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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to _____________.
Commission File Number: 0-18006
THE IMMUNE RESPONSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0255679
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
5935 DARWIN COURT, CARLSBAD, CA 92008
(Address of Principal Executive Offices)
(Zip Code)
Telephone (619) 431-7080
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
As of November 11, 1996, 20,180,881 shares of common stock were outstanding.
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THE IMMUNE RESPONSE CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(unaudited) 1995
---------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,012,394 $ 1,462,676
Short-term investments 28,483,876 43,147,633
Other current assets 848,547 963,762
--------------- -------------
Total current assets 37,344,817 45,574,071
Property and equipment, net 4,866,445 4,806,075
Deposit 49,016 49,016
--------------- -------------
$ 42,260,278 $ 50,429,162
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,243,829 $ 1,158,194
Accrued compensation 296,554 386,311
Deferred rent obligation 421,389 443,853
--------------- -------------
Total current liabilities 1,961,772 1,988,358
Stockholders' equity:
Common stock, $.0025 par value, 40,000,000 shares authorized,
17,391,723 and 16,788,704 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively (Note 3) 43,479 41,972
Additional paid-in capital (Note 3) 152,576,339 146,770,428
Unrealized gain (loss) on available-for-sale securities (38,483) 544,830
Accumulated deficit (112,282,829) (98,916,426)
--------------- -------------
Total stockholders' equity 40,298,506 48,440,804
--------------- -------------
$ 42,260,278 $ 50,429,162
=============== =============
</TABLE>
See accompanying notes.
3
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THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- -------------------------------
1996 1995 1996 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Licensed research revenue (Note 4) $ 6,000,000 $ --- $ 6,000,000 $ ---
Contract research revenue (Note 4) 1,000,000 --- 1,000,000 1,561,314
-------------- ------------- -------------- -------------
7,000,000 --- 7,000,000 1,561,314
Expenses:
Research and development 6,895,745 5,151,604 19,665,030 13,762,542
General and administrative 822,925 829,928 2,609,467 2,816,110
-------------- ------------- -------------- -------------
7,718,670 5,981,532 22,274,497 16,578,652
Other revenue and expense:
Investment income 584,695 784,614 1,908,094 2,251,484
Equity in operations of joint venture --- --- --- (1,284,020)
-------------- ------------- -------------- -------------
584,695 784,614 1,908,094 967,464
-------------- ------------- -------------- --------------
Net loss $ (133,975) $ 5,196,918 $ (13,366,403) $ (14,049,874)
============== ============= ============== ==============
Net loss per share (Note 2) $ (0.01) $ (0.31) $ (0.78) $ (0.84)
============== ============= ============== ==============
Weighted average number of shares
outstanding (Note 2) 17,352,281 16,746,476 17,094,984 16,743,911
============== ============= ============== ==============
</TABLE>
See accompanying notes.
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THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $(13,366,403) $(14,049,874)
Adjustments to reconcile net loss to net cash provided from
(used by) operating activities:
Depreciation and amortization 614,795 794,676
Equity in operations of joint venture --- 1,284,020
Deferred rent expense (22,464) (543)
Changes in operating assets and liabilities:
Research contract receivable --- (1,199,390)
Other current assets 115,214 459,922
Accounts payable 85,635 89,809
Accrued compensation (89,757) (50,933)
------------ ------------
Net cash used by operating activities (12,662,980) (12,672,313)
Investing activities:
Liquidation of short-term investments, net 14,080,445 22,496,921
Purchase of property and equipment (675,165) (216,917)
Net proceeds from sale of equipment --- 1,948,305
Deposits and other assets --- 4,200
------------ ------------
Net cash provided from investing activities 13,405,280 24,232,509
Financing activities:
Net proceeds from sale of common stock (Note 3) 5,000,000 ---
Net proceeds from exercise of stock options 807,418 30,702
Payments on debt and capital lease obligations --- (106,976)
------------ ------------
Net cash provided from financing activities 5,807,418 (76,274)
------------ ------------
Net increase in cash and cash equivalents 6,549,718 11,483,922
Cash and cash equivalents at beginning of period 1,462,676 1,792,082
------------ ------------
Cash and cash equivalents at end of period $ 8,012,394 $ 13,276,004
============ ============
Supplemental disclosure of noncash investing
and financing activities:
Distribution of equipment from liquidation of joint venture $ --- $ 2,008,562
============ ============
</TABLE>
See accompanying notes.
