As filed with the Securities and Exchange Commission on August 21, 1998
Registration Statement No. 333-59215
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
ON FORM S-3* TO FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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T CELL SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 13-3191702
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
119 Fourth Avenue, Needham, Massachusetts 02494
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Office)
UNA S. RYAN, President and Chief Executive Officer
T Cell Sciences, Inc., 119 Fourth Avenue, Needham, Massachusetts 02494,
(781) 433-0771
(Name, Address, Including Zip Code and Telephone Number, Including Area Code,
of Agent for Service)
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Copy to:
STUART M. CABLE, ESQ.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
(617) 570-1000
Approximate date of commencement of proposed sale to public: From time to
time after this Post-Effective Amendment becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] 333- .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] 333- .
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
This post-effective amendment to the registration statement shall become
effective upon order of the
Commission pursuant to Section 8(c) of the Securities Act of 1933.
* Filed as a Post-Effective Amendment on Form S-3 to such Form S-4 Registration
Statement pursuant to the provisions of Rule 401(e) and the procedure described
therein. See "Introductory Statement Not Forming Part of the Prospectus."
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INTRODUCTORY STATEMENT NOT FORMING PART OF THE PROSPECTUS
T Cell Sciences, Inc., a Delaware corporation ("T Cell" or the "Company"),
filed a Registration Statement on Form S-4 (No. 333-59215) (the "Registration
Statement") on July 16, 1998 relating to common stock and warrants to purchase
common stock issued in connection with the merger (the "Merger") of TC Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of T Cell ("TCMC"),
with and into Virus Research Institute, Inc., a Delaware corporation ("VRI"),
which was consummated on August 21, 1998.
Pursuant to the merger agreement by and among T Cell, TCMC and VRI (the
"Merger Agreement"), former holders of common stock of VRI (the "VRI Common
Stock") received, in exchange for each issued and outstanding share of VRI
Common Stock, (i) 1.55 shares of common stock of T Cell ("T Cell Common Stock")
and the associated rights to purchase shares of T Cell Class C-1 Junior
Participating Cumulative Preferred Stock, par value $.01 per share, pursuant to
the Rights Agreement, dated as of November 10, 1994, between the Company and
State Street Bank and Trust Company, as Rights Agent, as amended, and (ii) .20
of a warrant (collectively, the "T Cell Warrants") to purchase one share of T
Cell Common Stock. The T Cell Warrants have an exercise price of $6.00 per
share. In addition, pursuant to the Merger Agreement, the Company assumed the
obligations of VRI with respect to all outstanding warrants to acquire shares
of VRI Common Stock (the "VRI Warrants"), each of which is exercisable for (X)
that number of whole shares of T Cell Common Stock equal to the product of the
number of shares of VRI Common Stock covered by the VRI Warrant immediately
prior to the effective date of the Merger (the "Effective Time") multiplied by
1.55 (rounded down to the nearest whole number of shares of T Cell Common
Stock) and (Y) that number of whole T Cell Warrants equal to the product of the
number of shares of VRI Common Stock covered by the VRI Warrant immediately
prior to the Effective Time multiplied by .20 (rounded up to the nearest whole
number of T Cell Warrants). T Cell Warrants to purchase 1,811,155 shares of T
Cell Common Stock were issued in connection with the Merger, and T Cell
Warrants to purchase 16,717 shares of T Cell Common Stock are issuable upon
exercise of the VRI Warrants.
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PROSPECTUS
T CELL SCIENCES, INC.
1,957,427 Shares of Common Stock Issuable by T Cell Upon Exercise of T Cell
Warrants and VRI Warrants Assumed by T Cell
and
16,717 T Cell Warrants Issuable by T Cell Upon Exercise of VRI Warrants
and
11,992,438 Shares of Common Stock and
1,258,438 T Cell Warrants to Purchase Common Stock to Be Sold by Selling
Securityholders
This Prospectus relates to the (i) issuance of 1,957,427 shares of common
stock, $.001 par value per share (the " T Cell Common Stock," which definition
includes the associated rights to purchase shares Class C-1 Junior Participating
Cumulative Preferred Stock), of T Cell Sciences, Inc., a Delaware corporation
("T Cell" or the "Company"), issuable upon (a) the exercise of common stock
purchase warrants (the "T Cell Warrants") that were issued to holders of common
stock (the "VRI Common Stock") of Virus Research Institute, Inc., a Delaware
corporation ("VRI"), in the merger (the "Merger") of TC Merger Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company, with and into VRI
pursuant to the Agreement and Plan of Merger, dated as of May 12, 1998, by and
among the Company, TC Merger Corp. and VRI (the "Merger Agreement"), (b) the
exercise of warrants to subscribe for and purchase common stock of VRI (the "VRI
Warrants"), which warrants were assumed by the Company in connection with the
Merger and (c) the exercise of T Cell Warrants issuable upon exercise of the VRI
Warrants, (ii) the issuance of 16,717 T Cell Warrants issuable upon the exercise
of the VRI Warrants and (iii) the sale by certain former stockholders of VRI
(the "Selling Securityholders") of the 10,552,840 shares of T Cell Common Stock
and 1,235,060 T Cell Warrants issued to them in connection with the Merger, the
181,160 shares of T Cell Common Stock and 23,378 T Cell Warrants issuable to
them upon the exercise of VRI Warrants held by them, and the 1,258,438 shares of
T Cell Common Stock issuable to them upon the exercise of the T Cell Warrants
issued and issuable to them (collectively, the "Selling Securityholder
Securities"). The Selling Securityholder Securities covered by this Prospectus
may be offered and sold, from time to time, by or on behalf of the Selling
Securityholders. See "Selling Securityholders" and "Plan of Distribution."
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
The Company will not receive any of the proceeds from the sale of Selling
Securityholder Securities covered by this Prospectus. The Company will pay all
of the expenses incident to the registration, offering and sale of the Selling
Securityholder Securities, other than commissions, fees and discounts of
underwriters, brokers, dealers and agents. See "Plan of Distribution."
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "TCEL." On August 20, 1998, the closing sale price of the T Cell
Common Stock on the Nasdaq National Market was $2.094 per share.
The date of this Prospectus is August 21, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be
available at the following Regional Offices of the Commission: the Midwest
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and the Northeast Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company makes filings of reports, proxy statements and other information
pursuant to the Exchange Act with the Commission electronically, and such
materials may be inspected and copied at the Commission's Web site
(http://www.sec.gov). In addition, material filed by the Company can be
inspected at the offices of the National Association of Securities Dealers,
Inc. (the "NASD"), 1935 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, supplements, exhibits and schedules thereto,
including this Post-Effective Amendment No. 1 on Form S-3, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of T Cell Common Stock and the T Cell
Warrants offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, as certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company, the T Cell Common Stock and the T Cell
Warrants, reference is made to the Registration Statement. Statements contained
herein regarding the contents of any agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of
such agreement or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, DC 20549, and copies of all or any part thereof may be
obtained from the Commission at prescribed rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents previously filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as amended by its Annual Report Amendment on Form
10-K/A, (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, (iii) the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, (iv) the Company's Current Report on Form 8-K,
dated August 21, 1998 and (v) the description of the T Cell Common Stock
contained in the Company's Registration Statement on Form 8-A, filed September
22, 1986, including all amendments and reports updating such description.
In addition, all reports and other documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering or resale by the Selling
Securityholders of the T Cell Common Stock and T Cell Warrants registered hereby
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such reports and documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein (in the case of any
statement in an incorporated document filed with the Commission prior to the
date of this Prospectus) or in any other subsequently filed document that also
is incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All requests shall be directed
to: T Cell Sciences, Inc., 119 Fourth Avenue, Needham, Massachusetts 02494,
Attention: Norman W. Gorin, Secretary, Telephone: (781) 433-3175. No person has
been authorized to give any information or to make any representations in
connection with this offering other than those contained in this Prospectus and,
if given or made, such other information and representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
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<PAGE>
RISK FACTORS
The Shares of T Cell Common Stock and the T Cell Warrants offered hereby
include a high degree of risk. The following risk factors should be considered
carefully in addition to the other information included or incorporated by
reference in this Prospectus before purchasing the Shares offered hereby.
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 2B of the Exchange Act. For this purpose,
any statements contained herein or incorporated herein that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below.
Risk Factors Regarding T Cell
Early Stage of Product Development; Uncertainties Relating to Clinical
Trials and Product Development. All of the Company's therapeutic product
candidates are in various stages of research and development and no revenues
have been generated from the commercialization of these products. There can be
no assurance that any of the Company's therapeutic product candidates which are
under development will prove to be safe or effective in clinical trials, will
be approved by regulatory authorities, can be manufactured at acceptable cost
with appropriate quality, or can be successfully marketed. the Company's
therapeutic product candidates will require substantial additional development,
including in the areas of preclinical and clinical testing, regulatory
approvals and manufacturing processes prior to their commercialization. The
Company has performed only limited preclinical and clinical testing of certain
of its product candidates and technologies under development. Preclinical
studies of product candidates may not predict and do not ensure safety or
efficacy in humans and are not necessarily indicative of the results that may
be achieved in clinical trials with humans. There can be no assurance that
unacceptable side effects will not be discovered during preclinical and
clinical testing of the Company's potential products. Even after being cleared
by the United States Food and Drug Administration (the "FDA") or the regulatory
authorities of other countries, a product may later be shown to be unsafe or to
not have its purported effect, thereby preventing its widespread use or
requiring its withdrawal from the market. The rate of completion of the
Company's clinical trials depends on, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the
size of the patient population, the nature of the clinical protocol, the
proximity of patients to clinical sites and the eligibility criteria for the
trial. Delays in planned patient enrollment may result in increased costs,
delays or termination of clinical trials, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, the Company may rely on third parties to assist it in
overseeing and monitoring clinical trials, which may result in delays in
completing, or failure to complete, clinical trials if such third parties fail
to perform under their agreements with the Company or fail to meet regulatory
standards in the performance of their obligations under such agreements.
History of Losses; Uncertainty of Future Profitability. The Company has
incurred operating losses since its inception and had accumulated net losses of
approximately $73.0 million as of June 30, 1998. The continued development of
the Company's products will require the commitment of substantial resources to
conduct research and preclinical and clinical programs, to establish
manufacturing capabilities and sales and marketing capabilities, and to
establish additional quality control, regulatory and administrative
capabilities. The Company may incur substantial operating losses over the next
several years as its product development programs and clinical testing expand.
The amount of net losses and the time required by the Company to reach
sustained profitability are highly uncertain and to achieve profitability the
Company must, among other things, successfully complete development of its
products, obtain regulatory approvals and establish manufacturing and marketing
capabilities. There can be no assurance that the Company will be able to
achieve profitability at all or on a sustained basis.
Need for Additional Funds. The Company has funded its operations and
capital expenditures to date primarily through equity financing, strategic
alliances with commercial partners, and sales of reagent and diagnostic
products. Since inception, the Company has raised net proceeds of approximately
$80.3 million through equity financings. The Company anticipates that it will
need to raise substantial additional funds, through additional equity or debt
financings, research and development financings, collaborative relationships or
otherwise, prior to the commercialization of its products. There can be no
assurance that any such additional funding will be available to the Company or,
if available, that it will be on reasonable terms. Any such additional funding
may result in
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<PAGE>
significant dilution to existing stockholders. If adequate funds are not
available, the Company may be required to significantly curtail its research
and development programs or obtain funds through arrangements with
collaborative partners that may require the Company to relinquish certain
material rights to its products.
Dependence on Third Parties for Clinical Supplies. The Company is
dependent on sourcing from a third party manufacturer for suitable quantities
of soluble Complement Receptor 1 ("sCR1") and other materials necessary for
clinical trials in addition to those currently being conducted by the Company.
The inability to have suitable quality and quantities of material produced in a
timely manner would result in significant delays in the clinical development
and sale of products, which could adversely affect the Company's business,
financial condition and results of operations.
No Assurance of FDA Approval; Comprehensive Government Regulation. The
Company's research, development and clinical programs are subject to extensive
regulation by numerous governmental authorities in the United States and other
countries. Most of the Company's products will require governmental approvals
for commercialization which have not yet been obtained and are not expected to
be obtained for several years. Preclinical and clinical trials and
manufacturing and marketing of many of the Company's products will be subject
to the rigorous testing and approval processes of the FDA and corresponding
foreign regulatory authorities. The regulatory process, which includes
preclinical, clinical and post-clinical testing of many of the Company's
products to establish their safety and efficacy, can take many years and
requires the expenditure of substantial resources. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. In addition, delays or
rejection may be encountered based upon changes in, or additions to, regulatory
policies for drug approval during the period of product development and
regulatory review, which may result in limitations or restrictions on the
Company's ability to utilize its technology or develop its products. Delays in
obtaining such approvals could adversely affect the marketing of products
developed by the Company and the Company's ability to generate commercial
product revenues. There can be no assurance that requisite regulatory approvals
will be obtained within a reasonable period of time, if at all, or that the
Company will not encounter problems in clinical trials that will cause the
Company or governmental authorities to delay or suspend such trials. Moreover,
if regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses for which such product may be marketed which
may restrict the patient population for which any product may be prescribed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continuing review
and periodic inspections, and later discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.
Failure to comply with the applicable regulatory requirements can, among other
things, result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution.
To commercialize any product and prior to submitting the application for
marketing approval in the United States, the Company must sponsor and file an
Investigational New Drug ("IND") application for each proposed product and must
be responsible for initiating and overseeing the clinical studies to
demonstrate the safety and efficacy that are necessary to obtain FDA approval
of such product. There can be no assurance that the Company will be able to
obtain the necessary clearances for clinical trials or approvals for
manufacturing or marketing any of its product candidates. After completion of
clinical trials of a new product, FDA marketing approval must be obtained. At
that time, the Company must submit relevant data, including the results of
product development activities, preclinical studies and clinical trials, in
addition to detailed manufacturing information. Notwithstanding the submission
of relevant data, the FDA may withhold marketing approval and may require
additional clinical trials.
Dependence on Manufacturing, Sales, Distribution and Marketing
Partners. To be successful, the Company's products must be manufactured in
commercial quantities, within regulatory requirements and at competitive costs.
There can be no assurance that the Company will be able to obtain access to
suitable product manufacturing facilities. Except for research reagents and
certain diagnostic products, the Company has limited experience in sales,
marketing and distribution of commercial products. To market any of its
products directly, the Company must develop a substantial marketing and sales
force with technical expertise and a supporting distribution capability. There
can be no assurance that the Company will be able to establish sales and
distribution capabilities without undue delays or expenditures or that it will
be successful in gaining market acceptance for its products. The Company may
also enter into strategic partnerships for the manufacturing, sales,
distribution and marketing
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of its products. There can be no assurance the Company will be able to enter
into successful strategic partnership agreements on terms acceptable to the
Company, if at all.
Competition and Risk of Technological Obsolescence. Biotechnology,
pharmaceuticals and therapeutics are rapidly evolving fields in which
developments are expected to continue at a rapid pace. Competitors of the
Company in the United States and abroad are numerous and include, among others,
pharmaceuticals, therapeutics and biotechnology companies as well as
universities and other research institutions. The Company's success depends
upon developing and maintaining a competitive position in the development of
products and technologies in its area of focus. Competition from other
biotechnology, pharmaceuticals and therapeutics companies is intense and
expected to increase as new products enter the market and new technologies
become available. The Company's competitors may also succeed in developing
technologies and products that are more effective than any which have been or
are being developed by the Company or that render the Company's technologies or
products obsolete or noncompetitive. The Company's competitors may also succeed
in obtaining patent protection or other intellectual property rights that would
block the Company's ability to develop its potential products, or in obtaining
regulatory approval for the commercialization of their products more rapidly or
effectively than the Company. Finally, many of these competitors have
substantially greater research and development capabilities, clinical,
manufacturing, regulatory and marketing experience and financial and managerial
resources than the Company.
Dependence on Patents and Proprietary Technology. The Company's success
will depend in part on the ability of the Company and its licensors to obtain
and maintain patent protection for the Company's technology and to preserve its
trade secrets and operate without infringing on the proprietary rights of
others, both in the United States and in other countries. The failure of the
Company or its licensors to obtain and maintain patent protection for the
Company's technology could have a material adverse effect on the Company's
business, financial condition and results of operations. Patent positions in
the biotechnology field are highly uncertain and involve complex legal,
scientific and factual questions. To date, there has emerged no consistent
policy regarding the breadth of claims allowed in biotechnology patents,
particularly in regard to human therapeutic uses. There can be no assurance
that patent applications relating to the technology used by the Company will
result in patents being issued or that, if issued, the patent will not be
subjected to further proceedings limiting the scope of the rights under the
patent or that such patent will provide a competitive advantage or will afford
protection against competitors with similar technology, or will not be
challenged successfully, invalidated or circumvented by competitors. Moreover,
because patent applications in the United States are maintained in secrecy
until the patents are issued and patent applications in certain other countries
generally are not published until more than 18 months after they are filed, and
since publication of discoveries in scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it or any
licensor was the first creator of inventions covered by pending patent
applications or that it or such licensor was the first to file patent
applications for such inventions. In addition, the Company could incur
substantial costs in defending itself in suits brought against it or in suits
in which the Company may assert its patents against others. If the outcome of
any such litigation is adverse to the Company, the Company's business,
financial condition and results of operations could be materially adversely
affected. In addition to any potential liability for significant damages, the
Company may be required to obtain licenses to patents or other proprietary
rights of third parties. Costs associated with any licensing arrangement may be
substantial and could include ongoing royalties. No assurance can be given that
any licenses required under any such patents or proprietary rights would be
made available on terms acceptable to the Company, if at all. If the Company
does not obtain such licenses, it could encounter delays in product market
introductions while it attempts to design around such patents or other rights,
or be prevented from manufacturing and marketing such products. In either case,
the failure to obtain such licenses on acceptable terms, if at all, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventors' rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
be disclosed to, or discovered by, competitors. Moreover, the Company conducts
a significant amount of research through academic advisors and collaborators
who are prohibited from entering into confidentiality or inventors' rights
agreements by their academic institutions.
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Dependence on Reimbursement. In both the United States and elsewhere,
sales, if any, of most of the Company's products will be dependent in part on
the availability of reimbursement from third party payors, such as government
and private insurance plans. Third party payors are increasingly challenging
the prices charged for medical products and services. Moreover, the federal
government of the United States has made the containment of health care costs a
top priority. If the Company succeeds in bringing one or more products to
market, there can be no assurance that these products will be considered
cost-effective, that reimbursement will be available or, if available, that the
level of reimbursement will be sufficient to allow the Company to sell its
products on a profitable basis.
