(b) developing such selected Agents into Products; and
(c) developing Agents and Products for different indications
for use; and
5(28)
<PAGE>
(d) selecting indications for use of Agents and Products
consistent with market potential; and
(e) manufacturing, marketing and selling such Products.
3 TRANSFER OF RIGHTS
3.1 Assignment of Rights - TCAR Technology
--------------------------------------
TCS hereby transfers and assigns to ASTRA all of TCS' right, title
and interest in and to the TCAR Technology subject to Sections 3.5
and 3.6 herein. TCS further agrees to execute and deliver without
delay at its own cost unless herein explicitly otherwise set forth
all instruments and to perform all acts necessary to carry this
transfer and assignment into full effect.
3.2 Delivery of Data and Materials included in TCAR Technology
----------------------------------------------------------
As expeditiously as possible, and in no event later than May 31,
1997, TCS shall deliver to ASTRA the complete existing materials,
documents, reports, SOPs and reports of QA/QC prepared for the
TCAR Project, information and data (whether in written, electronic
or digital form) encompassing, describing or otherwise relating to
TCAR Technology, including but not limited to items in Exhibit C.
Items in Exhibit C that can not be found before May 31, 1997,
shall be transferred to ASTRA free of charge excluding shipping
costs if found at a later date. TCS may retain reserve samples of
items in Exhibit C for use according to the Agreement. If TCS
provides copies of any such materials, documents, information and
data, TCS shall maintain the originals as well as the retained
samples of items in Exhibit C free of charge excluding shipping
costs to ASTRA in secure and proper storage, available to ASTRA
under the Service Agreement as from time to time reasonably
requested by ASTRA. If TCS decides not to maintain the original
documents, information and data or the retained samples TCS shall
offer to transfer them to ASTRA free of charge excluding shipping
costs. TCS shall provide ASTRA as part of the transfer of TCAR
Technology as defined in the First Amended and Restated Agreement
originals or verified and accurate copies of laboratory notebooks
containing information from all work carried out by TCS and copies
of all reports of work carried out for TCS by contract
laboratories or any other Third Party relating to such TCAR
Technology. TCS shall have no obligation to complete or repeat any
experiments or perform any new studies.
6(28)
<PAGE>
Delivery of materials, data, documents and information under this
section 3.2 shall be on a date mutually agreed upon by the
parties. Such materials shall be provided to ASTRA or its
designate representatives free of charge excluding shipping costs.
TCS shall be responsible for packaging, storing and handling these
materials under adequate and appropriate conditions prior to
delivery. ASTRA shall be responsible for all shipping costs and
risk of loss shall pass to ASTRA upon delivery to ASTRA or its
designated carrier F.O.B. TCS's place of business located at 119
Fourth Avenue, Needham, Massachusetts, 02194, U.S.A.
3.3 Summary Reports
---------------
With regard to existing scientific data, results, records and
relevant histories of studies TCS shall, to the extent not already
done, prepare and deliver to ASTRA as expeditiously as possible,
and in no event later than May 31, 1997, summary reports of the
studies, experiments or activities which have generated
information regarding the items listed in Attachment 1 to Exhibit
C. The summary reports will only include information that
currently exists and shall be sufficiently extensive in TCS's
judgement to describe the rationale for these studies, the main
results and conclusions, and references to where the raw data and
other pertinent information can be found.
3.4 Reports prepared by ASTRA
-------------------------
If required, TCS will review ASTRA prepared reports, and will have
them, or assist ASTRA in having them, signed by the appropriate
personnel at TCS if the report is a proper and accurate
representation of work completed by TCS personnel. The costs for
this will be reimbursed by ASTRA in accordance with the Service
Agreement.
3.5 TCS Licenses
------------
a) TCS hereby grants to ASTRA an Exclusive license under the TCAR
Technology and TCS Patents and University Patents subject to the
provisions of any license granted to TCS with respect to any
applicable University Patent to research and develop, make, have
made, use, sell and have sold products in all fields, subject to
Section 3.6.
b) TCS shall at its own cost cooperate with and assist ASTRA in (i)
assigning the TCS Licenses to ASTRA or (ii) instituting the
Institutes Standby Licenses or (iii) granting ASTRA a sub-license,
all as
7(28)
<PAGE>
requested by ASTRA in its sole discretion. If any Person who has
granted a TCS License does not agree and consent to the assignment
of the applicable TCS License to ASTRA, then TCS shall cooperate
with and assist ASTRA in obtaining a direct license corresponding
to the TCS License granted to TCS in the Field of Use. Upon the
effective date of each Institutes Standby License or direct
license secured by ASTRA, TCS' rights under the parallel TCS
License shall cease and terminate except to the extent required
for TCS to exercise its retained rights according to Article 3.6.
Pending the assignment of the TCS Licenses, the Standby Licenses
being instituted or ASTRA securing direct licenses, (i) TCS agrees
not to terminate or surrender any TCS Licenses without ASTRA's
prior consent, and (ii) to the extent permitted under each TCS
License, TCS hereby grants to ASTRA an Exclusive sublicense under
each of the TCS Licenses to research and develop, make, have made,
use, sell and have sold Agents and Products in the Field of Use in
the Territory.
