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
For the fiscal year ended December 31, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
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: (781) 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. [ ]
The aggregate market value of common stock held by non-affiliates as of March 2,
1998 was $48,115,239 (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 2, 1998 was: 26,478,864 shares.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1998, are incorporated by reference into Part
III of this Form 10-K.
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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 registrant. These
factors include, but are not limited to: (i) the registrant's ability to
successfully complete product research and development, including pre-clinical
and clinical studies, and commercialization; (ii) the registrant's ability to
obtain substantial additional funding; (iii) the registrant's ability to obtain
required governmental approvals; (iv) the registrant's ability to attract
manufacturing, sales, distribution and marketing partners and other strategic
alliances; and (v) the registrant's ability to develop and commercialize its
products before its competitors.
PART I
Item 1. BUSINESS
A. General
T Cell Sciences, Inc. (the "Company," "T Cell" or "TCS") is a biopharmaceutical
company creating value by using novel applications of immunology to prevent and
treat cardiovascular, pulmonary and immune disorders. 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 product development efforts are
focused on three therapeutic programs. The most advanced program, which includes
clinical trials with T Cell Sciences' lead product TP10, focuses on compounds
that inhibit the inappropriate activation of the complement cascade in a variety
of acute and chronic diseases. Second, the Company is engaged in the discovery
and development of T cell activation regulators for the prevention of transplant
rejection and treatment of autoimmune disorders. The Company's third program
focuses on the development of a therapeutic vaccine for the management of
atherosclerosis, one of the leading causes of death worldwide.
In 1996, the Company realigned certain of its operations to focus on these three
ongoing therapeutic drug discovery programs. 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 for
monitoring T cell levels in HIV-infected individuals.
During the past year, T Cell received three grants totaling $874,000 in support
of the development of its cholesterol-lowering cholesteryl ester transfer
protein ("CETP") vaccine for the prevention and treatment of atherosclerosis.
(See Section B: "Therapeutic Drug Discovery Programs" Item 3. "CETP Vaccine").
In February 1997, 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 novel plasmid-based vaccine to prevent or treat
atherosclerosis. In September 1997, the Company was awarded a $678,000 Phase II
SBIR grant which provides funding over a two year period for the development of
a novel transgenic rat model of atherosclerosis. In January 1998, T Cell
received a $96,000 Phase I grant for the development of a novel peptide vaccine
to prevent or treat atherosclerosis. In preclinical studies, rabbits treated
with the vaccine showed an improvement in the balance of cholesterol between HDL
(high-density lipoprotein, or "good" cholesterol) and LDL (low-density
lipoprotein, or "bad" cholesterol). When fed a high fat diet, vaccinated rabbits
exhibited reduced atherosclerotic lesions in their blood vessels compared with
untreated rabbits.
In June 1997, the Company received a milestone payment from its corporate
partner, Astra AB ("Astra"), as one of the products derived from the Company's T
cell antigen receptor ("TCAR") program entered clinical trials for the treatment
of multiple sclerosis (see Section B: "Therapeutic Drug Discovery Programs" Item
4. "T Cell Antigen Receptor"). The product, ATM027, a humanized monoclonal
antibody, represents the Company's second drug candidate to enter human testing.
In February 1998, the Company announced progress from the Phase I clinical
trial. Astra, which is conducting the development of ATM027, announced that
Phase I data has shown an effect on the target cells and there have been no
serious adverse effects in the study to date. Astra also announced that it is
scheduling Phase II studies to begin later in 1998.
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In October 1997, the Company presented positive preliminary results from the
efficacy portion of its Phase I/II clinical trial of its lead therapeutic
compound, TP10 (see Section B: "Therapeutic Drug Discovery Programs" Item 1.
"Complement Inhibition"). The trial was aimed at evaluating the ability of TP10
to reduce reperfusion injury and improve lung function in patients with
end-stage pulmonary disease who had undergone lung transplant surgery. The
preliminary results showed that fewer patients receiving TP10 required
ventilation 24 hours after surgery compared to control patients. Treated
patients undergoing cardiopulmonary by-pass as part of the transplantation
procedure showed significantly decreased intubation time and time on ventilation
and a trend toward reduced time in the intensive care unit. Final trial results,
including an analysis of the six-month safety review which concluded in November
1997, are scheduled for presentation in April 1998 at the International Society
of Heart and Lung Transplantation conference.
Also in October 1997, T Cell announced that it had entered into an option
agreement with Novartis Pharma AG relating to the development of TP10 for use in
xenotransplantation (animal organs into humans) and allotransplantation (human
to human). The option agreement provides for annual option fees and supplies of
TP10 for clinical trials, the combination of which are valued at up to
$5,000,000, in return for granting a two-year option to license TP10 with
exclusive worldwide marketing rights (except Japan) in xenotransplantation and
allotransplantation. Should Novartis exercise its option to license TP10 and
continue development, it will provide an equity investment, licensing fees and
milestone payments based upon attainment of certain development and regulatory
goals. The combined option agreement and license is valued at up to $25,000,000.
Additionally, T Cell may receive funding for research as well as royalty
payments on any eventual product sales.
In October 1997, T Cell announced a collaboration 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 strategic alliance with Repligen, Inc. will provide
access to Repligen's proprietary, combinatorial chemical library.
In November 1997, T Cell announced that it had reached a settlement of its
outstanding litigation with Forest City, its former landlord at 38 Sidney Street
in Cambridge, Massachusetts and PNC Bank, N.A., the landlord's mortgagee. T Cell
agreed to pay a total of $2,358,800 in cash with $858,800 payable on November
17, 1997 and additional payments of $750,000 each on November 16, 1998 and
November 15, 1999. In addition, T Cell agreed to issue a total of 1,500,000
shares of its common stock to Forest City and to exchange mutual releases. The
settlement, valued at $6,108,800, has been recorded as non-operating expense.
In December 1997, the Company completed its Phase IIa trial evaluating the use
of the Company's lead complement inhibitor, TP10, in patients with adult
respiratory distress syndrome ("ARDS"). The Phase IIa trial was an open-label,
single-dose trial conducted at three clinical sites. The trial enrolled nine
patients with ARDS arising from a number of different medical conditions. The
trial was designed to determine the effect of TP10 on respiratory performance in
patients with ARDS and to study the ability of TP10 to improve the clinical
outcome of patients with established ARDS. The trial results showed that
patients receiving TP10 tended towards improved respiratory performance and
improved blood oxygenation. Because the trial included few patients and no
placebo control was used, no definitive claims about efficacy could be made.
During 1997, T Cell's board of directors experienced significant change as James
D. Grant, Chairman since 1986, retired along with Directors, John P. Munson and
John Simon. The Company announced the election of several new board members
during 1997 including Harry H. Penner, Jr., President and CEO of Neurogen
Corporation (January 1997), Ronald M. Urvater, Managing Partner, Aurora Capital
Corporation (June 1997) and William J. Ryan, Senior Vice President, Arquest,
Inc. and former Chairman and CEO of CytoRad, Inc. (August 1997).
In March 1998, the Company completed a financing, raising net proceeds of
approximately $3,708,000 through a private placement of approximately 2,043,000
shares of common stock. The Company has agreed to register these shares for
resale under the Securities Act of 1933, as amended.
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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 certain chronic inflammatory
conditions. When complement is activated, it helps to identify and eliminate
infectious pathogens and 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, cardiovascular 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 reperfusion injury from surgery
or ischemic disease, organ transplant, multiple sclerosis, Alzheimer's disease,
rheumatoid arthritis, myasthenia gravis and ARDS. 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, T Cell 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, which 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, had a terminal phase half-life of
at least 72 hours and was able to inhibit complement activity in a
dose-dependent manner.
Based on these favorable results, in January 1996, TCS initiated a Phase IIa
trial in patients with established ARDS. This trial was an open-label,
single-dose feasibility trial to determine the potential for efficacy of TP10 in
reducing neutrophil accumulation in the lungs 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. In December 1997, the Company completed
this Phase IIa trial after it had enrolled nine patients with ARDS arising from
a number of different medical conditions. The trial results showed that patients
receiving TP10 tended towards improved respiratory performance and improved
blood oxygenation. Because the trial included few patients and no placebo
control was used, no definitive claims about efficacy could be made.
The Company also began enrollment in a Phase I/II clinical trial in patients
undergoing lung transplantation, in August 1996. A goal of the trial was to
determine the ability of TP10 to reduce reperfusion injury and improve lung
function in patients with end-stage pulmonary disease who were undergoing lung
transplant surgery. This study was 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 was conducted at multiple
centers in North America and included a total of 60 patients. In May 1997, the
Company announced the completion of patient accrual and in October 1997, the
Company presented positive preliminary results from the efficacy portion of the
trial. The preliminary results showed that fewer patients receiving TP10
required ventilation 24 hours after surgery compared to control patients.
Treated patients undergoing cardiopulmonary by-pass as part of the
transplantation procedure showed significantly decreased intubation time and
time on ventilation and a trend toward reduced time in the intensive care unit.
Final trial results, including an analysis of the six month safety review which
concluded in
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December 1997, are scheduled for presentation in April 1998 at the
International Society of Heart and Lung Transplantation conference.
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 form of sCR1 (TP10) which has been modified to add sLe(x)
carbohydrate structures. sLe(x) is a carbohydrate structure which mediates
binding of neutrophils to selectin proteins, which appear on the surface of
activated endothelial cells as an early 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. During
1997, the Company produced additional sCR1sLe(x) material and began preclinical
studies in disease-relevant animal models. In November 1997, the Company
received a notice of allowance of claims from the U.S. Patent and Trademark
Office for a patent covering sCR1sLe(x).
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 sCR1sLe(x) has the ability to target the
complement-inhibiting activity of sCR1 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 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. 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 OSI Pharmaceuticals, Inc.) which enables T
Cell to screen that company's natural products libraries. In December 1997, the
Company completed its initial screening program with OSI Pharmaceuticals, Inc.
and agreed to study a series of lead compounds for further development. In
October 1997, the Company entered into a strategic alliance with Repligen, Inc.,
which provides access to Repligen's proprietary, combinatorial chemical library.
Under each of these agreements, T Cell and its partners will share rights to
compounds identified using T Cell's screens. As of March 1998, the Company has
identified a number of immunostimulator and immunosuppressor hits from its
screening activities. Further research directed to pinpointing the mechanisms of
activity, optimizing potency, and testing in animals 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
cholesterol and reduce the progression of atherosclerosis. The Company has
conducted preliminary studies of rabbits which had been administered the CETP
vaccine and fed a high-cholesterol, high-fat
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diet. In these studies, vaccine-treated rabbits exhibited reduced lesions in
their blood vessels compared to a control group of untreated rabbits which
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 and reduce the development of blood vessel
lesions.
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 requiring less frequent dosing, lower costs, reduced side
effects, and improved patient compliance.
In September 1996, the NIH awarded the Company a $100,000, Phase I SBIR grant
for the development of a novel transgenic rat atherosclerosis model, affording
better comparison to human atherosclerosis. In February 1997, the NIH awarded T
Cell a second $100,000 Phase I SBIR grant to develop a novel plasmid-based
vaccine to prevent or treat atherosclerosis. In September 1997, the Company was
awarded a $678,000 Phase II SBIR grant from the NIH which provides funding over
a two year period for the continued development of the novel transgenic rat
model of atherosclerosis. In January 1998, T Cell received a $96,000 Phase I
SBIR grant from the NIH for the development of a novel peptide vaccine to
prevent or treat atherosclerosis.
4. T Cell Antigen Receptor (TCAR)
In early 1992, TCS entered into a joint development program with Astra AB
("Astra") 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 December 1996, the Company amended its agreement with Astra to transfer
certain of its rights to the TCAR technology, including two therapeutic
products, ATM027-monoclonal and ATP012-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
milestone payments which may total up to $4 million as certain clinical
milestones are achieved.
In June 1997, the Company announced that it received a milestone payment from
Astra as one of the products derived from the Company's TCAR program entered
clinical trials for the treatment of multiple sclerosis. In February 1998, Astra
announced that Phase I data has shown an effect on the target cells and that
there have been no serious adverse effects in the study to date. Astra also
announced that it is scheduling Phase II studies to begin later in 1998. This
represents the Company's second therapeutic product to enter human testing.
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
approximately $1.0 million used to repay obligations under the Company's
operating lease. 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.
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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 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 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 November 1997, the Company received a notice of allowance of
claims from the U.S. Patent and Trademark Office for a patent application
covering sCR1sLe(x).
In April 1996, the Company announced that it had licensed portions of its patent
and technology rights regarding CR1 to CytoTherapeutics, Inc. for use in
protecting CytoTherapeutics' proprietary cell-based products for the delivery of
therapeutic substances to the central nervous system.
In December 1996, the Company amended its agreement with Astra to transfer
certain of its patent rights and licenses to the TCAR technology to Astra. 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 patents relating to
TRAx CD4 and CD8 and other applications of the TRAx product technologies. The
first U.S. patent covering the TRAx CD4 and CD8 products issued on June 11,
1996. In February 1998, the Company received a notice of allowance of claims for
the U.S. Patent and Trademark Office for a patent application covering the
TRAx(R) Test Kit.
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.
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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.
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 the
FDA's Good Manufacturing Practices regulations.
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
period 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.
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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 2, 1998, the Company employed 36 full time persons, 13 of whom have
doctoral degrees. Of these employees, 26 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 following 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.
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Item 2. PROPERTIES
The Company leases approximately 54,000 square feet of laboratory and office
space in Needham, Massachusetts, of which it subleases approximately 13,000
square feet of excess laboratory and office space to a tenant. The lease has an
initial term of six years which expires in April 2002. Under the lease
agreement, the Company is obligated to pay a base annual rent of $676,400 until
June 1997 and $756,400 until the end of the initial term. The sublease has an
initial term of four years which expires in April 2000. Under the sublease
agreement, the Company will receive base annual subrental income of $110,500
until June 1997 and $133,600 until the end of the initial term. Aggregate net
base rental payments for the years end December 31, 1997 and 1996 for this
facility were $594,400 and $598,500, respectively.