Exposure to Product Liability Claims. The Company's business exposes it to
inherent risks of product liability claims, product recalls and associated
adverse publicity which are inherent in the testing, manufacturing, marketing
and sale of human therapeutic products. The Company currently has liability
insurance of limited coverage. There can be no assurance that it will be able
to maintain such insurance or obtain general product liability insurance on
acceptable terms or at reasonable costs or that such insurance will be in
sufficient amounts to provide the Company with adequate coverage against
potential liabilities. A product liability claim or product recall could
inhibit or prevent commercialization of products being developed by the
Company. Any product liability claim or product recall could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Health Care Reform. The health care industry in the United States and in
Europe is undergoing fundamental changes as the result of political, economic
and regulatory influences. Reforms proposed from time to time include mandated
basic health care benefits, controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending, the creation of large insurance purchasing groups and
fundamental changes to the health care delivery system. The Company anticipates
that alternative health care delivery systems and methods of payment will
continue to be reviewed and assessed, and public debate of these issues will
likely continue. The Company cannot predict whether any reform initiatives will
result or, if adopted, what impact they might have on the Company, and there
can be no assurance that the adoption of reform proposals will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Announcements of reform proposals and the investment
community's reaction to such proposals, announcements by competitors and
third-party payors of their strategy in responding to reform initiatives, and
general industry conditions could produce volatility in the trading and market
price of the T Cell Common Stock.
Hazardous Materials; Environmental Matters. The Company's research and
development activities involve the controlled use of hazardous materials,
chemicals, biological materials and radioactive compounds. The Company is
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by such
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any resulting damages, and any such
liability could exceed the Company's resources. The Company may be required to
incur significant costs to comply with environmental laws and regulations in
the future. Current or future environmental laws or regulation may have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence Upon Key Personnel. The Company is dependent on the members of
its management and scientific staff, the loss of one or more of whom could have
a material adverse effect on the Company. The Company also depends on its
scientific collaborators and advisors, all of whom have commitments that may
limit their availability to the Company. In addition, the Company believes that
its future success will depend in large part upon its ability to attract and
retain highly skilled scientific, managerial and marketing personnel,
particularly as the Company expands its activities in clinical trials, the
regulatory approval process and sales and manufacturing. the Company faces
significant competition for such personnel from other companies, research and
academic institutions, government entities and other organizations. There can
be no assurance that the Company will be successful in hiring or retaining the
personnel it requires for continued growth. The failure to hire and retain such
personnel could materially and adversely affect the Company's future business,
financial condition and results of operations.
Volatility of Stock Price. The market price of the shares of T Cell Common
Stock, like that of the common stock of many other early-stage biotechnology
companies, may be highly volatile. Factors such as announcements of
technological innovations or new commercial products by the Company or its
competitors, disclosure of results of clinical testing or regulatory
proceedings, governmental regulation and approvals, developments in patent or
other
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proprietary rights, public concern as to the safety of products developed by
the Company and general market conditions may have a significant effect on the
market price of the T Cell Common Stock. In addition, the stock market has
experienced and continues to experience extreme price and volume fluctuations
which have affected the market price of many biotechnology companies and which
have often been unrelated to the operating performance of these companies.
These broad market fluctuations, as well as general economic and political
conditions, may adversely effect the market price of the T Cell Common Stock.
Future sales of T Cell Common Stock in the public market by existing
stockholders also could have an adverse effect on the price of T Cell Common
Stock.
Risk Factors Regarding VRI, a Wholly-Owned Subsidiary of T Cell
Early Stage of Product Development; Technological Uncertainties. VRI is in
the development stage and the development of any products will require
significant further research, development, testing and regulatory approvals
prior to commercialization. Substantially all of VRI's resources have been, and
for the foreseeable future will continue to be, dedicated to the discovery and
development of vaccine and immunotherapeutic delivery systems and vaccines.
There are a number of technological challenges that VRI must successfully
address to complete any of its development efforts. The results of preclinical
studies by VRI and/or its collaborators may be inconclusive and may not be
indicative of results that will be obtained in human clinical trials. In
addition, results attained in early human clinical trials relating to the
vaccine and immunotherapeutic delivery systems and vaccines under development
by VRI may not be indicative of results that will be obtained in later clinical
trials. As results of particular preclinical studies and clinical trials are
received by VRI, VRI may abandon projects which it might otherwise have
believed to be promising.
In addition, the product development programs conducted by VRI and its
collaborators are subject to the risks of failure inherent in the development of
product candidates based on new technologies. These risks include the
possibility that the technologies used by VRI will prove to be ineffective; that
any or all of VRI's products will prove to be unsafe or toxic or otherwise fail
to receive necessary regulatory approvals; that the product candidates, if safe
and effective, will be difficult to manufacture on a large scale or uneconomical
to market; that the proprietary rights of third parties will preclude VRI or its
collaborators from marketing such products utilizing VRI's technologies; or that
third parties will market superior or equivalent products. For example, in 1997,
Pasteur Merieux Connaught ("PMC") conducted a Phase II study of the Adjumer[TM]
formulated influenza vaccine. The degree of improvement in immune responses
elicited by the Adjumer[TM] influenza vaccine was less in comparison to the
control group than was elicited in an earlier Phase I study. In addition, in the
Phase II study the control group receiving the unadjuvanted vaccine generated
higher immune responses than was observed in the Phase I study control group.
Currently, there are only 16 vaccines for humans in routine use in the United
States. There can be no assurance that any additional vaccines being developed
by VRI or others will be successfully developed or commercially accepted. There
can be no assurance that VRI's research and development activities will result
in any commercially viable products.
History of Operating Losses; No Product Revenue and Uncertainty of Future
Profitability. VRI has incurred substantial losses in each year since its
inception. As of June 30, 1998, VRI had an accumulated deficit of approximately
$37.1 million. Such losses have resulted principally from costs incurred in
research and development of VRI's product candidates and from general and
administrative costs. No revenues have been generated by VRI from product sales
or royalties and no product sales or royalties are likely for a number of
years, if ever. VRI expects to incur additional operating losses over the next
several years and expects cumulative losses to increase significantly as VRI
expands research and development and clinical trial efforts. VRI expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. VRI's ability to achieve profitability is dependent on obtaining
regulatory approvals for its products and entering into agreements for
commercialization of such products. There can be no assurance that such
regulatory approvals will be obtained or such agreements will be entered into.
Further, there can be no assurance that VRI's operations will become profitable
even if products under development by VRI or its collaborators using VRI's
technology are commercialized. Most of the revenues that VRI anticipates that
it may receive in the next few years would be pursuant to VRI's agreements with
PMC, SmithKline Beecham, p.l.c. ("SmithKline") and other collaboration
agreements that VRI has or may establish. In most cases, payments received
under these agreements are and will be contingent upon the achievement of
specified milestones. There can be no assurance that VRI will be able to
establish any additional collaborations on terms acceptable to VRI or that
specified milestones will be achieved.
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Future Capital Needs; Uncertainty of Additional Funding. VRI believes that
its available cash should be sufficient to fund VRI's operating expenses and
capital requirements through mid-1999. Thereafter, VRI will require substantial
funds to conduct research and development activities, preclinical studies,
clinical trials and other activities prior to the commercialization of any
potential products. VRI anticipates that such funds will be obtained from
external sources and intends to seek additional equity, debt or lease financing
to fund future operations. VRI also expects to seek additional collaborative
agreements with corporate partners to fund its research and development
programs. There can be no assurance, however, that VRI will be able to
negotiate such arrangements or obtain the additional funds it will require on
acceptable terms, if at all. In addition, VRI's cash requirements may vary
materially from those now planned because of results of research and
development, results of product testing, potential relationships with
collaborators, changes in the focus and direction of VRI's research and
development programs, competitive and technological advances, the cost of
filing, prosecuting, defending and enforcing patent claims, the regulatory
approval process and other factors.
If adequate funds are not available, VRI may be required to delay, reduce
the scope of or eliminate one or more of its research or development programs;
to obtain funds through arrangements with collaborative partners or others that
may require VRI to relinquish rights to certain of its technologies, product
candidates or products that VRI would otherwise seek to develop or
commercialize itself; or to license the rights to such products on terms that
are less favorable to VRI than might otherwise be available. References to VRI
in this and the preceding paragraph, and the risks identified herein and
therein, refer and apply as well to the combined company.
Future Capital Needs; Uncertainty of Additional Funding. VRI believes that
its available cash should be sufficient to fund VRI's operating expenses and
capital requirements through mid-1999. Thereafter, VRI will require substantial
funds to conduct research and development activities, preclinical studies,
clinical trials and other activities prior to the commercialization of any
potential products. VRI anticipates that such funds will be obtained from
external sources and intends to seek additional equity, debt or lease financing
to fund future operations. VRI also expects to seek additional collaborative
agreements with corporate partners to fund its research and development
programs. There can be no assurance, however, that VRI will be able to
negotiate such arrangements or obtain the additional funds it will require on
acceptable terms, if at all. In addition, VRI's cash requirements may vary
materially from those now planned because of results of research and
development, results of product testing, potential relationships with
collaborators, changes in the focus and direction of VRI's research and
development programs, competitive and technological advances, the cost of
filing, prosecuting, defending and enforcing patent claims, the regulatory
approval process and other factors.
If adequate funds are not available, VRI may be required to delay, reduce
the scope of or eliminate one or more of its research or development programs;
to obtain funds through arrangements with collaborative partners or others that
may require VRI to relinquish rights to certain of its technologies, product
candidates or products that VRI would otherwise seek to develop or
commercialize itself; or to license the rights to such products on terms that
are less favorable to VRI than might otherwise be available. References to VRI
in this and the preceding paragraph, and the risks identified herein and
therein, refer and apply, as well, to the combined company.
Dependence on Collaborative Agreements; Need for Additional Partners. VRI
has entered into agreements with certain pharmaceutical and biotechnology
companies relating to the licensing, development and commercialization of
vaccine products utilizing VRI's vaccine delivery technologies and proprietary
vaccines. In particular, VRI has entered into collaborative agreements with PMC
which place substantial responsibility on PMC for development of vaccines
utilizing VRI's vaccine delivery systems, including conducting certain
preclinical studies, clinical trials, preparation and submission of
applications for regulatory approval and marketing and distribution. The
agreements grant PMC the exclusive, and in some cases, the co-exclusive, right
to commercialize vaccines for the prevention of a number of specified diseases
and give PMC broad discretion to determine which vaccines, if any, will be
developed. Also, in 1997, VRI entered into an agreement with SmithKline to
collaborate on the development and commercialization of VRI's oral rotavirus
vaccine. Under the terms of the agreement, SmithKline received an exclusive
worldwide license to commercialize the vaccine. Subject to the successful
completion by VRI of the Phase II study and the development by SmithKline of a
viable manufacturing process, SmithKline will assume responsibility for all
subsequent clinical trials and all other development activities. VRI expects to
enter into similar agreements in the future which will place substantial
responsibility on VRI's collaborator to commercialize VRI's products and which
may allow such collaborators substantial discretion in determining the amount
and timing of resources to be devoted to such efforts. Should a collaborative
partner fail
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to successfully develop or commercialize, or elect not to develop or
commercialize, any product candidate to which it has exclusive rights, VRI's
business prospects may be materially and adversely affected. There can be no
assurance that VRI's collaborators will continue their development efforts
using VRI's technology or that such development efforts, if continued, will be
successful. There can also be no assurance that VRI would be able to continue
development of certain vaccine products if VRI's collaborators failed to do so.
VRI's collaboration agreements will require further research and
development to determine the feasibility of developing certain products
utilizing VRI's vaccine delivery systems. In all cases, the programs that are
the subject of VRI's collaboration agreements are in the early stages of
research and development, and the collaboration agreements may require the
negotiation and execution of further licenses or other agreements. There can be
no assurance that any vaccine products will be developed from such agreements
or that any license agreements will be entered into relating to products
developed under such agreements.
There also can be no assurance that VRI's collaborators will not pursue
alternative technologies or product candidates, either on their own or in
collaboration with others, that target the same indications as those covered
under VRI's collaboration agreements. For example, VRI is aware that Pasteur
Merieux-Oravax ("PM-O"), which has entered into an agreement with VRI relating
to use of VRI's vaccine delivery systems for delivery of certain antigens for a
vaccine against H. pylori, is also evaluating and/or developing other methods
of delivery of an H. pylori vaccine. Specifically, VRI is aware that PM-O has
conducted Phase II clinical trials of a vaccine using a delivery system other
than VRI's to deliver an H. pylori vaccine mucosally. Similarly, SmithKline,
which has an exclusive worldwide license to VRI's rotavirus vaccine, has
announced that it has taken an option to a competing rotavirus vaccine
candidate.
VRI's strategy for the research, development and commercialization of its
product candidates has required, and will continue to require, VRI to enter
into various arrangements with corporate and academic collaborators, licensors,
licensees and others. In particular, the vaccine market is dominated by five
large companies which control in excess of 80% of the worldwide market;
therefore, VRI most likely will need to enter into collaborative agreements
with one or more of these companies to commercialize its vaccine products. VRI
will be dependent upon the success of any such collaborators in performing
their development and commercialization responsibilities. Failure to obtain
such agreements could result in delays in marketing VRI's proposed products or
the inability to proceed with the development, manufacture or sale of product
candidates. Collaborative agreements may also require VRI to meet certain
milestones and expend funds, and there can be no assurance that VRI will be
successful in achieving these milestones. Failure of VRI to meet such
obligations could result in a termination of those agreements and could have a
material adverse effect on VRI's results of operations and business prospects.
All of the risks set forth in this section relating to VRI and its
business are generally applicable as well to VRI's collaborators to the extent
that VRI's products are to be developed or commercialized through collaborative
arrangements.
Dependence on Novel Vaccine and Immunotherapeutic Delivery Systems. A
major portion of VRI's research and development efforts are focused on the
development of novel vaccine and immunotherapeutic delivery systems utilizing
new technologies which, in some cases, have not been clinically tested in
humans. There can be no assurance that these approaches and technologies will
be successful. To date, there is only one adjuvant approved by the FDA for
commercial use in human vaccines. VRI's Adjumer[TM] and Micromer[TM] vaccine
delivery systems utilize a synthetic polyphosphazene derivative ("PCPP") as an
adjuvant. PCPP has not been approved for commercial use in human vaccines.
VRI's Micromer[TM] and VibrioVec[TM] delivery systems are being developed for
delivery of vaccines intranasally and orally. No mucosal vaccine delivery
system for intranasal or oral delivery has yet been approved. Micromer[TM] and
VibrioVec[TM] are still in the early stages of research and development, and VRI
and its collaborators have not yet commenced clinical testing of vaccines
utilizing these delivery systems. Of the 16 vaccines in routine use in the
United States, only two are delivered orally, both of which are live,
attenuated organisms that localize in the intestines and do not utilize
separate vaccine delivery systems. There can be no assurance that VRI will be
able to successfully complete the development of technology for mucosal
delivery of vaccines utilizing a separate vaccine delivery system. Further,
VibrioVec[TM], a live, attenuated strain of Vibrio cholerae, is a recombinant
bacterial vector for the oral delivery of antigens to the gastrointestinal
tract. VRI is unaware of any approved products that utilize live, attenuated
bacterial or viral strains as vaccine delivery systems. The clinical evidence
concerning the efficacy of such vectors is limited. Accordingly, there can be
no assurance that this method of delivery will prove to be safe or efficacious
or result in the approval of any vaccine products.
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VRI is unable to predict the position that regulatory agencies, such as
the FDA, will take with respect to the risk of transmission of the disease from
vaccine delivery systems and vaccines using live, attenuated bacteria and
viruses or the reaction of the private medical community or the public to
vaccines utilizing VRI's VibrioVec[TM] delivery system or other vaccines using
live bacteria or viruses. Any concerns regarding such transmission of disease,
even if no transmission were to take place, could delay, prevent, limit or halt
the commercialization of vaccine products utilizing VibrioVec[TM] or any other
vaccine products under development comprised of live attenuated viruses or
bacteria.
VRI's Therapore system is being developed for the novel treatment and
prevention of certain persistent viral infections and certain cancers. The
Therapore system is in preclinical research and extensive preclinical
development work will be required before consideration of an application for
human clinical studies. There can be no assurance that such clinical studies
will be initiated.
No Assurance of FDA Approval; Government Regulation. VRI's and its
collaborators' research and development activities, preclinical studies and
clinical testing, and ultimately the production and marketing of products are
subject to extensive regulation by governmental authorities in the United
States, including the FDA. Similar regulatory requirements exist in other
countries where VRI and its collaborators intend to test and market their
products. The rigorous preclinical and clinical testing requirements and
regulatory approval process of the FDA and of foreign regulatory authorities
can take a number of years and require the expenditure of substantial
resources. VRI has limited experience in conducting and managing preclinical
and clinical testing necessary to obtain government approvals. There can be no
assurance that VRI and its collaborators will be able to obtain the necessary
approvals for further clinical testing or for the manufacturing and marketing
of any products that they develop.
Additional governmental regulation may be established that could prevent
or delay regulatory approval of VRI's product candidates. Delays in obtaining
regulatory approvals would adversely affect the marketing of any products
developed by VRI and its collaborators and VRI's ability to receive product
revenues or royalties. If regulatory approval of a potential product is
granted, such approval may include significant limitations on the indicated
uses for which such product may be marketed.
Even if initial regulatory approvals for VRI's product candidates are
obtained, VRI, its products and its manufacturing facilities would be subject
to continual review and periodic inspection. The regulatory standards for
manufacturing are applied stringently by the FDA. Discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer or facility, including warning
letters, fines, suspensions of regulatory approvals, product recalls, operating
restrictions, delays in obtaining new product approvals, withdrawal of the
product from the market, seizure of the product, injunction and criminal
prosecution. Other violations of FDA requirements can result in similar
penalties.
The effect of government regulation may be to delay marketing of new
products for a considerable period of time, to impose costly procedures upon
VRI's activities and to furnish a competitive advantage to larger companies
that compete with VRI. There can be no assurance that the FDA or other
regulatory approval for any potential products developed by VRI or its
collaborators will be granted on a timely basis or at all.
Dependence on Patents, Licenses and Proprietary Rights. VRI's success will
depend, in part, on its ability to obtain and/or maintain patent protection for
its products both in the United States and in other countries, to preserve its
trade secrets and to operate without infringing upon the proprietary rights of
others. VRI intends to file applications as appropriate for patents covering
both its products and its processes. No assurance can be given that any patents
will issue from any of these applications or that, if patents do issue, the
claims allowed will be sufficiently broad to protect VRI's technology. Although
a patent has a statutory presumption of validity in the United States, the
issuance of a patent is not conclusive as to such validity or as to the
enforceable scope of the claims of the patent. There can be no assurance that
VRI's issued patents or any patents subsequently issued to or licensed by VRI
will not be successfully challenged in the future. The validity or
enforceability of a patent after its issuance by the patent office can be
challenged in litigation. If the outcome of the litigation is adverse to the
owner of the patent, third parties may then be able to use the invention
covered by the patent, in some cases without payment. There can be no assurance
that VRI's patents will not be infringed or successfully avoided.