Regardless of the above, ASTRA may at its sole discretion and at
any time terminate any TCS License for any or all parts of the
Territory, subject to any provisions in any TCS License granted to
ASTRA or TCS.
3.6 Retained Rights
---------------
ASTRA hereby grants to TCS for the Term of this Agreement a
royalty-free license, with a right to sublicense, in the TCAR
Technology (to the extent permitted due to limitations in Third
Party licenses granted to ASTRA) to make, have made, use, sell and
have sold products in the field of diagnostic use. The license
shall be Exclusive, save that ASTRA and its sublicensees shall
always have non-exclusive royalty-free rights to use TCAR
Technology to make, have made and use products for diagnostic
purposes in connection with research and development of Agents and
Products in the Field of Use. ASTRA further hereby grants to TCS a
non-exclusive royalty-free license to make, have made and use TCAR
Technology for the research and development of non-TCAR
technologies, agents and products.
3.7 Non-Compete
-----------
TCS agrees that it prior to December 31, 2005, will not compete
with ASTRA in the development of TCAR Technology in the Field of
Use or in the development of Products and Agents, including that
TCS shall not prior to December 31, 2005, conduct any research,
development,
8(28)
<PAGE>
manufacture, use or sales within the Field of Use of TCAR
Technology or of any TCAR molecule, including a TCAR gene or a
TCAR nucleic acid or an antibody, particularly a monoclonal
antibody reacting against a TCAR, or any fragment, derivative,
conjugate, analogue, salt or salt complex of either of the
foregoing.
4 DEVELOPMENT IN GENERAL
4.1 General Standards
-----------------
During the Term hereof and subject to the terms of the Service
Agreement attached as Exhibit E, TCS shall cooperate with ASTRA in
good faith, particularly with respect to unknowns or
contingencies, in order to achieve the objectives of this
Agreement.
The Service Agreement will continue to be valid after the
Effective Date for ten years from the Effective Date.
4.2 ASTRA's Efforts
---------------
ASTRA shall use reasonable diligence in employing its skilled
personnel and facilities for the further development of TCAR
Technology into at least one Product suitable for commercial sale
in the Field of Use and to use reasonable diligence in exploiting
the TCS Patent and University Patents. Upon developing a Product
or Products, ASTRA shall use reasonable diligence to commercialize
and market such Product or Products, subject to ASTRA's reasonable
judgment and discretion in determining appropriate marketing
plans, budgets and strategies. ASTRA's obligations under this
provision are subject to ASTRA's right, in its sole discretion, to
terminate development of any Agent or commercialization and
marketing of any Product, if ASTRA determines that a commercially
exploitable Product may not be developed or marketed, as the case
may be, at reasonable cost and rate of return in light of market
potential and market conditions.
4.3 Annual Reports
--------------
Until December 31, 2005, ASTRA agrees to provide TCS within sixty
(60) days of the close of each calendar year with a summary report
of the status of the development of Agents and Products,
regulatory approval of all Agents and Products.
9(28)
<PAGE>
5 INTELLECTUAL PROPERTY RIGHTS
5.1 Ownership of Intellectual Property Rights
-----------------------------------------
As of the Effective Date, all rights to TCS TCAR Technology shall
be the sole and exclusive property of ASTRA except those rights
explicitly otherwise retained as set forth herein. Other
technology which is proprietary to TCS and was used to enable the
TCAR Technology shall remain TCS property and shall only be used
by ASTRA for TM27 and TP12.
5.2 Filing, Prosecuting and Maintaining Patents
-------------------------------------------
5.2.1 Subject to the provisions of the direct license or Stand-by
License to ASTRA for the University patents, ASTRA shall, from
and after the Effective Date, at its sole cost, prosecute,
maintain and enforce all TCS Patents and University Patents
listed in Exhibits A and B; provided, ---------------- however,
that ASTRA shall not be responsible for reimbursing TCS for
prorated costs incurred or paid by TCS prior to the Effective
Date in connection with prosecuting, maintaining or enforcing the
TCS Patents and University Patents.
Regardless of the above, ASTRA may at its sole discretion and at
any time abandon any TCS patent or University Patent in any or all
parts of the Territory, provided however, that ASTRA shall notify
TCS at least sixty (60) days prior to such abandonment, and ASTRA
shall, in such notice, offer TCS the right to acquire, without
charge, any such TCS Patent or University Patent, subject to the
provisions of any license granted to ASTRA with respect to any
applicable University Patent.
5.2.2 TCS shall not oppose ASTRA prosecuting present and
future patents relating to TCAR and TCAR technology
using patent agents used by TCS in the prosecution of
the TCS Patents and the University Patents.
