<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 1997
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 Identification Number)
Incorporation or Organization)
5935 Darwin Court, Carlsbad, CA 92008
(Address of Principal Executive Offices)
(Zip Code)
Telephone (760) 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 July 31, 1997, 22,411,100 shares of common stock were outstanding.
<PAGE>
THE IMMUNE RESPONSE CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
Page
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 7
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
ASSETS (UNAUDITED) 1996
- ------- -------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................................... $ 8,977,181 $ 3,785,433
Marketable securities-available-for-sale........................................ 23,336,595 42,736,310
Short-term investment........................................................... -- 1,265,000
Notes receivable from related parties (Note 3).................................. 11,873,856 --
Other current assets............................................................ 551,855 679,847
-------------- --------------
Total current assets.......................................................... 44,739,487 48,466,590
Property and equipment, net....................................................... 7,097,809 5,570,378
Deposits and other assets......................................................... 271,092 49,016
-------------- --------------
$ 52,108,388 $ 54,085,984
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................ $ 1,999,706 $ 1,870,853
Accrued expenses................................................................ 533,738 497,671
Deferred rent obligation........................................................ 384,219 413,901
-------------- --------------
Total current liabilities..................................................... 2,917,663 2,782,425
Stockholders' Equity:
Common stock, $.0025 par value, 40,000,000 share authorized, 22,392,384 and
20,229,719 shares issued and outstanding at June 30, 1997 and December 31,
1996, respectively............................................................ 55,981 50,574
Warrants........................................................................ 2,144,143 --
Additional paid-in capital...................................................... 184,923,898 171,055,691
Unrealized gain (loss) on marketable securities................................. (74,507) 139,976
Accumulated deficit............................................................. (137,858,790) (119,942,682)
-------------- --------------
Total stockholders' equity.................................................... 49,190,725 51,303,559
-------------- --------------
$ 52,108,388 $ 54,085,984
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
3
<PAGE>
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------- ------------- -------------- --------------
Contract research revenue.......................... $ -- $ -- $ 1,000,000 $ --
Expenses:
Research and development......................... 9,549,302 7,292,218 18,147,873 12,769,285
General and administrative....................... 1,052,518 1,018,313 2,046,107 1,786,542
------------- ------------- -------------- --------------
10,601,820 8,310,531 20,193,980 14,555,827
Other revenue:
Investment income................................ 669,035 579,067 1,277,872 1,323,399
------------- ------------- -------------- --------------
Net loss........................................... $ (9,932,785) $ (7,731,464) $ (17,916,108) $ (13,232,428)
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Net loss per share (Note 2)........................ $ (0.45) $ (0.45) $ (0.85) $ (0.78)
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Shares used in computing net loss per
share (Note 2).................................... 21,990,637 17,125,990 21,130,018 16,963,239
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
</TABLE>
See accompanying notes.
4
<PAGE>
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
<S> <C> <C>
1997 1996
-------------- --------------
Operating activities:
Net loss........................................................................ $ (17,916,108) $ (13,232,428)
Adjustments to reconcile net loss to net cash provided from (used by) operating
activities:
Depreciation and amortization............................................... 490,352 407,727
Deferred rent expense....................................................... (29,682) (14,976)
Changes in operating assets and liabilities:
Other current assets...................................................... 127,992 346,030
Accounts payable.......................................................... 128,853 669,940
Accrued expenses.......................................................... 36,067 131,169
-------------- --------------
Net cash used by operating activities................................... (17,162,526) (11,692,538)
Investing activities:
Liquidation of short-term investments, net...................................... 20,450,232 9,531,388
Purchase of property and equipment.............................................. (2,017,783) (517,072)
Deposits and other assets....................................................... (222,076) --
-------------- --------------
Net cash provided from investing activities............................. 18,210,373 9,014,316
Financing activities:
Net proceeds from sale of common stock and warrants (Note 3).................... 15,639,992 5,000,000
Notes receivable from related parties (Note 3).................................. (11,873,856) --
Net proceeds from exercise of stock options..................................... 377,765 510,709
-------------- --------------
Net cash provided from financing activities............................. 4,143,901 5,510,709
-------------- --------------
Net increase in cash and cash equivalents......................................... 5,191,748 2,832,487
Cash and cash equivalents at beginning of period.................................. 3,785,433 1,462,676
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 8,977,181 $ 4,295,163
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
5
<PAGE>
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. Basis of Presentation
The condensed consolidated financial statements of The Immune
Response Corporation (the "Company") for the three and six month
periods ended June 30, 1997 and 1996 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 June 30, 1997, and the consolidated results of
operations for the three and six month periods ended June 30,
1997 and 1996. The results of operations for the six months
ended June 30, 1997 are not necessarily indicative of the results
to be expected for the year ended December 31, 1997. 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, 1996 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 six month periods ended June
30, 1997 and 1996 is computed using the weighted average number
of common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("FAS") No. 128,
"Earnings per Share." The Company will be required to adopt
these new rules effective December 15, 1997. Management does not
anticipate any impact resulting from the adoption of this new
standard upon current or previously reported earnings per share.