Item 3. LEGAL PROCEEDINGS
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 filed counterclaims, alleging the Company 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. In a separate
lawsuit, the landlord's mortgagee 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. In August 1997, the Superior Court of
Massachusetts entered findings of fact and conclusions of law on the limited
trial of the Company's lawsuit against the landlord. In its findings, the Court
concluded that the Company had not proved, as alleged by the Company, that any
fireproofing fibers contaminated the Company's space, the Company's space was
not uninhabitable because of contamination from fireproofing fibers and the
Company was not justified in terminating its lease on the grounds that its
office and laboratories were uninhabitable. In November 1997, the Company
reached a settlement of the litigation with its former landlord and the
landlord's mortgagee. The Company agreed to pay $858,800 in cash on November 17,
1997 and issue a total of 1,500,000 shares of its common stock. In addition, the
Company signed a note for $750,000 payable on November 16, 1998 secured by
$750,000 cash collateral and a note for $750,000 due November 15, 1999 secured
by 132,500 shares of its common stock. The total settlement, valued at
$6,108,800, is comprised of the cash and notes totaling $2,358,800 and common
stock valued at $3,750,000 as of October 31, 1997 and is included in
non-operating expense for the year ended December 31, 1997. The common stock to
be issued is subject to restrictions on transfer per the settlement agreement.
The settlement agreement also provides for certain registration rights for the
shares of common stock to become effective no later than September 30, 1998.
Upon such registration, however, the settlement agreement limits the number of
shares that may be sold over a given period of time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
-10-
<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 for the periods indicated 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, 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
Year Ended December 31, 1997
1Q (Jan. 1 - March 31, 1997) $2.38 $1.47
2Q (April 1 - June 30, 1997) 2.09 1.28
3Q (July 1 - Sep. 30, 1997) 2.34 1.38
4Q (Oct. 1 - Dec. 31, 1997) 3.16 1.75
As of March 2, 1998, there were approximately 665 shareholders of record of the
Company's common stock. The price of the common stock was $1.91 as of the close
of the market on March 2, 1998. 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.
-11-
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 have been derived from the audited
consolidated financial statements of the Company. All amounts are in thousands
except per share data.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Product Sales, Product Development
and Distribution Agreements $ 1,192 $ 1,115 $ 3,963 $ 6,968 $ 9,018
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 5,257 6,036 8,005 8,697 9,438
Other Operating Expense 3,494 6,832 7,821 9,365 8,841
- -------------------------------------------------------------------------------------------------------------------------
Total Operating Expense 8,751 12,868 15,826 18,062 18,279
- -------------------------------------------------------------------------------------------------------------------------
Non-Operating Income (Expense), Net (5,549) 963 3,605 (490) 1,193
- -------------------------------------------------------------------------------------------------------------------------
Net Loss Before Minority Interest (13,108) (10,790) (8,258) (11,584) (8,068)
Minority Interest Share of Loss -- -- -- -- 310
- -------------------------------------------------------------------------------------------------------------------------
Net Loss $(13,108) $(10,790) $ (8,258) $(11,584) $ (7,758)
- -------------------------------------------------------------------------------------------------------------------------
Basic and Diluted Net Loss Per
Common Share $ (0.52) $ (0.50) $ (0.47) $ (0.68) $ (0.56)
- -------------------------------------------------------------------------------------------------------------------------
Weighted Average Common
Shares Outstanding 25,140 21,693 17,482 17,053 13,931
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE
SHEET DATA December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
Working Capital $ 4,629 $ 11,673 $ 11,208 $ 15,027 $ 26,088
Total Assets 9,827 17,224 18,532 20,685 33,067
Other Long Term Obligations 750 -- 182 500 500
Accumulated Deficit (70,237) (57,129) (46,339) (38,081) (26,497)
Total Stockholders' Equity 6,316 15,619 16,000 17,586 29,134
</TABLE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48, which expands the disclosure requirements for certain
derivatives and other financial instruments. The Company does not utilize
derivative financial instruments. See Notes 1 and 2 to the Consolidated
Financials Statements for a description of the Company's use of other financial
instruments.
-12-
<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, and sales of
test kits and antibodies. 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's technology platforms are based on its understanding of the ways in
which the body triggers its natural defense mechanisms. Product development
efforts focus on three therapeutic programs: developing compounds that inhibit
inappropriate complement activation, which is part of the body's immune defense
system; discovery and development of T cell activation regulators for the
prevention of transplant rejection and treatment of autoimmune diseases; and
development of a therapeutic vaccine for the management of atherosclerosis.
The Company's most advanced program is focused on complement inhibition and
includes clinical trials with its lead therapeutic compound, TP10. In October
1997, the Company released preliminary positive results demonstrating clinical
efficacy from its Phase I/II clinical trial for TP10 in patients undergoing lung
transplantation. Final trial results, including an analysis of the six-month
safety review which concluded in November 1997, are scheduled for presentation
in April 1998. In December 1997, the Company completed its Phase IIa clinical
trial for TP10 in patients with adult respiratory distress syndrome ("ARDS").
While trial results showed that patients receiving TP10 tended towards
improvement in respiratory performance and blood oxygenation, no definitive
claims of efficacy could be made due to the size and structure of the clinical
trial.
In addition to advancement of its lead program in the clinic, the Company
entered into an agreement with Novartis Pharma AG, Basel, Switzerland
("Novartis") in October 1997, relating to the development of TP10 for use in
xenotransplantation (animal organs into humans) and allotransplantation (human
to human). In exchange for granting Novartis a two-year option to license TP10
with exclusive worldwide marketing rights (except Japan) in the fields of
xenotransplantation and allotransplantation, the Company will receive annual
option fees and supplies of TP10 for clinical trials. If Novartis exercises its
option to license TP10, it will provide licensing fees, an equity investment and
milestone payments. The Company may also receive funding for research as well as
royalty payments on eventual product sales.
-13-
<PAGE>
During 1997, the Company was awarded two Small Business Innovation Research
("SBIR") grants from the National Institutes of Health ("NIH") which will
contribute to the Company's program to develop a vaccine for the management of
atherosclerosis. A Phase I SBIR grant for $100,000 was received in February 1997
for the development of a novel DNA vaccine for the prevention and treatment of
atherosclerosis and a Phase II SBIR grant for $678,000 over two years was
awarded in September 1997 for the development of a novel transgenic rat model of
atherosclerosis. The Company was awarded its fourth SBIR grant from the NIH in
February 1998. Funding from the grant will contribute to the Company's program
for the development of a vaccine for the management of atherosclerosis.
In November 1997, the Company reached a settlement of the outstanding litigation
with its former landlord and the landlord's mortgagee. Under the settlement
agreement, the Company made a cash payment of $858,800 in November 1997 and
issued 1,500,000 shares of its common stock valued at $3,750,000 as of October
31, 1997. In addition, the Company signed two notes for $750,000 each due on
November 16, 1998 and November 15, 1999, respectively. The total settlement was
valued at $6,108,800 and is included as non-operating expense for the year ended
December 31, 1997.
RESULTS OF OPERATIONS
The Company reported a net loss of $13,108,000 or $0.52 per share for the year
ended December 31, 1997, compared with a net loss of $10,790,100 or $0.50 per
share for the year ended December 31, 1996 and a net loss of $8,257,900 or $0.47
per share for the year ended December 31, 1995. The net loss for the year ended
December 31, 1997 includes a charge to earnings of $6,108,800 for the settlement
of the Company's litigation with its former landlord and the landlord's
mortgagee. The net operating loss of $7,558,700 for the year ended December 31,
1997 includes total operating revenue of $1,192,100 offset by total operating
expense of $8,750,800. The net operating loss of $11,753,300 for the year ended
December 31, 1996 includes total operating revenue of $1,114,500 offset by total
operating expense of $12,867,800. The net operating loss for the year ended
December 31, 1995 of $11,862,500 includes total operating revenue of $3,963,100
offset by total operating expense of $15,825,600. Total operating expense for
1996 includes a charge to earnings of $1,751,600 for the write-off of certain
capitalized patent costs relating to the Company's T cell antigen receptor
program ("TCAR") and a $425,300 charge resulting from a severance agreement with
the Company's former President and Chief Executive Officer. Excluding these
charges from 1996, the net operating loss for 1997 decreased $2,017,700 or 21.1%
compared to 1996 and the net operating loss for 1996 decreased $2,286,100 or
19.3% compared to 1995.
In 1997, revenue from collaborative product development and distribution
agreements of $1,147,600 increased 94.1% from $591,200 in 1996 and decreased
28.7% from $1,608,700 in 1995. Revenue from collaborative product development
included milestone payments of $650,000 from the Company's collaborative partner
Astra AB ("Astra") for the year ended December 31, 1997 compared to $453,300 of
TCAR project funding from Astra for the same period last year. In December 1996,
the Company's collaborative agreement with Astra was amended, transferring
certain of the Company's rights to the TCAR technology to Astra who assumed sole
responsibility for further clinical development and commercialization. In May
1997, the Company completed the transfer of certain of its rights to the TCAR
technology to Astra and in June 1997, Astra received approval to initiate
clinical trials for one of the products derived from the TCAR technology
platform for the treatment of multiple sclerosis. In 1997, the Company was
awarded two SBIR grants from the NIH and one SBIR grant was received in 1996.
Revenue recognized from these grants was $247,600 in 1997 compared to $37,900 in
1996. The Company also recognized $250,000 in product development revenue from a
non-refundable option fee associated with an agreement granting Novartis the
right to license the Company's lead therapeutic compound, TP10, with exclusive
worldwide marketing rights (except Japan) in the fields of xenotransplantation
and allotransplantation. 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 1997 and 1996, the Company did
not have any distribution agreement revenue compared to $175,000 in 1995, which
represents a signing fee related to the distribution and marketing agreement for
TRAx products with Diamedix Corporation.
-14-
<PAGE>
Product sales revenue decreased 91.5% to $44,500 for the year ended December 31,
1997 from $523,300 for the year ended December 31, 1996. Sales in 1997 included
TRAx product sales only compared to 1996 which included two months of research
product sales prior to the sale of the research products and operations of the
Company's wholly owned subsidiary, T Cell Diagnostics, Inc. ("TCD"), in March
1996, in addition to a full year of TRAx product sales. Product sales for 1996
decreased 77.8% from $2,354,400 in 1995 primarily due to the sale of the
research products and operations of TCD, which resulted in research product
sales for the first two months of the 1996 only compared to twelve months in
1995.
Cost of product sales amounted to $21,000, or 47.2% of product sales, $358,700,
or 68.5% of product sales and $1,879,400, or 79.8% of product sales for 1997,
1996 and 1995, respectively. The fluctuation in gross margin is the result of
several factors including: contract manufacturing costs for TRAx kits in 1997
compared to costs associated with manufacturing the Company's former research
product lines in 1996 and 1995, and costs associated with replacing the
manufacturing facility in 1995.
Research and development expense decreased 12.9% to $5,256,900 in 1997 compared
to $6,036,500 in 1996. The decrease is primarily due to a decrease in staff
costs combined with a reduction in costs associated with a Phase I/II clinical
trial of the Company's complement inhibitor, TP10, in patients undergoing lung
transplantation and a Phase IIa clinical trial of TP10 in ARDS patients.
Included in research and development expense for 1996 was two months of TCD
costs prior to the sale of the research products and operations of TCD in March
1996. Research and development expense decreased 24.6% to $6,036,500 in 1996
compared to $8,004,600 in 1995 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 the Phase I/II and Phase IIa clinical
trials initiated in 1996.
General and administrative expense for the year ended December 31, 1997 was
$3,375,500, which represents a decrease of 43.3% compared to 1996. In 1996,
general and administrative expense included a $425,300 charge resulting from the
severance agreement with the Company's former President and Chief Executive
Officer and a $1,751,600 write-off of certain capitalized patent costs relating
to the Company's TCAR technology. Excluding these charges from 1996, general and
administrative costs decreased 10.7% or $404,200 in 1997 compared to 1996. The
decrease is primarily due to lower legal fees in 1997 compared to 1996 which
resulted from the settlement of the litigation and reduced license fees caused
by the transfer of certain of its rights and responsibilities to Astra of the
Company's TCAR technology. General and administrative expense for the year ended
December 31, 1996, excluding the charge resulting from the severance agreement
with the Company's former President and Chief Executive Officer and the
write-off of certain capitalized patent costs relating to the Company's TCAR
technology, decreased 13.0% or $564,000 compared to $4,343,700 in 1995. The
decrease was primarily due to the sale of the research products and operations
of TCD in March 1996.
Marketing and sales costs decreased 81.1% in 1997 to $97,400 compared to 1996
and decreased 67.7% in 1996 to $516,000 compared to 1995. The decreases are
primarily due to the sale of the research products and operations of TCD to
Endogen in March 1996. Marketing and sales costs in 1997 and 1996 included costs
related to the TRAx product franchise which the Company continues to market in
conjunction with its distribution partner, Diamedix Corporation.
Non-operating expense of $5,549,300 in 1997 includes interest income of $577,300
and a charge to earnings of $6,108,800 from the settlement of the Company's
litigation with its former landlord and the landlord's mortgagee. Interest
income decreased $102,900 or 15.1% compared to interest income of $680,200 in
1996 primarily due to lower cash balances coupled with lower interest rates. In
1996, non-operating expense included a $283,000 gain recognized from the sale of
the research products and operations of TCD to Endogen in March 1996 and
interest income of $680,200. Other non-operating income of $3,604,600 in 1995,
included $2,900,000 received from the settlement of a lawsuit the Company
brought against its insurance carrier and interest income of $604,600.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at December 31, 1997 is $6,436,300
compared to $12,591,800 at December 31, 1996. Cash used in operations was
$7,695,400 in 1997, compared with $9,675,800 and $7,947,600 in 1996 and 1995,
respectively.