5.3 Enforcement of Patents
----------------------
5.3.1 The parties shall promptly advise each other upon becoming aware
of:
a) any activities which such party believes may be an
infringement of any TCS Patent, University Patent or other
proprietary right transferred under this Agreement related
to the production, use or
10(28)
<PAGE>
sale of Agents or Products (collectively, "Proprietary
Rights");
b) any attack on or appeal of the grant of any TCS Patent or
University Patent included in the Proprietary Rights;
c) any application made for letters patent by, or the grant of a
patent to, a Third Party in respect of rights which may claim
the same subject matter as or conflict with a TCS Patent or
University Patent included in the Proprietary Rights;
d) any application made for a compulsory license under any TCS
Patent or University Patent included in the Proprietary
Rights.
5.3.2 ASTRA shall have the initial right to take or cause to be taken
whatever legal or other action is required to defend, maintain or
enforce the TCS Patents and University Patents, to revoke or
obtain a declaration of non- infringement under Third Party
rights or to resist a compulsory license (the "Protective
Action"). If ASTRA engages in such Protective Action, TCS shall
cooperate fully with ASTRA in such action at ASTRA's expense. TCS
may be represented by separate counsel of its own selection at
its own expense in such Protective Action, but ASTRA shall have
the right to control such action.
5.3.3 If ASTRA fails to take any such Protective Action within three
months of receipt from TCS of such notice, then (subject to the
rights of Third Parties), TCS may, upon notice to ASTRA,
institute its own Protective Action. In such event, TCS may bring
such action in its name and/or that of ASTRA.
5.3.4 All expenses incurred by either party in connection with any
Protective Action shall be borne by such party. Any recovery
actually received (or, where the rights which are the subject of
the Protective Action have demonstrated utility outside the scope
of this Agreement, that portion of the recovery actually received
which is attributable to the practice of rights within the scope
of this Agreement) as a result of such Protective Action, whether
by judgement, award, decree or settlement, shall be applied:
a) first to repay to each party all of its expenses, fees and
costs (including without limitation all expenses, fees and
costs of expert witnesses, attorneys or other experts, court
costs, internal and external travel and living expenses for
all necessary parties, collectively the "Costs") incurred in
connection with the Protective Action; and
11(28)
<PAGE>
b) second to compensate the party which initiates or defends
the Protective Action, an amount equal to twice its Costs.
c) The balance of the recovery, if any, shall be deemed to
reflect ASTRA's Net Sales in the countries wherein the
Protective Action was successful. There shall be deducted
and paid to TCS from such balance an amount determined by
multiplying the portion of such balance allocable to each
country covered by the Protective Action by the applicable
Royalty Percentage as described in Section 8 payable to TCS
in such country. The remainder of the recovery, after such
payments have been made to TCS, shall be paid to ASTRA.
5.4 Confidentiality
---------------
5.4.1 Non-Disclosure Agreement
------------------------
Each party recognizes that the TCAR Technology and other
information received by it from the other party in the course of
the collaboration constitute highly valuable, proprietary,
confidential information (collectively the "Secret Information").
Each party agrees that during the Term and for five (5) years
thereafter it will keep confidential, and will cause its
Affiliates, officers, employees, consultants and agents to keep
confidential, all Secret Information received from the other party
and disclose it only to those with a need to know. Neither party
shall disclose, or permit any of its Affiliates, officers,
employees, consultants and agents to disclose, Secret Information
received from the other party to any other Person, nor use the
same for any purpose, except as expressly permitted in this
Agreement or in a separate written agreement with the other party
regarding such disclosure or except as reasonably required for
ASTRA research, development, registration, supply and
commercialization of an Agent or Product in accordance herewith
and except that TCS shall have the right to disclose such Secret
Information to its licensee in the diagnostic field to conduct
research and to make, use and sell products for diagnostic
purposes subject to an undertaking of confidentiality by such
licensee in accordance with the undertakings by TCS in this
Agreement.
12(28)
<PAGE>
5.4.2 Information in Public Domain
----------------------------
The restrictions contained in this Article 5.4 shall not apply to
any Secret Information that (i) is, at the time of its disclosure
to the receiving party, generally available to the public or
otherwise part of the public domain, or as evidenced by written
records of such party, is otherwise previously known to the
receiving party, (ii) becomes generally available to the public
or otherwise part of the public domain after its disclosure to
the receiving party, through no act or omission of the receiving
party or any other person owing an obligation of confidentiality
to the receiving party hereto, or (iii) is required to be
disclosed by any court or governmental agency having proper
jurisdiction, provided that the other party is given prior notice
of such disclosure to the extent reasonably practicable.
5.5 TCS non-disclosure of TCAR Technology
-------------------------------------
As of the Effective Date, TCS shall not disclose nor permit any of
its Affiliates, officers, employees, consultants or agents to
disclose to any Third Party any TCAR Technology, except that TCS
shall have the right to disclose TCAR Technology to its
licensee(s) in the diagnostic field to conduct research and to
make, use and sell products for diagnostic purposes provided
however, that such licensee(s) are subject to an agreement not to
use TCAR Technology for purposes other than use in the diagnostic
field and are subject to an agreement not to disclose TCAR
Technology to any Third Party during the Term..