5
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THE IMMUNE RESPONSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of The Immune Response
Corporation (the "Company") for the three and nine month periods ended September
30, 1996 and 1995 are unaudited. These financial statements reflect all
adjustments, consisting of only normal recurring adjustments which, in the
opinion of management, are necessary to fairly present the consolidated
financial position as of September 30, 1996, and the consolidated results of
operations for the three and nine month periods ended September 30, 1996 and
1995. The results of operations for the nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the year ended
December 31, 1996. For more complete financial information, these financial
statements, and the notes thereto, should be read in conjunction with the
consolidated audited financial statements for the year ended December 31, 1995
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
2. NET LOSS PER SHARE
Net loss per share for the three and nine month periods ended September 30, 1996
and 1995 is computed using the weighted average number of common shares
outstanding during the period.
3. STOCK TRANSACTION
In April 1996, the Company received $5 million from Trinity Medical Group Co.,
Ltd. ("Trinity") of Bangkok, Thailand for the purchase of the Company's Common
Stock at $15 per share. Trinity has also agreed to make additional equity
investments of up to $10 million based on the achievement of certain regulatory
and commercial milestones and governmental approvals.
4. LICENSE AGREEMENT
In July 1996, Immune Response entered into an agreement with Bayer Corporation
("Bayer"), the United States affiliate of Bayer AG of Leverkusen, Germany, to
develop gene therapy products for the treatment of hemophilia A, a hereditary
blood clotting disorder. Bayer made an initial license payment of $6 million
upon signing this agreement. Bayer also purchased $4 million of Immune Response
Common Stock in the Company's public stock offering completed in October 1996
(see Note 5). In addition, during the term of the agreement, the Company will
receive research funding from Bayer for Immune Response's hemophilia A program
and may receive milestone payments and royalties on future sales, if a product
is developed and commercialized. In July 1996, the Company received $1 million
as its first research payment under the agreement. Under the agreement, Bayer
is responsible for all medical and regulatory activities associated with
developing any potential hemophilia A products, and will also be responsible for
commercial-scale manufacturing and commercialization of any such product
developed. The agreement provides Bayer with a worldwide license to the
Company's GeneDrug(TM) technology for the delivery of the Factor VIII gene and
the option to enter into negotiations with the Company to use this technology to
treat other blood coagulation disorders.
5. SUBSEQUENT EVENTS
In October 1996, the Company entered into an agreement with Viru-Tech Limited
for the development and distribution of REMUNE(TM) in South America and Central
America. Under the agreement, Viru-Tech purchased $3 million of Immune Response
Common Stock at a price of
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$12.77 per share, which was a 50% premium over a 20-day average market price.
Viru-Tech will also be responsible for the cost of any clinical trials that may
be required to facilitate commercialization of REMUNE in the territory. The
Company will provide REMUNE for use in any required clinical trials.
Also in October 1996, the Company issued 2,200,000 shares of Common Stock,
including 615,400 shares to Bayer, at $6.50 per share in an underwritten public
offering, resulting in net proceeds to the Company of approximately $13.4
million. In November 1996, the Underwriters exercised the over-allotment option
and purchased 330,000 shares of Common Stock at $6.50 per share, resulting in
additional net proceeds to the Company of approximately $2 million.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW
The Immune Response Corporation (the "Company") is a biopharmaceutical company
engaged in the development of proprietary products in the areas of HIV
infection, autoimmune disease, gene therapy and cancer.
This discussion contains forward-looking statements concerning the Company's
operating results and timing of anticipated expenditures. Such statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected. For a further description of potential risks
and uncertainties involved related to the Company, this document should be read
in conjunction with the Company's Form 10-K filed with the Securities and
Exchange Commission. These forward-looking statements speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
In July 1996, Immune Response entered into an agreement with Bayer Corporation
("Bayer"), the United States affiliate of Bayer AG of Leverkusen, Germany, to
develop gene therapy products for the treatment of hemophilia A, a blood
clotting disorder. Bayer is a market leader in the treatment of this
hereditary blood coagulation disorder. Bayer made an initial license payment to
Immune Response of $6 million upon signing this agreement. In addition,
during the term of the agreement, the Company will receive research funding
from Bayer for Immune Response's hemophilia A program and may receive milestone
payments and royalties on future sales, if a product is developed and
commercialized. In July 1996, the Company received $1 million as its first
research payment. Under the agreement, Bayer is responsible for all medical
and regulatory activities associated with developing any potential hemophilia A
products, and will also be responsible for commercial-scale manufacturing and
commercialization of any such product developed. The agreement provides Bayer
with a worldwide exclusive license to the Company's GeneDrug(TM) technology for
the delivery of the Factor VIII gene and the option to enter into negotiations
with the Company to use this technology to treat other blood coagulation
disorders.