In November 1997, the Company reached a settlement of the litigation with its
former landlord and the landlord's mortgagee. As part of the settlement, the
Company agreed to pay $858,800 in cash on November 17, 1997 and issue a total of
1,500,000 shares of its common stock. In addition, the Company signed a note for
$750,000, due on November 16, 1998 secured by $750,000 cash and a note for
$750,000 due November 15, 1999 secured by 132,500 shares of common stock. The
total settlement, valued at $6,108,800, is comprised of the cash and notes
totaling $2,358,800 and common stock valued at $3,750,000 as of October 31,
1997. The common stock is subject to restrictions on transfer in accordance with
the settlement agreement. The settlement agreement also provides for certain
registration rights for the shares of common stock to become effective no later
than September 30, 1998. Upon such registration, however, the settlement
agreement limits the number of shares that may be sold over a given period of
time.
In March 1996, the Company received from Endogen a convertible subordinated note
in the principal amount of $2,003,000 in connection with the sale of the
research products and operations of TCD to Endogen. Pursuant to the terms of the
note, on February 10, 1997 the Company converted the $1,802,700 outstanding
principal balance of the note into shares of common stock of Endogen which the
Company subsequently sold. The realized gain on the stock sale was not
significant.
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 contains certain restrictive covenants, determined at the end
of each fiscal quarter which, for the quarter ended September 30, 1995 included
a minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 the Company's cash, cash equivalents and
short-term investment balance was below $10,000,000. As a result, in accordance
with the lease agreement, the Company pledged as collateral cash 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, 1997, the Company had $525,000 pledged as collateral
recorded as long-term restricted cash. In March 1996, the Company repaid
approximately $980,000 of the outstanding obligation under the lease in
conjunction with the sale of the research products and operations of its
subsidiary.
In March 1998, the Company completed a private placement of approximately
2,043,000 shares of common stock to institutional investors at a price of $1.90
per share. Net proceeds from the common stock issuance totaled approximately
$3,708,000. The Company believes that the private placement proceeds, together
with cash inflows from existing SBIR grants and collaborations, interest income
on invested funds and its current cash and cash equivalents, net of restricted
amounts, will be sufficient to meet estimated working capital requirements and
fund operations beyond December 31, 1998 and into the first half of 1999. The
working capital requirements of the Company are dependent on several factors
including, but not limited to, the costs associated with research
and development programs, preclinical and clinical studies and the scope of
collaborative arrangements. During 1998, the Company expects to take steps to
raise additional capital including, but not limited to, licensing of technology
programs with existing or new collaborative partners, possible business
combinations, or issuance of common stock via private placement and public
offering.
During 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards Nos. 128, "Earnings Per Share" ("SFAS 128"), 129,
"Disclosures about Information of Capital Structure" ("SFAS 129"), 130,
"Reporting Comprehensive Income" ("SFAS 130"), and 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 128 and
SFAS 129 were effective for the year ended December 31, 1997 and were
appropriately adopted by the Company with no significant impact on the financial
condition or results of operations of the Company. SFAS 130 and SFAS 131 are
effective for the year ending December 31,
-16-
<PAGE>
1998 and are not expected to have a significant impact on the Company's
financial condition or results of operations.
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48, which expands the disclosure requirements for certain
derivatives and other financial instruments. The Company does not utilize
derivative financial instruments. See Notes 1 and 2 to the Consolidated
Financials Statements for a description of the Company's use of other financial
instruments.
-17-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Index to Consolidated Financial Statements and Supplementary Schedules 18
Report of Independent Accountants 19
Consolidated Balance Sheet at December 31, 1997 and 20
December 31, 1996
Consolidated Statement of Operations for the Years Ended December 31, 21
1997, December 31, 1996 and December 31, 1995
Consolidated Statement of Stockholders' Equity for the Years Ended 22
December 31, 1997, December 31, 1996 and December 31, 1995
Consolidated Statement of Cash Flows for the Years Ended 23
December 31, 1997, December 31, 1996, and December 31, 1995
Notes to Consolidated Financial Statements 24
</TABLE>
-18-
<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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
ended December 31, 1997, 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
March 25, 1998
-19-
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 6,436,300 $ 12,591,800
Current Portion Restricted Cash 750,000 --
Accounts Receivable, Net of the Allowance for Doubtful
Accounts of $6,000 at December 31, 1997 22,900 19,500
Current Portion Convertible Note Receivable -- 400,600
Inventories 15,000 24,000
Prepaid and Other Current Assets 165,400 241,500
- ---------------------------------------------------------------------------------------------------------------
Total Current Assets 7,389,600 13,277,400
Property and Equipment, Net 364,500 511,600
Restricted Cash 525,000 685,000
Convertible Note Receivable -- 1,402,100
Other Assets 1,547,500 1,347,600
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 9,826,600 $ 17,223,700
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 201,200 $ 326,000
Accrued Expenses 1,059,900 1,278,500
Deferred Revenue 750,000 --
Short-Term Note Payable 750,000 --
- ---------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,761,100 1,604,500
- ---------------------------------------------------------------------------------------------------------------
Long-Term Note Payable 750,000 --
- ---------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 3 and 13)
Stockholders' Equity:
Common Stock, $.001 Par Value; 50,000,000 Shares Authorized;
26,487,400 Issued and 26,477,700 Outstanding at
December 31, 1997;
24,965,400 Issued and 24,946,600 Outstanding at
December 31, 1996 26,500 25,000
Additional Paid-In Capital 76,561,400 72,791,800
Less: 9,700 and 18,800 Common Treasury Shares at Cost at
December 31, 1997 and 1996, respectively (35,800) (69,000)
Accumulated Deficit (70,236,600) (57,128,600)
- ---------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 6,315,500 15,619,200
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 9,826,600 $ 17,223,700
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-20-
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE:
Product Development and
Distribution Agreements $ 1,147,600 $ 591,200 $ 1,608,700
Product Sales 44,500 523,300 2,354,400
- -------------------------------------------------------------------------------------------------------------------
Total Operating Revenue 1,192,100 1,114,500 3,963,100
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Cost of Product Sales 21,000 358,700 1,879,400
Research and Development 5,256,900 6,036,500 8,004,600
General and Administrative 3,375,500 5,956,600 4,343,700
Marketing and Sales 97,400 516,000 1,597,900
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expense 8,750,800 12,867,800 15,825,600
- -------------------------------------------------------------------------------------------------------------------
Operating Loss (7,558,700) (11,753,300) (11,862,500)
Non-Operating Income (Expense), Net (5,549,300) 963,200 3,604,600
- -------------------------------------------------------------------------------------------------------------------
Net Loss $(13,108,000) $(10,790,100) $ (8,257,900)
===================================================================================================================
Basic and Diluted Net Loss Per Common Share
$ (0.52) $ (0.50) $ (0.47)
===================================================================================================================
Weighted Average Common
Shares Outstanding 25,139,900 21,693,400 17,482,100
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-21-
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1994 17,054,200 $17,100 $55,726,100 $(76,900) $(38,080,600) $ 17,585,700
Issuance at $.60 to $4.25
per Share upon Exercise
of Stock Options 88,700 100 244,600 -- -- 244,700
Employee Stock Purchase
Plan Issuance at $2.13
and $2.71 per Share -- -- (23,200) 47,900 -- 24,700
Private Placement Proceeds 2,550,000 2,500 6,102,400 -- -- 6,104,900
Issuance at $1.65 upon
Exercise of Stock Warrants 211,800 200 349,300 -- -- 349,500
Purchase of 16,466 Shares of
Treasury Stock at Cost -- -- -- (51,500) -- (51,500)
Net Loss for the Year
Ended December 31, 1995 -- -- -- -- (8,257,900) (8,257,900)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 19,904,700 $19,900 $62,399,200 $(80,500) $(46,338,500) $ 16,000,100
Issuance at $.60 to $3.56
per Share upon Exercise
of Stock Options 60,700 100 161,600 -- -- 161,700
Employee Stock Purchase
Plan Issuance at $2.71
per Share -- -- (3,000) 11,500 -- 8,500
Net Proceeds from Stock Issuance 5,000,000 5,000 10,063,700 -- -- 10,068,700
Compensation Expense Associated
with Stock Options -- -- 170,300 -- -- 170,300
Net Loss for the Year
Ended December 31, 1996 -- -- -- -- (10,790,100) (10,790,100)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 24,965,400 $25,000 $72,791,800 $(69,000) $(57,128,600) $ 15,619,200
Issuance at $1.81 to $2.13
per Share upon Exercise
of Stock Options 12,000 -- 22,400 -- -- 22,400
Employee Stock Purchase
Plan Issuance at $1.38 and
$1.39 per Share -- -- (20,700) 33,200 -- 12,500
Issuance at $2.50 per Share for
Settlement of Litigation 1,500,000 1,500 3,748,500 -- 3,750,000
Compensation Expense Associated
with Issuance at $1.94 per
Share 10,000 -- 19,400 -- 19,400
Net Loss for the Year
Ended December 31, 1997 -- -- -- -- (13,108,000) (13,108,000)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 26,487,400 $26,500 $76,561,400 $(35,800) $(70,236,600) $ 6,315,500
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-22-
<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 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(13,108,000) $(10,790,100) $(8,257,900)
Adjustments to Reconcile Net Loss to Cash
Used by Operating Activities:
Depreciation and Amortization 353,800 464,800 719,600
Write-off of Capitalized Patent Costs 51,100 1,751,600 --
Decrease in Collaborator Advance -- (181,500) (318,400)
Non-Cash Portion of Litigation Settlement 5,250,000 --
Compensation Expense Associated with 19,400 --
Stock Issuance
Compensation Expense Associated with -- 170,300 --
Stock Options
Gain on Sale of Research Products and Operations
of T Cell Diagnostics, Inc. -- (283,000) --
Changes in Assets and Liabilities:
Increase in Current Portion Restricted Cash (750,000) -- --
Accounts Receivable (3,400) (24,400) 132,600
Inventories 9,000 14,100 6,000
Prepaid and Other Current Assets 76,100 119,700 18,700
Accounts Payable and Accrued Expenses (343,400) (796,200) (369,300)
Deferred Revenue 750,000 (121,100) 121,100
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (7,695,400) (9,675,800) (7,947,600)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Redemption of Short-Term Investments -- -- 8,539,700
Purchases of Property and Equipment (76,900) (135,200) (577,300)
Increase in Patents and Licenses (381,200) (507,400) (1,216,900)
(Increase) Decrease in Long-Term Restricted Cash 160,000 165,000 (850,000)
Payment Received on Convertible Note Receivable 1,802,700 200,300 --
Other 400 30,800 10,400
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 1,505,000 (246,500) 5,905,900
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net Proceeds from Stock Issuance 12,500 10,077,200 6,129,600
Proceeds from Exercise of Stock Options 22,400 161,700 244,700
Proceeds from Exercise of Stock Warrants -- -- 349,500
Purchases of Treasury Stock -- -- (51,500)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 34,900 10,238,900 6,672,300
- -----------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (6,155,500) 316,600 4,630,600
Cash and Cash Equivalents at Beginning of Period 12,591,800 12,275,200 7,644,600
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 6,436,300 $ 12,591,800 $12,275,200
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
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 using novel applications of
immunology to prevent and treat cardiovascular, pulmonary and immune disorders.
The Company develops and commercializes products on a proprietary basis and in
collaboration with established pharmaceutical partners, including Novartis
Pharma AG, Astra AB and Yamanouchi Pharmaceutical Co., Ltd.
In March 1998, the Company completed a private placement of approximately
2,043,000 shares of common stock to institutional investors at a price of $1.90
per share. Net proceeds from the common stock issuance totaled approximately
$3,708,000. The Company believes that the private placement proceeds, together
with cash inflows from existing SBIR grants and collaborations, interest income
on invested funds and its current cash and cash equivalents, net of restricted
amounts, will be sufficient to meet estimated working capital requirements and
fund operations beyond December 31, 1998 and into the first half of 1999. The
working capital requirements of the Company are dependent on several factors
including, but not limited to, the costs associated with research
and development programs, preclinical and clinical studies and the scope of
collaborative arrangements. During 1998, the Company expects to take steps to
raise additional capital including, but not limited to, licensing of technology
programs with existing or new collaborative partners, possible business
combinations, or issuance of common stock via private placement and public
offering.
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 consolidated 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.
(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.
(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 and notes payable and
accrued expenses approximate carrying value at December 31, 1997 and 1996, due
to the nature and the relatively short maturity of these instruments.
-24-
<PAGE>
(E) Revenue Recognition
The Company has entered into various license and development agreements with
pharmaceutical and biotechnology companies. Revenue derived from such agreements
is recognized over the specified development period as research and development
or discovery activities are performed. Cash received in advance of activities
being performed is recorded as deferred revenue. Signing fees, received by the
Company for entering into license and development agreements are recognized when
received if the fees are nonrefundable and the Company has no obligations to
perform under the agreement. Revenues from product sales are recorded when the
product is shipped.
(F) Research and Development Costs
Research and development costs are expensed as incurred.
(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
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
changed the method of calculating earnings per share. SFAS 128, which the
Company adopted in the fourth quarter of 1997, requires the presentation of
"basic" earnings per share and "diluted" earnings per share. As a result of the
Company's net loss, both basic and diluted earnings per share are computed by
dividing the net loss available to common shareholders by the weighted average
number of shares of common stock outstanding.
(K) Stock Compensation
The Company's employee stock compensation plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" (see Note 7).
(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 certain reported amounts and disclosures. Actual results
could differ from those estimates.
-25-
<PAGE>
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, 1997 and 1996, 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, 1997, the Company had pledged as collateral $750,000 and
$525,000 which is recorded as current portion restricted cash and long-term
restricted cash, respectively. At December 31, 1996, the Company had pledged as
collateral $685,000 which is recorded as long-term restricted cash. Pursuant to
the terms of the settlement agreement between the Company and its former
landlord, the Company pledged as collateral $750,000 at December 31, 1997 (see
Note 13). The Company also has $525,000 and $685,000 pledged as collateral at
December 31, 1997 and 1996, respectively, in accordance with the terms of the
operating lease (see Note 3).
3. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
--------------------------------------------
<S> <C> <C>
Laboratory Equipment $ 2,080,100 $ 2,055,000
Office Furniture and Equipment 767,800 751,500
Leasehold Improvements 255,000 219,500
-------------------------------------------
Property and Equipment, Total 3,102,900 3,026,000
Less Accumulated Depreciation and Amortization (2,738,400) (2,514,400)
-------------------------------------------
$ 364,500 $ 511,600
===========================================
</TABLE>
Depreciation expense related to equipment and leasehold improvements was
approximately $224,000, $290,800 and $465,300 for the years ended December 31,
1997, 1996 and 1995, 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. 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 14).
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 contains certain restrictive covenants determined at
the end of each fiscal quarter which, for the quarter ended September 30, 1995,
included a minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 the Company's cash and cash equivalents
balance was below $10,000,000. 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.
The Company has recorded $525,000 and $685,000 as long-term restricted cash at
December 31, 1997 and 1996, respectively.
-26-
<PAGE>
Obligations for base rent, net of sublease income, under these and other
noncancelable operating leases as of December 31, 1997 are approximately as
follows:
Year ending December 31,1998 $ 835,900
1999 834,000
2000 764,600
2001 756,400
2002 252,100
Thereafter --
-----------------
Total minimum lease payments $3,443,000
-----------------
The Company's total rent expense was approximately $851,400, $903,100 and
$1,091,600 for the years ended December 31, 1997, 1996 and 1995, respectively.
4. OTHER ASSETS
Other assets include the following:
December 31, December 31,
1997 1996
------------------------------------------
Capitalized Patent Costs $1,900,700 $1,570,500
Accumulated Amortization (519,100) (397,900)
------------------------------------------
Capitalized Patent Costs, Net 1,381,600 1,172,600
Other Non Current Assets, Net 165,900 175,000
------------------------------------------
$1,547,500 $1,347,600
==========================================
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 $1,751,600
of capitalized patent costs relating to its T cell antigen receptor program
which is included in operating expense as general and administrative expense for
the year ended December 31, 1996.
Amortization expense for the years ended December 31, 1997, 1996 and 1995
relating to the capitalized costs of purchased licenses and patents and
trademarks was approximately $129,800, $174,000 and $254,300, respectively.
-27-
<PAGE>
5. ACCRUED EXPENSES
Accrued expenses include the following:
December 31, December 31,
1997 1996
------------------------------------
Accrued License Fees $ 60,000 55,000
Accrued Payroll and Employee Benefits 222,600 208,400
Accrued Clinical Trials 448,100 364,800
Accrued Consulting 119,000 96,000
Other Accrued Expenses 210,200 554,300
------------------------------------
$1,059,900 $1,278,500
====================================
6. INCOME TAXES
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C>
Income tax benefit:
Federal $ 4,539,100 $ 3,696,100 $ 2,984,800
State 529,000 388,000 354,800
--------------------------------------------------------
5,068,100 4,084,100 3,339,600
Deferred tax assets valuation allowance (5,068,100) (4,084,100) (3,339,600)
--------------------------------------------------------
$ -- $ -- $ --
========================================================
</TABLE>
Deferred tax assets are comprised of the following at December 31:
December 31, December 31,
1997 1996
------------------------------------
Net Operating Loss Carryforwards $ 25,775,200 $ 21,346,700
Tax Credit Carryforwards 3,143,800 3,043,900
Other 1,521,500 981,800
------------------------------------
Gross Deferred Tax Assets 30,440,500 25,372,400
Deferred Tax Assets Valuation Allowance (30,440,500) (25,372,400)
------------------------------------
$ -- $ --
====================================
-28-
<PAGE>
Reconciliation between the amount of reported income tax expenses and the amount
computed using the U.S. Statutory rate of 35% follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C>
Loss at Statutory Rates $(4,587,800) $(3,776,500) $(2,890,300)
Research and Development Credits (172,100) (189,400) (255,800)
State tax benefit, net of federal tax liabilities (591,500) (337,400) (231,200)
Other 283,300 219,200 37,700
Benefit of losses and credits not recognized,
increase in valuation allowance 5,068,100 4,084,100 3,339,600
----------------------------------------------------------
$ -- $ -- $ --
==========================================================
</TABLE>
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, 1997, the Company has U.S. net operating loss carryforwards of
$67,224,700, U.S. capital loss carryforwards of $1,852,300, and U.S. tax credits
of $2,593,800 which expire at various dates from 1999 through 2010. 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, 1997 and 1996, 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, 1997 and 1996.
(C) Stock Compensation and Employee Stock Purchase Plans
Stock Compensation
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.
-29-
<PAGE>
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 vests. 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).
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.
A summary of stock option activity for the years ended December 31, 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares per Share Shares per Share Shares per Share
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 2,303,196 $5.94 2,516,313 $5.82 2,559,820 $6.42
Granted 492,750 1.77 472,600 2.82 620,523 3.06
Exercised (12,000) 1.86 (60,710) 2.66 (88,668) 2.45
Canceled (1,010,704) 8.78 (625,007) 3.39 (575,362) 6.05
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1,773,242 $3.20 2,303,196 $5.94 2,516,313 $5.82
=================================================================================================================
At December 31,
Options exercisable 1,039,437 1,740,310 1,498,401
Available for grant 1,296,716 678,762 571,516
Weighted average fair value of
options granted during year $0.92 $1.26 $1.36
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------------------------------------
Number Weighted Average Weighted Average
Outstanding at Remaining Exercise Price
Range of Exercise Prices December 31, 1997 Contractual Life per Share
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.50 - 1.84 435,250 9.14 $ 1.75
1.94 - 2.50 416,989 6.18 2.39
2.59 - 3.13 332,202 7.78 2.96
3.19 - 5.25 374,601 4.51 3.87
5.51 - 8.50 214,200 3.88 6.89
- ---------------------------------------------------------------------------------------------------------------------
$ 1.50 - 8.50 1,773,242
=====================================================================================================================
-30-
<PAGE>
Options Exercisable
--------------------------------------------------------
Number Weighted Average
Exercisable at Exercise Price
Range of Exercise Prices December 31, 1997 per Share
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 1.50 - 1.84 35,000 $ 1.81
1.94 - 2.50 273,281 2.34
2.59 - 3.13 194,915 2.96
3.19 - 5.25 322,041 3.95
5.51 - 8.50 214,200 6.89
- ---------------------------------------------------------------------------------------------------------------------
$ 1.50 - 8.50 1,039,437
=====================================================================================================================
</TABLE>
Fair Value Disclosures
Had compensation costs for the Company's stock compensation 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,
1997, 1996 and 1995 would be as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Loss:
As reported $13,108,000 $10,790,100 $8,257,900
Pro forma $13,514,100 $11,269,900 $8,471,400
Basic and Diluted Net Loss
Per Share:
As reported $0.52 $0.50 $0.47
Pro forma 0.54 0.52 0.48
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected stock price volatility 57% 51% 51%
Risk-free interest rate 5.5% - 6.4% 4.9% - 6.7% 5.4% - 7.5%
Expected option term 2.7 Years 2.6 Years 2.6 Years
</TABLE>
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.
-31-
<PAGE>
As of December 31, 1997, 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 its senior management. As part
of the reorganization, the Company recorded a $425,300 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 $170,300 relating to the acceleration of
certain stock option vesting rights.
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 made required payments of nonrefundable license fees
and royalties which amounted to approximately $65,000, $205,000 and $200,000 for
the years ended December 31, 1997, 1996 and 1995, 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, 1997, 1996 and 1995 were
approximately $1,147,600, $591,200 and $1,608,700, respectively. A summary of
these contracts follows:
(A) Novartis Pharma AG
In October 1997, the Company entered into an option agreement with Novartis
Pharma AG ("Novartis"), a worldwide pharmaceutical company headquartered in
Basel, Switzerland, relating to the development of TP10 for use in
xenotransplantation (animal organs into humans) and allotransplantation (human
to human). The agreement granted Novartis a two-year option to license TP10 with
exclusive worldwide marketing rights (except Japan) in the fields of
xenotransplantation and allotransplantation. In exchange for granting the
two-year option, the Company will receive annual option fees and supplies of
clinical grade TP10 with a combined value of up to $5 million. Should Novartis
exercise its option to license TP10 and continue development within the fields
of xenotransplantation and allotransplantation, it will provide equity to the
Company in the form of investment, licensing fees and milestone payments based
upon attainment of certain development and regulatory goals. The Company may
also receive from Novartis funding for research as well as royalty payments on
eventual products sales.
Under the terms of the agreement Novartis paid the Company a non-refundable
option fee related to the first option period which commenced in October 1997.
During the option period, Novartis is granted sole access to the technology for
use in xenotransplantation and allotransplantation. The Company is recording the
option fee as revenue over the one year option period.
(B) 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 using T Cell Sciences' proprietary T cell antigen receptor
("TCAR") technology. The products developed exclusively and jointly with Astra
were monoclonal antibodies and protein-
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<PAGE>
derived immunomodulators that may have efficacy in treating autoimmune diseases
such as multiple sclerosis, Crohn's disease, and rheumatoid arthritis.
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 in addition to sole responsibility for further development
and commercialization of the TCAR technology. Under the amended agreement, the
Company 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.
The Company recognized revenue from milestone payments in 1997 of $650,000. The
Company recognized TCAR funding revenue of $453,400 in 1996 and $1,433,700 in
1995 which included $181,600 and $318,400, respectively, from the reduction of
the collaborator advance liability. The funds were advanced from Astra for the
expansion of additional space dedicated to joint TCAR product research.
(C) CytoTherapeutics
In April 1996, the Company licensed portions of its patent and technology rights
regarding Complement Receptor 1 ("CR1") 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. In 1996, the
Company received a non-refundable $100,000 signing fee and may receive
additional milestone payments and royalty payments from commercialized products
resulting from the license.
(D) Diamedix Corporation
In December 1995, the Company received a $175,000 signing fee associated with an
exclusive distribution agreement it entered into with Diamedix Corporation to
market TRAx CD4 and TRAx CD8 microtiter plate diagnostic kits to clinical
diagnostic laboratories in the United States. The Company retained the rights to
sell these kits to certain research laboratories and pharmaceutical companies.
The agreement was modified in 1997 from an exclusive agreement to a
non-exclusive agreement.
(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, which superseded 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, returning
all rights to the Company with no future financial obligations to either party.
-33-
<PAGE>
10. NON-OPERATING INCOME (EXPENSE)
Non-operating income (expense) includes the following:
Year Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
Interest and Dividend Income $ 577,300 $680,200 $ 604,600
Gain on Sale of Portion of Diagnostic
Business -- 283,000 --
Legal Settlement (see Note 13) (6,108,800) -- 2,900,000
Gain on Sale of Investments (17,800) -- 100,000
-------------------------------------
$(5,549,300) $963,200 $3,604,600
=====================================
11. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, as amended, 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 1997. 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
$20,600, $33,000 and $39,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
12. FOREIGN SALES
Foreign Sales:
Product sales were generated geographically as follows:
<TABLE>
<CAPTION>
Net Product Sales for the
Twelve Months Ended Europe USA Asia Other Total
<S> <C> <C> <C> <C> <C>
December 31, 1997 $ 5,000 $ 29,000 $ -- $ 11,000 $ 45,000
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
</TABLE>
13. 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 filed counterclaims, alleging the Company 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. In a separate
lawsuit, the landlord's mortgagee 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. In August 1997, the Superior Court of
Massachusetts entered findings of fact and conclusions of law on the limited
trial of the Company's lawsuit against the landlord. In its findings, the Court
concluded that the Company had not proved, as alleged by the Company, that any
fireproofing fibers contaminated the Company's space, the Company's space was
-34-
<PAGE>
not uninhabitable because of contamination from fireproofing fibers and the
Company was not justified in terminating its lease on the grounds that its
office and laboratories were uninhabitable. In November 1997, the Company
reached a settlement of the litigation with its former landlord and the
landlord's mortgagee. The Company agreed to pay $858,800 in cash on November 17,
1997 and issue a total of 1,500,000 shares of its common stock. In addition, the
Company signed a note for $750,000 payable on November 16, 1998 secured by
$750,000 cash collateral and a note for $750,000 due November 15, 1999, secured
by 132,500 shares of common stock. The total settlement, valued at $6,108,800,
is comprised of the cash and notes totaling $2,358,800 and common stock valued
at $3,750,000 as of October 31, 1997 and is included in non-operating expense
for the year ended December 31, 1997. The common stock issued is subject to
restrictions on transfer per the settlement agreement. The settlement agreement
also provides for certain registration rights for the shares of common stock to
become effective no later than September 30, 1998. Upon such registration,
however, the settlement agreement limits the number of shares that may be sold
over a given period of time.
14. 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
to Endogen 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. 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.
-35-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
-36-
<PAGE>
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 Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1998, 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, 1998, 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, 1998, is hereby incorporated by reference.
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, 1998, is hereby incorporated by reference.
-37-
<PAGE>
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.
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <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
10.2 1994 Employee Stock Purchase Plan Incorporated by reference to the Company's
Registration Statement on Form S-8 filed June
8, 1994
</TABLE>
-38-
<PAGE>
<TABLE>
<C> <S> <C>
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 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
10.7 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
10.8 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
10.9 Employment Agreement between the Company and Incorporated by reference to the Company's
Una S. Ryan, Ph.D. dated May 28, 1996 Annual Report on Form 10-K for the fiscal
year ended December 31, 1996
10.10 Severance Agreement between the Company and Incorporated by reference to the Company's
Norman W. Gorin dated June 1, 1996 Annual Report on Form 10-K for the fiscal
year ended December 31, 1996
10.11 Consulting Agreement between the Company and Incorporated by reference to the Company's
James D. Grant dated May 28, 1996 Annual Report on Form 10-K for the fiscal
year ended December 31, 1996
10.12 Second Amended and Restated Product Incorporated by reference to the Company's
Development and Distribution Agreement Annual Report on Form 10-K for the fiscal
between Astra AB and the Company dated May 1, year ended December 31, 1996
1996, portions of which are subject to confidential
treatment
10.13 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
10.14 Option Agreement by and between the Company Incorporated by reference to the Company's
and Novartis Pharma AG dated as of report on Form 10-Q for the quarterly period
October 31, 1997, portions of which are ended September 30, 1997
subject to a request for confidential treatment
10.15 Settlement Agreement between the Company and Page 41
Forest City 38 Sidney Street, Inc.; Forest
City Management, Inc.; and Forest City
Enterprises, Inc.