6 FUNDING
As of the Effective Date, ASTRA shall have sole responsibility for
all costs and expenses of any development program with respect to
Agents or Products. TCS shall have no further financial
responsibility with respect to such development programs,
manufacturing, or marketing of Products, except as otherwise
explicitly set forth in this Agreement and ASTRA shall have no
obligation to reimburse TCS for any costs incurred on or before
the Effective Date, nor shall ASTRA have an obligation to
reimburse TCS for any costs on or after the Effective Date except
as provided in the Service Agreement.
6.1 Costs For Acquiring Rights Under Third Party Patents
----------------------------------------------------
As of the Effective Date, ASTRA shall be responsible for and bear
all
13(28)
<PAGE>
costs to Third Parties for acquiring necessary rights under Third
Party patents including royalty and other payments for the
licenses listed in Exhibit D hereto, provided however that ASTRA
shall not be responsible for reimbursing TCS for prorated costs
incurred or paid by TCS prior to the Effective Date.
6.2 Non-Defined Costs
-----------------
All costs incurred by either party not otherwise allocated in this
Agreement or defined or provided for herein, or by separate
agreement between the parties, shall be borne solely by the party
incurring such cost.
6.3 Payment Schedule
----------------
Other than royalties, as provided in Section 8 and payments, if
any, under the Service Agreement, ASTRA shall be responsible to
pay TCS a total of four million ($4.000.000) USD to be paid in
installments upon the occurrence of the following events relating
to Agents and Products developed by or on behalf of ASTRA and in
the following amounts:
<TABLE>
<CAPTION>
Event Amount
----- ------
<S> <C> <C>
6.3.1 Within five business days after the ***
Execution of this Second Amended
and Restated Product Development
and Distribution Agreement
6.3.2 a) Within thirty days after TCS has (i) ***
signed and delivered to ASTRA all
documents appropriate for the change of
registered ownership of the TCS Patents
to ASTRA and (ii) delivered to ASTRA
all materials, documents, information and
data as provided in Paragraphs 3.2 and 3.3
and (iii) January 1, 1997, whichever is later.
b) Within thirty days within the milestone completion ***
in 6.3.2.(a) provided ASTRA is satisfied of such
completion.
6.3.3 Within thirty days after (i) approval of ***
14(28)
<PAGE>
the first IND in any country for the first Protected Agent or
(ii) within thirty days after injection of the first patient
with clinical grade material of the first Protected Agent,
whichever occurs first.
6.3.4 Within thirty days after (i) approval of ***
the first IND in any country for the
second Protected Agent (i.e a Protected Agent other than the first
Protected Agent) or (ii) within thirty days after injection of the
first patient with clinical grade material of the second Protected
Agent, whichever occurs first.
6.3.5 Within thirty days after submission of ***
the first NDA in any country for the
first Protected Agent.
6.3.6 Within thirty days after submission of ***
the first NDA in any country for the
second Protected Agent (i.e a Protected Agent other than the first
Protected Agent).
6.3.7 Within thirty days after approval of ***
the first NDA in any country of the
world for the first Product
6.3.8 Within thirty days after approval of ***
the first NDA in any country of the
world for the second Product (i.e a Product containing a Protected
Agent other than the Protected Agent included in the first
Product)
</TABLE>
7 REGULATORY APPROVAL AND COMMERCIALIZATION OF
PRODUCTS
7.1 Regulatory Approval of Products
-------------------------------
7.1.1 ASTRA shall, at its sole cost, proceed reasonably diligently and
in a commercially reasonable manner to compile, analyze and file
in its own name (or its subdistributor's name) all applications
for regulatory
15(28)
<PAGE>
approval (including all reports and submissions under any
applicable PLA), consistent with any Product's market potential,
as determined in ASTRA's sole discretion, ASTRA shall have
complete control of the management and direction of clinical
trials conducted by it necessary to obtain all regulatory
approvals, including selection of clinical investigators, sites
for trials and the monitoring of such clinical investigations.
7.2 Marketing and Distribution
--------------------------
7.2.1 Subject to special provisions in this Section 7, ASTRA shall
proceed reasonably diligently in a commercially reasonable manner
upon issuance of all necessary regulatory approvals to market
Products consistent with each Product's market potential in such
markets as ASTRA deems appropriate.
7.2.2 ASTRA shall have Exclusive right to use, sell and market all
Agents and Products for all indications in the Territory within
the Field of Use.
7.2.3 In countries where ASTRA has Affiliates for marketing of
pharmaceutical products, ASTRA shall market the Agents and
Products solely through such Affiliates. In other countries, ASTRA
shall market the Products through customary marketing channels.
7.2.4 The obligation on ASTRA under Paragraphs 7.2.1 and 7.2.3 will not
be applicable on sales of Agents and Products containing Agents
invented by Third Parties.
8 SCHEDULE OF ROYALTY PAYMENTS
8.1 Royalties during the Patent Period
----------------------------------
With respect to sales of Product during the Patent Period ASTRA
shall pay TCS a royalty on Net Sales of each Product (on a country
by country and Product by Product basis), based on the following
percentages:
Market Royalty Percentage
------ ------------------
United States and Canada ***
Japan ***
All other Countries ***
16(28)
<PAGE>
ASTRA shall be entitled to a credit against the royalty payments
due to TCS in an amount equal to one-half the royalty payments
paid under any Third Party license, including but not limited to
the licenses listed on Exhibit D; provided, however, that in no
event shall the royalty percentage due to TCS be reduced to less
than 50% of the royalty percentage set forth above.