The Company has not been profitable since inception and had an accumulated
deficit of $112.3 million as of September 30, 1996. To date, the Company has
not recorded any revenues from the sale of products. Revenues recorded through
September 30, 1996 were earned in connection with contract research, licensing
agreements and investment income. The Company expects its operating expenses
to increase during the fourth quarter of 1996 and beyond, as well as to have
quarter-to-quarter operating loss fluctuations, some of which could be
significant, due to expanded research, development, clinical trial activities
and receipt of milestone payments.
RESULTS OF OPERATIONS
The Company had $1 million in contract research revenue for the third quarter
of 1996 and no contract research revenue for the third quarter of 1995.
Contract research revenue for the nine months ended September 30, 1996 and 1995
was $1.0 million and $1.6 million, respectively. Additionally, in July 1996,
the Company received a one-time payment of $6 million for licensed research
revenue from Bayer. The Company has not received any revenue from the
commercial sale of products and does not expect to derive revenue from the sale
of products for the next several years, if at all.
Investment income decreased to $585,000 for the quarter ended September 30,
1996, from $785,000 during the same period in 1995. During the nine months
ended September 30, 1996, investment income decreased to $1.9 million from $2.3
million for the same period during 1995. The decrease in investment income in
1996 compared to 1995, was primarily the result of the decrease in cash
available for investment during the first nine months of 1996 compared to the
first nine months of 1995.
8
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Research and development expenditures of $6.9 million during the third quarter
of 1996 exceeded such expenditures during the same period in 1995 of $5.2
million. Research and development expenditures for the nine months ended
September 30, 1996 were $19.7 million compared to $13.8 million for the same
period in 1995. These additional expenditures in the third quarter of 1996,
and during the nine months ended September 30, 1996, over the amounts expended
during the same respective periods in 1995, were due primarily to the expansion
of clinical testing and regulatory management of REMUNE, expansion of the
Company's autoimmune disease research programs, including Phase II clinical
trials for a rheumatoid arthritis and a psoriasis treatment, as well as
increased staffing levels and purchases of laboratory materials and supplies
related to the assumption of the manufacturing of REMUNE from the Joint
Venture. In addition, research and development expenditures increased related
to research using gene therapy and cancer treatments. Research and development
expenses are expected to continue to rise in the foreseeable future due to
expanding preclinical and clinical testing of the Company's proposed autoimmune
disease, gene therapy and cancer treatments. Research and development expenses
are also expected to increase due to the Company beginning a large scale Phase
III clinical trial with REMUNE in March 1996.
General and administrative expenses for the third quarter of 1996 were $823,000
as compared to $830,000 for the same period in 1995. General and
administrative expenses for the nine months ended September 30, 1996 were $2.6
million as compared to $2.8 million for the same period in 1995. The decrease
in these expenses during the nine months ended September 30, 1996 compared to
the expenses incurred during the same period of 1995, was due primarily to the
additional costs incurred in 1995 related to the Company's acquisition of
Rhone-Poulenc Rorer's interest in the Joint Venture. General and
administrative expenses for the remainder of 1996 necessary to support the
Company's expanded research and development activities are expected to remain
consistent with the first nine months of 1996.
For the quarter ended September 30, 1996, the Company's net loss was $134,000,
or $0.1 per share, as compared to a net loss of $5.2 million, or $.31 per
share, for the same period in 1995. For the nine months ended September 30,
1996, the Company's net loss was $13.4 million, or $.78 per share, as compared
to a net loss of $14 million, or $.84 per share for the same period on 1995.
The major factor causing the net loss to decrease during the first nine months
of 1996, despite operating expenses increasing, was the $7 million of licensed
research and contract research revenue received from Bayer in July 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had working capital of $35.4 million,
including $36.5 million of cash, cash equivalents and short-term investments.
This compares with working capital as of December 31, 1995 of $43.6 million,
including $44.6 million of cash, cash equivalents and short-term investments.
The decrease in working capital was due to the costs of operating the
business, offset by the purchase of $5 million of the Company's Common Stock by
Trinity Medical Group Co., Ltd. ("Trinity"), the first of potentially three
Common Stock purchases by Trinity, and the $7 million received from Bayer.
The Company will receive additional funding from Bayer for the Company's
hemophilia A research program during the term of the agreement, and also
anticipates additional stock purchases by Trinity based on the completion of
future milestones.