There can be no assurance that patent applications owned by or licensed to
VRI will result in patents being issued or that, if issued, the patents will
afford protection against competitors with similar technology. It is also
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possible that third parties may obtain patent or other proprietary rights that
may be necessary or useful to VRI. In cases where third parties are first to
invent a particular product or technology, it is possible that those parties
will obtain patents that will be sufficiently broad so as to prevent VRI from
using certain technology or from further developing or commercializing certain
products. If licenses from third parties are necessary but cannot be obtained,
commercialization of the related products would be delayed or prevented.
VRI uses a mutated Vibrio cholerae in its VibrioVec[TM] vaccine delivery
system. VRI is aware of an issued United States patent which claims a culture
of mutated Vibrio cholerae. VRI believes that only one claim (the "Claim") of
the patent may be pertinent to VRI's VibrioVec[TM] system. The remaining claims
of the patent cover other cultures which VRI believes are not pertinent to
VibrioVec[TM]. VRI has received an opinion of counsel from Fish & Richardson,
P.C. that, based on the analysis set forth in their opinion and the facts known
to them, the Claim is invalid. It should be noted that a party challenging
validity of a patent has the burden of proving invalidity and that the outcome
of any litigation cannot be predicted with certainty. Accordingly, there can be
no assurance that, if litigated, a court would conclude that the Claim is
invalid.
In addition, VRI is aware of a foreign patent which covers claims that
could conflict with VRI's vaccine candidates and vaccine delivery systems. VRI
believes that the relevant claim under this patent does not extend to or
restrict VRI's activities. There can be no assurance that the applicable patent
office or court would reach the same conclusion. VRI is also aware of the
existence of an issued U.S. patent relating to the same technology covered by a
patent application to which it has been granted an exclusive license and
therefore anticipates that it will be involved in an interference proceeding
prior to marketing its herpes vaccine.
In addition to the patents referred to in the previous two paragraphs,
there may be patent applications and other issued patents belonging to
competitors that may require VRI to alter its product candidates and vaccine
and immunotherapeutic delivery systems, pay licensing fees or cease certain
activities. If VRI's product candidates conflict with patents that have been or
may be granted to competitors, universities or others, such other persons could
bring legal actions against VRI claiming damages and seeking to enjoin
manufacturing and marketing of the affected products. If any such actions are
successful, in addition to any potential liability for damages, VRI could be
required to obtain a license in order to continue to manufacture or market the
affected products. There can be no assurance that VRI would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms or at all. VRI believes that there may be
significant litigation in the biotechnology and vaccine industries regarding
patent and other intellectual property rights. If VRI becomes involved in such
litigation, it could consume substantial resources.
VRI has licensed certain intellectual property from third parties,
including certain patents underlying Adjumer[TM], Micromer[TM], VibrioVec[TM],
VRI's rotavirus and herpes vaccines and Therapore. Under the terms of its
license agreements, VRI is obligated to exercise diligence, achieve certain
milestones and expend minimum amounts of resources in bringing potential
products to market and make certain royalty and milestone payments, including a
percentage of any sublicensing income, as well as patent cost reimbursement
payments. The licensors can terminate these agreements or, in certain cases,
make the licenses non-exclusive, if VRI defaults in the performance of its
obligations. Should VRI default under any of these agreements, VRI may lose its
right to market and sell any products based on the licensed technology. In such
event, VRI's results of operations and business prospects would be materially
and adversely affected. There can be no assurance that VRI will be able to meet
its obligations under these agreements on a timely basis, or at all. Further,
VRI may be required to obtain licenses to additional technologies to be utilized
in some of the products under development by VRI currently, or in the future. If
any such licenses are not obtained by VRI, VRI may not be able to market any
such products.
VRI also relies on trade secrets and proprietary know-how, which it seeks
to protect, in part, by confidentiality agreements with its corporate partners,
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that VRI will have adequate remedies for any
breach or that VRI's trade secrets will not otherwise become known or be
independently discovered by competitors.
Competition and Technological Change. Competition in the biotechnology and
vaccine industries is intense. VRI faces competition from many companies in the
United States and abroad, including a number of large companies, firms
specialized in the development and production of vaccines, adjuvants and
vaccine and immunotherapeutic delivery systems, and major universities and
research institutions. Most of VRI's competitors have substantially greater
resources, more extensive experience in conducting preclinical studies and
clinical trials
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and obtaining regulatory approvals for their products, greater operating
experience, greater research and development and marketing capabilities and
greater production capabilities than those of VRI. There can be no assurance
that VRI's competitors will not develop technologies and products that are
safer or more effective than any being developed by VRI or which would render
VRI's technology and products obsolete and noncompetitive, and VRI's
competitors may succeed in obtaining FDA approval for products more rapidly
than VRI. VRI will also face competition from companies marketing existing
therapies or developing new therapies for diseases targeted by VRI's
technology. The development of such new technologies or treatment methods for
those diseases and cancers for which VRI is developing products could render
VRI's product candidates noncompetitive and obsolete. There can be no assurance
that the products under development by VRI and its collaborators will be able
to compete successfully with existing products or products under development by
other companies, universities and other institutions or that they will attain
regulatory approval in the United States or elsewhere.
VRI believes that its principal competitors are large pharmaceutical
companies. In the area of vaccines and vaccine delivery systems, VRI's
competitors include American Home Products Corporation, PMC, Merck & Co., Inc.,
SmithKline, Glaxo-Wellcome plc and Chiron Corporation ("Chiron"), as well as a
number of biotechnology companies. VRI believes that its Therapore product will
encounter competition from various companies depending upon the specific
applications for its immunotherapeutic delivery system.
VRI is aware that a number of pharmaceutical companies are engaged in
research and development with respect to vaccines for the prevention of
influenza, H. pylori infection, Lyme disease, RSV, rotavirus disease, genital
herpes and HIV which would compete with VRI and its collaborators' vaccine
candidates, some of which are further advanced in their development and testing
than VRI and its collaborators' programs. In addition, VRI's collaborators are
developing or evaluating vaccine delivery systems other than VRI's for many of
the vaccines covered by VRI's collaborative agreements. Specifically, PM-O,
with respect to vaccines against H. pylori infection, and PMC, with respect to
influenza and Lyme disease, are engaged in research and development of vaccines
utilizing the same antigens that are the subject of their collaborations with
VRI. VRI is also aware of a number of companies seeking to develop new
adjuvants for vaccines and mucosal vaccine delivery systems. Some of these
companies may be further advanced in their development and clinical testing
than VRI.
A significant amount of biotechnology research is being carried out at
academic and government institutions. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products
on their own or in collaboration with pharmaceutical companies.
Lack of Manufacturing Capability and Experience; Limited Sources of
Supply. VRI has no manufacturing facilities, no experience in volume
manufacturing and plans to rely upon collaborators or contract manufacturers to
manufacture its proposed products in both clinical and commercial quantities.
There can be no assurance that VRI will be able to enter into any arrangements
with such third-party manufacturers on acceptable terms or at all. To date, VRI
has been arranging on a purchase order basis with contract manufacturers for
the manufacture of PCPP in quantities sufficient for preclinical and clinical
studies and for clinical trial supplies of VRI's rotavirus vaccine candidate.
VRI does not yet have a written agreement with a contract manufacturer for
production of PCPP or for the majority of the other components of its vaccine
and immunotherapeutic delivery systems and vaccine candidates.
One of the intermediates included in PCPP is currently available from only
one supplier. VRI is working with several other companies that could produce
such intermediate, and VRI could itself develop the capability to synthesize
such intermediate; however, there can be no assurance that the supply of such
intermediate or the terms on which VRI can purchase such intermediate will not
adversely affect VRI's ability to produce PCPP.
After completion of clinical trials of a new product but before commencing
marketing and manufacturing, FDA approval must be obtained. License
applications submitted to the FDA have historically taken several years to
receive approval. VRI expects that its products will be regulated as biologics.
Traditionally, both a Product License Application and an Establishment License
Application have been required prior to commercial marketing. The FDA will be
proposing regulations to implement the new Biologics License Application
("BLA") provision in the Food and Drug Administration Modernization Act of 1997
(the "FDA Modernization Act"), which allows for a single license application.
The FDA Modernization Act sets as a goal for the FDA the review and action on a
complete license application within 12 months. If the FDA determines that an
application is incomplete, or that important
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issues are unanswered by the data in the application, approval times could be
delayed significantly. Notwithstanding the submission of relevant data, the FDA
may ultimately decide that the license application does not satisfy its
criteria for approval.
Even if the FDA clearances are obtained, a marketed product is subject to
continual review. Later discovery of previously unknown problems or failure to
comply with the applicable regulatory requirements may result in restriction on
the marketing of a product or withdrawal of the product from the market as well
as possible civil or criminal sanctions. In addition, the manufacturing
facility for VRI's products will be subject to FDA inspection for adherence to
current Good Manufacturing Practice ("cGMP") regulations prior to marketing
clearance and periodically following approval. This will require VRI or its
contractor/collaborator to observe rigorous manufacturing specifications.
Lack of Marketing and Sales Capability; Dependence Upon Third Parties for
Marketing. Under the terms of existing and future collaborative agreements, VRI
relies and expects to continue to rely on the efforts of its collaborators for
the sale and marketing of any products. There can be no assurance that VRI's
collaborators will be successful in marketing any products developed. In the
event that VRI's collaborators fail to market a product successfully, VRI's
business may be adversely affected. VRI has no marketing and sales staff and
limited experience with respect to marketing any products. If VRI markets
products directly, significant additional expenditures and management resources
would be required to develop a marketing and sales organization. There can be
no assurance that VRI will be able to establish such an organization.
Dependence Upon Key Personnel; Scientific Advisors. VRI's success depends
on the continued contributions of its executive officers, scientific and
technical personnel and consultants. During VRI's limited operating history,
many key responsibilities within VRI have been assigned to a relatively small
number of individuals. VRI does not currently have any employment agreements
with any of its executive officers or other personnel. The competition for
qualified personnel is intense, and the loss of services of certain key
personnel could adversely affect the business of VRI. VRI's planned activities
will require additional expertise in certain areas of research and development.
The inability to develop such expertise could have a material adverse effect on
VRI's operations.
VRI's scientific advisors are employed by entities other than VRI and some
have consulting agreements with entities other than VRI, some of which may in
the future compete with VRI. The scientific advisors are expected to devote
only a small portion of their time to VRI and are not expected to participate
actively in the day-to-day operations of VRI. Certain of the institutions with
which the scientific advisors are affiliated may adopt new regulations or
policies that limit the ability of the scientific advisors to consult with VRI.
Uncertainty Related to Health Care Reform Measures and Reimbursement. In
recent years, there have been numerous proposals to change the health care
system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for certain medical procedures and
treatments or subject the pricing of pharmaceuticals to government control.
Significant changes in the health care system in the United States or elsewhere
might have a substantial impact on the manner in which VRI conducts its
business. Such changes could have a material adverse effect on VRI's ability to
raise capital. Furthermore, to the extent that such proposals have a material
adverse effect on the business, financial condition and profitability of other
companies that are collaborators or prospective collaborators of VRI, VRI's
ability to commercialize products may be adversely affected.
In addition, significant uncertainty exists as to the reimbursement status
of newly-approved healthcare products. VRI and its collaborators' success in
generating revenue from sales of products may depend, in part, on the extent to
which reimbursement for the costs of such products will be available from
third-party payors such as government health administration authorities,
private health insurers and health maintenance organizations ("HMOs"). In
addition, the expansion of managed health care in the United States and the
concurrent growth of organizations such as HMOs, which control or significantly
influence the purchase of health care services and products, as well as
legislative proposals to reduce government insurance programs, may all result
in lower prices for pharmaceutical products and could affect the market for
such products. If VRI succeeds in bringing one or more vaccine or
immunotherapeutic products to market, there can be no assurance that such
products will be considered cost-effective or that adequate third-party
insurance coverage will be available for VRI to establish and maintain price
levels sufficient for realization of an appropriate return on its investment in
product development.
13
<PAGE>
Third-party payors are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement of new products
approved for marketing by FDA. If adequate coverage and reimbursement levels
are not provided by government and third-party payors for uses of VRI's
products, the market acceptance of such products would be adversely affected.
Risk of Product Liability; Availability of Insurance. The testing and
marketing of VRI's vaccine and immunotherapeutic products entails or will
entail an inherent risk of product liability and the marketing of any such
products may expose VRI to product liability claims. VRI has obtained clinical
trial liability insurance coverage in the amount of $2.0 million, which it
deems appropriate for its current stage of development. However, there can be
no assurance that VRI's present insurance coverage is now or will continue to
be adequate as VRI further develops its products. In addition, VRI's
collaborative agreements may require VRI to obtain certain levels of product
liability insurance. There can be no assurance that in the future adequate
insurance coverage will be available in sufficient amounts or at a reasonable
cost, or that a product liability claim or recall would not have a material
adverse effect on the business or financial condition of VRI.
Hazardous Materials; Environmental Matters. VRI's research and development
and manufacturing processes involve the use of hazardous, controlled and
radioactive materials. VRI is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. Although VRI maintains safety
procedures for handling and disposing of such materials that it believes comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, VRI could be held liable for any
damages that result and any such liability could exceed the resources of VRI.
Although VRI believes that it is in compliance in all material respects with
applicable environmental laws and regulations, there can be no assurance that
VRI will not be required to incur significant costs to comply with
environmental laws and regulations in the future, nor that the operations,
business or assets of VRI will not be materially or adversely affected by
current or future environmental laws or regulations.
VRI is leasing premises in Cambridge, Massachusetts in an area of past
industrial activities and, as a result of such past activities, there is
evidence of low levels of oil and hazardous materials at the site leased by
VRI. VRI believes that the level of oil and hazardous materials at the site are
typical of this and many other urban areas and that no remediation of the site
is likely to be required. However, there can be no assurance that in the future
The Commonwealth of Massachusetts or the United States Environmental Protection
Agency will not require remediation of the site and, if remediation were
required, VRI could be required to bear part of the costs of remediation, which
could be substantial.
The research and development efforts sponsored by VRI involves use of
laboratory animals. VRI may be adversely affected by changes in laws,
regulations or accepted clinical procedures or by social pressures that would
restrict the use of animals in testing or by actions against VRI or its
collaborators by groups or individuals opposed to such testing.
14
<PAGE>
THE COMPANY
T Cell Sciences, Inc. is a biopharmaceutical company that uses 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's lead product TP10, focuses on compounds that inhibit the
inappropriate activation of the complement cascade in a variety of acute and
persistent 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.
T Cell is a Delaware corporation. The Company's executive offices are
located at 119 Fourth Avenue, Needham, Massachusetts 02494, and its telephone
number is (781) 433-0771.
RECENT DEVELOPMENT
On August 21, 1998, TC Merger Corp., a wholly-owned subsidiary of the
Company, was merged with and into VRI and VRI became a wholly-owned subsidiary
of the Company. VRI is engaged in the discovery and development of (i) systems
for the delivery of vaccines and immunotherapeutics and (ii) improved and novel
vaccines for adults and children. The combined company has three products in or
scheduled to enter Phase II clinical trials in 1998, and nine additional
products for which clinical trials have begun or are planned to start in 1999.
The combined company has five existing corporate partnerships that support, in
part, clinical development costs for its products. The Company expects that the
Merger will enhance the level of management depth and experience, and broaden
the scope of the Company's therapeutic programs for immune and cardiovascular
diseases to include prophylactic vaccines and new, wider-ranging opportunities
in immunotherapeutics.
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
March 31, 1998, the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1997 and the three months ended
March 31, 1998 (collectively, the "Unaudited Pro Forma Statements") were
prepared to give effect to the Merger accounted for under the purchase method
of accounting. The unaudited pro forma balance sheet assumes that the Merger
occurred on March 31, 1998. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1997 and for the three
months ended March 31, 1998 assume that the Merger occurred on January 1, 1997
and January 1, 1998, respectively. The Unaudited Pro Forma Statements are based
on the historical consolidated financial statements of T Cell and VRI under the
assumptions and adjustments set forth in the accompanying notes to the
Unaudited Pro Forma Statements. The combined condensed financial information
for the fiscal year ended December 31, 1997 has been obtained from the
consolidated financial statements of T Cell and VRI. The condensed combined
financial information for the three months ended March 31, 1998 and 1997 has
been obtained from the unaudited financial statements of T Cell and VRI and
includes, in the opinion of T Cell's and VRI's management, all adjustments
necessary to present fairly the data for such period. The Unaudited Pro Forma
Statements may not be indicative of the results that actually would have
occurred if the Merger had been in effect on the dates indicated or which may
be obtained in the future.
The pro forma adjustments are based upon available information and upon
certain assumptions as described in the notes to the Unaudited Pro Forma
Statements that T Cell's management believes are reasonable in the
circumstances. The purchase price has been allocated to the acquired assets and
liabilities based on a preliminary determination from an independent appraisal
of their respective values. In accordance with generally accepted accounting
principles, the amount allocated to in-process technology will be expensed in
the quarter in which the Merger is consummated. This adjustment has been
excluded from the unaudited pro forma condensed combined statements of
operations as it is a nonrecurring item. Although T Cell believes, based on
available information, that the fair values and allocation of the purchase
price included in the Unaudited Pro Forma Statements are reasonable estimates,
final purchase accounting adjustments will be made on the basis of evaluations
and estimates made after the Merger is consummated. As a result, final
allocation of costs related to the Merger may differ from that presented
herein. The Unaudited Pro Forma Statements and accompanying notes should be
read in conjunction with the separate consolidated financial statements and
notes thereto of T Cell and VRI which have been incorporated by reference into
or included in this Prospectus.
16
<PAGE>
T CELL SCIENCES, INC. AND VIRUS RESEARCH INSTITUTE, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Combined
Pro Forma Reflecting the
T Cell VRI Adjustments Merger
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ................ $ 8,181,900 $ 1,162,600 $ 9,344,500
Marketable securities .................... -- 15,349,400 15,349,400
Current portion restricted cash .......... 750,000 -- 750,000
Contract receivable ...................... -- 1,000,000 1,000,000
Prepaid and other current assets ......... 207,700 686,700 894,400
------------ ------------ ------------ --------------
Total current assets .................. 9,139,600 18,198,700 27,338,300
------------ ------------ ------------ --------------
Property and equipment, net ............... 346,400 665,200 1,011,600
Restricted cash ........................... 500,000 -- 500,000
Other noncurrent assets ................... 1,598,600 29,600 1,560,000(b) 3,188,200
------------ ------------ ------------ --------------
Total assets ........................... $ 11,584,600 $ 18,893,500 $ 1,560,000 $ 32,038,100
============ ============ ============ ==============
Liabilities And Stockholders' Equity
Current Liabilities:
Accounts payable and accrued
expenses ............................... $ 982,700 $ 1,712,100 $ 2,665,000(a) $ 5,359,800
Current portion of lease obligation
payable ................................ -- 32,300 32,300
Deferred revenue ......................... 500,000 -- 500,000
Note payable ............................. 750,000 -- 750,000
------------ ------------ ------------ --------------
Total current liabilities ............. 2,232,700 1,744,400 2,665,000 6,642,100
------------ ------------ ------------ --------------
Long-term note payable ................... 750,000 -- 750,000
------------ ------------ ------------ --------------
Stockholders' equity ......................