8.2 Royalties after the Patent Period
---------------------------------
With respect to sales of Products after the Patent Period and for
the remaining Term, ASTRA shall pay TCS a royalty (on a country by
country and Product by Product basis) on Net Sales of each Product
based on the following percentages:
Market Royalty Percentage
------ ------------------
United States and Canada ***
Japan ***
All other Countries ***
ASTRA shall be entitled to a credit against the royalty payments
due to TCS in an amount equal to one-half the royalty payments
paid under any Third Party license, including but not limited to
the licenses listed on Exhibit D; provided, however, that in no
event shall the royalty percentage due to TCS be reduced to less
than 50% of the royalty percentage set forth above.
8.3 Combination Products
--------------------
In the event that a product is sold in a combination dosage form
(e.g., in a single vial) together with a pharmaceutical Product
which is not a Product or in a package or kit comprising separate
dosage forms (e.g., vials) containing other active products, such
as one or more active products manufactured by ASTRA, the royalty
shall be calculated by subtracting from the Net Sales of the
Combination ASTRA's manufacturing cost of the other active
products (including any royalty costs which under the relevant
royalty agreement are based upon net sales by ASTRA of the
Combination) and then multiplying the remainder by the royalty
percentage of the Products set forth in paragraph 8.1 or 8.2, as
applicable, and then multiplying the result by a factor determined
as the ratio of (A/A+B), where A is the documented
17(28)
<PAGE>
development costs of the Product(s) and B is the documented
allocable development costs of all other products included in the
Combination.
8.4 If a pharmaceutical formulation contains several Products covered
by one or more TCS Patents and/or University Patents or if a
pharmaceutical formulation contains only one Product but is
covered by several TCS Patents and/or University Patents, ASTRA
shall pay royalty to TCS only as if such formulation contains one
Product and is covered by one TCS Patent or one University Patent.
8.5 As from and including the calendar month of first sales of Product
in any country of the Territory, ASTRA shall provide TCS with
quarterly accounts containing the Net Sales of the Product in each
country of the Territory within 45 days after the end of each
calender quarter. At the same time, ASTRA shall pay to TCS the
royalty as stipulated above. Payment shall be made in the currency
of United States Dollars (USD) to a bank account designated by
TCS.
8.6 If ASTRA sells the Product in any other currency than USD,
then such payments shall for the purpose of calculating Net Sales
be converted to USD using the rate of exchange prevailing at a
first class foreign exchange bank in Sweden on the last working
day in the calendar quarter in question.
8.7 ASTRA shall keep accurate records of its Net Sales of the
Products. In order to permit verification of Net Sales of the
Product under this Agreement, such records shall be open to
inspection at any reasonable time within two (2) years after the
royalty period to which such records relate, by an independent
certified public accountant selected by and paid by TCS to whom
ASTRA shall have no reasonable objection.
9 TERM, EXPIRATION AND TERMINATION
9.1 Term and expiration
-------------------
This Agreement shall be for a term (the "Term") commencing on the
"Effective Date" and expiring on December 31, 2027 unless sooner
terminated in accordance with any provision of this Agreement.
Upon expiration of the Term, ASTRA's obligation to pay TCS the
royalty on Net Sales of any Product shall expire and the license
granted by TCS to ASTRA in Paragraph 3.5 shall be converted to a
fully paid
18(28)
<PAGE>
up, perpetual, royalty-free, non-exclusive license.
9.2 ASTRA - Voluntary Termination
-----------------------------
ASTRA may at any time, in ASTRA's sole discretion, upon written
notice to TCS, terminate this Agreement, in which event ASTRA
shall offer to transfer to TCS at its own costs the TCAR
Technology and the TCS Licenses (subject to any approval necessary
from any Third Party) and ASTRA shall not be obligated to make any
payments under this Agreement not due and payable to TCS prior to
the date of the written notice.
9.3 Breach of the Agreement
-----------------------
Paragraphs 12 and 17.2 of the First Amended and Restated Product
Development and Distribution Agreement shall be applicable on any
Event of Termination or non-performance as defined in that
Agreement until the transfer of rights as provided in Paragraph 3
has been completed and the payment according to Section 6.3.2 has
been made. After the transfer of rights as provided in Paragraph 3
in this Second Amended and Restated Product Development and
Distribution Agreement has been completed, each party's remedy for
any breach of any obligation or warranty under this Agreement
shall be limited to money damages, to be determined in arbitration
as provided in paragraph 13.2.
9.4 Existing Obligations
--------------------
No termination of this Agreement shall affect any obligation of
any party which arose prior to the effective date of such
termination with respect to monies owed or as to Secret
Information. The right of any party to terminate this Agreement,
as hereinabove provided, shall not be affected in any way by its
waiver of, or failure to, take action with respect to any previous
Event of Termination.