In October 1996, the Company entered into an agreement with Viru-Tech Limited
for the development and distribution of REMUNE in South America and Central
America. Under the agreement, Viru-Tech purchased $3 million of Immune
Response Common Stock at a price of $12.77 per share, which was a 50% premium
over an average market price. Viru-Tech will also be responsible for the cost
of any clinical trials that may be required to facilitate commercialization of
REMUNE in the territory. The Company will provide REMUNE for use in any
required clinical trials.
In October 1996, the Company issued 2,200,000 shares of Common Stock, including
615,400 shares to Bayer, at $6.50 per share in an underwritten public offering,
resulting in net proceeds to the Company of approximately $13.4 million. In
November 1996, the Underwriters exercised the
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over-allotment option and purchased 330,000 shares of Common Stock at $6.50 per
share, resulting in additional net proceeds to the Company of approximately $2
million.
Regardless of whether additional funds are received from Trinity, and despite
the funding to be received from Bayer, the Company may need to raise
additional funds for expanding research and development activities in gene
therapy and cancer, conducting the Phase III clinical trial for REMUNE initiated
in March 1996, and enhancing the manufacturing facility to enable production of
commercial quantities of the Company's products. In particular, the Company
anticipates that the Phase III REMUNE clinical trial costs will be approximately
$10 million per year, with an additional $10 million cost per year for
manufacturing, research and all other costs associated with the product for up
to three years. The anticipated costs with respect to REMUNE will depend on
many factors, including the successful enrollment of the Phase III clinical
trial, the availability of third party reimbursement based on gaining
"treatment" investigational new drug status for expanded access protocols for
REMUNE, the potential for accelerated approval and certain other factors which
will influence the Company's determination of the appropriate continued
investment of the Company's financial resources in this program. To obtain
such funding, the Company may consider collaborative arrangements and public or
private financings. There can be no assurance that such arrangements or funds
will be available. The Company believes that its current capital resources,
including the net proceeds of its fourth quarter Common Stock offering, will
meet its anticipated requirements through 1997.
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ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1* Collaboration Agreement by and between The Immune Response
Corporation and Bayer Corporation, dated as of July 8, 1996,
filed with a Form 8-K, as amended, July 8, 1996.
10.2 Stock Purchase Agreement by and between The Immune Response
Corporation and Viru-Tech Limited, dated October 3, 1996.
27 Financial Data Schedule
* Incorporated by reference to Exhibit of the same number to the Company's
Form 8-K dated July 8, 1996, as amended (File No. 0-18006). Certain
portions of this Collaboration Agreement to which the Commission granted
confidential treatment have been omitted.
b) Reports on Form 8-K
A report on Form 8-K dated July 8, 1996, as amended, was filed by The
Immune Response Corporation reporting under Item 5 that the Company
entered into a Collaboration Agreement with Bayer Corporation, the
United States affiliate of Bayer AG of Leverkusen, Germany, to develop
gene therapy products for the treatment of hemophilia A, a hereditary
blood clotting disorder.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE IMMUNE RESPONSE CORPORATION
Date: 11/12/96 /s/ CHARLES J. CASHION
---------------------- --------------------------------
Charles J. Cashion
Vice President, Finance
Secretary and Treasurer
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Exhibit 10.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of October 3, 1996 (the
"Agreement"), is entered into between THE IMMUNE RESPONSE CORPORATION, a
Delaware corporation (the "Company"), having a place of business at 5935 Darwin
Court, Carlsbad, California 92008, U.S.A., and VIRU-TECH LIMITED, a Jersey
corporation (the "Investor"), having its registered office at 25 Hill Street,
St. Helier, Jersey, JE2 4UA, Channel Islands. The parties hereby agree as
follows:
1. Purchase and Sale of Shares.
1.1 Sale and Issuance of Shares. On the terms and
subject to the conditions of the Agreement, at the Closing (as defined below),
the Investor shall purchase, and the Company shall sell and issue to the
Investor, the number of shares (the "Shares") of the Company's Common Stock
equal to the quotient of Three Million Dollars ($3,000,000), divided by an
amount (the "Adjusted Average Closing Price") equal to one hundred fifty percent
(150%) of the average of the per share closing prices on the Nasdaq National
Market of the Company's Common Stock during the twenty (20) trading days ending
as of the date five (5) trading days prior to the Closing Date (as defined
below) as reported in the Western Edition of The Wall Street Journal, for the
aggregate purchase price (the "Purchase Price") of Three Million Dollars
($3,000,000). Notwithstanding the foregoing, if the number of the Shares
calculated pursuant to such formula is not a whole number, then the number of
the Shares shall be adjusted by rounding up to the next whole number.