Common stock ............................. 28,500 8,900 5,100(a)(d) 42,500
Additional paid-in capital ............... 80,225,500 51,977,300 8,682,500(a)(d) 140,885,300
Accumulated deficit ...................... (71,652,100) (34,837,100) (9,792,600)(b)(d)(e) (116,281,800)
------------ ------------ ------------ --------------
Total stockholders' equity ............ 8,601,900 17,149,100 $ (1,105,000) 24,646,000
============ ============ ============ ==============
Total liabilities and
stockholders' equity ................. $ 11,584,600 $ 18,893,500 $ 1,560,000 $ 32,038,100
============ ============ ============ ==============
</TABLE>
See notes to Condensed Combined Pro Forma Financial Statements
17
<PAGE>
T CELL SCIENCES, INC. AND VIRUS RESEARCH INSTITUTE, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Combined
Pro Forma Reflecting the
T Cell VRI Adjustments Merger
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Operating Revenue:
Product development, research, licensing
and option revenue ........................ $ 1,147,600 $ 2,505,500 $ 3,653,100
Product sales .............................. 44,500 -- 44,500
------------ ----------- ------------ -------------
Total operating revenue ................ 1,192,100 2,505,500 3,697,600
------------ ----------- ------------ -------------
Operating Expense:
Research and development ................... 5,256,900 7,906,900 1,192,000(c) 14,355,800
General and administrative ................. 3,375,500 2,395,900 5,771,400
Other operating expense .................... 118,400 -- 118,400
------------ ----------- ------------ -------------
Total operating expense ................ 8,750,800 10,302,800 1,192,000 20,245,600
------------ ----------- ------------ -------------
Operating loss ............................. (7,558,700) (7,797,300) (1,192,000) (16,548,000)
------------ ----------- ------------ -------------
Other non-operating income
(expense), net ............................ (5,549,300) 1,232,900 (4,316,400)
------------ ----------- ------------ -------------
Net loss ................................... $(13,108,000) $(6,564,400) $ (1,192,000) $ (20,864,400)
============ =========== ============ =============
Basic and diluted net loss per
common share .............................. $ (0.52) $ (0.74) $ (0.53)
============ =========== ============ =============
Shares used in computing basic and
diluted net loss per common share ......... 25,139,900 8,897,800 39,150,900(f)
============ =========== ============ =============
</TABLE>
See notes to Condensed Combined Pro Forma Financial Statements
18
<PAGE>
T CELL SCIENCES, INC. AND VIRUS RESEARCH INSTITUTE, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Combined
Pro Forma Reflecting the
T Cell VRI Adjustments Merger
--------------- --------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Operating Revenue:
Product development, research,
licensing and option revenue .............. $ 333,600 $ 51,100 $ 384,700
Product sales .............................. 27,400 -- 27,400
------------ ------------ -------------
Total operating revenue ................ 361,000 51,100 412,100
------------ ------------ -------------
Operating Expense:
Research and development ................... 1,108,800 1,929,400 298,000(c) 3,336,200
General and administrative ................. 735,700 680,100 1,415,800
Other operating expense .................... 31,100 -- 31,100
------------ ------------ ------- -------------
Total operating expense ................ 1,875,600 2,609,500 298,000 4,783,100
------------ ------------ ------- -------------
Operating loss ............................. (1,514,600) (2,558,400) (298,000) (4,371,000)
------------ ------------ -------- -------------
Other non-operating income, net ............ 99,100 250,800 349,900
------------ ------------ -------- -------------
Net loss ................................... $ (1,415,500) $ (2,307,600) $ (298,000) $ (4,021,100)
============ ============ ========== =============
Basic and diluted net loss per
common share .............................. $ (0.05) $ (0.26) $ (0.10)
============ ============ =============
Shares used in computing basic and
diluted net loss per common share ......... 26,774,000 8,942,700 40,785,000(f)
============ ============ =============
</TABLE>
See notes to Condensed Combined Pro Forma Financial Statements
19
<PAGE>
T CELL SCIENCES, INC. AND VIRUS RESEARCH INSTITUTE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The pro forma information presented is theoretical in nature and not
necessarily indicative of the future consolidated results of operations of
the combined companies or the consolidated results of operations which would
have resulted had the Merger taken place during the periods presented. The
Unaudited Pro Forma Condensed Combined Statements reflect the effects of the
Merger. The unaudited pro forma condensed combined balance sheet assumes that
the Merger and related events occurred as of March 31, 1998. The unaudited
pro forma condensed combined statements of operations for the year ended
December 31, 1997 and for three months ended March 31, 1998 assume that
Merger and related events occurred as of January 1, 1997 and January 1, 1998,
respectively.
2. Pro Forma Condensed Combined Financial Statement Adjustments
(a) The purchase price for the Merger was determined as follows:
<TABLE>
<S> <C>
T Cell Common Stock issued to VRI stockholders ........... $51,593,200
T Cell Warrants issued to VRI stockholders ............... 4,971,600
Conversion of VRI Stock Options and VRI Warrants ......... 4,109,000
Direct acquisition costs ................................. 2,665,000
-----------
Total estimated purchase price ........................... $63,338,800
===========
</TABLE>
(b) The actual allocation of the purchase price will be based on the
estimated fair values of the net assets of VRI at the consummation of the
Merger. For the purposes of the pro forma condensed combined financial
statements, such allocation has been estimated as follows:
<TABLE>
<S> <C>
Net assets of VRI at March 31, 1998 .................. $17,149,100
In-process technology ................................ 44,629,700
Assembled workforce .................................. 460,000
Product base and collaborative relationships ......... 1,100,000
-----------
Total estimated purchase price ....................... $63,338,800
===========
</TABLE>
(c) Amortization of the product base and collaborative relationships and the
assembled workforce will be over the estimated useful life of one year
and five years, respectively.
(d) Elimination of VRI stockholders' equity amounts.
(e) Management estimates that approximately $44.6 million of the purchase
price represents purchased in-process technology that has not yet reached
technological feasibility and has no alternative future use. This amount
will be expensed as a non-recurring charge upon consummation of the
Merger. This amount has been reflected as a reduction to stockholders'
equity and has not been included in the pro forma condensed combined
statements of operations due to its non-recurring nature. A valuation of
the intangible assets acquired is currently being conducted by an
independent third party and is expected to be completed by the closing of
the Merger.
The value assigned to purchased in-process technology was determined by
identifying research projects in areas for which technological
feasibility has not been established. Due to the early stage nature of
VRI's operations and research and development, such research projects
represent substantially all of VRI's activities. The value was determined
by estimating the costs to develop the purchased in-process technology
into commercially viable products; estimating the resulting net cash
flows from such projects; and discounting the net cash flows back to
their present value.
20
<PAGE>
The efforts to develop the purchased in-process technology into
commercially viable products generally include the identification of
appropriate collaborative partners and financing, the completion of both
pre-clinical and clinical trials as well as the obtaining of regulatory
approval. Additional discussion of the nature of commercial product
development is included under Risk Factors.
(f) The shares used in computing the unaudited pro forma combined net loss
per share for the year ended December 31, 1997 and for the three months
ended March 31, 1998 are based upon the historical weighted average
common shares outstanding adjusted to reflect the issue, as of January 1,
1997 and January 1, 1998, respectively, of approximately 14.0 million
shares of T Cell Common Stock.
21
<PAGE>
DESCRIPTION OF THE T CELL WARRANTS
General
The T Cell Warrants to be issued upon the exercise of VRI Warrants will be
issued pursuant to the Common Stock Purchase Warrant Provisions (the "Warrant
Agreement"). THE FOLLOWING SUMMARY OF CERTAIN OF THE TERMS OF THE WARRANT
AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE WARRANT AGREEMENT (INCLUDING THE DEFINITIONS
OF CERTAIN TERMS THEREIN), WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. A COPY OF THE WARRANT AGREEMENT
IS AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY PERSON TO
WHOM THIS PROSPECTUS IS DELIVERED, INCLUDING ANY BENEFICIAL OWNER, TO T CELL
SCIENCES, INC., 119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494, ATTENTION:
NORMAN W. GORIN, SECRETARY (TELEPHONE NO. (781) 433-3175).
The T Cell Warrants to be sold by the Selling Securityholders and to be
issued by the Company upon exercise of the VRI Warrants are or will be
evidenced by warrant certificates (each, a "T Cell Warrant Certificate" and
collectively the "T Cell Warrant Certificates"), which will entitle the
holder(s) thereof, at any time prior to August 21, 2003 (the "Expiration
Date"), to purchase the number of shares of T Cell Common Stock evidenced by
such T Cell Warrant Certificate at a purchase price of $6.00 per share, subject
to certain adjustments (the "Warrant Exercise Price").
Exercise of the T Cell Warrants
To exercise all or any of the T Cell Warrants represented by a T Cell
Warrant Certificate, the holder thereof is required to surrender the T Cell
Warrant Certificate(s) to State Street Bank and Trust company (or its
successor), as warrant agent, together with a duly completed and executed
election form (the "Election to Purchase"), and pay in full the Warrant
Exercise Price for each share of T Cell Common Stock as to which a T Cell
Warrant is exercised. The Warrant Exercise Price may be made in cash, certified
check or wire transfer in same day funds in an amount equal to the Warrant
Exercise Price multiplied by the number of shares of T Cell Common Stock as to
which the T Cell Warrant is being exercised.
As promptly as practicable after the exercise of any T Cell Warrants in
accordance with the Warrant Agreement, and in any event within three (3)
business days after the receipt of the Election to Purchase, T Cell or the
warrant agent shall issue or cause the transfer agent to issue a certificate or
certificates for the number of non-fractional shares of T Cell Common Stock
registered in accordance with the instructions set forth in the Election to
Purchase, together with cash for any fractional shares of T Cell Common Stock
issuable upon the exercise of the T Cell Warrants. All shares of T Cell Common
Stock issuable by T Cell upon the exercise of the T Cell Warrants must be
validly authorized and issued, fully paid, non-assessable, free of preemptive
rights and free from all taxes, liens, charges and security interests in
respect of the issuance thereof.
Antidilution Provisions
The Warrant Exercise Price and the number of shares of T Cell Common Stock
issuable upon exercise of each T Cell Warrant are subject to adjustment in the
event of certain transactions including, without limitation, T Cell's (i)
paying a dividend or making any other distribution of shares of T Cell Common
Stock, (ii) subdividing or reclassifying the outstanding shares of T Cell
Common Stock into a greater number of shares of T Cell Common Stock, (iii)
combining or reclassifying the outstanding shares of T Cell Common Stock into a
smaller number of shares of T Cell Common Stock, (iv) fixing the record date
for the issuance of rights, options, warrants or convertible or exchangeable
securities to all holders of shares of T Cell Common Stock entitling them to
subscribe for or purchase shares of T Cell Common Stock at a price per share
that is lower (at the record date for such issuance) than the Fair Market Value
(as defined in the Warrant Agreement) per share of T Cell Common Stock, or (v)
fixing the record date for the making of a distribution to all holders of
shares of T Cell Common Stock of (a) shares of any class of T Cell's capital
stock other than T Cell Common Stock, (b) evidences of T Cell's indebtedness,
(c) assets other than cash dividends or distributions, or (d) or rights,
options, warrants or convertible or exchangeable securities (other than those
referred to in clause (iv) above).
22
<PAGE>
In the event of any Reorganization (as defined in the Warrant Agreement)
of T Cell, the holder of each outstanding T Cell Warrant shall, upon exercise
of such T Cell Warrant at any time thereafter, have the right to the stock,
securities, cash or other assets to which a holder of the number of shares of T
Cell Common Stock that would otherwise have been deliverable upon the exercise
of such T Cell Warrant would have been entitled upon such Reorganization if
such T Cell Warrant had been exercised in full immediately prior to such
Reorganization.
No Stock Rights
Except with respect to Liquidating Dividends (as defined in the Warrant
Agreement), no holder of a T Cell Warrant is entitled to any of the rights of a
T Cell stockholder, including, without limitation, the right to vote, to
receive dividends and other distributions, or to attend or receive any notice
of meetings of stockholders or any other proceedings of T Cell.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of T Cell Common
Stock or T Cell Warrants by the Selling Stockholders.
THE SELLING SECURITYHOLDERS
Shares of T Cell Common Stock and T Cell Warrants issued in connection
with the Merger and shares of T Cell Common Stock issued upon the exercise of T
Cell Warrants (collectively, the "T Cell Securities") are freely transferable
under the Securities Act, except for T Cell Securities issued to persons who
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and Rule 145(c) thereunder. Generally, these are persons, who,
at the time of the Merger, were deemed to control, be controlled by, or under
common control with VRI. The T Cell Securities issued (or issuable) to persons
who constitute "underwriters" within the meaning of Section 2(11) and Rule
145(c) may not be publicly reoffered or resold by such persons except pursuant
to an effective registration statement under the Securities Act covering the T
Cell Securities or, in certain circumstances, pursuant to Rule 145(d) or any
other applicable exemption under the Securities Act. Because the former VRI
stockholders listed in the table below or their pledgees, donees, transferees
or other successors in interest that receive such shares as a gift, partnership
distribution or other non- sale related transfer (the "Selling
Securityholders") may be deemed to be underwriters of T Cell Securities issued
to them in the Merger or thereafter, this Prospectus also covers any offers or
sales of such T Cell Securities by the Selling Securityholders.
There is no established public trading market for the T Cell Warrants
being offered for resale hereby. Various factors were considered by the T Cell
Board in determining the exercise price of the T Cell Warrants, including,
without limitation, (i) the historical trading price of the T Cell Common Stock
and (ii) the opinion, analyses and presentations of Lehman Brothers Inc.
The ownership of the T Cell Securities to be issued to the Selling
Securityholders in the Merger is described below:
<TABLE>
<CAPTION>
T Cell
Common T Cell T Cell Securities
T Cell Common Stock Warrants Warrants Owned
Stock Owned Prior Registered Owned Prior Registered After
Name of Securityholder to Resale(1) for Resale to Resale for Resale Resale(2)
- ------------------------------------------ ------------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
J. Barrie Ward, Ph.D.(3) ................. 40,390 40,390 4,616 4,616 0
William A. Packer ........................ 145,833 145,833 16,666 16,666 0
Bryan E. Roberts, Ph.D ................... 55,707 55,707 6,366 6,366 0
HealthCare Ventures II, L.P.(4) .......... 2,318,706 2,318,706 264,995 264,995 0
HealthCare Ventures III, L.P.(4) ......... 2,055,506 2,055,506 234,915 234,915 0
HealthCare Ventures IV, L.P.(4) .......... 603,623 603,623 68,985 68,985 0
Axiom Venture Partners L.P ............... 406,841 406,841 46,496 46,496 0
Biotechnology Value Fund, L.P ............ 1,107,747 1,107,747 126,599 126,599 0
John W. Littlechild (5) .................. 4,977,835 4,977,835 568,895 568,895 0
Alan M. Mendelson (6) .................... 406,841 406,841 46,496 46,496 0
</TABLE>
- ------------
(1) The number of shares of T Cell Common Stock assumes that the Selling
Securityholders exercise all of the VRI Warrants and the T Cell Warrants.
23
<PAGE>
(2) Assumes that the Selling Securityholders sell all of the shares of T Cell
Common Stock and all of the T Cell Warrants.
(3) In connection with the Merger, Mr. Ward became a director of T Cell and was
appointed Executive Chairman of the Board of the T Cell Board.
(4) The shares held by the partnership may be sold by the partnership or may be
distributed by the partnership to its partners who may sell such shares.
(5) Mr. Littlechild is a general partner of HealthCare Partners II, L.P. ("HCP
II"), HealthCare Partners III, L.P. ("HCP III") and HealthCare Partners
IV, L.P. ("HCP IV"), the general partners of HealthCare Ventures II, L.P.
("HCV II"), HealthCare Ventures III, L.P. ("HCV III") and HealthCare
Ventures IV, L.P. ("HCV IV"), respectively. Mr. Littlechild shares voting
and investment control with respect to the shares owned by HCV II, HCV III
and HCV IV with the other general partners of HCP II, HCP III and HCP IV,
respectively. In connection with the Merger, Mr. Littlechild became a
director of T Cell.
(6) Consists of the shares held by Axiom Venture Partners L.P., of which Mr.
Mendelson is a general partner. Mr. Mendelson disclaims beneficial
ownership of such shares.
PLAN OF DISTRIBUTION
The Selling Securityholder Securities may be sold at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case as determined by the Selling Securityholders or by
agreement between the Selling Securityholders and underwriters, brokers,
dealers or agents or purchasers. The Selling Securityholders may sell the
Selling Securityholder Securities (i) directly to purchasers as principals or
through one or more underwriters, brokers, dealers or agents from time to time
in one or more transactions (which may involve crosses or block transactions),
(ii) on any exchange or in the over-the-counter market, (iii) in transactions
otherwise than in the over-the-counter market or on an exchange or (iv) through
the writing of options (whether such options are listed on an options exchange
or otherwise) on the Selling Securityholder Securities.
In connection with distributions of the Selling Securityholder Securities
or otherwise, the Selling Securityholders may enter into hedging transactions
with broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in
short sales of the T Cell Common Stock in the course of hedging the positions
they assume with Selling Securityholders. The Selling Securityholders may also
sell the T Cell Common Stock short and redeliver the Selling Securityholder
Securities to close out such short positions. The Selling Securityholders may
also enter into option or other transactions with broker-dealers or other
financial institutions which require the delivery to such broker-dealers or
other financial institutions of the Selling Securityholder Securities offered
hereby, which Selling Securityholder Securities such broker-dealers or other
financial institutions may resell pursuant to this Prospectus (as supplemented
or amended to reflect such transaction). The Selling Securityholders may also
pledge Selling Securityholder Securities to broker-dealers or other financial
institutions, and, upon a default, such broker-dealers or other financial
institutions may effect sales of the pledged Selling Securityholder Securities
pursuant to this Prospectus (as supplemented or amended to reflect such
transaction). In addition, any Selling Securityholder Securities that qualify
for sale pursuant to Rule 145 may be sold under Rule 145 rather than pursuant
to this Prospectus. If the Selling Securityholders effect such transactions by
selling the Selling Securityholder Securities to or through underwriters,
brokers, dealers or agents, such underwriters, brokers, dealers or agents may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders or commissions from purchasers of Selling
Securityholder Securities for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The Selling Securityholders and any brokers, dealers or agents that
participate in the distribution of the Selling Securityholder Securities may be
deemed to be underwriters, and any profit on the sale of Selling Securityholder
Securities by them and any discounts, concessions or commissions received by
any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act.