3. Equity Transaction
During the second quarter of 1997, the Company completed a $16
million private placement of units consisting of common stock and
warrants to purchase common stock of the Company. These units
were separately purchased at a price of $7.80 per unit by Kevin
B. Kimberlin, a director of the Company, and Dennis J. Carlo,
Ph.D., a director and president and chief executive officer of
the Company. The units sold in the private placement consisted
of 2,051,281 shares of common stock plus warrants exercisable for
2,051,281 shares of common stock. The warrants have a four year
term. The warrants, with an exercise price of $14 per share, are
callable by the Company if the stock trades at $28 per share or
greater for 45 consecutive days. The terms of the agreements
included an initial downpayment of $4,126,136, with the remaining
balance, covered by promissory notes to the Company, due by
September 30, 1997. The shares and warrants are not transferable
until April 1998.
6
<PAGE>
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, 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.
During the second quarter of 1997, the Company completed a $16 million
private placement of units consisting of common stock and warrants to
purchase common stock of the Company. These units were separately purchased
at a price of $7.80 per unit by Kevin B. Kimberlin, a director of the
Company, and Dennis J. Carlo, Ph.D., a director and president and chief
executive officer of the Company. The units sold in the private placement
consisted of 2,051,281 shares of common stock plus warrants exercisable for
2,051,281 shares of common stock. The warrants have a four year term. The
warrants, with an exercise price of $14 per share, are callable by the
Company if the stock trades at $28 per share or greater for 45 consecutive
days. The terms of the agreements included an initial downpayment of
$4,126,136, with the remaining balance, covered by promissory notes to the
Company, due by September 30, 1997. The shares and warrants are not
transferable until April 1998.
The Company has not been profitable since inception and had an accumulated
deficit of $137.9 million as of June 30, 1997. To date, the Company has not
recorded any revenues from the sale of products. Revenues recorded through
June 30, 1997 were earned in connection with contract research and investment
income. The Company expects its operating losses to continue to increase
over the next several years, as well as to have quarter-to-quarter
fluctuations, some of which could be significant, due to expanded research,
development and clinical trial activities. There can be no assurance that
the Company will be able to generate sufficient product revenue to become
profitable at all or on a sustained basis.
Results of Operations
The contract research revenue received in 1997 was received from Bayer
Corporation related to a research collaboration for a potential therapy for
hemophilia which began in July 1996. 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 foreseeable future.
Investment income increased to $669,000 for the quarter ended June 30, 1997,
from $578,000 during the same period in 1996. During the six months ended
June 30, 1997 and 1996, investment income was $1.3 million.
Research and development expenditures of $9.5 million during the second
quarter of 1997 exceeded such expenditures during the same period in 1996 of
$7.3 million. Research and development expenditures for the six months ended
June 30, 1997 were $18.1 million compared to $12.8 million for the same
period in 1996. These additional expenditures in the second quarter of 1997,
and during the six months ended June 30, 1997, over the amounts expended
during the same periods in 1996, were due primarily to the clinical testing
of REMUNE-TM-. Following the full recruitment of the Phase III clinical trial
in May 1997, each participating clinical site was converted to a semi-annual
payment schedule rather than payments based upon patient enrollment. As a
result, payments previously expected to be made during the third quarter were
paid late in the second quarter. A corresponding reduction in expenses is
expected during the second half of 1997. In addition, research and
7
<PAGE>
development expenditures have increased due to research related to gene drug
delivery and cancer treatments. Research and development expenses, except
for the clinical testing of REMUNE, are expected to continue to rise in the
foreseeable future due to expanding preclinical and clinical testing of the
proposed autoimmune disease, gene therapy and cancer treatments.