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 83
27.0 Financial Data Schedule Page 84
</TABLE>
(B) Reports on Form 8-K.
During 1997, the following report on Form 8-K was filed: Form 8-K dated August
26, 1997.
-39-
<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.
<TABLE>
<CAPTION>
T CELL SCIENCES, INC. Date
<S> <C>
by:/s/Una S. Ryan March 30, 1998
-------------
Una S. Ryan
President and Chief Executive Officer
</TABLE>
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>
<S> <C> <C>
Signature Title Date
/s/Una S. Ryan President, Chief Executive Officer March 30, 1998
-------------
(Una S. Ryan)
/s/Norman W. Gorin Vice President, Finance and Chief March 30, 1998
----------------- Financial Officer
(Norman W. Gorin)
/s/Patrick C. Kung Director March 30, 1998
-----------------
(Patrick C. Kung)
/s/Thomas R. Ostermueller Director March 30, 1998
------------------------
(Thomas R. Ostermueller)
/s/Harry H. Penner, Jr. Director March 30, 1998
----------------------
(Harry H. Penner, Jr.)
/s/William J. Ryan Director March 30, 1998
-----------------
(William J. Ryan)
/s/Ronald M Urvater Director March 30, 1998
------------------
(Ronald M. Urvater)
</TABLE>
-40-
Exhibit 10.15
Settlement Agreement Between the Company and Forest City 38 Sidney Street,
Inc.; Forest City Management, Inc.; And Forest City Enterprises, Inc.
<PAGE>
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is entered into this 14th day
of November, 1997, by and among T Cell Sciences, Inc., and T Cell Diagnostics,
Inc., both of which are Delaware corporations with a principal place of business
at 119 Fourth Avenue, Needham, Massachusetts (jointly "T Cell"), and Forest City
38 Sidney Street, Inc.; Forest City Commercial Management, Inc. (successor in
interest to "Forest City Management, Inc."); and Forest City Enterprises, Inc.,
all of which are Ohio corporations with a principal place of business at 1100
Terminal Tower, Cleveland, Ohio (jointly "Forest City").
WHEREAS, T Cell Sciences, Inc. formerly leased and occupied certain space
located at 38 Sidney Street, Cambridge, Massachusetts ("38 Sidney Street"), from
Forest City 38 Sidney Street, Inc., pursuant to a lease dated August 1, 1987;
WHEREAS, in connection with that lease, T Cell, Forest City, and
Pittsburgh National Bank, now PNC Bank, N.A. ("PNC"), entered into a Tri-Party
Agreement, dated June 30, 1988, pursuant to which T Cell assumed certain
obligations to PNC;
WHEREAS, T Cell and Forest City disagreed as to their respective rights
and obligations, under the lease and otherwise, in light of the alleged indoor
air quality problems at 38 Sidney Street and T Cell's decision to vacate the
premises and cease paying rent;
WHEREAS, T Cell brought a civil action against Forest City, styled T Cell
Sciences, Inc., et al. v. Forest City 38 Sidney Street, Inc., et al., Civil
Action No. 94-6770 (Middlesex County Superior Court) (the "Forest City Action"),
in order to resolve the parties' dispute;
<PAGE>
WHEREAS, Forest City asserted counterclaims against T Cell in the
Forest City Action;
WHEREAS, T Cell and Forest City each denied any liability to the other
in the Forest City Action;
WHEREAS, the Court in the Forest City Action conducted a bench trial on
certain bifurcated issues and, on August 22, 1997, entered an interlocutory
decision adverse to T Cell's position in that case;
WHEREAS, following T Cell's discontinuation of rent payments to Forest
City, T Cell and PNC disagreed as to their respective rights and obligations
under the Tri-Party Agreement;
WHEREAS, PNC brought a civil action against T Cell, styled PNC Bank, N.A.
v. T Cell Sciences, Inc., Civil Action No. 95-1499 (Norfolk County Superior
Court) (the "PNC Action"), in order to resolve the dispute arising under the
Tri-Party Agreement;
WHEREAS, in the PNC Action, T Cell denied any liability to PNC and
asserted third-party claims against Forest City;
WHEREAS, Forest City asserted third-party counterclaims against T Cell
in the PNC Action;
WHEREAS, T Cell and Forest City each denied any liability to the other
in the PNC Action;
WHEREAS, in order to avoid the expense, uncertainty and risks of further
litigation, and without any admission of liability, T Cell and Forest City
mutually desire
<PAGE>
to resolve by settlement all of the claims and counterclaims asserted in the
Forest City Action and the PNC Action;
WHEREAS, Forest City and PNC have entered into a separate agreement which
has enabled Forest City to obtain PNC's cooperation in resolving the PNC Action
as part of this Agreement;
NOW THEREFORE, in consideration of the promises, mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, T Cell and Forest City
do hereby agree and promise as follows:
1. Cash Payments. T Cell shall pay to Forest City a total of $2,3589,755
in cash, in three payments, each to be made by wire transfer to a designated
account in the name of "Forest City Rental Properties" with Huntington Bank in
Columbus, Ohio (or as otherwise mutually agreed in writing), as follows:
(a) the first payment, in the amount of $858,755, is to be made no later
than Monday, November 17, 1997;
(b) the second payment, in the amount of $750,000, is to be made no
later than Monday, November 16, 1998; and
(c) the third and final payment, in the amount of $750,000, is to be
made no later than Monday, November 15, 1999.
2. Security. To secure the payments described in paragraphs 1(b) and 1(c)
above, the parties agree as follows:
<PAGE>
(a) by November 17, 1997, T Cell shall sign and deliver to Forest City
two secured promissory notes, the forms of which are attached hereto
as Exhibits "A" and "B";
(b) also by November 17, 1997, T Cell Sciences, Inc. shall secure the
payment due on November 16, 1998 by executing a "Control Agreement"
in the form attached hereto as Exhibit "C," and providing cash
collateral in a form reasonably acceptable to Forest City and
maintained in the account known as the "T Cell Sciences, Inc.
Pledged Collateral Account" with assets having a cash value of
$750,000 as of November 17, 1997; provided, however, that Forest
City promises not to exercise any rights it may have as Assignee
under the Control Agreement to direct any withdrawal or transfer, or
issue any instruction or entitlement order, with respect to any of
the assets maintained in the T Cell Sciences, Inc. Pledged
Collateral Account described in that Control Agreement, prior to
November 16, 1998, except with the prior written consent of T Cell
Sciences, Inc.;
(c) also by November 17, 1997, T Cell shall secure the payment due on
November 15, 1999 by issuing 132,500 unregistered shares of T Cell
Sciences, Inc. common stock to Forest City 38 Sidney Street, Inc.
and delivering to Forest City 38 Sidney Street, Inc. two restricted
stock certificates, each in the amount of 66,250 shares, to reflect
the same; provided, however, that Forest City 38 Sidney
Street may not transfer such shares or certificates to any other
party until after May 15, 1998,
<PAGE>
but shall instead hold the two stock certificates in escrow, in its
own name, and further dispose of them as follows:
(i) if, on or before December 31, 1997, T Cell provides cash
collateral in a form reasonably acceptable to Forest City in
the amount of $750,000 and designates that money as payable
only to Forest City to satisfy the November 15, 1999 payment
obligation described in paragraph 1(b) above (or, in the
alternative, provides other collateral which Forest City deems
acceptable), then Forest City 38 Sidney Street, Inc. shall
immediately return to T Cell Sciences, Inc. the two stock
certificates reflecting all of the 132,500 shares of stock
described above, free and clear of all liens and encumbrances,
together with an assignment of such stock to T Cell Sciences,
Inc., executed on behalf of Forest City 38 Sidney Street, Inc.
The payment due to Forest City on November 15, 1999 shall
thereby be deemed fully collateralized, and no further
collateral or security shall be provided by T Cell;
(ii) if, after December 31, 1997 but on or before May 15, 1998,
provides cash collateral in a form reasonably acceptable to
Forest City in the amount of $750,000 and designates that
money as payable only to Forest City to satisfy the November
15, 1999 payment obligation described in paragraph 1(b) above
(or, in the alternative, provides other collateral which
Forest
<PAGE>
City deems acceptable), then Forest City 38 Sidney Street,
Inc. shall immediately return to T Cell Sciences, Inc. one
stock certificate reflecting half, or 66,250, of the shares of
stock described above, free and clear of all liens and
encumbrances, together with an assignment of such stock to T
Cell Sciences, Inc., executed on behalf of Forest City 38
Sidney Street, Inc., and retain for itself, or otherwise
dispose of in any manner it chooses, subject to applicable law
and any other restrictions contained in this Agreement, the
remaining stock certificate reflecting the balance of 66,250
shares. The payment due to Forest City on November 15, 1999
shall thereby be deemed fully collateralized, and no further
collateral or security shall be provided by T Cell;
(iii) if, by May 15, 1998, T Cell fails to provide cash collateral
in a form reasonably acceptable to Forest City in the amount
of $750,000 and designate that money as payable only to Forest
City to satisfy the November 15, 1999 payment obligation
described in paragraph 1(b) above (or, in the alternative,
provide other collateral which Forest City deems acceptable),
then Forest City 38 Sidney Street, Inc. shall retain for
itself, or otherwise dispose of in any manner it chooses,
subject to applicable law and any other restrictions contained
in this
<PAGE>
Agreement, the two stock certificates reflecting all of the
132,500 shares of stock described above; and
(iv) provided further, that in the event that any stock certificate
to be returned to T Cell Sciences, Inc. as set forth in this
paragraph is not immediately returned by Forest City 38 Sidney
Street, Inc. when due, with the appropriate assignment, then T
Cell Sciences, Inc. shall be entitled to cancel the original
issuance of stock reflected by that certificate and void the
certificate, as of the date when such certificate was due to
be returned, and Forest City will pay to T Cell upon demand
all reasonable legal and other costs and expenses of every
kind, including reasonable attorneys' fees and disbursements,
relating to the enforcement of Forest City 38 Sidney Street,
Inc.'s obligation to return any stock certificate and deliver
the appropriate assignment to T Cell Sciences, Inc.
3. Release of Escrow Amounts from Letter of Credit and Equipment. By
November 17, 1997, T Cell shall execute and deliver to counsel for Forest City a
"First Authorization for Escrow Agent to Release Certain Funds," in the form
attached hereto as Exhibit "D," and a "Second Authorization to Escrow Agent to
Release Certain Funds," in the form attached hereto as Exhibit "E," in order to
release to Forest City all escrow amounts held by Massery, Gillis & Guiney
which, as of November 10, 1997, totaled $141,245, as follows:
<PAGE>
(a) principal and interest of $104,180, from the proceeds of a letter of
credit for $93,000; and
(b) principal and interest of $37,065, from the rental of $300,000 worth
of T Cell equipment in use at 38 Sidney Street.
4. Transfer of Equipment. T Cell shall transfer the title and ownership of
its equipment located at 38 Sidney Street, Cambridge, Massachusetts, to Forest
City 38 Sidney Street, Inc., by November 17, 1997, by executing and delivering
to Forest City a bill of sale in the form attached hereto as Exhibit "F."
5. Stock Issuance. By November 17, 1997, T Cell shall issue to Forest City
38 Sidney Street, Inc. 1,367,500 unregistered shares of T Cell Sciences, Inc.
common stock, and deliver to Forest City 38 Sidney Street, Inc. a restricted
stock certificate reflecting the same. T Cell warrants and represents that the
unregistered shares of T Cell Sciences, Inc. common stock to be delivered
pursuant to this paragraph and paragraph 2(c) of this Agreement are duly and
validly issued shares, and that the issuance and delivery of those shares to
Forest City does not constitute an event of default under the articles or
by-laws of T Cell Sciences, Inc., or under any loan or other agreement to which
T Cell Sciences, Inc. is a party. T Cell further warrants and represents that
upon delivery of these shares, Forest City shall have good and marketable title
to those shares, subject only to the matters provided for in this Agreement.
6. Stock Registration. T Cell shall provide to Forest City 38 Sidney
Street, Inc., or its designee, the right to include up to 1.5 million shares of
T Cell Sciences, Inc. common stock in a registration by T Cell, only as follows:
<PAGE>
(a) Forest City 38 Sidney Street, Inc., or its designee, shall have a
"piggyback" registration right, pursuant to which Forest City shall
be entitled to include up to 1.5 million shares in a registration by
T Cell in connection with any public offering of common stock that T
Cell may make between November 17, 1997 and September 30, 1998.
Provided, however, as follows:
(i) this piggyback registration right is subject to the
discretionary approval of the underwriter of any such public
offering, and the underwriter's discretion shall not be
subject to challenge; and
(ii) if, but only if, a piggyback registration takes place after
May 15, 1998, it may, at the option of Forest City 38 Sidney
Street, Inc., or its designee, include any or all of the
132,500 shares of common stock issued as security for the
payment due on November 15, 1999 in accordance with paragraph
2(c) above, to the extent those shares are then still held by
Forest City in accordance with paragraph 2(c); and
(b) without regard to the timing of any public offering or the ability
to "piggyback" on any public offering, at the request of Forest City
38 Sidney Street, Inc., or its designee, T Cell shall register up to
1.5 million shares of T Cell Sciences, Inc. common stock, on a
registration statement on Form S-3, to become effective, subject to
the necessary governmental approvals, as of September 30, 1998. T
Cell
<PAGE>
shall register those shares and bear the costs associated with such
registration. Provided, however, that upon such registration:
(i) Forest City 38 Sidney Street, Inc., or its designee, shall
sell no more than 375,000 shares of T Cell Sciences, Inc.
stock per month, until it has disposed of a total of 1.5
million shares; and
(ii) Forest City 38 Sidney Street, Inc., or its designee, agrees,
if requested by T Cell's underwriters or financial advisors in
an offering of T Cell securities pursuant to a registration
statement filed with the Securities and Exchange Commission,
not to effect any public sale or distribution of any shares of
T Cell common stock during the fifteen (15) day period prior
to, and during the ninety (90) day period beginning on, the
date of such public offering, but in no event shall Forest
City 38 Sidney Street, Inc., or its designee be required to
enter into any such agreement unless all directors, officers
and 5% shareholders of T Cell shall have entered into similar
agreements.