In the event of a "distribution" of the Selling Securityholder Securities,
the Selling Securityholders, any selling broker-dealer or agent and any
"affiliated purchasers" may be subject to Regulation M under the Exchange Act,
which would prohibit, with certain exceptions, each such person from bidding
for, purchasing or attempting to
24
<PAGE>
induce any person to bid for or purchase any security which is the subject of
such distribution until his participation in that distribution is completed. In
addition, Regulation M under the Exchange Act prohibits certain "stabilizing
bids" or "stabilizing purchases" for the purpose of pegging, fixing or
maintaining the price of Selling Securityholder Securities in connection with
any offer of Selling Securityholder Securities by the Selling Securityholders.
To the extent not described herein and as otherwise required by law, the
specific amount of Selling Securityholder Securities being offered or sold, the
names of the Selling Securityholders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer or sale
will be set forth in an accompanying prospectus supplement or, if appropriate,
a post-effective amendment to the Registration Statement of which this
Prospectus is a part.
T Cell will not receive any of the proceeds of the sale of Selling
Securityholder Securities by any Selling Securityholder.
Under the securities laws of certain states, the Selling Securityholder
Securities may be sold in such states only through registered or licensed
brokers or dealers. In addition, in certain states the Selling Securityholder
Securities may not be sold unless the Selling Securityholder Securities have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
T Cell will pay all of the expenses incident to the registration, offering
and sale of Selling Securityholder Securities, other than commissions, fees and
discounts of underwriters, brokers, dealers and agents.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of T Cell Sciences, Inc.
incorporated into this Prospectus by reference to the Annual Report on Form
10-K for the year ended December 31, 1997, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Virus Research Institute, Inc. as at December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997, and the period from February 11, 1991 (inception) through
December 31, 1997 appearing in this Form S-3 have been audited by Richard A.
Eisner & Company, LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The statements in the Prospectus contained in the fifth, sixth and seventh
sentences of the third paragraph under "Risk Factors--Risk Factors Regarding
VRI, a Wholly-Owned Subsidiary of T Cell--Dependence on Patents, Licenses, and
Proprietary Rights" have been reviewed and approved by Fish & Richardson, P.C.,
Boston, Massachusetts, as experts on such matters, and are included herein in
reliance upon that review and approval.
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
VIRUS RESEARCH INSTITUTE, INC.
Report of Independent Accountants ..................................................... F-2
Balance Sheets as of December 31, 1996 and 1997 ....................................... F-3
Statements of Operations for the Years Ended December 31, 1995, 1996, 1997 and for the
Period from February 11, 1991 (Inception) through December 31, 1997 .................. F-4
Statements of Changes in Stockholders' Equity for the Period February 11, 1991
(Inception) through December 31, 1997 ................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and for
the Period from February 11, 1991 (Inception) through December 31, 1997 .............. F-6
Notes to Financial Statements ......................................................... F-7
Balance Sheets as of December 31, 1997 and March 31, 1998 (Unaudited) ................. F-12
Statements of Operations for the Three Months Ended March 31, 1997 and 1998 and
Cumulative Since Inception (Unaudited) ............................................... F-13
Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1998 and
Cumulative since Inception (Unaudited) ............................................... F-14
Notes to Quarterly Financial Statements ............................................... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Virus Research Institute, Inc.
Cambridge, Massachusetts
We have audited the accompanying balance sheets of Virus Research
Institute, Inc. (a development stage company) as at December 31, 1997 and
December 31, 1996, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, and for the period from February 11, 1991
(inception) through December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance abut 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Virus Research Institute,
Inc. at December 31, 1997 and December 31, 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, and the period from February 11, 1991 (inception)
through December 31, 1997 in conformity with generally accepted accounting
principles.
RICHARD A. EISNER & COMPANY, LLP
Cambridge, Massachusetts
January 30, 1998
F-2
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note E) ................... $ 2,488,963 $ 15,209,180
Marketable securities (Note E) ....................... 15,968,923 10,339,985
Contract receivable (Note C) ......................... 1,000,000 --
Interest receivable .................................. 352,186 218,285
Prepaid expenses ..................................... 273,224 220,534
Other current assets ................................. 42,616 659
------------- -------------
Total current assets ............................... 20,125,912 25,988,643
NONCURRENT ASSETS:
Marketable securities (Note E) ....................... 0 499,891
Leasehold improvements and equipment (net of
accumulated depreciation and amortization of
$2,416,568 at December 31, 1997 and $2,015,483
at December 31, 1996) (Note D) ...................... 715,234 881,363
Other assets ......................................... 37,193 67,634
------------- -------------
Total noncurrent assets ............................ 752,427 1,448,888
------------- -------------
Total assets ....................................... $ 20,878,339 $ 27,437,531
============= =============
CURRENT LIABILITIES:
Accounts payable ..................................... $ 24,769 $ 43,809
Accrued consulting and research fees ................. 709,295 810,677
Accrued employee benefits ............................ 91,636 71,636
Accrued legal ........................................ 192,453 112,000
Other accrued expenses ............................... 377,987 229,123
Current portion of lease obligation payable
(Note F(2)) ......................................... 72,352 155,079
------------- -------------
Total current liabilities .......................... 1,468,492 1,422,324
Lease obligation payable, less current portion
(Note F(2)) ......................................... -- 64,351
Commitments (Notes C and F)
Stockholders' equity (Notes A and G):
Preferred stock--$.001 par value; 5,000,000
shares authorized, none issued ...................... -- --
Common stock--$.001 par value; 30,000,000
shares authorized; 8,928,314 shares issued at
December 31, 1997 and 8,845,027 shares
issued at December 31, 1996 ......................... 8,928 8,845
Additional paid-in capital ........................... 51,930,441 51,907,179
Deficit accumulated during the development stage...... (32,529,522) (25,965,168)
------------- -------------
Total stockholders' equity .......................... 19,409,847 25,950,856
------------- -------------
Total liabilities and stockholders' equity ......... $ 20,878,339 $ 27,437,531
============= =============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 11, 1991
Year Ended December 31, (Inception) Through
1997 1996 1995 December 31, 1997
---------------- ---------------- ---------------- --------------------
<S> <C> <C> <C> <C>
REVENUE (NOTE B(1)):
Licensing and option revenue .................... $ 905,556 $ 4,520,000 $ 770,000 $ 6,895,556
Research and development revenue ................ 1,599,982 1,476,449 1,067,480 4,165,180
Interest income ................................. 1,298,857 851,082 126,249 2,523,389
------------ ------------ ------------ -------------
Total revenue ................................ 3,804,395 6,847,531 1,963,729 13,584,125
EXPENSES:
Research and development (Note C) ............... 7,557,055 5,262,507 5,734,427 31,566,535
General and administrative ...................... 2,344,638 2,328,204 1,854,732 11,308,997
Depreciation .................................... 401,085 673,436 583,654 2,518,916
Interest and other expense ...................... 65,971 165,320 87,944 719,199
------------ ------------ ------------ -------------
Total expenses ............................... 10,368,749 8,429,467 8,260,757 46,113,647
------------ ------------ ------------ -------------
Net loss ..................................... $ (6,564,354) $ (1,581,936) $ (6,297,028) $ (32,529,522)
============ ============ ============ =============
Basic and diluted net loss per common share ..... $ (0.74)
============
Shares used in computing basic and diluted
net loss per common share ...................... 8,897,784
Pro forma basic and diluted net loss per
common share ................................... $ (0.21) $ (1.03)
============ ============
Shares used in computing pro forma basic and
diluted net loss per common share .............. 7,639,726 6,104,671
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
--------------------------- Paid-In Development
Shares Par Value Capital Stage Total
--------------- ----------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Sale of common stock ...................... 1,667 $ 2 $ 498 $ -- $ 500
Net loss--February 11, 1991 (inception)
through December 31, 1991 ................ (862,597) (862,597)
---------- -------- ------------ ------------- -------------
Balance December 31, 1991 ................. 1,667 2 498 (862,597) (862,097)
Sale of common stock .................... 607 1 1,819 1,820
Recapitalization: 1,000 for 1 stock
split .................................. 2,271,060 2,271 (2,271) --
Surrender of common stock by
HCV II ................................. (1,291,667) (1,292) 905 (387)
Sale of common stock .................... 48,275 48 7,193 7,241
Net loss for the year ................... (3,967,604) (3,967,604)
---------- -------- ------------ ------------- -------------
Balance December 31, 1992 ................. 1,029,942 1,030 8,144 (4,830,201) (4,821,027)
Cancellation of shares pursuant to
founders' plan amendment ............... (282,000) (282) (564) (846)
Purchase and cancellation of treasury
shares ................................. (105,917) (106) (2,662) (2,768)
Stock options exercised ................. 83 -- 12 12
Net loss for the year ................... (5,927,221) (5,927,221)
---------- -------- ------------ ------------- -------------
Balance December 31, 1993 ................. 642,108 642 4,930 (10,757,422) (10,751,850)
Stock options exercised ................. 1,475 2 321 323
Founder option exercised ................ 43,333 43 37,007 37,050
Stock warrants exercised ................ 185 -- 178 178
Net loss for the year ................... (7,328,782) (7,328,782)
---------- -------- ------------ ------------- -------------
Balance December 31, 1994 ................. 687,101 687 42,436 (18,086,204) (18,043,081)
Stock options exercised ................. 2,903 3 1,766 1,769
Common stock warrants issued in
conjunction with notes payable ......... 90,000 90,000
Net loss for the year ................... (6,297,028) (6,297,028)
---------- -------- ------------ ------------- -------------
Balance December 31, 1995 ................. 690,004 690 134,202 (24,383,232) (24,248,340)
Conversion of notes payable to
investors .............................. 217,927 218 987,874 988,092
Cashless exercise of stock warrants ..... 17,363 17 (17) --
Conversion of redeemable convertible
preferred stock ........................ 5,553,579 5,554 26,003,825 26,009,379
Stock options exercised ................. 66,154 66 40,900 40,966
Shares issued at Initial Public
Offering ............................... 2,300,000 2,300 27,597,700 27,600,000
Costs of offering ....................... (2,857,305) (2,857,305)
Net loss for the year ................... (1,581,936) (1,581,936)
---------- -------- ------------ ------------- -------------
Balance December 31, 1996 ................. 8,845,027 8,845 51,907,179 (25,965,168) 25,950,856
Cashless exercise of stock warrants ..... 20,924 21 (21) --
Stock options exercised ................. 62,363 62 23,283 23,345
Net loss for the year ................... (6,564,354) (6,564,354)
---------- -------- ------------ ------------- -------------
Balance December 31, 1997 ................. 8,928,314 $ 8,928 $ 51,930,441 $ (32,529,522) $ 19,409,847
========== ======== ============ ============= =============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 11, 1991
Year Ended December 31, (Inception) Through
1997 1996 1995 December 31, 1997
---------------- ---------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $ (6,564,354) $ (1,581,936) $ (6,297,028) $ (32,529,522)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................ 409,077 700,188 599,435 2,569,442
Conversion of accrued interest to
preferred stock ............................. -- 46,026 -- 58,373
Changes in operating assets and
liabilities:
Contract receivable ........................ (1,000,000) -- -- (1,000,000)
(Increase) decrease in prepaid expenses
and other assets ........................... (198,108) (164,869) 112,784 (582,093)
Increase in accounts payable and
accrued expenses ........................... 128,896 127,320 157,611 1,396,140
------------- ------------- ------------ -------------
Net cash used in operating activities ....... (7,224,489) (873,271) (5,427,198) (30,087,660)
Cash flows from investing activities:
Purchases of marketable securities, net of
redemptions ................................. (5,129,047) (10,839,876) -- (15,968,923)
Capital expenditures .......................... (234,955) (349,312) (129,561) (3,149,247)
Other ......................................... -- -- -- (46,182)
------------- ------------- ------------ -------------
Net cash used in investing activities ...... (5,364,002) (11,189,188) (129,561) (19,164,352)
Cash flows from financing activities:
Proceeds from notes payable ................. -- -- 1,000,000 7,973,668
Sale and leaseback related to capital
acquisitions ............................... -- -- 250,000 751,311
Principal payments on lease obligations ..... (155,070) (174,503) (183,344) (839,265)
Sale of common stock ........................ 23,344 27,640,966 1,769 27,713,203
Sale of preferred stock ..................... -- 1,500,140 -- 19,258,613
Offering costs .............................. -- (2,875,140) (980) (3,112,941)
Founders' shares reacquired ................. -- -- -- (846)
Purchase of treasury stock .................. -- -- -- (2,768)
------------- ------------- ------------ -------------
Net cash provided by (used in)
financing activities ..................... (131,726) 26,091,463 1,067,445 51,740,975
Net increase (decrease) in cash and cash
equivalents ................................... (12,720,217) 14,029,004 (4,489,314) 2,488,963
Cash and cash equivalents, beginning of
period ........................................ 15,209,180 1,180,176 5,669,490 --
------------- ------------- ------------ -------------
Cash and cash equivalents, end of period ....... $ 2,488,963 $ 15,209,180 $ 1,180,176 $ 2,488,963
============= ============= ============ =============
Supplemental disclosure of cash flow
information:
Interest paid during the period ............. $ 27,530 $ 63,473 $ 61,915 $ 258,193
</TABLE>
See Notes E, F and G with respect to noncash financing and leasing
transactions.
See Notes to Financial Statements
F-6
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(NOTE A)--THE COMPANY:
Virus Research Institute, Inc. (the "Company") is a development stage
company engaged in the discovery and development of systems for the delivery of
vaccines and immunotherapeutics, and improved and novel vaccines for adults and
children.
The Company has incurred substantial losses since inception while it has
been in the development stage and such losses are expected to continue. In June
1996, the Company completed an initial public offering of 2,300,000 shares of
common stock for $12.00 per share, resulting in net proceeds of approximately
$24,743,000. The Company anticipates that the proceeds from the initial public
offering in conjunction with payments received from collaborative partners will
allow the Company to meet its obligations through December 31, 1999.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) Revenue recognition:
Nonrefundable, noncreditable licensing and option fees and milestone
payments are recognized when they are earned in accordance with the performance
requirements and contractual terms. Research and development revenues and
grants are recognized over the period of performance under the terms of the
related agreements.
Licensing revenue represents amounts paid by companies for the use of or
access to the Company's proprietary technology. Option revenue represents
payments for the right to evaluate the Company's proprietary technology which
may or may not result in a licensing or collaborative development agreement.
Research and development revenue represents amounts earned by the Company from
several collaborative partners for sponsored research activities. Certain of
the Company's collaborators are also stockholders of the Company.
(2) Depreciation and amortization:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized using the
straight-line method over the life of the lease.
(3) Patent and licensing costs:
As a result of research and development efforts conducted by the Company,
it has received and applied for, and is in the process of applying for, a
number of patents to protect proprietary inventions and licenses to use certain
intellectual property. Costs incurred in connection with patent applications
and licenses have been expensed as incurred and are reflected as general and
administrative expenses.
(4) Cash and cash equivalents:
The Company considers all highly liquid investments with maturities of
three months or less, when acquired, to be cash equivalents. Cash equivalents
are recorded at cost, which approximates fair value.
(5) Investments in marketable securities:
In addition to cash equivalents, the Company has investments in corporate
and municipal debt securities that are classified in the balance sheet as
held-to-maturity in accordance with the provisions of Statement of Financial
Accounting Standard No. 115 (SFAS No. 115), "Accounting for Certain Instruments
in Debt and Equity Securities." Held-to-maturity investments are securities the
Company has the positive intent and ability to hold to maturity. These
securities are accounted for at amortized cost, which approximates fair value.
F-7
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Income taxes:
Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. aluation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(7) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for depreciation and amortization, taxes and
contingencies.
(8) Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." The Company adopted this standard in 1996 by making the required
note disclosures only. Therefore, the adoption of this standard has not had an
effect on the Company's financial position or results of operations.
(9) Net loss per share:
During 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, "Earnings per Share" requiring certain changes in the
calculation of per share results. As the Company has reported net losses from
operations in the years presented, the computation for basic and diluted
earnings per share is identical.
Pro forma net loss per common share is based on the pro forma weighted
average number of common shares outstanding during the periods presented as
adjusted to reflect the conversion of all preferred stock on a retroactive
basis as of January 1, 1995 or date of issuance, if later.
(NOTE C)--RESEARCH, LICENSE AND CONSULTING AGREEMENTS:
The Company has entered into various research, license and consulting
agreements to support its research and development activities. These agreements
generally expire over several future years although some are automatically
renewable on an annual basis unless canceled by either party. Amounts charged
to operations in connection with these agreements for the years ended December
31, 1997, 1996 and 1995 amounted to approximately $705,000, $650,000 and
$1,255,000, respectively. The Company expects to incur similar expenses in
future years. Some of the above agreements contain provisions for future
royalties to be paid on sales of products developed under the agreements.
During 1997, the Company entered into an agreement pursuant to which the
Company licensed certain patents and technology to a collaborator. Under the
terms of the agreement, the collaborator is required to pay the Company
$400,000 for licensing rights and $600,000 for research which was completed as
of December 31, 1997. The total $1,000,000 is recorded as a contract receivable
at December 31, 1997. The agreement also provides for future payments
contingent upon the achievement of certain milestones.
F-8
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(NOTE D)--LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Leasehold improvements and equipment, including approximately $413,000
acquired under capital leases, are stated at cost and are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Laboratory furniture, fixtures and equipment ........... $1,537,121 $1,366,074
Office furniture, fixtures and equipment ............... 291,963 246,800
Leasehold improvements ................................. 1,302,718 1,283,972
---------- ----------
Total ................................................ 3,131,802 2,896,846
Less accumulated depreciation and amortization ......... 2,416,568 2,015,483
---------- ----------
Balance .............................................. $ 715,234 $ 881,363
========== ==========
</TABLE>
(NOTE E)--INVESTMENTS IN DEBT SECURITIES:
As of December 31, 1997 and 1996, the aggregate fair value of the
held-to-maturity securities was $15,966,179 and $16,866,045, respectively.
These amounts include an unrealized loss of $2,744 at December 31, 1997 and an
unrealized gain of $26,056 at December 31, 1996.
These securities are reflected in the balance sheet as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Cash equivalents ........................................ $ -- $ 6,000,113
Marketable securities, maturing within one year ......... $15,968,923 $10,339,985
Marketable securities, long term ........................ $ -- $ 499,891
</TABLE>
(NOTE F)--COMMITMENTS:
(1) Operating lease:
The Company has an operating lease for office and research facilities
which expires in December 2001. The Company has the option to renew the lease
for an additional five years. The lease also provides that the Company pay all
real estate taxes levied against the premises. The lease requires minimum
annual rentals in 1998 through 2001 of $294,000.
Rent expense for 1997, 1996 and 1995 amounted to approximately $332,000,
$267,000 and $269,000, respectively.