1.2 Closing. The purchase and sale of the Shares shall
take place at such place outside the United States of America, at such time and
on such date as the parties mutually agree either orally or in writing (which
date is designated as the "Closing Date," and which date, time and place is
designated as the "Closing"). At the Closing, the Company shall deliver to the
Investor three certificates representing the Shares (two certificates for
100,000 of the Shares each, and the third certificate for the balance of the
Shares), against payment in full of the Purchase Price therefor. The Investor
shall make the payment of the Purchase Price to the Company by wire transfer in
same day funds to such account as the Company designates in writing to the
Investor for such purpose.
1.3 Definitions. The following terms, as used herein,
shall have the following meanings:
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"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person. A Person shall be regarded as in control of another
Person if it owns, or directly or indirectly controls, at least forty percent
(40%) of the voting stock or other ownership interest of the other Person, or
if it directly or indirectly possesses the power to direct or cause the
direction of the management and policies of the other Person by any means
whatsoever.
"Common Stock" shall mean the Common Stock, par value US$0.0025 per
share of the Company.
"Development, License and Distribution Agreement" shall mean the
Development, License and Distribution Agreement dated as of the date hereof,
between the Company and the Investor (as the same may be amended or restated
from time to time).
"Material Adverse Effect" shall mean, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
assets, results of operations of such Person and, in the case of the Company,
the Subsidiaries taken as a whole.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"1933 Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Person" shall mean an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Subsidiaries" shall mean TargeTech, Inc., and I.R.C. Inc.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that:
2.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its Subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a Material Adverse Effect.
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2.2 Subsidiaries and Affiliates. Except for the Subsidiaries
and Immunization Products Limited, a Delaware general partnership between the
Subsidiaries, the Company has no other subsidiaries or Affiliates.
2.3 Authorization. The execution, delivery and performance by
the Company of the Agreement are within the corporate powers of the Company.
All corporate action on the part of the Company, its officers, directors and
stockholders necessary for (a) the authorization, execution and delivery of the
Agreement, (b) the performance of all obligations of the Company hereunder, and
(c) the authorization, issuance (or reservation for issuance) and delivery of
the Shares being sold hereunder, to the extent that the foregoing requires
performance on or prior to the Closing, has been taken or will be taken on or
prior to the Closing, and the Agreement constitutes the valid and legally
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
2.4 Percentage Ownership Represented by the Shares. Unless the
Company gives express written notice to the Investor to the contrary, the
Shares which are being purchased by the Investor hereunder, when issued, sold
and delivered in accordance with the terms hereof, for the consideration
expressed herein, will constitute not more than five percent (5%) of the issued
and outstanding shares of capital stock of the Company.
2.5 Valid Issuance of the Shares. The Shares which are being
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms hereof, for the consideration expressed herein, will
be duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of the Investor in the Agreement, will be issued in
compliance with all applicable federal and state securities laws. Subject to
compliance by the Investor with the representations, warranties and agreements
set forth herein, it is not required in connection with the initial offer, sale
and delivery of the Shares to the Investor in the manner contemplated by the
Agreement to register the Shares under the 1933 Act.
2.6 Governmental Authorization. The execution, delivery and
performance by the Company of the Agreement require no action by or in respect
of, or filing with, any governmental body, agency, or official other than any
such action or filing as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect.
2.7 Non-Contravention. The execution, delivery and performance
by the Company of the Agreement do not and will not (a) violate the certificate
of incorporation of the Company or (b) assuming compliance with the matters
referred to in Section 2.6 above, violate any applicable law, rule, regulation,
judgment, injunction, order or decree except, in the case of
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clause (b), to the extent that any such violation would not, individually or in
the aggregate, have a Material Adverse Effect.
2.8 SEC Filings; Financial Statements.
2.8.1 The Company has delivered to the Investor (a) the annual
report on Form 10-K for its fiscal year ended December 31, 1995, (b) its
quarterly reports on Form 10-Q for its fiscal quarters ended March 31, 1996 and
June 30, 1996, (c) its proxy or information statement relating to the annual
meeting of the stockholders of the Company held on May 30, 1996, and (d) all of
its other reports, statements, schedules and registration statements filed with
the Securities and Exchange Commission (the "SEC") since December 31, 1995.
2.8.2 As of its filing date, each such report or statement filed
pursuant to the 1934 Act did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. There has been no event since June 30, 1996 that
would have a Material Adverse Effect on the Company and its Subsidiaries taken
as a whole.
2.8.3 The audited consolidated financial statement and unaudited
consolidated interim financial statement of the Company included in its annual
report on Form 10-K and the quarterly reports on Form 10-Q referred to in
Section 2.8.1 fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis, the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and changes in financial position for
the periods then ended.