7. Approval by PNC. Forest City represents that it has obtained the assent
of PNC to the terms of this agreement. Forest City further represents that it
can and shall obtain a release and stipulation of dismissal executed by PNC as
set forth in paragraphs 10 and 11 below, and in the forms attached hereto as
Exhibits "G" and "I."
8. Release by T Cell. T Cell hereby irrevocably releases and forever
discharges Forest City, its subsidiaries, affiliates, predecessors and
successors, and its respective past,
<PAGE>
present and future officers, directors, stockholders, employees, agents,
attorneys, representatives, successors and assigns, from any and all claims,
actions, causes of action, contracts, demands, debts or obligations of any kind
for damages, costs, expenses, fees, payments or any other kind of liability,
whether known or unknown, which T Cell has ever had or may now have against
Forest City, including but not limited to any claims which arise out of T Cell's
lease of space at 38 Sidney Street, Cambridge, Massachusetts, and/or the
so-called "Tri-Party Agreement," dated June 30, 1988, between and among T Cell,
Forest City, and PNC, and including but not limited to all claims that were or
could have been asserted in the Forest City Action or the PNC Action.
9. Release by Forest City. Forest City hereby irrevocably releases and
forever discharges T Cell, its subsidiaries, affiliates, predecessors and
successors, and its respective past, present and future officers, directors,
stockholders, employees, agents, attorneys, representatives, successors and
assigns, from any and all claims, actions, causes of action, contracts, demands,
debts or obligations of any kind for damages, costs, expenses, fees, payments or
any other kind of liability, whether known or unknown, which Forest City has
ever had or may now have against T Cell, including but not limited to any claims
which arise out of T Cell's lease of space at 38 Sidney Street, Cambridge,
Massachusetts, and/or the so-called "Tri-Party Agreement," dated June 30, 1988,
between and among T Cell, Forest City, and PNC, and including but not limited to
all claims that were or could have been asserted in the Forest City Action or
the PNC Action.
10. Release by PNC. By November 17, 1997, Forest City shall have obtained
from PNC an executed original release in the form attached hereto as Exhibit
"G," and delivered said release to T Cell's counsel, Lisa C. Goodheart, at Hill
&
<PAGE>
Barlow, A Professional Corporation, One International Place, 100 Oliver Street,
Boston, Massachusetts, 02110-2607.
11. Stipulations of Dismissal. By November 17, 1997, T Cell and Forest
City, by their respective counsel, shall execute stipulations of dismissal of
the Forest City Action and the PNC Action in the forms attached hereto as
Exhibits "H" and "I." Also by November 17, 1997, Forest City shall have obtained
the signature of counsel for PNC on the stipulation of dismissal of the PNC
Action, in the form attached hereto as Exhibit "I." Forest City shall promptly
deliver both stipulations, executed on behalf of Forest City and PNC as
required, to counsel for T Cell, Lisa C. Goodheart. T Cell, through its counsel,
shall arrange for Federal Insurance Company, an intervenor in the Forest City
Action, also to execute the stipulation of dismissal of that case. T Cell,
through its counsel, shall arrange to file the fully-executed stipulations of
dismissal of the Forest City Action and the PNC Action with the Superior Court
for Middlesex and Norfolk Counties, respectively.
12. Public Disclosures. The parties understand that appropriate
arrangements must be made with respect to the public disclosure of this
settlement, as required by law, and all parties agree to cooperate with respect
to the substance and timing of those arrangements. As part of such cooperation,
each party shall give each other party a reasonable opportunity to review and
comment on, but not to veto or prohibit, the terms of its public disclosures
about this settlement, before those disclosures are made.
13. No Admission of Liability. None of the parties to this Agreement
admits any liability or responsibility with respect to any of the claims
asserted by or
<PAGE>
between any of them, and this Agreement shall not be construed as an admission
of liability on the part of any of the parties hereto.
14. Choice of Law. This Agreement and the legal relations between and
among the parties hereto shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without regard to its conflicts
of law rules.
15. Authorization of Signatories. Each person executing this Settlement
Agreement represents that he or she is duly authorized to do so by the party on
whose behalf he or she has signed.
16. Complete Agreement. This Agreement constitutes the entire agreement
and understanding between and among T Cell and Forest City with respect to the
matters referenced herein. No representation, promise, understanding or
agreement of any kind whatsoever regarding the matters referenced herein that is
not set forth in this Agreement shall be valid, binding or enforceable. All
prior negotiations of T Cell and Forest City or their agents are merged into
this Agreement. This Agreement supersedes all prior agreements, promises,
covenants, arrangements, representations or warranties, whether oral or written,
between T Cell and Forest City, relating to any matter, whether addressed herein
or otherwise, including but not limited to the "Stipulation Concerning Damages,
Agreement to Transfer Ownership Rights and Escrow Agreement" dated October 20,
1995, and the "Escrow Agreement" dated May of 1995, between and among T Cell,
Forest City and others.
17. Advice of Counsel and Payment of Legal Fees. T Cell and Forest City
hereby represent that they have each had the opportunity to obtain advice of
counsel
<PAGE>
of their own choosing in the negotiation and preparation of this Agreement; that
their undersigned representatives have read this Agreement and had it fully
explained to them by their counsel; and that they are fully aware of its
contents and legal effect. T Cell and Forest City further represent and agree
that each of them is and shall be responsible for payment of its own legal fees
and costs incurred in the negotiation for and preparation of this Agreement.
18. Modifications in Writing. No supplement, modification, change or
waiver of this Agreement of any provision thereof shall be binding unless
executed in writing by the parties to be bound thereby.
19. Execution in Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in two counterparts. Each such counterpart shall
be deemed to be an original instrument, and both counterparts shall together
constitute the same agreement.
IN WITNESS WHEREOF, T Cell and Forest City have each executed this
Agreement under seal, by their duly authorized representatives.
T CELL SCIENCES, INC.
By: /s/ Una S. Ryan
----------------------------
Una S. Ryan, President
Witness: /s/ Selma L. Carlson
----------------------------
<PAGE>
T CELL DIAGNOSTICS, INC.
By: /s/ Una S. Ryan
---------------------------
Una S. Ryan, Director
Witness: /s/ Selma L. Carlson
---------------------------
FOREST CITY 38 SIDNEY STREET, INC.
By: /s/ James A. Ratner
---------------------------
Name
President
---------------------------
Title
Witness: /s/ Donna Anderson
---------------------------
FOREST CITY COMMERCIAL MANAGEMENT, INC.
By: /s/ David J. LaRue
--------------------------
Name
Secretary
--------------------------
Title
Witness: /s/ Donna Anderson
--------------------------
<PAGE>
FOREST CITY ENTERPRISES, INC.
By: /s/ James A. Ratner
--------------------------
Name
Executive Vice President
--------------------------
Title
Witness: /s/ Donna Anderson
--------------------------
<PAGE>
LIST OF ATTACHMENTS
Exhibit A Form of Secured Promissory Note Due November 16, 1998.
Exhibit B Form of Secured Promissory Note Due November 15, 1999.
Exhibit C Form of Control Agreement.
Exhibit D First Authorization for Escrow Agent to Release Certain
Funds.
Exhibit E Second Authorization for Escrow Agent to Release
Certain Funds.
Exhibit F Bill of Sale for T Cell Equipment.
Exhibit G Release from PNC Bank, N.A.
Exhibit H Stipulation of Dismissal of the Forest City Action.
Exhibit I Stipulation of Dismissal of the PNC Action.
<PAGE>
SECURED PROMISSORY NOTE
DUE NOVEMBER 16, 1998
$750,000 November 17, 1997
FOR VALUE RECEIVED, the undersigned, T Cell Sciences, Inc., a Delaware
corporation having a principal place of business at 119 Fourth Avenue, Needham,
Massachusetts, 02194-2725 ("T Cell Sciences"), and T Cell Diagnostics, Inc., a
Delaware corporation having a principal place of business at 119 Fourth Avenue,
Needham, Massachusetts, 02194-2725 ("T Cell Diagnostics") (T Cell Sciences and T
Cell Diagnostics being collectively referred to herein as the "Makers"), hereby
jointly and severally promise to pay to the order of Forest City 38 Sidney
Street, Inc., an Ohio corporation having a principal place of business at 1100
Terminal Tower, Cleveland, Ohio, 44113 (together with its assigns, the
"Holder"), the principal amount of Seven Hundred Fifty Thousand Dollars, in
lawful money of the United States of America, on or before November 16, 1998.
Principal shall be payable at maturity. This Note shall not bear interest,
except as hereinafter provided.
All payments due under this Note shall be made to the Holder at the
address shown above or at such other place as the Holder may designate from time
to time in writing at least ten (10) days before any such payment is due.
The principal of this Note may be prepaid in whole or in part at any time
or from time to time at the option of the Makers, without premium or penalty.
Any such prepayment shall be applied to the payment due at maturity, and no such
prepayment will affect the Makers' obligation to make any subsequent required
payment or prepayment until this Note shall have been paid in full.
This Note is secured by and entitled to the benefits of Paragraph 2(b) of
a Settlement Agreement dated November 14, 1997 (the "Settlement Agreement") by
and among the Makers, the Payee, Forest City Management, Inc. and Forest City
Enterprises, Inc., which provides certain security, among other things, for the
indebtedness of the Makers under this Note.
If Makers shall fail to make any payment on this Note when due and
payable, or if the Makers shall fail to comply with or perform any other of the
terms of this Note or Paragraph 2(b) of the Settlement Agreement within fourteen
(14) days of receipt by the Makers of written notice from the Holder of such
failure to comply, or if either of Makers shall become unable to meet their
obligations as they become due, or shall begin or be the subject of any
bankruptcy or other proceedings for the relief of debtors, or any substantial
part of the property of either of the Makers shall be taken on attachment or by
foreclosure, then, in any such case, the Holder may at its option declare this
Note, including the entire unpaid principal amount then outstanding, to become
due and payable immediately. From
<PAGE>
and after the date on which the Note becomes due and payable, such unpaid
principal amount shall bear interest at the prime rate as of November 17, 1997,
or __%, per annum.
The parties hereto, including the Makers and all endorsers and guarantors
of this Note, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Note.
The failure of any party to insist, on any one or more occasions, upon
performance of any of the terms or conditions of this Note, shall not be
construed as a waiver or relinquishment of any rights granted hereunder or the
future performance of any such term, covenant or condition.
The Makers will pay to the Holder upon demand all reasonable legal and
other costs and expenses of every kind, including reasonable attorneys' fees and
disbursements, relating to the collection and/or enforcement of this Note, but
only in the event of any default under this Note by the Makers.
Any notice given hereunder shall be in writing and shall be deemed
effective when actually received in hand or by telecopy or other electronic
transmission or when sent by certified or registered mail, return receipt
requested, addressed to the Makers at the address set forth above, or such other
address of which notice has been provided hereunder.
This Note may not be amended except in writing signed by the party against
whom such amendment is sought to be enforced. This Note shall be interpreted
under and governed by the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned have duly executed this Note as an
instrument under seal as of the day and year first above written.
T CELL SCIENCES, INC.
By:
-----------------------------
Una S. Ryan
President
T CELL DIAGNOSTICS, INC.
By:
-----------------------------
Una S. Ryan
Director
<PAGE>
SECURED PROMISSORY NOTE
DUE NOVEMBER 15, 1999
$750,000 November 17, 1997
FOR VALUE RECEIVED, the undersigned, T Cell Sciences, Inc., a Delaware
corporation having a principal place of business at 119 Fourth Avenue, Needham,
Massachusetts, 02194-2725 ("T Cell Sciences"), and T Cell Diagnostics, Inc., a
Delaware corporation having a principal place of business at 119 Fourth Avenue,
Needham, Massachusetts, 02194-2725 ("T Cell Diagnostics") (T Cell Sciences and T
Cell Diagnostics being collectively referred to herein as the "Makers"), hereby
jointly and severally promise to pay to the order of Forest City 38 Sidney
Street, Inc., an Ohio corporation having a principal place of business at 1100
Terminal Tower, Cleveland, Ohio, 44113 (together with its assigns, the
"Holder"), the principal amount of Seven Hundred Fifty Thousand Dollars, in
lawful money of the United States of America, on or before November 15, 1999.
Principal shall be payable at maturity. This Note shall not bear interest,
except as hereinafter provided.
All payments due under this Note shall be made to the Holder at the
address shown above or at such other place as the Holder may designate from time
to time in writing at least ten (10) days before any such payment is due.
The principal of this Note may be prepaid in whole or in part at any time
or from time to time at the option of the Makers, without premium or penalty.
Any such prepayment shall be applied to the payment due at maturity, and no such
prepayment will affect the Makers' obligation to make any subsequent required
payment or prepayment until this Note shall have been paid in full.
This Note is secured by and entitled to the benefits of Paragraph 2(c) of
a Settlement Agreement dated November 14_, 1997 (the "Settlement Agreement") by
and among the Makers, the Payee, Forest City Management, Inc. and Forest City
Enterprises, Inc., which provides certain security, among other things, for the
indebtedness of the Makers under this Note.
If Makers shall fail to make any payment on this Note when due and
payable, or if the Makers shall fail to comply with or perform any other of the
terms of this Note or Paragraph 2(c) of the Settlement Agreement within fourteen
(14) days of receipt by the Makers of written notice from the Holder of such
failure to comply, or if either of Makers shall become unable to meet their
obligations as they become due, or shall begin or be the subject of any
bankruptcy or other proceedings for the relief of debtors, or any substantial
part of the property of either of the Makers shall be taken on attachment or by
foreclosure, then, in any such case, the Holder may at its option declare this
Note, including the entire unpaid principal amount then outstanding, to become
due and payable immediately. From and after the date on which the Note becomes
due and payable, such unpaid principal amount shall bear interest at the prime
rate as of November 17, 1997, or __%, per annum.