(2) Capital lease:
The Company has entered into several capital leases for equipment,
including sale and leaseback transactions. Future minimum payments under these
leases at December 31, 1997 amount to $72,352.
(NOTE G)--CAPITALIZATION:
(1) Warrants:
The Company has issued warrants to purchase common and preferred stock in
connection with the issuance of notes payable and the establishment of capital
leases.
F-9
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Warrants outstanding at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Exercise Price
Security Number of Shares Per Share Expiration Date
- ------------------------- ------------------ --------------- ------------------
<S> <C> <C> <C>
Common stock ......... 23,006 $ .96 February 9, 2004
Common stock ......... 49,578 1.95 December 14, 2005
Common stock ......... 11,000 9.60 April 12, 2001
</TABLE>
The warrant agreements contain antidilution provisions related to future
issuances of stock.
(2) Common stock options:
The Company has adopted an equity incentive plan providing for the
issuance of restricted stock and the granting of options to purchase up to a
combined total of 1,751,176 shares of common stock. The plan provides for the
granting of both incentive stock options and nonstatutory stock options. The
exercise price for any incentive stock options cannot be less than the fair
market value on the date of grant, while the exercise price for nonstatutory
options will be determined by the Board of Directors. The vesting periods for
all options are determined by the Board of Directors. The Company had the
following option activity during 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Weighted Average Option
Number of Shares Price Per Share
------------------ ------------------------
<S> <C> <C>
Balance--December 31, 1994 ......... 750,220 $ .80
Granted .......................... 12,142 $ 1.85
Exercised ........................ (2,903) $ .61
Cancelled ........................ (11,584) $ .96
-------
Balance--December 31, 1995 ......... 747,875 $ .82
Granted .......................... 325,172 $ 6.36
Exercised ........................ (66,154) $ .62
Cancelled ........................ (14,515) $ 1.45
-------
Balance--December 31, 1996 ......... 992,378 $ 2.64
Granted .......................... 104,412 $ 6.97
Exercised ........................ (62,363) $ .37
Cancelled ........................ (1,765) $ 5.09
-------
Balance--December 31, 1997 ......... 1,032,662 $ 3.23
---------
</TABLE>
Options for 539,569 shares are exercisable at December 31, 1997 at a
weighted average option price of $1.90 per share, with a weighted average
remaining contractual life of approximately 7 years. At December 31, 1997,
there were 585,545 shares available for future grant.
(3) Stock-based compensation:
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plan.
These was no compensation expense recognized in 1997, 1996 or 1995. If the
Company had elected to recognize compensation cost for the plan based on the
fair value at the grant date for awards under the plan, consistent with the
method prescribed by SFAS No. 123, net loss per share would have been changed
to the pro forma amounts indicated below:
F-10
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net loss ................... As reported $ (6,564,354) (1,581,936) $ (6,297,028)
Pro forma (6,776,699) (1,729,019) (6,297,309)
Net loss per share ......... As reported $ (.74) $ (.21) $ (1.03)
Pro forma (.76) (.23) (1.03)
</TABLE>
The fair value of the Company's stock options used to compute pro forma
net loss and net loss per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997, 1996 and 1995: dividend yield of 2.5%;
expected volatility of 45%; a risk free interest rate of 7.3%; and an expected
holding period of nine years.
The weighted average grant date fair value of options granted was $2.37
per share, $3.21 per share, and $3.07 per share for the years ended December
31, 1997, 1996 and 1995, respectively.
(NOTE H)--INCOME TAXES:
Through December 31, 1993, pursuant to provisions of the Internal Revenue
Code, the Company was deferring all start-up costs because operations, as
defined by the Internal Revenue Code, had not commenced. In addition, the
Company elected to defer all research and development costs until revenues were
generated. Effective January 1994, the Company began generating revenues and
commenced operations for tax purposes and is amortizing all costs deferred
through December 31, 1993 over 60 months. From January 1994 forward, the
Company continues to defer internal research and development costs and
amortizes such costs over 60 months for tax purposes.
At December 31, 1997 and 1996, the Company had no current or deferred tax
liability.
The components of the Company's net deferred tax asset and the tax effects
of the primary differences giving rise to the Company's deferred tax asset are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
Net operating loss carryforwards ................ $ 4,900,000 $ 3,100,000 $ 3,000,000
Deferred start-up costs ......................... 200,000 380,000 550,000
Deferred research and development costs ......... 6,800,000 5,944,000 5,415,000
Depreciation .................................... 315,000 250,000 164,000
Research and development credit ................. 561,000 227,000 110,000
Other ........................................... 47,000 36,000 171,000
------------- ------------ ------------
Deferred tax asset .............................. 12,823,000 9,937,000 9,410,000
Valuation allowance ............................. (12,823,000) (9,937,000) (9,410,000)
------------- ------------ ------------
Net deferred tax asset .......................... $ -- $ -- $ --
============= ============ ============
</TABLE>
At December 31, 1997, the Company's net operating loss carryovers for
federal income tax purposes amount to approximately $12,480,000 and expire
through 2012. The Company's ability to use these carryforwards is subject to
limitations resulting from an ownership change as defined in Internal Revenue
Code Sections 382 and 383.
F-11
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 1,162,625 $ 2,488,963
Marketable securities ............................................... 15,349,386 15,968,923
Contract receivable ................................................. 1,000,000 1,000,000
Interest receivable ................................................. 283,146 352,186
Prepaid expenses .................................................... 322,421 273,224
Other current assets ................................................ 81,163 42,616
------------- -------------
Total current assets ............................................... 18,198,741 20,125,912
Noncurrent assets:
Leasehold improvements and equipment (net of accumulated
depreciation and amortization of $2,508,530 at March 31, 1998 and
$2,416,568 at December 31, 1997) .................................... 665,226 715,234
Other assets ........................................................ 29,583 37,193
------------- -------------
Total noncurrent assets ............................................ 694,809 752,427
------------- -------------
Total assets ....................................................... $ 18,893,550 $ 20,878,339
============= =============
Current liabilities:
Accounts payable .................................................... $ 172,337 $ 24,769
Accrued consulting and research fees ................................ 784,441 709,295
Accrued employee benefits ........................................... 96,636 91,636
Accrued legal ....................................................... 195,120 192,453
Other accrued expenses .............................................. 463,590 377,987
Current portion of lease obligation payable ......................... 32,325 72,352
------------- -------------
Total current liabilities .......................................... 1,744,449 1,468,492
Stockholders' equity:
Preferred stock--$.001 par value; 5,000,000 shares authorized, none
issued .............................................................. -- --
Common stock--$.001 par value; 30,000,000 shares authorized;
8,979,029 shares issued at March 31, 1998 and 8,928,314 shares
issued at December 31, 1997 ......................................... 8,979 8,928
Additional paid-in capital .......................................... 51,977,244 51,930,441
Deficit accumulated during the development stage .................... (34,837,122) (32,529,522)
------------- -------------
Total stockholders' equity ......................................... 17,149,101 19,409,847
------------- -------------
Total liabilities and stockholders' equity ......................... $ 18,893,550 $ 20,878,339
============= =============
</TABLE>
See Notes to Financial Statements
F-12
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Cumulative
March 31, Since
1998 1997 Inception
---------------- ---------------- -----------------
<S> <C> <C> <C>
Revenue:
Licensing and option revenue ........................ $ 51,111 $ 0 $ 6,946,667
Research and development revenue .................... 0 387,491 4,165,180
Interest income ..................................... 263,975 332,780 2,787,364
------------ ------------ -------------
Total revenue ....................................... 315,086 720,271 13,899,211
Expenses:
Research and development ............................ 1,853,839 1,700,476 33,420,374
General and administrative .......................... 663,649 712,018 11,972,646
Depreciation ........................................ 91,963 130,607 2,610,879
Interest and other expense .......................... 13,235 17,985 732,434
------------ ------------ -------------
Total expenses ...................................... 2,622,686 2,561,086 48,736,333
------------ ------------ -------------
Net loss ............................................ $ (2,307,600) $ (1,840,815) $ (34,837,122)
============ ============ =============
Basic and diluted net loss per common share ......... $ (0.26) $ (0.21)
Shares used in computing basic and diluted net
loss per common share .............................. 8,942,667 8,861,992
</TABLE>
See Notes to Financial Statements
F-13
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Cumulative
March 31, Since
1998 1997 Inception
---------------- ---------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (2,307,600) $ (1,840,815) $ (34,837,122)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................ 93,295 132,606 2,662,737
Conversion of accrued interest to preferred stock 0 0 58,373
Changes in operating assets and liabilities:
Contract receivable .................................. 0 0 (1,000,000)
Increase in prepaid expenses and other assets ........ (11,094) (37,738) (593,187)
Increase in accounts payable and accrued
expenses ............................................ 317,094 404,844 1,713,234
Increase in deferred revenue ......................... (1,111) 537,491 (1,111)
------------ ------------ -------------
Net cash (used in) operating activities ................ (1,909,416) (803,612) (31,997,076)
Cash flows from investing activities:
Purchases of marketable securities, net .............. 619,537 (1,800,291) (15,349,386)
Capital expenditures ................................. (41,956) (87,303) (3,191,203)
Other ................................................ 0 0 (46,182)
------------ ------------ -------------
Net cash provided by (used in) investing activities 577,581 (1,887,594) (18,586,771)
Cash flows from financing activities:
Proceeds from notes payable .......................... 0 0 7,973,668
Sale & leaseback related to capital acquisitions ..... 0 0 751,311
Principal payments on lease obligations .............. (41,359) (37,275) (880,624)
Sale of common stock ................................. 46,856 17,661 27,760,059
Sale of preferred stock .............................. 0 0 19,258,613
Offering costs ....................................... 0 0 (3,112,941)
Founder's shares reacquired .......................... 0 0 (846)
Purchase of treasury stock ........................... 0 0 (2,768)
------------ ------------ -------------
Net cash provided by (used in) financing activities..... 5,497 (19,614) 51,746,472
Net increase (decrease) in cash ......................... (1,326,338) (2,710,820) 1,162,625
Cash and cash equivalents, beginning of period .......... 2,488,963 15,209,180 0
------------ ------------ -------------
Cash and cash equivalents, end of period ................ $ 1,162,625 $ 12,498,360 $ 1,162,625
============ ============ =============
Supplemental disclosure of cash flow information:
Interest paid during the period ...................... $ 4,292 $ 8,375 $ 262,485
</TABLE>
See Notes to Financial Statements
F-14
<PAGE>
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Virus Research Institute, Inc. (the
"Company") herein have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC) and, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals) necessary to
present fairly the results of operations for the interim periods presented.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted pursuant to such rules and regulations; however,
management believes that the disclosures are adequate to make the information
presented not misleading. These financial statements and the notes thereto
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997. The results for the interim period presented are
not necessarily indicative of the results for the full fiscal year.
(2) NET LOSS PER COMMON SHARE
During 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, "Earnings per Share" requiring certain changes in the
calculation of per share results. As the Company has reported net losses from
operations in the years presented, the computation for basic and diluted
earnings per share is identical.
F-15
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Selling
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy to any person in any jurisdiction in which
such offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any offer or sale hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company or that the information contained herein is correct as of any date
hereof.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Available Information ....................... 2
Incorporation of Certain Documents By
Reference ................................ 2
Risk Factors ................................ 3
The Company ................................. 15
Recent Development .......................... 15
Unaudited Pro Forma Condensed Combined
Financial Information .................... 16
Description of the T Cell Warrants .......... 22
Use of Proceeds ............................. 23
The Selling Securityholders ................. 23
Plan of Distribution ........................ 24
Legal Matters ............................... 25
Experts ..................................... 25
Index to Financial Statements ............... F-1
</TABLE>
T CELL SCIENCES, INC.
1,957,427 Shares of Common Stock Issuable by T Cell Upon Exercise
of T Cell Warrants and VRI Warrants Assumed by T Cell
and
16,717 T Cell Warrants Issuable
by T Cell Upon Exercise
of VRI Warrants
and
11,992,438 Shares of Common Stock and
1,258,438 Warrants to Purchase Common Stock
to Be Sold by Selling Securityholders
----------------------------------
PROSPECTUS
----------------------------------
August 21, 1998
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Company. All amounts shown are
estimates except the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC Registration fees ................................. $ 2,021
Nasdaq National Market Listing Fee .................... $ 2,141
Blue Sky fees and expenses ............................ $ 100
Printing and engraving expenses ....................... $ 11,010
Transfer agent and registrar fee and expenses ......... $ 3,058
Attorneys' fees and expenses .......................... $ 48,935
Accounting fees and expenses .......................... $ 4,894
Miscellaneous ......................................... $ 6,000
----------
Total ............................................... $ 78,159
==========
</TABLE>
Item 15. Indemnification of Officers and Directors.
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law (the "DGCL"), which enables a corporation
to eliminate or limit the personal liability of a director for monetary damages
for violations of the director's fiduciary duty, except for liability (i) for
any breach of the director's duty of loyalty to the corporation, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 145 of (iv) for any transaction
from which a director derived an improper personal benefit. The Company has
adopted such provisions in its Amended and Restated By-Laws (the "By-Laws").
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The DGCL permits indemnification against
expenses and certain other liabilities arising out of legal actions brought or
threatened against such persons for their conduct on behalf of the corporation,
provided that each such person acted in good faith and in a manner that he or
she reasonably believed was in or not opposed to the corporation's best
interests and, in the case of a criminal proceeding, had no reasonably cause to
believe his or her conduct was unlawful. The DGCL does not allow
indemnification of directors in the case of an action by or in the right of the
corporation (including stockholder derivative suits) unless the directors
successfully defend the action or indemnification is ordered by the court. The
By-Laws provide for indemnification to the fullest extent authorized by the
DGCL and, therefore, these statutory indemnification rights are available to
the directors, officers, employees and agents of the Company.
The Company currently carries a directors' and officers' liability
insurance policy, which provides for payment of expenses to the Company's
directors and officers in connection with threatened, pending or completed
actions, suits or proceedings against them in their capacities as directors and
officers, in accordance with the By-Laws and the DGCL.
II-1
<PAGE>
Item 16. List of Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 - Agreement and Plan of Merger, dated as of May 12, 1998, by and among T Cell Sciences,
Inc., TC Merger Corp. and Virus Research Institute, Inc. (attached as Annex A to the Joint
Proxy Statement/Prospectus contained in this Registration Statement). Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules referred to in the Merger Agreement are omitted.
The Registrant hereby undertakes to furnish supplementally a copy of any omitted Schedule
to the Commission upon request.**
3.1 - Third Restated Certificate of Incorporation of T Cell Sciences, inc., as amended and
supplemented.*
3.2 - Amended and Restated By-Laws of T Cell Sciences, Inc. dated as of November 10, 1994.*
3.3 - Sixth Restated Certificate of Incorporation of Virus Research Institute, Inc., as amended.****
3.4 - Amended and Stated By-Laws of Virus Research Institute, Inc.*****
3.5 - Second Certificate of Amendment of Third Restated Certificate of Incorporation of T Cell
Sciences, Inc.***
4.1 - Form of Stock Purchase Agreement dated as of March 20, 1998, between the Registrant and
certain stockholders of the Registrant.******
4.2 - Common Stock Purchase Warrant Provisions.***
5.1 - Opinion of Goodwin, Procter & Hoar LLP.*
8.1 - Opinion of Goodwin, Procter & Hoar LLP regarding certain tax matters.*
8.2 - Opinion of Hale and Dorr LLP regarding certain tax matters.*
10.1 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and HealthCare Ventures II, L.P.*******
10.2 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and HealthCare Ventures III, L.P.*******
10.3 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and HealthCare Ventures IV, L.P.*******
10.4 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and Axiom Venture Partners, L.P.*******
10.5 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and J. Barrie Ward.*******
10.6 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and William A. Packer.*******
10.7 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and John W. Littlechild.*******
10.8 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and Alan M. Mendelson.*******
10.9 - Employment Agreement, dated as of May 12, 1998, by and between the Registrant and J.
Barrie Ward.*
23.1 - Consent of PricewaterhouseCoopers LLP.***
23.2 - Consent of Richard A. Eisner & Company, LLP.***
23.3 - Consent of Lehman Brothers Inc. (included in Annex C to the Joint Proxy Statement/
prospectus contained in this Registration Statement).*
23.4 - Consent of Hambrecht & Quist LLC (included in Annex D to the Joint Proxy Statement/
Prospectus contained in this Registration Statement).*
23.5 - Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1).
23.6 - Consent of Hale and Dorr LLP (included in Exhibit 8.2).
23.7 - Consent of Fish & Richardson, P.C.***
24.1 - Powers of Attorney.*
99.1 - Form of Proxy for T Cell Common Stock.*
99.2 - Form of Proxy for VRI Common Stock.*
</TABLE>
- ------------
* Previously filed.
** Previously filed as Exhibit 2 to the Virus Research Institute, Inc.
Schedule 13D (File No. 005-49497) filed with the Commission on May 21,
1998.
*** Filed herewith.
II-2
<PAGE>
**** Previously filed as Exhibit 3.1 to the Virus Research Institute, Inc.
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1996 (File No. 0-20711) filed with the Commission on August 8, 1996.
***** Previously filed as Exhibit 3.2 to the Virus Research Institute, Inc.
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1996 (File No. 0-20711) filed with the Commission on August 8, 1996.
****** Previously filed as Exhibit 4.1 to the T Cell Sciences, Inc.
Registration Statement on Form S-3 (File No. 333-56755) filed with the
Commission on June 11, 1998.
******* Previously filed as Exhibit 1 to the Virus Research Institute, Inc.
Schedule 13D (File No. 005-49497) filed with the Commission on May 21,
1998.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any derivation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are incorporated by reference in this
Registration Statement.
(2) That, for purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein and the
offering of such securities at the time shall be deemed the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the indemnification provisions described herein, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 1 on Form S-3 to the Registration Statement on Form S-4 (No.
333-59215) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Needham, The Commonwealth of Massachusetts, on
August 21, 1998.
T CELL SCIENCES, INC.
By: /s/ Una S. Ryan
-------------------------
Una S. Ryan, Ph.D.
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 on Form S-3 to the Registration Statement on
Form S-4 (No. 333-59215) has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- -------------------------------- ----------------
<S> <C> <C>
/s/ Una S. Ryan President, Chief Executive August 21, 1998
- ------------------------- Officer and Director
(Principal Executive Officer)
Una S. Ryan, Ph.D.
/s/ Norman W. Gorin Vice President, Finance, August 21, 1998
- ------------------------- Chief Financial Officer
Norman W. Gorin and Secretary (Principal
Financial Officer and Principal
Accounting Officer)
* Director August 21, 1998
- -------------------------
Harry H. Penner, Jr.
* Director August 21, 1998
- -------------------------
Patrick C. Kung, Ph.D.