2.9 The Company has not offered the Shares to any person in the
United States, any identifiable group of U.S. citizens abroad, or to any U.S.
person (as defined in Regulation S promulgated under the 1933 Act by the SEC
for offers and sales of securities occurring outside the United States
("Regulation S")).
2.10 At the time the buy order was originated, the Company and
any person acting on its behalf reasonably believed the Investor was outside
the United States and was not a U.S. person.
2.11 The Company and any person acting on its behalf reasonably
believe that the sale of Shares has not been prearranged with a buyer in the
United States.
2.12 The Company, its Affiliates and any persons acting on their
behalf have not engaged, are not aware that any party has engaged, and will not
engage, in any "directed selling efforts" (as defined in Regulation S) in the
United States with respect to
-4-
<PAGE> 5
the Shares. The Company, its Affiliates and any persons acting on their behalf
have not taken, are not aware that anyone has taken, and will not take directly
or indirectly or cause anyone to take, any action that constituted or
constitutes, was designed to constitute or reasonably might be expected to
cause or result in stabilization or manipulation of the market price for the
Common Stock.
2.13 The Company (a) is a "domestic issuer" and a "reporting
issuer" (as such terms are defined in Rule 902 of Regulation S), and (b) has
filed all material required to be filed by it pursuant to the requirements of
Section 13(a) or 15(d) of the 1934 Act for at least the twelve (12) months
immediately preceding the date hereof. The Common Stock trades on the Nasdaq
National Market.
3. Representations and Warranties of the Investor. The Agreement is
made with the Investor in reliance upon the Investor's representation and
warranties to the Company, which by such Investor's execution of the Agreement
the Investor hereby confirms, that:
3.1 Reliance on Representations. The Investor has been advised
and acknowledges (a) that the Shares have not been and will not be registered
under the 1933 Act, the securities laws of any state of the United States or
the securities laws of any other country; and (b) that in issuing and selling
the Shares to the Investor pursuant hereto, the Company is relying upon the
"safe harbor" provided by Regulation S.
3.2 Organization, Good Standing and Qualification. Each of the
Investor and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power authority to carry on its business as now
conducted. Each of the Investor and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect.
3.3 Authorization. The execution, delivery and performance by
the Investor of the Agreement are within the corporate powers of the Investor.
All corporate action on the part of the Investor, its officers, directors and
stockholders necessary for (a) the authorization, execution and delivery of the
Agreement, (b) the performance of all obligations of the Investor hereunder,
and (c) the purchase of the Shares being sold hereunder and the payment of the
Purchase Price, to the extent that the foregoing requires performance on or
prior to the Closing, has been taken or will be taken on or prior to the
Closing, and the Agreement constitutes the valid and legally binding obligation
of the Investor, enforceable against the Investor in accordance with its terms.
-5-
<PAGE> 6
3.4 Governmental Authorization. The execution, delivery and
performance by the Investor of the Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official of Argentina
other than any such action or filing as to which the failure to make or obtain
would not, individually or in the aggregate, have a Material Adverse Effect.
3.5 Non-Contravention. The execution, delivery and performance
by the Investor of the Agreement do not and will not (a) violate the memorandum
or articles of association of the Investor or (b) assuming compliance with the
matters referred to in Section 3.4 above, violate any applicable law, rule,
regulation, judgment, injunction, order or decree except, in the case of clause
(b), to the extent that any such violation would not, individually or in the
aggregate, have a Material Adverse Effect.
3.6 Financing. The Investor has, or will have prior to the
Closing, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to make payment of the Purchase Price
to be paid by it hereunder on the Closing.
3.7 The Investor (a) is domiciled and has its principal place of
business outside the United States, (b) is not a U.S. person (as defined in
Regulation S), and (c) was not formed for the purpose of investing in
securities not registered under the 1933 Act. As used herein, the "United
States" means and includes the United States of America, its territories and
possessions, any state of the United States, and the District of Columbia.
3.8 At the time of the offering of the Shares to the Investor
and communication of the Investor's order to purchase the Shares and at the
time of the Investor's execution of the Agreement, the persons acting on the
Investor's behalf in connection therewith were located outside the United
States.
3.9 No offer to purchase the Shares was made to the Investor in
the United States.
3.10 All subsequent offers and sale of the Shares will be made
outside the United States in compliance with Rule 903 or Rule 904 of Regulation
S, pursuant to registration of the Shares under the 1933 Act or pursuant to an
exemption from such registration requirements. In any case, the Investor will
not resell the Shares purchased at the Closing to U.S. persons, or for the
account or benefit of U.S. persons or within the United States until after the
end of the ninety (90) day period commencing on the Closing Date (the
"Restricted Period"). This ninety (90) day period is a fifty (50) day
extension of the forty (40) day period set forth in Regulation S.