10 REPRESENTATIONS AND WARRANTIES
10.1 General Representations
-----------------------
Each party hereby represents and warrants for itself as follows:
10.1.1 Duly Organized
--------------
19(28)
<PAGE>
It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation,
is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its
business or the ownership of its properties requires such
qualification and has all requisite power and authority,
corporate or otherwise, to conduct its business as now being
conducted, to own, lease and operate its properties and to
execute, deliver and perform this Agreement.
10.1.2 Due Execution
-------------
The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary corporate action and do
not and will not (i) require any consent or approval of its
stockholders, (ii) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to
it or any provision of its charter or by-laws or (iii) result in a
breach of or constitute a default under any material agreement,
mortgage, lease, license, permit or other instrument or obligation
to which it is a party or by which it or its properties may be
bound or affected.
10.1.3 No Government Approval
----------------------
No authorization, consent, approval, license, exemption of, or
filing or registration with, any court or governmental authority
or regulatory body is required for the due execution, delivery or
performance by it of this Agreement, except as provided herein.
10.1.4 Binding Agreement
-----------------
This Agreement is a legal, valid and binding obligation of such
party, enforceable against it in accordance with its terms and
conditions. It is not under any obligation to any Person,
contractual or otherwise, that is conflicting or inconsistent in
any respect with the terms of this Agreement or that would impede
the diligent and complete fulfilment of its obligations hereunder.
10.1.5 Governmental Status
-------------------
It is not debarred or suspended from receiving contracts from the
U.S. or Swedish government or other governmental authority or
agency.
20(28)
<PAGE>
10.1.6 Full Disclosure
---------------
Each party has disclosed to the other in good faith any and all
material information relevant to the subject matter of this
Agreement and to such party's ability to observe and perform its
obligations hereunder.
10.2 TCS warrants that the T Cell Antigen Receptor Monoclonal Antibody
License Agreement of February 6, 1990 between Dr. Arthur Boylston
and T Cell Sciences, Inc does not cover ATM-027/TM27 and that
therefore Boylston will not be entitled to any royalty on Net
Sales of Product containing this Agent.
11 EXPORT CONTROL
11.1 Technical Data and Commodities
------------------------------
The parties hereby agree that any "Technical Data" (as that term
is defined in section 779.1 of the U.S. Export Administration
Regulations) exported from the United States pursuant to this
Agreement and any other related agreements, and any direct product
thereof, shall not be shipped, either directly or indirectly, to
the People's Republic of China or Afghanistan or any Group Q, S,
W, Y or Z countries (as specified in Supplement No. 1 to part 770
of the Export Administration Regulations), unless (i) separate
specific authorization to re-export such Technical Data or such
direct products is provided by the U.S. Office of Export
Administration or (ii) such specific authorization is not required
pursuant to Section 779.8 of the U.S. Export Administration
Regulations. The parties further agree that the export and
re-export of commodities pursuant to this Agreement and any other
related agreements shall be subject to the licensing requirements
of the U.S.
Export Regulations.
11.2 Laws of Other Countries
-----------------------
In the event that a specific authorization of, or a validated
license from, a government other than that of the exporting party
is required, the party within the jurisdiction of such other
government shall, upon the request of the party proposing to make
the export, use reasonable efforts to obtain as expeditiously as
practicable, the requisite authorization or license.
21(28)
<PAGE>
12 INDEMNIFICATION
12.1 Indemnification
---------------
For purposes of this Section 12 "Indemnified Parties" refers to
TCS, its Affiliates and the officers, directors, employees, agents
and grantors under Third Party licenses of TCS and its Affiliates
when ASTRA is the indemnitor, and "Indemnified Parties" refers to
ASTRA its Affiliates and the officers, directors, employees,
agents and grantors under Third Party licenses of ASTRA and its
Affiliates when TCS is the indemnitor.
12.1.1 TCS, as indemnitor on behalf of itself and its officers,
directors, employees, agents and representatives (including all
contractors for which TCS is responsible undertaking work in any
Program) shall indemnify and hold harmless the ASTRA Indemnified
Parties and each of them from any and all liability arising out of
any suit, action, legal proceeding, claim or demand of whatever
kind or character based upon
(a) a claim or occurrence arising from any acts, whether of
omission or commission, by said officers, directors,
employees, agents or representatives prior to the Effective
Date; or
(b) any breach of any representation, warranty or agreement made
by TCS hereunder; or
(c) the failure by TCS in performing its obligations under this
Agreement.
12.1.2 ASTRA, as indemnitor on behalf of itself and its officers,
directors, employees, agents and representatives (including all
contractors for which ASTRA is responsible undertaking work in any
Program) shall indemnify and hold harmless the TCS Indemnified
Parties and each of them from any and all liability arising out of
any suit, action, legal proceeding, claim or demand of whatever
kind or character based upon
(a) a claim or occurrence arising from any acts, whether of
omission or commission, by said officers, directors,
employees, agents or representatives in connection with the
obligations undertaken by ASTRA or in connection with the
manufacture, use or sale of any Agent or Product prior to or
after the Effective Date by ASTRA; or
(b) any breach of any representation, warranty or agreement made
by
22(28)
<PAGE>
ASTRA hereunder; or
(C) the failure by ASTRA in performing its obligations under this
Agreement.