* Director August 21, 1998
- -------------------------
Thomas R. Ostermueller
* By: /s/ Una S. Ryan
---------------------
Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 - Agreement and Plan of Merger, dated as of May 12, 1998, by and among T Cell Sciences,
Inc., TC Merger Corp. and Virus Research Institute, Inc. (attached as Annex A to the Joint
Proxy Statement/Prospectus contained in this Registration Statement). Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules referred to in the Merger Agreement are omitted.
The Registrant hereby undertakes to furnish supplementally a copy of any omitted Schedule
to the Commission upon request.**
3.1 - Third Restated Certificate of Incorporation of T Cell Sciences, inc., as amended and
supplemented.*
3.2 - Amended and Restated By-Laws of T Cell Sciences, Inc. dated as of November 10, 1994.*
3.3 - Sixth Restated Certificate of Incorporation of Virus Research Institute, Inc., as amended.****
3.4 - Amended and Stated By-Laws of Virus Research Institute, Inc.*****
3.5 - Second Certificate of Amendment of Third Restated Certificate of Incorporation of T Cell
Sciences, Inc.***
4.1 - Form of Stock Purchase Agreement dated as of March 20, 1998, between the Registrant and
certain stockholders of the Registrant.******
4.2 - Common Stock Purchase Warrant Provisions.***
5.1 - Opinion of Goodwin, Procter & Hoar LLP.*
8.1 - Opinion of Goodwin, Procter & Hoar LLP regarding certain tax matters.*
8.2 - Opinion of Hale and Dorr LLP regarding certain tax matters.*
10.1 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and HealthCare Ventures II, L.P.*******
10.2 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and HealthCare Ventures III, L.P.*******
10.3 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and HealthCare Ventures IV, L.P.*******
10.4 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and Axiom Venture Partners, L.P.*******
10.5 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and J. Barrie Ward.*******
10.6 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and William A. Packer.*******
10.7 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and John W. Littlechild.*******
10.8 - Proxy Agreement, dated as of May 12, 1998, by and among the Registrant, TC Merger Sub
and Alan M. Mendelson.*******
10.9 - Employment Agreement, dated as of May 12, 1998, by and between the Registrant and J.
Barrie Ward.*
23.1 - Consent of PricewaterhouseCoopers LLP.***
23.2 - Consent of Richard A. Eisner & Company, LLP.***
23.3 - Consent of Lehman Brothers Inc. (included in Annex C to the Joint Proxy Statement/
prospectus contained in this Registration Statement).*
23.4 - Consent of Hambrecht & Quist LLC (included in Annex D to the Joint Proxy Statement/
Prospectus contained in this Registration Statement).*
23.5 - Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1).
23.6 - Consent of Hale and Dorr LLP (included in Exhibit 8.2).
23.7 - Consent of Fish & Richardson, P.C.***
24.1 - Powers of Attorney.*
99.1 - Form of Proxy for T Cell Common Stock.*
99.2 - Form of Proxy for VRI Common Stock.*
</TABLE>
<PAGE>
- ----------------
* Previously filed.
** Previously filed as Exhibit 2 to the Virus Research Institute, Inc.
Schedule 13D (File No. 005-49497) filed with the Commission on May 21,
1998.
*** Filed herewith.
**** Previously filed as Exhibit 3.1 to the Virus Research Institute, Inc.
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1996 (File No. 0-20711) filed with the Commission on August 8, 1996.
***** Previously filed as Exhibit 3.2 to the Virus Research Institute, Inc.
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1996 (File No. 0-20711) filed with the Commission on August 8, 1996.
****** Previously filed as Exhibit 4.1 to the T Cell Sciences, Inc.
Registration Statement on Form S-3 (File No. 333-56755) filed with the
Commission on June 11, 1998.
******* Previously filed as Exhibit 1 to the Virus Research Institute, Inc.
Schedule 13D (File No. 005-49497) filed with the Commission on May 21,
1998.
Exhibit 3.5
SECOND CERTIFICATE OF AMENDMENT
OF
THIRD RESTATED
CERTIFICATE OF INCORPORATION
OF
T CELL SCIENCES, INC.
(herein amended to AVANT Immunotherapeutics, Inc.)
T CELL SCIENCES, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies that the Third
Restated Certificate of Incorporation of the Corporation is hereby amended as
follows:
1. The first paragraph of Article FIRST is hereby amended to read in its
entirety as follows:
"FIRST: The name of the Corporation is: `AVANT Immunotherapeutics, Inc.'"
2. The first paragraph of Article FOURTH is hereby amended to read in its
entirety as follows:
"FOURTH: The total number of shares of capital stock which the Corporation
shall have the authority to issue is 78,000,000 shares, of which (i)
75,000,000 shares shall be Common Stock, par value $.001 per share (the
"Common Stock") and (ii) 3,000,000 shares shall be Preferred Stock, par
value $.01 per share, all of which shall be designated Class C Preferred
Stock ("Class C Stock") of which 350,000 shall be designated Series C-1
Junior Participating Cumulative Preferred Stock (the "Series C-1 Preferred
Stock")."
3. The foregoing amendments were duly adopted in accordance with the
applicable requirements of Section 242 of the Delaware General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Second Certificate of
Amendment of the Third Restated Certificate of Incorporation to be signed by Una
S. Ryan its President and Chief Executive Officer and attested by Norman W.
Gorin its Chief Financial Officer this 21st day of August, 1998.
T CELL SCIENCES, INC.
By: /s/ Una S. Ryan
------------------------------------------
Name: Una S. Ryan
Its: President and Chief Executive Officer
ATTEST:
/s/ Norman W. Gorin
- ------------------------------
Name: Norman W. Gorin
Its: Chief Financial Officer
2
EXHIBIT 4.2
================================================================================
COMMON STOCK PURCHASE WARRANT PROVISIONS
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
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<S> <C> <C>
ARTICLE I
WARRANT CERTIFICATES ............................................................. 3
Section 1.1 Form of Warrant Certificates ....................................... 3
Section 1.2 Execution of Warrant Certificates .................................. 3
Section 1.3 Registration of Warrant Certificates ............................... 3
Section 1.4 Exchange and Transfer of Warrant Certificates ...................... 3
Section 1.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates .......... 4
Section 1.6 Cancellation of Warrant Certificates ............................... 4
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS .................................. 4
Section 2.1 Exercise Price ..................................................... 4
Section 2.2 Reservation of Common Stock ........................................ 4
Section 2.3 Exercise of Warrants ............................................... 4
Section 2.4 Issuance of Common Stock ........................................... 4
Section 2.5 Certificates for Unexercised Warrants .............................. 5
Section 2.6 Registration of Warrant Shares ..................................... 5
Section 2.7 No Impairment ...................................................... 5
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS ................................................ 5
Section 3.1 Adjustment of Exercise Price ....................................... 5
Section 3.2 No Adjustments to Exercise Price ................................... 7
Section 3.3 Adjustment of Number of Shares ..................................... 7
Section 3.4 Reorganizations .................................................... 7
Section 3.5 Notice of Certain Actions .......................................... 8
Section 3.6 Certificate of Adjustments ......................................... 8
Section 3.7 Warrant Certificate Amendments ..................................... 8
Section 3.8 Fractional Shares .................................................. 8
Section 3.9 Liquidating Dividends .............................................. 8
ARTICLE IV
MISCELLANEOUS .................................................................... 9
Section 4.1 Changes to Agreement ............................................... 9
Section 4.2 Assignment ......................................................... 9
Section 4.3 Successor to Company ............................................... 9
Section 4.4 Notices ............................................................ 9
Section 4.5 Defects in Notice .................................................. 9
Section 4.6 Governing Law ...................................................... 9
Section 4.7 Standing ........................................................... 10
Section 4.8 Headings ........................................................... 10
Section 4.9 Counterparts ....................................................... 10
Section 4.10 Availability of the Agreement ...................................... 10
Section 4.11 Entire Agreement ................................................... 10
Exhibit A--Form of Common Stock Purchase Warrant Certificate ....................... 11
</TABLE>
2
<PAGE>
T CELL SCIENCES, INC.
THESE COMMON STOCK PURCHASE WARRANT PROVISIONS (this "Agreement"), relate
to certain Warrants (as defined below) to be issued by T Cell Sciences, Inc., a
corporation organized under the laws of Delaware (the "Company"), pursuant to
the Merger Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the Company and Virus Research Institute, Inc., a corporation
organized under the laws of Delaware ("VRI"), have entered into an Agreement
and Plan of Merger dated as of May 12, 1998 (the "Merger Agreement") pursuant
to which a wholly-owned subsidiary of the Company will merge with and into VRI,
with VRI as the surviving entity; and
WHEREAS, the Merger Agreement provides that the Company will issue to the
stockholders of VRI shares of the Company's common stock, par value $.001 per
share ("Common Stock"), and warrants (each, a "Warrant", and collectively, the
"Warrants") to purchase shares of Common Stock (the Common Stock issuable upon
exercise of the Warrants being referred to herein as the "Warrant Shares") as
consideration, subject to the terms and conditions of the Merger Agreement and
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
WARRANT CERTIFICATES
Section 1.1 Form of Warrant Certificates. The warrant certificates
representing the Warrants issued under this Agreement (the "Warrant
Certificates") shall be issued in registered form only and, together with the
form of the election to purchase (the "Election to Purchase") and assignment to
be attached thereto, shall be substantially in the form of Exhibit A attached
hereto and, in addition, may have such letters, numbers or other marks of
identification or designation and such legends, summaries, or endorsements
stamped, printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as, in any particular case, may be required in the opinion of counsel for
the Company, to comply with any law or with any rule or regulation of any
regulatory authority or agency, or to conform to customary usage.
Section 1.2 Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by its President and Chief Executive
Officer and attested to by its Treasurer, either manually or by facsimile
signature printed thereon. In the event that any authorized officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company either before or after delivery of such Warrant
Certificates by the Company, the signature of such person on such Warrant
Certificates shall be valid nevertheless and such Warrant Certificates may be
issued and delivered to those persons entitled to receive the Warrants
represented thereby with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the
Company.
Section 1.3 Registration of Warrant Certificates. The Company shall number
and register the Warrant Certificates in a warrant register maintained by the
Company. The Company may deem and treat the registered holder(s) of the Warrant
Certificates (the "Holders") as the absolute owner(s) thereof for all purposes.
Section 1.4 Exchange and Transfer of Warrant Certificates. The Warrants
(and any Warrant Shares issued upon exercise of the Warrants) shall bear such
restrictive legend or legends as may be required by law or by this Agreement
and shall be transferable only in accordance with the terms of this Agreement.
The Company shall from time to time register the transfer of any
outstanding Warrant Certificates in the warrant register upon surrender thereof
accompanied by a written instrument or instruments of transfer in form
reasonably satisfactory to the Company duly executed by the Holder or Holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, the Company shall
issue as promptly as practicable and in any event within three (3) business
days after receipt of such notice of transfer a new Warrant Certificate to the
transferee(s).
3
<PAGE>
Warrant Certificates and all rights thereunder may be exchanged, in whole
or in part, at the option of the Holder(s) thereof when surrendered to the
Company at the address set forth in Section 4.5 hereof for another Warrant
Certificate or Warrant Certificates of like tenor and representing the right to
purchase in the aggregate a like number of Warrant Shares; provided that the
Company shall not be required to issue any Warrant Certificate representing any
fractional Warrant Shares.
The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of new Warrant
Certificates, including, without limitation, any transfer or stamp taxes.
Section 1.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates. If
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue, execute and deliver, in exchange and substitution for and
upon cancellation of such mutilated Warrant Certificate, or in lieu of or in
substitution for such lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate representing the right to purchase an equivalent number of
Warrant Shares. If required by the Company, the Holder of the lost, stolen or
destroyed Warrant Certificate must agree to indemnify and protect the Company
from any loss which it may suffer if the Warrant Certificate is replaced. Any
new Warrant Certificate shall constitute an original contractual obligation of
the Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant Certificate shall be at any time enforceable by anyone.
Section 1.6 Cancellation of Warrant Certificates. Any Warrant Certificate
surrendered upon the exercise of Warrants or for exchange or transfer, or
purchased or otherwise acquired by the Company, shall be canceled and shall not
be reissued by the Company; and, except as provided in Section 2.5 with respect
to the exercise of less than all of the Warrants evidenced by a Warrant
Certificate or in Section 1.4 with respect to an exchange or transfer, no
Warrant Certificate shall be issued hereunder in lieu of such canceled Warrant
Certificate. Any Warrant Certificate so canceled shall be destroyed by the
Company.
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 Exercise Price. Each Warrant Certificate shall, when duly
issued by the Company, entitle the Holder thereof to purchase from the Company,
subject to the terms and conditions of this Agreement, the number of fully paid
and nonassessable Warrant Shares evidenced thereby at a purchase price of Six
Dollars and no/cents ($6.00) per share (the "Exercise Price") or such adjusted
purchase price as may be established from time to time pursuant to the
provisions of Article III hereof, payable in full in accordance with Section
2.3, at the time of exercise of the Warrant. Except as the context otherwise
requires, the term "Exercise Price" as used in this Agreement shall mean the
purchase price of one share of Common Stock, reflecting all appropriate
adjustments made in accordance with the provisions of Article III hereof.
Section 2.2 Reservation of Common Stock. The Company shall at all times
reserve and keep available, free from preemptive rights, for issuance upon the
exercise of Warrants, the maximum number of its authorized but unissued shares
of Common Stock which may then be issuable upon the exercise in full of all
outstanding Warrants. If the Common Stock is listed on any national securities
exchange or quoted on Nasdaq at the time of any issuance of Warrant Shares,
then such maximum number of shares of Common Stock shall be approved for
listing or quotation, the case may be, subject to notice of issuance if
applicable.
Section 2.3 Exercise of Warrants.
(a) Procedure. The Warrants may be exercised prior to the Expiration
Date (as hereinafter defined) at the Exercise Price at any time following the
date hereof. The Warrants shall expire at 5:00 p.m., New York City time, on
August 21, 2003 (the "Expiration Date"). The Warrants may be exercised by
surrendering the Warrant Certificates representing such Warrants to the Company
at its address set forth in Section 4.5, together with the Election to Purchase
duly completed and executed, accompanied by payment in full, as set forth
below, to the Company of the Exercise Price for each Warrant Share in respect
of which such Warrants are being exercised. Such Exercise Price shall be paid
in full by cash or a certified check or a wire transfer in same day funds in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
then being purchased.
Section 2.4 Issuance of Common Stock. As promptly as practicable after the
Date of Exercise of any Warrants and in any event within three (3) business
days after receipt of the Election to Purchase, the Company
4
<PAGE>
shall issue, or cause its transfer agent to issue, a certificate or
certificates for the number of non-fractional Warrant Shares (the "Common Stock
Certificate"), registered in accordance with the instructions set forth in the
Election to Purchase, together with cash for fractional Warrant Shares
exercised as provided in Section 3.9. All Warrant Shares issued upon the
exercise of any Warrants shall be validly authorized and issued, fully paid,
non-assessable, free of preemptive rights and free from all taxes, liens,
charges and security interests in respect of the issuance thereof. Each person
in whose name any such Common Stock Certificate is issued shall be deemed for
all purposes to have become the holder of record of the Common Stock
represented thereby on the Date of Exercise of the Warrants resulting in the
issuance of such shares, irrespective of the date of issuance or delivery of
such Common Stock Certificate. The Company shall pay all expenses, taxes and
other charges payable in connection with the preparation, issuance and delivery
of new Common Stock Certificates, including, without limitation, any transfer
or stamp taxes. Upon exercise of the Warrant, the Holder shall also receive, in
addition to the Warrant Shares, the associated rights to purchase shares of the
Company's Class C-1 Junior Participating Cumulative Preferred Stock, par value
$.01 per share (the "Preferred Stock Rights"), pursuant to the Rights Agreement
dated November 10, 1994 between the Company and State Street Bank and Trust
Company, as Rights Agent, if then in effect.
Section 2.5 Certificates for Unexercised Warrants. In the event that,
prior to the Expiration Date, a Warrant Certificate is exercised in respect of
fewer than all of the Warrant Shares issuable on such exercise a new Warrant
Certificate representing the remaining Warrant Shares shall be issued and
delivered pursuant to the provisions hereof; provided that the Company shall
not be required to issue any Warrant Certificate representing any fractional
Warrant Shares.
Section 2.6 Registration of Warrant Shares. The Company shall use its
reasonable best efforts to make such filings and obtain such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under the Warrants, including without limitation registering under the
Securities Act of 1933, as amended (the "Securities Act") the issuance of the
Warrant Shares upon exercise of the Warrants and the Preferred Stock Rights and
maintaining the effectiveness of the registration statement filed for such
purpose.
Section 2.7 No Impairment. The Company will not, by amendment of its
charter or through reorganization consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Warrants, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the Holders of the Warrants against impairment.
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS
Section 3.1 Adjustment of Exercise Price. Subject to the provisions of
this Article III, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(a) In the event that the Company shall (i) declare a dividend payable
in or make a distribution on the outstanding Common Stock of additional shares
of Common Stock, (ii) subdivide or reclassify the outstanding Common Stock into
a greater number of shares of Common Stock, or (iii) combine or reclassify the
outstanding shares of Common Stock into a fewer number of shares of Common
Stock, the Exercise Price in effect immediately after the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification, as the case may be, shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such dividend,
distribution, subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such dividend, distribution, subdivision, combination or
reclassification. Any shares of Common Stock issuable in payment of a dividend
shall be deemed to have been issued immediately prior to the record date for
such dividend for the purpose of calculating the number of outstanding shares
of Common Stock under Sections 3.l(b), 3.l(c) and 3.2(a) hereof. Such
adjustment shall be made successively whenever any event specified above shall
occur.
(b) In the event that the Company shall fix a record date for the
issuance of rights, options, warrants or convertible or exchangeable securities
to all holders of its Common Stock entitling them (for a period which, by
5
<PAGE>
its express terms, expires within forty-five (45) days after such record date)
to subscribe for or purchase shares of Common Stock at a price per share less
than the Fair Market Value (as defined below) of a share of Common Stock on
such record date, the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Exercise Price
in effect immediately prior thereto by a fraction, of which the numerator shall
be the number of shares of Common Stock outstanding on such record date plus
the maximum number of shares of Common Stock which the aggregate subscription
or purchase price for the total number of shares of Common Stock so offered for
subscription or purchase pursuant to such rights, options, warrants or
convertible or exchangeable securities would purchase at the Fair Market Value
(as defined below) per share, and of which the denominator shall be the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock issuable pursuant to such rights, options,
warrants or convertible or exchangeable securities offered for subscription or
purchase. Such adjustment shall be made successively whenever such a record
date is fixed. To the extent that any such rights, options, warrants or
convertible or exchangeable securities are not so issued or expire unexercised,
the Exercise Price then in effect shall be readjusted to the Exercise Price
which would then be in effect if such unissued or unexercised rights, options,
warrants or convertible or exchangeable securities had not been issuable in the
first place.