-6-
<PAGE> 7
3.11 The Investor has not and, during the Restricted Period, will
not (a) enter into any long-put option, short call option or short position
with respect to shares of Common Stock or engage in any other transaction in
such shares or in options or other derivative securities relating thereto which
is intended to hedge the Investor's ownership position in the shares; and (b)
directly or indirectly use the Shares to cover or otherwise satisfy its
obligations under any put option, call option or short position with respect to
shares of Common Stock.
3.12 The Investor is not a "distributor" (as defined in
Regulation S).
3.13 At the time the buy order was originated, the Investor was
outside the United States and was not a U.S. person.
3.14 The sale of Shares, subsequent to their purchase by the
Investor hereunder, has not been prearranged by the Investor with a buyer in
the United States.
3.15 The Investor, its Affiliates and any persons acting on their
behalf have not taken, are not aware that anyone has taken, and will not take
directly or indirectly or cause anyone to take, any action that constituted or
constitutes, was designed to constitute or reasonably might be expected to
cause or result in stabilization or manipulation of the market price for the
Common Stock.
4. Mutual Condition to the Closing. The obligations of the Company to
sell, and the Investor to purchase, the Shares under the Agreement are each
subject to the satisfaction or, to the extent legally permissible, waiver by
each such party at or prior to the Closing of the following condition:
4.1 No Prohibition. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by the Agreement or the
Development, License and Distribution Agreement and there shall not then be
instituted or pending any action or proceeding before any federal or state
court or governmental agency or other regulatory or administrative agency or
instrumentality (a) challenging the acquisition of the Shares by the Investor
or otherwise seeking to restrain or prohibit consummation of the transactions
contemplated by the Agreement or the Development, License and Distribution
Agreement or seeking to impose any material limitations on any provisions of
the Agreement or the Development, License and Distribution Agreement; or (b)
except as contemplated herein, seeking to impose limitations on the Investor's
ability effectively to exercise full rights of ownership of the Shares.
5. Conditions of the Investor's Obligations at the Closing. The
obligations of the Investor under Section 1.1 of the Agreement are subject to
the fulfillment on or before the Closing of each of
-7-
<PAGE> 8
the following conditions, the waiver of which shall not be effective if such
Investor does not consent in writing thereto:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in the Agreement that
are required to be performed or complied with by the Company on or before the
Closing.
5.3 Compliance Certificate. The President or a Vice President
of the Company shall deliver to the Investor at the Closing a certificate
certifying that the conditions specified in Sections 5.1 and 5.2 above have
been fulfilled and stating that there has been no Material Adverse Effect since
June 30, 1996, other than because of operating losses and changes in the
ordinary course of business.
5.4 Additional Conditions. Unless the Investor otherwise
expressly agrees in writing, there shall have been no amendments by the
applicable governmental authorities to, or interpretations by the applicable
governmental authorities of, Regulation S (or its successor) after the date of
the Agreement and prior to the Closing Date, which would require the Investor
to make any additional representations and warranties, to satisfy any
additional conditions precedent, or to agree to any additional post-closing
covenants, as reasonably requested by the Company upon advice of its legal
counsel, to comply with such amendments or interpretations.
6. Conditions of the Company's Obligations at the Closing. The
obligations of the Company to the Investor under the Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
the Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 hereof shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Performance. The Investor shall have performed and complied
with all agreements, obligations and conditions contained in the Agreement that
are required to be performed or complied with by the Investor on or before the
Closing.
6.3 Compliance Certificate. The President or a Vice President
of the Investor shall deliver to Company at the Closing a certificate
certifying that the conditions specified in Sections 6.1 and 6.2 have been
fulfilled.
-8-
<PAGE> 9
6.4 Additional Conditions. The Investor shall have made such
additional representations and warranties and satisfied such additional
conditions precedent, and shall agree to such additional post-closing
covenants, as reasonably requested by the Company upon advice of its legal
counsel to comply with amendments by the applicable governmental authorities
to, or interpretations by the applicable governmental authorities of,
Regulation S (or its successor) after the date of the Agreement and prior to
the Closing Date.
7. Termination.
7.1 Grounds for Termination. The Agreement may be terminated at
any time prior to the Closing Date (a) by mutual written agreement of the
Company and the Investor, or (b) by either the Company or the Investor if there
shall be any applicable law or regulation that makes consummation of the
transactions contemplated hereby illegal or otherwise prohibited or if
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or governmental body
having competent jurisdiction. The party desiring to terminate the Agreement
shall give notice of such termination to the other party.