<PAGE>
The parties hereto, including the Makers and all endorsers and guarantors
of this Note, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Note.
The failure of any party to insist, on any one or more occasions, upon
performance of any of the terms or conditions of this Note, shall not be
construed as a waiver or relinquishment of any rights granted hereunder or the
future performance of any such term, covenant or condition.
The Makers will pay to the Holder upon demand all reasonable legal and
other costs and expenses of every kind, including reasonable attorneys' fees and
disbursements, relating to the collection and/or enforcement of this Note, but
only in the event of any default under this Note by the Makers.
Any notice given hereunder shall be in writing and shall be deemed
effective when actually received in hand or by telecopy or other electronic
transmission or when sent by certified or registered mail, return receipt
requested, addressed to the Makers at the address set forth above, or such other
address of which notice has been provided hereunder.
This Note may not be amended except in writing signed by the party against
whom such amendment is sought to be enforced. This Note shall be interpreted
under and governed by the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned have duly executed this Note as an
instrument under seal as of the day and year first above written.
T CELL SCIENCES, INC.
By:
----------------------------
Una S. Ryan
President
T CELL DIAGNOSTICS, INC.
By:
---------------------------
Una S. Ryan
Director
<PAGE>
CONTROL AGREEMENT
Merrill Lynch Account Number: _____________ Date: NOVEMBER 17, 1997
-----------------
T CELL SCIENCES, INC. (hereinafter "Assignor"), FOREST CITY 38 SIDNEY STREET,
INC. (hereinafter "Assignee") and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (hereinafter "Merrill Lynch") hereby agree as follows:
Assignor has granted a security interest in the Collateral Account (hereinafter
defined) to Assignee, and in connection therewith, Assignor instructs Merrill
Lynch to:
1) Establish a cash security account, which is to be known as the "T CELL
SCIENCES, INC. Pledged Collateral Account for FOREST CITY 38 SIDNEY STREET,
INC." (which account together with all of the securities (as such term is
defined in revised (1994) Uniform Commercial Code - Investment Securities)
and other financial assets and cash evidenced thereby and all Assignor's
security entitlement (as such term is defined under revised (1994) Uniform
Commercial Code - Investment Securities) associated therewith, together with
any replacement thereof is herein called the "Collateral Account"; and
2) place the assets listed in Exhibit A into the Collateral Account.
Assignor, Assignee and Merrill Lynch agree that the following terms and
conditions of this Control Agreement ("Agreement") will govern the Collateral
Account:
1. Control
By the execution and delivery of this Agreement, Merrill Lynch (a) agrees that
it will comply only with instructions and/or entitlement orders (as such term is
defined under revised (1994) Uniform Commercial Code Investment Securities) in
regard to or in connection with the Collateral Account, originated by an
Authorized Officer of Assignees without further notice or consent of Assignor,
and (b) acknowledges Assignee's security interest and lien in and to the
Collateral Account.
The following paragraph must be initiated by both Assignee and Assignor if an
Authorized Officer of Assignor will give trading instructions in the Collateral
Account. (Disregard this paragraph if only Assignee will give trading
instructions.)
______________Notwithstanding the above, Merrill Lynch shall take trading
instructions with respect to the financial assets held in the Collateral Account
at the direction of an Authorized Officer of Assignor.
All parties agree that (a) Merrill Lynch is a "Securities Intermediary" as such
term is defined under revised (1994) Uniform Commercial Code - Investment
Securities and, (b) all property held by
<PAGE>
Merrill Lynch in the Collateral Account will be treated as, "financial assets"
as such term is defined under revised (1994) Uniform Commercial Code -
Investment Securities.
All instructions and entitlement orders given to Merrill Lynch in reference to
the Collateral Account shall be in writing.
2. No Withdrawals
Except as provided herein, Merrill Lynch shall neither accept nor comply with
any entitlement orders from Assignor directing it to withdraw any financial
assets from the Collateral Account or to deliver any such financial assets to
Assignor with respect to the Account without the specific prior written consent
of Assignee.
The following paragraph must be initiated by all parties if interest and
dividends generated with respect to the financial assets held in the Collateral
Account are to be distributed out of the Collateral Account to Assignor without
additional instruction. (Disregard this paragraph if interest and dividends are
to remain in the account.)
_________________ Notwithstanding the above, Assignor or Assignor's designee is
entitled to receive all income with respect to the financial assets held in the
Collateral Account, including interest and dividends (but not stock splits,
stock dividends, cash equity distributions, liquidating distributions or other
non cash principal disbursements) (hereinafter "income"), and therefore,
Assignor and Assignee hereby instruct Merrill Lynch to transfer all such income
on a monthly basis to account number 64M07P26 in the name of T CELL SCIENCES,
INC.
3. Priority of Lien
Merrill Lynch represents that: (a) the assets held in the Collateral Account
will be held in the name of Merrill Lynch; (b) it will not agree to comply with
any third party orders or instructions concerning the Collateral Account without
the prior written consent of Assignee and Assignor; and (c) it will hold the
Collateral Account and all assets therein as bailee of Assignee.
Assignor warrants and represents that he has not granted a security interest in
the Collateral Account to any party other than Assignee.
Merrill Lynch subordinates its right to offset any security interest in and to
the Collateral Account or any financial asset held in the Collateral Account in
favor of Assignee, except for (i) payment owed to Merrill Lynch for open trade
commitments for purchases of financial assets in and for the Collateral Account,
and (ii) negotiable instruments (i.e., checks and drafts) received by Merrill
Lynch as a holder in due course, the proceeds of which are deposited into the
Collateral Account, but which negotiable instruments are later returned to
Merrill Lynch as uncollectible.
<PAGE>
4. Authorized Officers
For purposes of this Agreement, the term "Authorized Officer of Assignor" shall
refer in the singular to either: UNA S. RYAN, PRESIDENT or NORMAN W. GORIN,
CHIEF FINANCIAL OFFICER.
For purposes of this Agreement, the term "Authorized Officer of Assignee" shall
refer in the singular to either: THOMAS G. SMITH, SECRETARY or JAMES A. RATNER,
PRESIDENT.
In the event that the Assignor or Assignee shall find it advisable to designate
a replacement of their Authorized Officer, written notice of any such
replacement shall be given to Merrill Lynch.
5. Statements
So long as this agreement remains in effect, Assignee shall be entitled to
receive duplicates of any and all notices and statements of account that
Assignor of such Collateral Account is entitled to receive. Such statements
shall be sent to the following address:
FOREST CITY 38 SIGNEY STREET, INC.
ATTENTION: THOMAS G. SMITH
1100 TERMINAL TOWER
CLEVELAND, OHIO 44113
6. Limited Responsibility of Merrill Lynch
If an Authorized Officer of Assignor is permitted to effect transactions in the
Collateral Account, Merrill Lynch shall have no responsibility or liability to
Assignee for accepting and processing instructions relating to such
transactions. Merrill Lynch shall have no responsibility or liability to
Assignor for complying with entitlement orders concerning the Collateral Account
originated by the Assignee. Merrill Lynch shall have no responsibility or
liability to Assignee with respect to the value of the Collateral account or any
asset held therein. Merrill Lynch shall have no duty to investigate or make any
determination as to whether a default exists under any agreement between
Assignee and Assignor. This Agreement does not create any obligation or duty of
Merrill Lynch other than those expressly set forth herein.
7. Indemnification
Assignor hereby agrees to indemnify and hold harmless Merrill Lynch, its
affiliates, officers and employees from and against any and all claims, causes
of action, liabilities, lawsuits, demands and/or damages, including, without
limitations, any and all court costs and reasonable attorney's fees, in any way
related to or arising out of or in connection with the assignment, this
Agreement, and/or the Collateral Account.
8. Choice of Law
<PAGE>
The terms of this Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the respective parties hereto and shall be
construed in accordance with the laws of the State of New York without regard to
its conflict of law principles. However, all issuance in any way concerning
collateral, security interests or perfection arising out of this Agreement shall
be governed by the laws of the COMMONWEALTH OF MASSACHUSETTS.
Assignor and Assignee represent and warrant to Merrill Lynch that this Agreement
and its terms are in compliance with applicable law, including, without
limitation, the federal securities credit laws.
9. Miscellaneous
Assignor acknowledges that this agreement supplements Assignor's existing
agreement(s) with Merrill Lynch and in no way is this Agreement intended to
abridge any rights that Merrill Lynch might otherwise have, except as provided
by this Agreement.
Merrill Lynch may terminate this agreement on thirty (30) days notice to the
Assignor and Assignee.
This Agreements represents the final agreement between the parties and may not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties. The invalidity, illegality or unenforceability of any
provision of this Agreement shall not affect the validity, legality or
enforceability of any of the other provisions of this Agreement which shall
remain effective.
IN WITNESS WHEREOF, Assignor, Assignee and Merrill Lynch have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
T CELL SCIENCES, INC. FOREST CITY 38 SIDNEY STREET, INC.
By: Una S. Ryan By: James A. Ratner
Title: President Title: President
Signature: /s/ Una S. Ryan Signature: /s/ James A. Ratner
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By:________________________________________ Date: ________________
Resident Vice President
By:________________________________________ Date: ________________
Division Administrative Manager
<PAGE>
EXHIBIT A
Assignor has placed the following assets into the T CELL SCIENCES, INC. Pledged
Collateral Account for FOREST CITY 38 SIDNEY STREET, INC. Account Number:
_____________ (account number to be assigned when the account is established
with Merrill Lynch).
Quantity Description
-------- -----------
Merrill Lynch Institutional Fund
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
- --------------------- ------------------------------------------
If additional pages are necessary please label:
"Exhibit A for account number ________________."
<PAGE>
CORPORATION AUTHORIZATION
FOR CASH ACCOUNTS
TO: MERRILL LYNCH PIERCE FENNER & SMITH, INC.
BE IT RESOLVED: That this corporation T CELL SCIENCES, INC. be, and it
hereby is, authorized and empowered to open and maintain an account with MERRILL
LYNCH PIERCE FENNER & SMITH, INC., and its successors, by merger, consolidation
or otherwise, and assigns, hereinafter called the brokers, for the purchase and
sale of stocks, bonds, options, securities, or physical commodities, on
exchanges of which the brokers are members or otherwise, and that any of the
officers hereinafter named be, and he hereby is, authorized to give written or
verbal instructions by telephone or telegraph, or otherwise, to the brokers to
buy or sell stocks, bonds, options, securities, or physical commodities, either
for immediate or future delivery and, if he deems proper to secure payment
therefor with property of this corporation; and he shall at all times have
authority in every way to bind and obligate this corporation for the carrying
out of any contract, arrangement or transaction which shall, for or on behalf of
this corporation, be entered into or made with or through the brokers; and that
the brokers are authorized to receive from this corporation, checks and drafts
drawn upon the funds of this corporation by any officer or employee of this
corporation, and to apply the same to the credit of this corporation or to its
account with said brokers and the said brokers are authorized to receive from
said officer(s) or from any other officer or employee of this corporation,
stocks, bonds, options, securities, or physical commodities for the account of
this corporation with said brokers; said brokers are further authorized to
accept instructions from any officer herein named as to the delivery of stocks,
bonds, options, securities, or physical commodities from the account of this
corporation and at his direction to cause certificates of stocks, bonds,
options, securities or physical commodities held is said account to be transfer
to the name of any officer hereinafter named or of this corporation in the
discretion of said officer; and delivery to any such officer of such stocks,
bonds, options, securities, or physical commodities, issued as directed by him,
shall be deemed delivery to this corporation; and any such officer shall have
the fullest authority at all times with reference to any transaction deemed by
him to be proper to make or enter into for or on behalf of this corporation with
the brokers or others. All confirmations, notices and demands upon this
corporation may be delivered by the brokers verbally or in writing, or by
telegraph, or by telephone to any such officer and he is authorized to empower
any person, or persons, that he deems proper, at any time, or at times, to do
any and all things that he is hereinbefore authorized to do. That this
resolution shall be and remain in full force and effect until written notice of
the revocation hereof shall be delivered to the brokers. The officer(s) herein
referred to are named as follows to-wit:
UNA S. RYAN, PRESIDENT
NORMAN W. GORIN, CHIEF FINANCIAL OFFICER
I, STUART M. CABLE, Secretary of T CELL SCIENCES, INC. hereby certify that the
forgoing is a full, true and correct copy of a resolution duly and regularly
passed and adopted by the unanimous vote of the Board of Directors of said
company at a meeting hereof duly called and held at the office of said company
on the 12TH DAY OF NOVEMBER 1997, at which meeting all directors were present
and voting; that said resolution appears in the minutes of said meeting, and
that the same has not been rescinded or modified and is now in full force and
effect.
I further certify that said corporation is duly organized and existing, and has
the power to take the action called for by the foregoing resolution.
/s/ Stuart M. Cable, Secretary
<PAGE>
FIRST AUTHORIZATION FOR ESCROW AGENT
TO RELEASE CERTAIN FUNDS
Agreement is hereby made this day of November, 1997, by, between and among
T Cell Sciences, Inc. ("TCS"), T Cell Diagnostics, Inc. ("TCD"), (hereinafter
collectively referred to as "T Cell"), Forest City 38 Sidney Street, Inc.
("FC38S"), Forest City Commercial Management, Inc., as successor-in-interest to
Forest City Management, Inc. ("FCM"), (hereinafter collectively referred to as
"Forest City"), and PNC Bank, National Association (hereinafter referred to as
"PNC").