12.1.3 Anything to the contrary in this Paragraph 12 notwithstanding,
neither party shall be obligated to indemnify an Indemnified Party
for such Indemnified Party's own acts of negligence or wilful
misconduct or for any violation of any warranty, representation or
agreement made by such Indemnified Party hereunder.
12.2 Scope of Indemnification
------------------------
12.2.1 The agreement to indemnify and hold harmless from liability set
forth herein shall include, without limitation, all damages of
every kind, reasonable attorney fees, all costs and expenses which
may be levied against and out of pocket costs incurred by the
Indemnified Parties in connection with any suit, action, legal
proceeding, claim or demand.
12.2.2 Each party acknowledges and hereby agrees that the obligations set
forth in this Paragraph 12 shall survive the termination or
expiration of this Agreement until the expiration of any
applicable statute of limitations.
12.2.3 The Indemnified Parties will cooperate with the indemnitor at the
indemnitor's expense in the defence of any suit. Neither party
shall be liable for any costs resulting from any settlement made
without its consent.
13 MISCELLANEOUS
13.1 Notices
-------
All notices or other written communications hereunder shall be
given in English and sent via certified mail, return receipt
requested, or commercial courier or shall be given by facsimile
transmission, confirmed by letter sent as provided above, or by
personal delivery, addressed as follows, or to such other address
as may be designated from time to time by notice given in the
manner provided in this Paragraph 13.1.
23(28)
<PAGE>
If to ASTRA:
To ASTRA at its address as set forth at the beginning of this
Agreement
Attention: Legal Affairs
Fax No,: 011-46-8-553-28812
If to TCS:
To TCS at its address as set forth at the beginning of this
Agreement
Attention: President
Fax No.: 01-01-617-433-0262
Notices given personally shall be deemed delivered as of the date
delivered. All other notices shall be deemed delivered as of the
date of receipt for the notice by a messenger service, or on the
date of the first attempted delivery of the mailed notice, as
shown on the postal service return receipt, or by facsimile
transmission which produces a dated message of completed
confirmation. Notwithstanding any other provision of this
Paragraph 13 to the contrary, any notice shall be effective from
and after the date actually received by an addressee, however
addressed or delivered.
13.2 Governing Law; Arbitration
--------------------------
This Agreement is made and delivered in Boston, Massachusetts, USA
and shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements made
and to be performed entirely within the Commonwealth of
Massachusetts. In the event of any dispute under this Agreement,
whether as to validity, construction, enforceability or
performance of this Agreement or any of its provisions or
otherwise, both parties shall endeavour to settle such dispute
amicably between themselves. In the event that the parties fail to
agree, such dispute shall be settled by arbitration as follows.
Either party may by notice in writing to the other require any
issue in dispute to be submitted to arbitration in accordance with
this Paragraph 13.2. Such notice shall contain a statement of the
arbitrable issue forming the basis of the dispute and the position
of the moving party as to the proper resolution of that issue.
Within 30 days after receipt of such notice, the responding party
shall submit to the moving party a statement of its conception of
the arbitrable issue in question and of its position as to the
proper resolution of that issue. Within 45 days of the responding
party's response, each party shall appoint an arbitrator and give
the other party written notice thereof. In the event a party shall
fail to appoint an arbitrator and provide written notice thereof
to the other party within such 45 day period, an arbitrator shall
be appointed for such party by the American Arbitration
24(28)
<PAGE>
Association as promptly as practicable after request by the other
party. Thereafter, the two appointed arbitrators shall select a
third arbitrator within 30 days after receipt of a list of
arbitrators proposed by the American Arbitration Association. If
the two arbitrators designated by the parties are unable to agree
on the third arbitrator within 30 days, then either party with
notice to the other party, may call for such appointment by the
American Arbitration Association of the third arbitrator. Each
arbitrator shall agree prior to his or her appointment to hear the
dispute promptly and render a decision as soon as practicable
thereafter. Said arbitration shall be conducted in English in
Boston, Massachusetts, in accordance with the commercial
arbitration rules or successor rules then obtaining of the
American Arbitration Association to the extent not inconsistent
with this Paragraph 13.2. The agreement of 2 of the 3 arbitrators
shall be sufficient to render a decision. The decision of the
panel shall be final and binding upon the parties and enforcement
thereof may be obtained in any court of competent jurisdiction.
The unsuccessful party to such arbitration shall pay to the
successful party all costs and expenses, including reasonable
attorney's fees incurred therein by such successful party.
13.3 Binding Effect
--------------
This Agreement, and the rights and duties of the parties herein
contained, shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective legal representatives,
successors and permitted assigns.
13.4 Entire Agreement
----------------
This Agreement sets forth the entire agreement and understanding
of the parties with respect to the matters covered herein and as
of the Effective Date supersedes all prior agreements,
arrangements and understandings between them with respect to said
matters, including the First Amended and Restated Product
Development and Distribution Agreement dated as of December 10,
1993 and the TCAR Division Amendment and all rights and
obligations of either party therein.