General and administrative expenses for the second quarter of 1997 and 1996
were $1.1 million and $1.0 million, respectively. General and administrative
expenses for the six months ended June 30, 1997 were $2.0 million as compared
to $1.8 million for the same period in 1996. General and administrative
expenses for the remainder of 1997 necessary to support the Company's
expanded research and development activities are expected to remain
consistent with first half of 1997.
For the quarter ended June 30, 1997, the Company's net loss was $9.9 million,
or $.45 per share, as compared to a net loss of $7.7 million, or $.45 per
share, for the same period in 1996. For the six months ended June 30, 1997,
the Company's net loss was $17.9 million, or $.85 per share, as compared to a
net loss of $13.2 million, or $.78 per share for the same period in 1996.
The primary factors causing the net loss to increase in 1997 were the
initiation of the Phase III clinical trial with REMUNE at most clinical sites
occurring subsequent to June 30, 1996, as well as the expansion of research
related to cancer treatments.
Liquidity and Capital Resources
As of June 30, 1997, the Company had working capital of $41.8 million,
including $32.3 million of cash, cash equivalents and marketable securities.
This compares with working capital as of December 31, 1996 of $35.2 million,
including $37.3 million of cash, cash equivalents, marketable securities and
short-term investments. The increase in working capital was due to the $16
million private placement of common stock and warrants which occurred in the
second quarter of 1997.
The Company will need to raise additional funds to conduct research and
development, preclinical studies and clinical trials necessary to bring its
potential products to market and establish manufacturing and marketing
capabilities. The Company anticipates that the REMUNE Phase III clinical
trial costs will be approximately $10 million per year, with an additional
$10 million cost per year for manufacturing, research and other costs
associated with the product for an additional two years. The anticipated
costs with respect to REMUNE will depend on many factors, including the time
required for the Phase III clinical trial, the number of patients enrolled in
the Phase III clinical trial, the availability of third party reimbursement
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. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the scope and results of
preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of manufacturing scale-up, effective commercialization activities and
arrangement and other factors not within the Company's control. The Company
intends to seek additional funding through public or private financings,
arrangement with corporate collaborations or other sources. Adequate funds
may not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company to scale back or eliminate some or
all of its research and development programs or license to third parties
products or technologies that the Company would otherwise seek to develop
itself. The Company believes that its existing resources, including the
funds received from the sale of equity units in a private placement during
the second quarter of 1997, will meet its anticipated requirements through
late-1998.
CERTAIN RISK FACTORS (For a discussion of additional Risk Factors applicable
to the Company, see the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.)
Uncertainty of Product Development and Clinical Testing. The Company has
not completed the development of any products and there can be no assurance
any products will be successfully developed. The Company's potential HIV,
autoimmune disease, gene therapy and cancer products
8
<PAGE>
currently under development will require significant additional research and
development efforts and regulatory approvals prior to potential
commercialization.
The Company's potential HIV product, REMUNE, is in a Phase III clinical trial
designed to provide evidence of efficacy based on clinical endpoints; however
there can be no assurance that the results of such clinical trial will
demonstrate that REMUNE is safe and efficacious or, that even if the results
of the clinical trial are considered successful by the Company, that the FDA
will not require the Company to conduct additional large scale clinical
trials with REMUNE before the FDA will consider approving REMUNE for
commercial sale. In addition, REMUNE is being tested in a Phase II clinical
trial in Thailand, in a pediatric Phase I clinical trial in the United States
and in combination trials with approved HIV therapies in the United States
and Spain. Failure of these trials to demonstrate the safety and
effectiveness of REMUNE could have a material adverse effect on the
regulatory approval process for this potential product. The Company's other
potential products and technologies are at a much earlier stage of
development than REMUNE. The Company's gene therapy technology and certain of
its technologies for the treatment of cancer have not yet been tested in
humans and there can be no assurance that human testing of potential products
based on such technologies will be permitted by regulatory authorities or,
that even if human testing is permitted, that products based on such
technologies will be shown to be safe or efficacious. Potential products
based on the Company's autoimmune technology and certain of its cancer
technologies are at an early stage of clinical testing and there can be no
assurance that such products will be shown to be safe or efficacious.