WHEREAS, T Cell and Forest City (and an affiliate) are in a dispute
described in the pleadings filed in a civil action styled T Cell Sciences, Inc.
and T Cell Diagnostics, Inc. v. Forest City 38 Sidney Street, Inc. and Forest
City Management, Inc., et al., Middlesex Superior Court Civil Action No.94-6670
(hereinafter referred to as "the Middlesex Action"); and
WHEREAS, T Cell, Forest City (and an affiliate) and PNC are in a dispute
described in the pleadings filed in a civil action styled PNC Bank, N.A. v. T
Cell Sciences, Inc. v. Forest City 38 Sidney Street, Inc.. Forest City
Management, Inc., et al., Norfolk Superior Court Civil Action No.95-01499
(hereinafter referred to as "the Norfolk Action"); and
WHEREAS, in May of 1995, TCS, FCM and PNC entered into an agreement
entitled "Escrow Agreement" (hereinafter referred to as "the Letter of Credit
Escrow Agreement"), to which Massery, Gillis & Guiney (hereinafter referred to
as "Escrow Agent") was a signatory as Escrow Agent. (A copy of the Letter of
Credit Escrow Agreement is attached hereto as Exhibit "A".); and
WHEREAS, T Cell, Forest City and PNC have agreed to resolve their
differences with respect to the Middlesex Action and the Norfolk Action.
NOW THEREFORE, the parties agree as follows:
1. Upon the execution of this First Authorization For Escrow Agent To
Release Certain Funds and pursuant to Paragraph No.3 of the Letter of Credit
Escrow Agreement, the Escrow Agent is hereby authorized to release and otherwise
disburse the Funds, as that term is defined and used in the Letter of Credit
Escrow Agreement, and the interest earned thereon, to Forest City or its
designee and the Escrow Agent is further authorized to take all necessary steps
to close the escrow account established by the Letter of Credit Escrow
Agreement.
<PAGE>
T CELL SCIENCES, INC.
By: _________________________________
Title: ______________________________
Dated: _______________________________
FOREST CITY COMMERCIAL MANAGEMENT, INC.
(as successor in interest to Forest City Management, Inc.)
By: _________________________________
Title: ______________________________
Dated: _______________________________
PNC BANK, NATIONAL ASSOCIATION
By: _________________________________
Title: ______________________________
Dated: _______________________________
<PAGE>
SECOND AUTHORIZATION FOR ESCROW AGENT
TO RELEASE CERTAIN FUNDS
Agreement is hereby made this day __ of November 1997, by, between and
among T Cell Sciences, Inc. and T Cell Diagnostics, Inc. (hereinafter
collectively referred to as "T Cell") and Forest City 38 Sidney Street, Inc. and
Forest City Commercial Management, Inc.. as successor-in-interest to Forest City
Management, Inc. (hereinafter collectively referred to as "Forest City").
WHEREAS, T Cell and Forest City (and an affiliate) are in a dispute
described in the pleadings filed in a civil action styled T Cell Sciences, Inc.
and T Cell Diagnostics, Inc. v. Forest City 38 Sidney Street, Inc. and Forest
City Management, Inc., et al., Middlesex Superior Court Civil Action No.94-6670
(hereinafter referred to as "the Litigation"); and
WHEREAS, on October 20, 1995, T Cell and Forest City entered into an
agreement entitled "Stipulation Concerning Damages, Agreement To Transfer
Ownership Rights and Escrow Agreement" (hereinafter referred to as "the
Equipment Escrow Agreement") to which Massery, Gillis & Guiney (hereinafter
referred to as "Escrow Agent") was a signatory as Escrow Agent. (A copy of the
Equipment Escrow Agreement is attached hereto as Exhibit "A"); and
WHEREAS, T Cell and Forest City have agreed to resolve their differences
with respect to the Litigation.
NOW, THEREFORE, the parties agree as follows:
1. Upon the execution of this Second Authorization For Escrow Agent To
Release Certain Funds and pursuant to Paragraph No.9 of the Equipment Escrow
Agreement, the Escrow Agent is hereby authorized to release and otherwise
disburse the Funds. as that term is defined and used in the Equipment Escrow
Agreement, to Forest City or its designee and is further authorized to take all
necessary steps to close the escrow account established by the Equipment Escrow
Agreement.
T CELL SCIENCES, INC. FOREST CITY 38 SIDNEY STREET, INC.
By: _______________________ By: _______________________
Title: _______________ Title: _______________
Dated: _______________ Dated: _______________
<PAGE>
T CELL DIAGNOSTICS, INC. FOREST CITY COMMERCIAL MANAGEMENT,
INC. (as successor-in-interest to Forest
City Management, Inc.)
By: _______________________ By: _______________________
Title: _______________ Title: _______________
Dated: _______________ Dated: _______________
<PAGE>
BILL OF SALE
This Bill of Sale is entered into this 17th day of November, 1997 by and
among T Cell Sciences, Inc. and T Cell Diagnostics, Inc., both of which are
Delaware corporations having a principal place of business at 119 Fourth Avenue,
Needham, Massachusetts, (jointly, "T Cell"), and Forest City 38 Sidney Street,
Inc., an Ohio corporation having a principal place of business at 1100 Terminal
Tower, Cleveland, Ohio, 44113 ("Forest City").
W I T N E S S E T H:
WHEREAS, T Cell desires to transfer and assign to Forest City 38 Sidney
Street, Inc. all of the personal property, equipment and appurtenances listed on
Schedule I hereto (the "Assets"), and Forest City 38 Sidney Street, Inc. desires
to accept the sale, transfer, conveyance, assignment and delivery thereof;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and in a Settlement Agreement dated November 14, 1997 by and among T
Cell, Forest City 38 Sidney Street, Inc.; Forest City Commercial Management,
Inc.; and Forest City Enterprises, Inc., and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, T
Cell hereby irrevocably sells, transfers, conveys, assigns and delivers to
Forest City 38 Sidney Street, Inc., free and clear of all liens, restrictions
and encumbrances, all of T Cell's right, title and interest in, to and under the
Assets, to have and to hold the same unto Forest City 38 Sidney Street, Inc.,
its successors and assigns, forever.
Forest City 38 Sidney Street, Inc. hereby accepts the sale, transfer,
conveyance, assignment and delivery of the Assets.
The parties agree that Assets hereby conveyed by T Cell to Forest City 38
Sidney Street, Inc. hereunder are sold, transferred, conveyed, assigned,
delivered AS IS and WHERE IS, in used condition, and T Cell makes no other
warranties or representations whatsoever, whether express or implied, with
respect to those Assets.
This Bill of Sale may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instruments.
This Bill of Sale shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts without giving effect to the
conflicts of laws principles thereof, except that if it is necessary in any
other jurisdiction to have the law of such other jurisdiction govern this Bill
of Sale in order for this Bill of Sale to be effective in any respect, then the
laws of such other jurisdiction shall govern this Bill of Sale to such extent.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
officers to execute this Bill of Sale on the day and year first above written.
T CELL SCIENCES, INC.
By:
------------------------------
Una S. Ryan
President
T CELL DIAGNOSTICS, INC.
By:
-----------------------------
Una S. Ryan
Director
FOREST CITY 38 SIDNEY STREET, INC.
By:
----------------------------
Name:
Title:
<PAGE>
Schedule I
List of Personal Property, Equipment and Appurtenances
All case work, machinery and equipment owned by T Cell Sciences, Inc. and
its affiliates ("T Cell") and currently located on the third, fourth and fifth
floors of the laboratory and office space formerly occupied by T Cell at 38
Sidney Street, Cambridge, Massachusetts, including but not necessarily limited
to any and all of the following items, with all appurtenances thereto.
- laboratory benches;
- fume hoods;
- acid neutralization system;
- kitchen cabinets;
- darkroom sink and door;
- modular furniture;
- laboratory faucets and sinks;
- CO2 and vacuum system;
- compressed air system;
- hot water heater;
- animal facility equipment and cage washer;
- energy control system; - booster pump system;
- (1) 2.5 h.p. Copco air compressor;
- (1) Hood (formerly located in Room 537);
- (1) Autoclave (formerly located in Room 556);
- (1) Laboratory Washer (formerly located in Room 556);
- (1) Large Washer (formerly located in Room 556); and
- (1) D.M.T. Motor Generator Series III.
<PAGE>
RELEASE
AND NOW, this _____ day of November, 1997, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to resolve disputed claims by settlement and without the expense,
uncertainty and risks of further litigation, PNC Bank, N.A. hereby irrevocably
releases and forever discharges T Cell Sciences, Inc. and T Cell Diagnostics,
Inc., their subsidiaries, affiliates, predecessors and successors, and their
respective past, present and future officers, directors, stockholders,
employees, agents, attorneys, representatives, successors and assigns
(collectively, "T Cell"), from any and all claims, actions, causes of action,
contracts, demands, debts or obligations of any kind for damages, costs,
expenses, fees, payments or any other kind of liability, whether known or
unknown, which PNC has ever had or may now have against T Cell, including but
not limited to all claims that arise out of T Cell's lease of space at 38 Sidney
Street, Cambridge, Massachusetts, and/or the so-called "Tri-Party Agreement,"
dated June 30, 1988, between and among T Cell, Forest City 38 Sidney Street,
Inc., and PNC, and including but not limited to all claims that were or could
have been asserted in the litigation
<PAGE>
styled PNC Bank, N.A. v. T Cell Sciences, Inc., Civil Action No. 95-1499
(Norfolk County Superior Court).
IN WITNESS WHEREOF, PNC has executed this Release under seal, by its duly
authorized representative.
PNC BANK, N.A.
By:
-------------------------------
Name
------------------------------
Title
Witness:
------------------------------
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, SS. SUPERIOR COURT
CIVIL ACTION NO. 94-6670
- --------------------------------------------------------
T CELL SCIENCES, INC. and T CELL )
DIAGNOSTICS, INC., )
)
Plaintiffs, )
)
v. )
)
FOREST CITY ENTERPRISES, INC., )
FOREST CITY 38 SIDNEY STREET, INC. )
and FOREST CITY MANAGEMENT, INC., )
)
Defendants, )
)
and )
)
FEDERAL INSURANCE COMPANY, )
)
Intervenor. )
)
- --------------------------------------------------------
STIPULATION OF DISMISSAL
Pursuant to Mass. R. Civ. P. 41(a)(1), all parties to the above-captioned
matter, by their counsel, stipulate to the voluntary dismissal of the
<PAGE>
above-captioned action, with prejudice, each party to bear its own costs, and
all rights of appeal waived.
T CELL SCIENCES, INC. and T CELL
DIAGNOSTICS, INC.
By their attorneys,
________________________________________
Marjorie Sommer Cooke (BBO
#097800) Barbara Gruenthal
(BBO #544209) COOKE, CLANCY
& GRUENTHAL 150 Federal
Street Boston, MA 02110
(617) 428-6800
-and-
FOREST CITY ENTERPRISES, INC.,
FOREST CITY 38 SIDNEY STREET, INC. and
FOREST CITY MANAGEMENT, INC.
By their attorneys,
________________________________________
Louis N. Massery (BBO #323920)
Thomas G. Guiney (BBO #544421)
MASSERY, GILLIS & GUINEY
101 Merrimac Street
Boston, MA 02114
(617) 523-1125
-and-
<PAGE>
FEDERAL INSURANCE COMPANY
By its attorneys,
________________________________________
Thomas W. Porter, Jr. (BBO #403560)
Robert P. Powers (BBO #544691)
MELICK & PORTER
One Joy Street
Boston, MA 02108
(617) 523-6200
DATED: November , 1997
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
NORFOLK, SS SUPERIOR COURT
CIVIL ACTION NO. 95-01499
- --------------------------------------------------------
PNC BANK, N.A., )
)
Plaintiff, )
)
v. )
)
T CELL SCIENCES, INC., )
)
Defendant, )
)
v. )
)
FOREST CITY ENTERPRISES, INC., )
FOREST CITY 38 SIDNEY STREET, INC. )
and FOREST CITY MANAGEMENT, INC., )
)
Third-Party Defendants. )
)
- --------------------------------------------------------
STIPULATION OF DISMISSAL
Pursuant to Mass. R. Civ. P. 41(a)(1), all parties to the above-captioned
matter, by their counsel, stipulate to the voluntary dismissal of the
<PAGE>
above-captioned action, with prejudice, each party to bear its own costs, and
all rights of appeal waived.
PNC BANK, N.A.,
By its attorneys,
Robert K. Gad, III (BBO #182160)
David R. Baron (BBO #561020)
ROPES & GRAY
One International Place
Boston, MA 02110
(617) 951-7000
-and-
T CELL SCIENCES, INC.
By its attorneys,
_______________________________________________
Marjorie Sommer Cooke (BBO
#097800) Barbara Gruenthal
(BBO #544209) COOKE, CLANCY
& GRUENTHAL 150 Federal
Street Boston, MA 02110
(617) 428-6800
-and-
FOREST CITY ENTERPRISES, INC.,
FOREST CITY 38 SIDNEY STREET, INC. and
FOREST CITY MANAGEMENT, INC.
By their attorneys,
_______________________________________________
Louis N. Massery (BBO
#323920) Thomas G. Guiney
(BBO #544421) MASSERY,
GILLIS & GUINEY 101 Merrimac
Street Boston, MA 02114
DATED: November __ 1997 (617) 523-1125
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. 33-43640, 33-54372, 33-80036 and
33-80048) and in the Prospectus constituting part of the Registration Statement
on Form S-3 (Nos. 33-72172, 33-69950, 33-64021 and 333-08607) of T Cell
Sciences, Inc. of our report dated March 25, 1998 appearing in the Annual Report
on Form 10-K for the year ended December 31, 1997.
Price Waterhouse LLP
Boston, Massachusetts
March 30, 1998
<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, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,436,300
<SECURITIES> 0
<RECEIVABLES> 22,900
<ALLOWANCES> 0
<INVENTORY> 15,000
<CURRENT-ASSETS> 7,389,600
<PP&E> 3,102,900
<DEPRECIATION> (2,738,400)
<TOTAL-ASSETS> 9,826,600
<CURRENT-LIABILITIES> 2,761,100
<BONDS> 0
0
0
<COMMON> 26,500
<OTHER-SE> 6,289,000
<TOTAL-LIABILITY-AND-EQUITY> 9,826,600
<SALES> 44,500
<TOTAL-REVENUES> 1,192,100
<CGS> 21,000
<TOTAL-COSTS> 8,750,800
<OTHER-EXPENSES> 6,126,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (577,300)
<INCOME-PRETAX> (13,108,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,108,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,108,000)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