7.2 Effect of Termination. If the Agreement is terminated as
permitted by Section 7.1, termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to the Agreement; provided
that if such termination shall result from the willful failure of either party
to fulfill a condition to the performance of the obligations of the other
party, failure to perform a covenant of the Agreement or breach by either party
hereto of any representation or warranty or agreement contained herein, such
party shall be fully liable for any and all damages incurred or suffered by the
other party as a result of such failure or breach. The provisions of Section
8.6 shall survive any termination hereof.
8. Miscellaneous.
8.1 Successors and Assigns. The terms and conditions of the
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in the Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of the Agreement, except as
expressly provided in the Agreement.
8.2 Governing Law. The Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to the conflicts of law principles thereof. If a party initiates any
legal action or other proceeding for the enforcement or interpretation of the
Agreement,
-9-
<PAGE> 10
or because of a dispute or an alleged default, breach or misrepresentation in
connection with the Agreement or the rights or obligations of the parties
hereunder, the parties consent to the exclusive personal jurisdiction of the
appropriate state or federal court located in San Diego, California, U.S.A., in
such action or other proceeding.
8.3 Counterparts. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Titles and Subtitles. The titles and subtitles used in the
Agreement are used for convenience only and are not to be considered in
construing or interpreting the Agreement.
8.5 Notices. Any consent, notice or report required or
permitted to be given or made under the Agreement by a party to the other shall
be in writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery, air mail or internationally- recognized courier), air mail
or internationally-recognized courier, postage prepaid (where applicable),
addressed to the other party at its address indicated below, or to such other
address as the addressee shall have last furnished in writing to the addressor
and (except as otherwise provided in the Agreement) shall be effective upon
receipt by the addressee.
If to
the Company: The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008, U.S.A.
Attention: Dennis J. Carlo, Ph.D.
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street, 15th Floor
San Francisco, California 94104, U.S.A.
Attention: Thomas E. Sparks, Jr.
If to
the Investor: Viru-Tech Limited
25 Hill Street, St. Helier
Jersey, JE2 4UA, Channel Islands
Attention: President
with a copy to: Hess, Alt & Romero Carranza
Hipolito Yrigoyen 440, 1st Piso
Buenos Aires, 1083, Argentina
Attention: Dr. Rodolfo F. Hess
8.6 Finders' Fee. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and hold harmless the Company
from any liability for
-10-
<PAGE> 11
any commission or compensation in the nature of a finders' fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.7 Expenses. Irrespective of whether the Closing is effected,
the Company and the Investor shall pay their respective costs and expenses
incurred with respect to the negotiation, execution, delivery and performance
of the Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of the Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
8.8 Amendments and Waivers. Any term of the Agreement may be
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by the mutual written consent of the Company and the
Investor. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any securities purchased under the
Agreement at the time outstanding, each future holder of all such securities,
and the Company.
8.9 Severability. If one or more provisions of the Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from the Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.10 Entire Agreement. The Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersedes all prior representations, agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof and thereof. No representation, inducement, promise,
understanding, condition or warranty not set forth herein or therein has been
made or relied upon by either party hereto.
-11-
<PAGE> 12
Neither the Agreement nor any provision hereof is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first above written.
THE IMMUNE RESPONSE CORPORATION
By /s/ FRED C. JENSEN D.V.M.
--------------------------------------------
Title Vice President, Virology
Research and Development
-----------------------------------------
VIRU-TECH LIMITED
By /s/ RODOLFO F. HESS, PH.D.
--------------------------------------------
Title Attorney in Fact
-----------------------------------------
By /s/ CLIVE GUILLOU
--------------------------------------------
Title Attorney in Fact
-----------------------------------------
-12-
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,012,394
<SECURITIES> 28,483,876
<RECEIVABLES> 848,547
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,344,817
<PP&E> 4,866,445
<DEPRECIATION> 49,016
<TOTAL-ASSETS> 42,260,278
<CURRENT-LIABILITIES> 1,961,772
<BONDS> 0
0
0
<COMMON> 43,479
<OTHER-SE> 40,255,027
<TOTAL-LIABILITY-AND-EQUITY> 40,298,506
<SALES> 0
<TOTAL-REVENUES> 7,584,695
<CGS> 0
<TOTAL-COSTS> 7,718,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (133,975)
<INCOME-TAX> 0
<INCOME-CONTINUING> (133,975)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133,975)
<EPS-PRIMARY> (0.01)
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