There can be no assurance that the results of the Company's preclinical
studies and clinical trials will be indicative of future clinical trial
results. A commitment of substantial resources to conduct time-consuming
research, preclinical studies and clinical trials will be required if the
Company is to develop any products. Delays in planned patient enrollment in
the Company's current clinical trials or future clinical trials may result in
increased costs, program delays or both. There can be no assurance that any
of the Company's potential products will prove to be safe and effective in
clinical trials, that FDA or other regulatory approvals will be obtained or
that such products will achieve market acceptance. Any products resulting
from these programs are not expected to be successfully developed or
commercially available for a number of years, if at all.
There can be no assurance that unacceptable toxicities or side effects will
not occur at any time in the course of human clinical trials or, if any
products are successfully developed and approved for marketing, during
commercial use of the Company's products. The appearance of any such
unacceptable toxicities or side effects could interrupt, limit, delay or
abort the development of any of the Company's products or, if previously
approved, necessitate their withdrawal from the market. Furthermore, there
can be no assurance that disease resistance will not limit the efficacy of
potential products.
Lengthy Approval Process and Uncertainty of Government Regulatory
Requirements. Clinical testing, manufacture, promotion and sale of the
Company's potential products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding state and foreign regulatory agencies. The Company believes
that REMUNE and most of its other potential immune-based therapies will be
regulated by the FDA as biological drug products under current regulations of
the FDA. In general, the regulatory framework for biological drug products
is more rigorous than that for nonbiological drug products. The Food, Drug
and Cosmetic Act and the Public Health Service Act, and other federal and
state statutes and regulations govern or influence the testing, manufacture,
safety, effectiveness, labeling, storage, recordkeeping, approval,
advertising, distribution and promotion of biological prescription drug
products. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, seizure of products, total or partial
suspension of product marketing, failure of the government to grant premarket
approval, withdrawal of marketing approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the
required preclinical studies and clinical testing, is lengthy and expensive
and there can be no assurance that necessary FDA clearances will be obtained
in a timely manner, if at all. There can be no assurance as to the length of
the clinical trial period or the number of patients the FDA will require to
be enrolled in the clinical trials
9
<PAGE>
in order to establish the safety and efficacy of the Company's products. The
Company may encounter significant delays or excessive costs in its efforts to
secure necessary approvals, and regulatory requirements are evolving and
uncertain. Future United States or foreign legislative or administrative
acts could also prevent or delay regulatory approval of the Company's
products. There can be no assurance that the Company will be able to obtain
the necessary approvals for clinical trials, manufacturing or marketing of
any of its products under development. Even if commercial regulatory
approvals are obtained, they may include significant limitations on the
indicated uses for which a product may be marketed. In addition, a marketed
product is subject to continual FDA review. Later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market, as well as possible civil or
criminal sanctions. Failure of the Company to obtain marketing approval for
Remune or any of its other products under development on a timely basis, or
FDA withdrawal of marketing approval once obtained, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an
Investigational New Drug ("IND") application with the FDA. Reports of
results of preclinical studies and clinical trials for biological drug
products are submitted to the FDA in the form of a PLA for approval for
marketing and commercial shipment. Submission of a Product License
Application ("PLA") does not assure FDA approval for marketing. The PLA
review process may take a number of years to complete, although reviews of
applications for treatments of AIDS, cancer and other life-threatening
diseases may be accelerated or expedited. Failure of the Company to receive
FDA marketing approval for Remune or any of its other products under
development on a timely basis could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition to obtaining approval for each biological drug product, an
Establishment License Application ("ELA") usually must be filed and approved
by the FDA.