13.5 Counterparts
------------
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
25(28)
<PAGE>
13.6 Headings
--------
Headings are inserted herein for convenience of reference only and
do not form a part of this Agreement, and shall be given no effect
or meaning in the construction or interpretation of this
Agreement.
13.7 Amendment; Waiver
-----------------
This Agreement may be amended, modified, superseded or cancelled,
and any of the terms hereof may be waived, only by a written
instrument executed by each party hereto or, in the case of
waiver, by the party or parties waiving compliance. The delay or
failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the rights of
such party at a later time to require any performance. No waiver
by any party of any condition or of the breach of any term
contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or the breach of
any other term of this Agreement.
13.8 No Third Party Beneficiaries
----------------------------
Except as otherwise specifically set forth in Paragraph 12
(Indemnification) hereof, no Person not a party to this Agreement,
including any employee of any party to this Agreement, shall have
or acquire any rights by reason of this Agreement, nor shall any
party hereto have any obligations or liabilities to such other
Person by reason of this Agreement. Nothing contained in this
Agreement shall be deemed to constitute the parties partners with
each other or any Person.
13.9 No Joint Venture
----------------
The relationship of the parties hereto is that of independent
contractors. Nothing in this Agreement shall be construed to
constitute, create, give effect or otherwise imply a joint
venture, agency, partnership or other formal business organization
or any employer/employee relationship of any kind between the
parties.
13.10 Force Majeure
-------------
If either party shall be delayed, interrupted in or prevented from
the performance of any obligation hereunder (other than the
payment of money due) by reason of the occurrence of an event
beyond the control
26(28)
<PAGE>
of such party including fire, flood, other nature disasters, war
(declared or undeclared), public disaster, strike or labour
differences, governmental enactment, rule or regulation, or any
other cause beyond such party's control, such party shall not be
liable to the other therefor; and the time for performance of such
obligation shall be extended for a period equal to the duration of
the contingency which occasioned the delay, interruption or
prevention. The party invoking such Force Majeure rights of this
Paragraph 13.10 must notify the other party within a period of
fifteen (15) days following the first and the last day of the
Force Majeure unless the Force Majeure renders such notification
impossible, in which case notification will be made as soon as
possible.
13.11 English Language
----------------
This Agreement has been executed in the English language, the
official language of the Agreement shall be English, and any
interpretation or construction of this Agreement shall be based
solely on the English language official text. All notices,
documents and information to be delivered in connection with or
pursuant to the Agreement shall be in English.
13.12 Publicity
---------
The parties will agree with each other in advance of the public
release of information with respect to the transactions
contemplated herein, except that either party may release
information to the public regarding such transactions to allow
such party to meet its legal obligations.
13.13 Exhibits
--------
All exhibits attached hereto are made a part of this Agreement and
the terms thereof are incorporated into this Agreement by
reference.
13.14 Drafts
------
This Agreement shall not be binding or effective until properly
executed and delivered by both TCS and ASTRA.
13.15 Interest
--------
Interest shall accrue on any delinquent amounts owed by ASTRA
hereunder at ten percent (10%) per annum.
27(28)
<PAGE>
13.16 No Assignment
-------------
This Agreement shall not be assignable without the prior written
approval of the other party except that (i) either TCS or ASTRA
may assign this Agreement to an Affiliate and (ii) TCS may assign
this Agreement to an assignee of all of its good will, business
and assets; provided however, that in case of any assignment
permitted by this Paragraph 13.16 and notwithstanding any such
assignment, the assigning party shall remain fully liable for all
of its obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be amended
and restated by their duly authorized representatives as of the 1st day of May,
1996.
ASTRA AB
(publ)
By:
----------------------------
Hakan Mogren, President and
Chief Executive Officer
hereunto duly authorized
T CELL SCIENCES, INC.
By:
---------------------------
Una S Ryan, President and
Chief Executive Officer
hereunto duly authorized
28(28)
Exhibit 23.0
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8, as amended, (Nos. 33-43840, 33-54372, 33-80036 and
33-80048) and on Form S-3 (Nos. 33-72172, 33-69950, 33-64021 and 333-08607) of
T Cell Sciences, Inc. of our report dated February 18, 1997 appearing in this
Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements of T Cell Sciences, Inc. for the Year ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 12,591,770
<SECURITIES> 0
<RECEIVABLES> 19,541
<ALLOWANCES> 0
<INVENTORY> 23,947
<CURRENT-ASSETS> 13,277,381
<PP&E> 3,026,009
<DEPRECIATION> (2,514,369)
<TOTAL-ASSETS> 17,223,685
<CURRENT-LIABILITIES> 1,604,458
<BONDS> 0
0
0
<COMMON> 24,966
<OTHER-SE> 15,594,261
<TOTAL-LIABILITY-AND-EQUITY> 15,619,227
<SALES> 591,246
<TOTAL-REVENUES> 1,114,500
<CGS> 358,644
<TOTAL-COSTS> 12,867,762
<OTHER-EXPENSES> (282,980)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (680,198)
<INCOME-PRETAX> (10,790,084)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,790,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,790,084)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