(c) In the event that the Company shall fix a record date for the making
of a distribution to all holders of shares of Common Stock (i) of shares of any
class of its capital stock other than Common Stock, or (ii) of evidences of its
indebtedness, or (iii) of assets (excluding cash dividends or distributions and
dividends or distributions referred to in Section 3.1(a)), or (iv) of rights,
options, warrants or convertible or exchangeable securities (excluding those
rights, options, warrants convertible or exchangeable securities referred to
Section 3.1(b)), then in each such case the Exercise Price in effect
immediately thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, of which the numerator shall be
the total number of shares of Common Stock outstanding on such record date
multiplied by the Fair Market Value per share of Common Stock on such record
date, less the aggregate Fair Market Value of said other shares of capital
stock or evidences of indebtedness or assets or rights, options, warrants or
convertible or exchangeable securities so distributed, and of which the
denominator shall be the total number of shares of Common Stock outstanding on
such record date multiplied by such Fair Market Value per share of Common
Stock. Such adjustment shall be made successively whenever such a record date
is fixed; provided, however, that in no event shall the Exercise Price be less
than zero. In the event that such distribution is not so made, or that such
distribution, by its express terms, is intended to be made, and is in fact
made, with respect to any Warrant Shares issued after the record date for such
distribution upon exercise of Warrants, the Exercise Price then in effect shall
be readjusted to (or remain as) the Exercise Price which would then be in
effect if such record date had not been fixed.
(d) As used herein:
(i) the term "Fair Market Value" means:
(x) with respect to the Common Stock, on a per share basis, the
average of the daily Closing Prices (as hereinafter defined) of
the Common Stock for the five (5) consecutive Trading Days (as
hereinafter defined) ending on the Trading Day immediately
preceding a Computation Date (the "Fair Market Value Measurement
Period"), or, if the Closing Price of the Common Stock cannot be
determined pursuant to Section 2.3(b)(iv), the fair value thereof
determined in good faith by the Company's Board of Directors as of
a date which is within 15 days of the date as of which the
determination is to be made; and
(y) with respect to any other securities or property, the fair
value thereof determined in good faith by the Company's Board of
Directors as of a date which is within 15 days of the date as of
which the determination is to be made;
(ii) the term "Computation Date" means any date on which a calculation
of the Fair Market Value of the Common Stock is contemplated by this
Agreement;
(iv) the term "Closing Price" for any date shall mean the last sale
price reported in The Wall Street Journal regular way or, in case no
such reported sale takes place on such date, the average of the last
reported bid and asked prices regular way on the principal U.S.
national securities exchange on which the Common Stock is admitted to
trading or listed if that is the principal market for the Common Stock
or, if not listed or admitted to trading on any national securities
exchange or if such
6
<PAGE>
national securities exchange is not the principal market for the
Common Stock, the last sale price as reported on The Nasdaq Stock
Market, Inc.'s National Market ("Nasdaq") or its successor, if any, or
if the Common Stock is not so reported, the average of the reported
bid and asked prices in the over-the-counter market, as furnished by
the National Quotation Bureau, Inc., or if such firm is not then
engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business and reasonably selected by
the Company or, if there is no such firm, as furnished by any member
of the National Association of Securities Dealers, Inc. reasonably
selected by the Company; and
(v) the term "Trading Days" with respect to the Common Stock means (i)
if the Common Stock is quoted on Nasdaq, or any similar system of
automated dissemination of quotations of securities prices, days on
which trades may be made on such system or (ii) if the Common Stock is
listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
(e) In the event that there shall have occurred prior to the Computation
Date any event described in Section 3.l(a), 3.l(b) or 3.1(c) which shall have
become effective with respect to market transactions at any time (the
"Market-Effect Date") within the Fair Market Value Measurement Period, the
Closing Price for each Trading Day preceding the Market-Effect Date shall be
adjusted, for purposes of calculating such average, by multiplying such Closing
Price by a fraction, of which the numerator shall be the Exercise Price as in
effect immediately prior to the Computation Date and the denominator of which
shall be the Exercise Price as in effect immediately prior to the Market-Effect
Date, it being understood that the purpose of this proviso is to ensure that
the effect of such event on the market price of the Common Stock shall, as
nearly as possible, be eliminated in order that the distortion in the
calculation of the Fair Market Value per share may be minimized.
Section 3.2 No Adjustments to Exercise Price. No adjustment in the
Exercise Price in accordance with the provisions of Section 3.1(a), 3.1(b) or
3.1(c) hereof need be made unless such adjustment would amount to a change of
at least 1.0% in such Exercise Price, provided, however, that the amount by
which any adjustment is not made by reason of the provisions of this Section
3.2 shall be carried forward and taken into account at the time of any
subsequent adjustment in the Exercise Price.
Section 3.3 Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to Section 3.l(a), 3.1(b) or 3.1(c), each Warrant shall
thereupon evidence the right to purchase that number of Warrant Shares
(calculated to the nearest hundredth of a share) obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment upon
exercise of the Warrant by the Exercise Price in effect immediately prior to
such adjustment and dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment.
Section 3.4 Reorganizations. In the event of any capital reorganization,
other than in the cases referred to in Section 3.1, or the consolidation or
merger of the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding Common Stock or the
conversion of such outstanding Common Stock into shares of other capital stock
or other securities or property), or the sale or conveyance of the property of
the Company as an entirety or substantially as an entirety (collectively such
actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Warrant (in lieu of the number
of Warrant Shares theretofore deliverable) the number of shares of stock or
other securities or property to which a holder of the number of Warrant Shares
which would otherwise have been deliverable upon the exercise of such Warrant
would have been entitled upon such Reorganization if such Warrant had been
exercised in full immediately prior to such Reorganization. In the event of any
Reorganization, appropriate adjustment, as determined in good faith by the
Company's Board of Directors, shall be made in the application of the
provisions herein set forth with respect to the rights and interests of Holders
so that the provisions set forth herein shall thereafter be applicable, as
nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of Warrants. Any such adjustment shall be made by and
set forth in a supplemental agreement prepared by the Company or any successor
thereto, between the Company and any successor thereto, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior to the
consummation thereof the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of
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Common Stock outstanding at the effective time thereof, then such issuer, shall
assume the obligation to deliver to the Holder of any Warrant Certificate such
shares of stock, securities, cash or other property as such holder shall be
entitled to purchase in accordance with the foregoing provisions.
Section 3.5 Notice of Certain Actions. In the event the Company shall (a)
declare any dividend payable in stock to the holders of its Common Stock or
make any other distribution in property other than cash to the holders of its
Common Stock, (b) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other rights, options,
warrants or other convertible or exchangeable securities, (c) effect any
reclassification of its Common Stock (other than a reclassification involving
merely the subdivision or combination of outstanding shares of Common Stock) or
any capital reorganization or any consolidation or merger (other than a merger
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding Common Stock or the conversion of such
outstanding Common Stock into shares of other capital stock or other securities
or property), or any sale, transfer or other disposition of its property,
assets and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, or (d) take any other action
specified in Sections 3.1(a), 3.1(b) or 3.1(c); then, in each such case, the
Company shall cause notice of such proposed action to be mailed to each Holder
at least twenty (20) days prior to the record date for such action, or if no
record is taken for such action, twenty (20) days before such action. Such
notice shall specify the date on which the books of the Company shall close, or
a record be taken, for determining holders of Common Stock entitled to receive
such stock dividend or other distribution or such rights or options, or the
date on which such reclassification, reorganization, consolidation, merger,
sale, transfer, other disposition, liquidation, dissolution, winding up or
exchange shall take place or commence, as the case may be, and the date as of
which it is expected that holders of record of Common Stock shall be entitled
to receive securities or other property deliverable upon such action, if any
such date has been fixed.
Section 3.6 Certificate of Adjustments. The Company shall perform any
computations and determine any adjustments required to be made under this
Article III (the "Adjustments") and as promptly as practicable after
determining any Adjustment, the Company shall prepare a certificate executed by
the Chief Financial Officer of the Company setting forth such Adjustment and
mail such certificate to each Holder (an "Adjustment Notice") within five (5)
business days after the event resulting in adjustment. The Adjustment Notice
shall include in reasonable detail (a) the events precipitating the Adjustment,
(b) the computations relating to such Adjustment, and (c) the Exercise Price
and the securities or other property purchasable upon exercise of each Warrant
after giving effect to such Adjustment. In the event that the Holders of
Warrants entitling such Holders to purchase 20% of the Warrant Shares subject
to purchase upon exercise of Warrants at the time outstanding (the "Required
Interest") shall disagree with any Adjustment, the Holders of the Required
Interest shall give notice thereof (the "Dispute Notice") to the Company within
fifteen (15) days after the Adjustment Notice. Upon receipt of the Dispute
Notice, the Company shall promptly engage a third party independent public
accounting firm acceptable to the Required Interest to make an independent
determination of such disputed Adjustment (the "Independent Adjustment"). The
Independent Adjustment shall be final and binding on the Company and all
Holders.
Section 3.7 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Article III, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments;
provided the Company may, at its option, issue new Warrant Certificates
evidencing Warrants in such form as may be approved by its Board of Directors
to reflect any adjustment in the Exercise Price and number of Warrant Shares
purchasable under the Warrants.
Section 3.8 Fractional Shares. The Company shall not be required upon the
exercise of any Warrant to issue fractional Warrant Shares. If more than one
Warrant is exercised at one time by the same Holder, the number of full Warrant
Shares which shall be issuable upon the exercise thereof shall be computed
based on the aggregate number of Warrant Shares purchasable upon exercise of
such Warrants. With respect to any final fraction of a share called for upon
the exercise of any Warrant or Warrants, the Company shall pay an amount in
cash to the Holder of the Warrants in respect of such final fraction in an
amount equal to the Fair Market Value of a share of Common Stock as of the date
of exercise of such Warrants, multiplied by such fraction. All calculations
under this Section 3.8 shall be made to the nearest hundredth of a share.
Section 3.9 Liquidating Dividends. If the Company pays a dividend or makes
a distribution on the Common Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles) except for stock dividend payable in shares of Common
Stock (a "Liquidating
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Dividend"), then the Company will pay or distribute to the Holders of the
Warrants, upon the exercise thereof, in addition to the Warrant Shares
purchased upon such exercise, the Liquidating Dividend which would have been
paid to such Holders if they had been the owner of record of such Warrant
Shares immediately prior to the date on which a record is taken for such
Liquidating Dividend or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends or distribution are to be
determined.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Changes to Agreement. The Company, when authorized by its
Board of Directors, with the written consent of Holders of at least a majority
of the outstanding Warrants may amend or supplement this Agreement, except that
no amendment which increases the Exercise Price or reduces the number of
Warrant Shares shall be enforceable against a Holder who has not consented in
writing to such amendment.
Section 4.2 Assignment. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns.
Section 4.3 Successor to Company. In the event that the Company merges or
consolidates with or into any other corporation or sells or otherwise transfers
its property, assets and business substantially as an entirety to a successor
corporation or other entity, the Company shall use its best efforts to have
such successor corporation or other entity to assume in writing each and every
covenant and condition of this Agreement to be performed and observed by the
Company, and such successor corporation or other entity shall be deemed, upon
the closing of such merger, consolidation, transfer or sale, to have so assumed
such liabilities whether or not such assumption is made in writing.
Section 4.4 Notices. Any notice or demand required by this Agreement to be
given or made by any Holder to or on the Company shall be sufficiently given or
made if sent by first-class or registered mail, postage prepaid, addressed as
follows:
T Cell Sciences, Inc.
119 Fourth Avenue
Needham, Massachusetts 02494
Attention: Chief Financial Officer
Telephone: (781) 433-0771
Facsimile: (781) 433-0262
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Stuart M. Cable, Esq.
Telephone: (617) 570-1322
Facsimile: (617) 523-1231
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made if sent by
first-class or registered mail, postage prepaid, addressed to such Holder and
sent to the address of such Holder on the Company's warrant register.
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made, whether or not
such Holder receives the notice, five (5) days after mailing, if sent by
first-class or registered mail, postage prepaid, addressed to such Holder at
its last address as shown on the books of the Company. Otherwise, such notice
or demand shall be deemed given when received by the party entitled thereto.
Section 4.5 Defects in Notice. Failure to file any certificate or notice
or to mail any notice, or any defect in any certificate or notice pursuant to
this Agreement shall not affect in any way the rights of any Holder or the
legality or validity of any adjustment made pursuant to Section 3.1 or 3.2
hereof.
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<PAGE>
Section 4.6 Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be governed by the laws of the State of Delaware without
regard to principles of conflicts of laws thereof.
Section 4.7 Standing. Nothing in this Agreement expressed and nothing that
may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company and the Holders any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
contained herein; and all covenants, conditions, stipulations, promises and
agreements contained in this Agreement shall be for the sole and exclusive
benefit of the Company and its successors and the Holders.
Section 4.8 Headings. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 4.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.
Section 4.10 Availability of the Agreement. The Company shall keep copies
of this Agreement available for inspection by Holders during normal business
hours. Copies of this Agreement may be obtained upon written request addressed
to the Company at the address set forth in Section 4.5.
Section 4.11 Entire Agreement. This Agreement, including the Exhibits
referred to herein and the other agreements and writings specifically
identified herein or contemplated hereby, is complete, reflects the entire
agreement of the parties with respect to its subject matter, and supersedes all
previous written or oral negotiations, commitments and writings.
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10
<PAGE>
EXHIBIT A
FORM OF COMMON STOCK PURCHASE WARRANT CERTIFICATE
THE RIGHTS OF THE HOLDER OF THIS WARRANT ARE SUBJECT TO THE TERMS AND
CONDITIONS CONTAINED IN, THE COMMON STOCK PURCHASE WARRANT PROVISIONS (THE
"WARRANT PROVISIONS"), A COMPLETE AND CORRECT COPY OF THE FORM OF WHICH WILL BE
FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
No. _______________________
Certificate for Warrants
NOT EXERCISABLE AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON , 2003 [FIFTH ANNIVERSARY OF CLOSING DATE]
T CELL SCIENCES, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that , a , or its registered assigns is
the registered holder (the "Registered Holder") of the number of Warrants set
forth above, each of which represents the right to purchase one fully paid and
non-assessable share of the common stock, par value $.001 per share (the
"Common Stock"), of T Cell Sciences, Inc., a corporation organized under the
laws of Delaware (the "Company"), at the Exercise Price (as defined in and
determined from time to time in accordance with the Warrant Provisions), by
surrendering this Warrant Certificate, with the form of Election to Purchase
attached hereto duly executed and by paying in full the Exercise Price (the
shares of Common Stock issuable upon exercise of the Warrants being referred to
herein as the "Warrant Shares"). Payment of the Exercise Price shall be made as
set forth in the Warrant Provisions. No Warrant may be exercised after 5:00
P.M., New York City time, on , 2003 [Fifth Anniversary of Closing Date]
(the "Expiration Date"). All Warrants evidenced hereby shall thereafter become
void, subject to the terms of the Warrant Provisions hereinafter referred to.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the terms of the Warrant Provisions hereinafter referred to, the
Registered Holder shall be entitled to transfer this Warrant Certificate, in
whole or in part, upon surrender of this Warrant Certificate at the principal
office of the Company with the form of assignment set forth hereon duly
executed. Upon any such transfer, a new Warrant Certificate or Warrant
Certificates representing the same aggregate number of Warrant Shares will be
issued in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants to purchase the shares
of Common Stock evidenced by this Warrant Certificate, there shall be issued to
the Registered Holder a new Warrant Certificate in respect of the Warrants not
exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrant Shares, upon surrender of this Warrant Certificate at the
principal office of the Company.
Upon certain events provided for in Section 3.1 and 3.3 of the Warrant
Provisions, the Exercise Price and/or the number of Warrant Shares is required
to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As to
any final fraction of a share of Common Stock which the Registered Holder of
one or more Warrant Certificates, the rights under which are exercised in the
same transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay the cash value thereof determined as provided in the
Warrant Provisions. No Warrant Certificate representing any fractional Warrant
Shares will be issued.
This Warrant Certificate is issued under and in accordance with the
Warrant Provisions and is subject to the terms and conditions contained in the
Warrant Provisions. All capitalized terms not defined herein shall have the
meanings given such terms as set forth in the Warrant Provisions.
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<PAGE>
Except as provided in Section 3.9 of the Warrant Provisions, this Warrant
Certificate shall not entitle the Registered Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote,
to receive dividends and other distributions, or to attend or receive any
notice of meetings of stockholders or any other proceedings of the Company.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile corporate seal.
T CELL SCIENCES, INC.
By:
--------------------------------
Name:
Title:
[Seal] Attest:
By:
--------------------------------
Name:
Title: Secretary
13
<PAGE>
[Form of Assignment]
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants to purchase the Common Stock set forth below:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Warrants
- ------------------ --------- ----------------
<S> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint true and lawful
Attorney, to make such transfer on the books of T Cell Sciences, Inc.,
maintained for that purpose, with full power of substitution in the premises.
Dated: ,
Signature
-------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
14
<PAGE>
[Form of Election To Purchase]
The undersigned hereby irrevocably elects to exercise of the
Warrants represented by this Warrant Certificate and to purchase the Common
Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO: ______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO: ____________________________________________________________________
(NAME)
at _____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants to purchase the Common Stock hereby exercised is
less than all the Warrants represented by this Warrant Certificate, the
undersigned requests that a new Warrant Certificate representing the number of
such full Warrants not exercised be issued and delivered as follows:
ISSUE TO: ______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO: ____________________________________________________________________
(NAME)
at _____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Date: ,
____________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
PLEASE INSERT SOCIAL SECURITY OR TAX I.D. NUMBER OF HOLDER: ____________________
15
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 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. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 21, 1998
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this post effective Amendment No. 1 on Form S-3
to Form S-4 of our report dated January 30, 1998 on our audits of Virus Research
Institute, Inc. as of December 31, 1997 and 1996 and for each of the years in
the three-year period ended December 31, 1997 and for the period February 11,
1991 (inception) through December 31, 1997. We also consent to the reference to
our firm under the caption "Experts."
/s/ Richard A. Eisner & Company, LLP
New York, New York
August 19, 1998
Exhibit 23.7
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name, and the statement
with respect to us appearing under the headings "Risk Factors -- Risk Factors
Regarding VRI, a wholly-owned subsidiary of T-Cell -- Dependence on Patents,
Licenses and Proprietary Rights" and "Experts" included in the Registration
Statement. We further consent to the incorporation by reference of this consent
pursuant to Rule 439(b) under the Securities Act of 1933, as amended (the
"Securities Act"), into any subsequent registration statement for the same
offering that may be filed pursuant to Rule 462(b) under the Securities Act.
/s/ John W. Freeman
FISH & RICHARDSON, P.C.
Boston, Massachusetts
August 21, 1998