Among the other requirements for ELA approval is the requirement that
prospective manufacturers conform to the FDA's drug Good Manufacturing
Practices ("GMP") requirements specifically for biological drugs, as well as
for other drugs. In complying with the FDA's drug GMP requirements,
manufacturers must continue to expend time, money and effort in production,
recordkeeping and quality control to assure that the product meets applicable
specifications and other requirements. Failure to comply with the FDA's drug
GMP requirements subjects the manufacturer to possible FDA regulatory action.
There can be no assurance that the Company or its contract manufacturers, if
any, will be able to maintain compliance with the FDA's drug GMP requirements
on a continuing basis. Failure to maintain such compliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Another requirement for many biological drug products is lot-by-lot release
approval, which necessitates FDA approval of the release of each lot of a
biologic drug before commercialization. The lot-to-lot release and ELA
requirements may be applied to some or all of the Company's potential
immune-based therapies. The FDA amended its regulations to permit certain
biotechnology and synthetic biological drug products to be eligible for
approval under a biological product license that does not entail lot-to-lot
release and establishment licensing requirements. The Company believes that
its potential synthetic protein autoimmune disease products will be subject
to these new regulations. There can be no assurance that REMUNE or any of
the Company's other products will be eligible for approval under a biological
drug product license or otherwise be subject to less rigorous regulation than
traditional biological products.
The Company believes its proprietary GeneDrug-TM- and cancer treatment
therapies will likely be regulated more like traditional biological products,
subject to both PLA and ELA requirements. As with the Company's other
potential products, the gene therapy and cancer products will be subject to
extensive FDA regulation throughout the product development process, and
there can be no assurance that any of these products will be successful at
securing the requisite FDA marketing approval on a timely basis, if at all.
10
<PAGE>
A number of procedures are available to expedite approval or to allow
expanded access to investigational drugs. Certain investigational drugs,
including products for the treatment of AIDS, can be distributed outside of
traditional IND requirements on a "treatment IND" basis. Generally, the FDA
may permit an investigational drug, including an investigational biological
drug, to be used under a "treatment IND" for patients outside of controlled
clinical trials under certain conditions. Although the FDA has granted
expanded access to REMUNE for those patients who are ineligible to enroll in
the Phase III clinical trial, the FDA has to date not designated expanded
access protocols for REMUNE as "treatment" protocols. Either expanded access
or a treatment protocol designation might permit third party reimbursement of
some of the costs associated with making REMUNE available to patients in such
an expanded access context. There can be no assurance that the FDA will
determine that REMUNE meets all of the FDA's criteria for use of an
investigational drug for treatment use or that, even if the product is
allowed for treatment use, that third party payers will provide reimbursement
for any of the costs of treatment with REMUNE.
The FDA also has issued regulations to accelerate the approval of or to
expedite the review of new biological drug products for serious or
life-threatening illnesses that provide meaningful therapeutic benefit to
patients over existing treatments. Under the accelerated approval program,
the FDA may grant marketing approval for a biological or nonbiological drug
product earlier than would normally be the case. In addition to the
accelerated approval process, the FDA has established procedures designed to
expedite the development, evaluation and marketing of new therapies intended
to treat persons with life-threatening and severely-debilitating illnesses,
especially when no satisfactory alternative therapy exists. There can be no
assurance that the FDA will consider REMUNE or any other of the Company's
products under development to be an appropriate candidate for accelerated
approval or expedited review.
To market any drug products outside of the United States, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented
by foreign health authorities, governing the design and conduct of human
clinical trials and marketing approval. The approval procedure varies among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not
ensure approval by the health authorities of any other country.
Patents and Proprietary Technology. The Company has filed, or participated
as licensee, in the filing of a number of patent applications in the United
States and many international countries. The Company files applications as
appropriate for patents covering its products and processes. The Company has
been issued patents, or has licensed patents, covering certain aspects of its
proposed HIV, autoimmune disease, gene therapy and cancer technologies. The
Company's success may depend in part on its ability to obtain patent
protection for its products and processes. The Company is aware that a group
working with Connective Therapeutics, Inc. has filed patent applications
related to autoimmune disease research that covers technology similar to that
used by the Company. There can be no assurance that the Company's patent
applications will be issued as patents or that any of its issued patents, or
any patent that may be issued in the future, will provide the Company with
adequate protection for the covered products, processes or technology.
The patent positions of biotechnology and pharmaceutical companies can be
highly uncertain, and involve complex legal and factual questions.
Therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents cannot be predicted. The Company also relies upon unpatented trade
secrets and know how, and no assurance can be given that others will not
independently develop substantially equivalent trade secrets or know how. In
addition, whether or not the Company's patents are issued, or issued with
limited coverage, others may receive patents which contain claims applicable
to the Company's product. There can be no assurance that any of the
Company's patents, or any patents issued to the Company in the future, will
afford meaningful protection against competitors. Defending any such patent
could be costly to the Company, and there can be no assurance that the patent
would be held valid by a court of competent jurisdiction.
11
<PAGE>
The Company also relies on protecting its proprietary technology in part
through confidentiality agreements with its corporate collaborators,
employees, consultants and certain contractors. 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 become known or independently discovered by its competitors.
It is possible that the Company's products or processes will infringe, or
will be found to infringe, patents not owned or controlled by the Company.
If any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject
matter claimed in such patents, or would be required to obtain licenses or
redesign its products or processes to avoid infringement. There can be no
assurance that such licenses would be available at all or on terms
commercially reasonable to the Company or that the Company could redesign its
products or processes to avoid infringement. Litigation may be necessary to
defend against claims of infringement, to enforce patents issued to the
Company or to protect trade secrets. Such litigation could result in
substantial costs and diversion of management efforts regardless of the
results of such litigation and an adverse result could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed or require the Company to cease using such technology.
Technological Change and Competition. The biotechnology industry continues
to undergo rapid change and competition is intense and is expected to
increase. There can be no assurance that competitors have not or will not
succeed in developing technologies and products that are more effective than
any which have been or are being developed by the Company or which would
render the Company's technology and products obsolete and noncompetitive.
Many of the Company's competitors have substantially greater experience,
financial and technical resources and production, marketing and development
capabilities than the Company. Accordingly, certain of the Company's
competitors may succeed in obtaining regulatory approval for products more
rapidly or effectively than the Company. If the Company commences commercial
sales of its products, it will also be competing with respect to
manufacturing efficiency and sales and marketing capabilities, areas in which
it currently has no experience.
Dependence on Third Parties. The Company's strategy for the research,
development and commercialization of its products requires entering into
various arrangements with corporate collaborators (such as the Company's
agreement with Bayer Corporation ("Bayer")), licensors, licensees and others,
and the Company's commercial success is dependent upon these outside parties
performing their respective contractual responsibilities. The amount and
timing of resources such third parties will devote to these activities may
not be within the control of the Company. There can be no assurance that
such parties will perform their obligations as expected or that the Company
will derive any revenue from such arrangements. Although the Company has
collaborative agreements with several universities and research institutions,
the Company's agreement with Bayer is the only collaborative agreement that
will provide the Company with contract revenue. There can be no assurance
that these collaborations will result in the development of any commercial
products. The Company intends to seek additional collaborative arrangements
to develop and commercialize certain of its products. There can be no
assurance that the Company will be able to negotiate collaborative
arrangements on favorable terms, or at all, in the future, or that its
current or future collaborative arrangements will be successful.
Lack of Commercial Manufacturing and Marketing Experience. The Company has a
manufacturing facility for REMUNE located in King of Prussia, Pennsylvania,
and a pilot manufacturing facility in Carlsbad, California for its other
potential products. The Company has not yet manufactured its product
candidates in commercial quantities. No assurance can be given that the
Company, on a timely basis, will be able to make the transition from
manufacturing clinical trial quantities to commercial production quantities
successfully or be able to arrange for contract manufacturing. The Company
believes it will be able to manufacture REMUNE for initial commercialization,
if the product obtains FDA approval, but it has not yet demonstrated the
capability to manufacture REMUNE in commercial quantities, or its autoimmune
disease, gene therapy and cancer treatments in large-scale clinical or
commercial quantities. The Company has no experience in the sales, marketing
and distribution of pharmaceutical products. There can be no assurance that
the Company will be able to
12
<PAGE>
establish sales, marketing and distribution capabilities or make arrangements
with its collaborators, licensees or others to perform such activities or
that such efforts will be successful.
The manufacture of the Company's products involves a number of steps and
requires compliance with stringent quality control specifications imposed by
the Company itself and by the FDA. Moreover, the Company's products can only
be manufactured in a facility that has undergone a satisfactory inspection by
the FDA. For these reasons, the Company would not be able quickly to replace
its manufacturing capacity if it were unable to use its manufacturing
facilities as a result of a fire, natural disaster (including an earthquake),
equipment failure or other difficulty, or if such facilities are deemed not
in compliance with the FDA's drug GMP requirements and the non-compliance
could not be rapidly rectified. The Company's inability or reduced capacity
to manufacture its products would have a material adverse effect on the
Company's business and results of operations.
The Company may enter into arrangements with contract manufacturing companies
to expand its own production capacity in order to meet requirements for its
products, or to attempt to improve manufacturing efficiency. If the Company
chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute its finished products, clinical trials, market
introduction and subsequent sales of such products would be adversely
affected. Further, contract manufacturers must also operate in compliance
with the FDA's drug GMP requirements; failure to do so could result in, among
other things, the disruption of product supplies. Until recently, biologic
product licenses could not be held by any company unless it performed
significant manufacturing operations. The FDA amended its regulations in
this regard, and the Company believes that under these new regulations it can
now hold licenses for its biological products without performing significant
manufacturing steps. Nonetheless, the Company's potential dependence upon
third parties for the manufacture of its products may adversely affect the
Company's profit margins and its ability to develop and deliver such products
on a timely and competitive basis.
13
<PAGE>
PART II. OTHER INFORMATION
Item 2. -- Changes in Securities
During the second quarter of 1997, the Company issued 2,051,281 units (the
"Units"), each Unit consisting of one share of common stock and one warrant
to purchase one share of common stock, to Kevin B. Kimberlin, a director of
the Company, and Dennis J. Carlo, Ph.D., a director and president and chief
executive officer of the Company, at a price of $7.80 per Unit. The
aggregate consideration of $16 million, consisted of $4,126,136 in cash, and
promissory notes in the principal amount of $11,873,856, which are due
September 30, 1997, with interest of 5.73% per annum. The warrants have an
exercise price of $14 per share, a four year term and are callable by the
Company at $.05 per share if the fair market value of the Company's common
stock is equal to or greater than $28 per share over any consecutive 45 day
period.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates and warrants issued in such transactions. All recipients had
adequate access, through employment or other relationships, to information
about the Company.
Item 4. -- Submission of Matters to a Vote of Security Holders
On May 22, 1997, the Company held its Annual Meeting of Stockholders. The
following actions were taken at the annual meeting. As of March 31, 1997,
the record date, 20,288,722 shares were entitled to vote at the Annual
Meeting. Of these 20,288,722 shares, 894,738 shares were not voted.
1. The following Class II Directors were elected:
a. Kevin B. Kimberlin. 18,463,885 shares voted in favor of the
nominee, 930,099 shares withheld their vote;
b. Melvin Perelman. 18,463,635 shares voted in favor of the
nominee, 930,349 shares withheld their vote;
c. John Simon. 18,463,885 shares voted in favor of the nominee,
930,099 shares withheld their vote;
d. William M. Sullivan. 18,463,885 shares voted in favor of the
nominee, 930,099 shares withheld their vote;
e. The following directors continue in office for their existing
terms:
Dennis J. Carlo
James B. Glavin
Gilbert S. Omenn
Philip M. Young
2. A proposal to amend and restate the 1989 Stock Plan of The Immune
Response Corporation to, among other things, increase the
aggregate number of shares of Common Stock authorized for issuance
thereunder by 1,000,000 shares. 14,926,391 shares were voted in
favor of the proposal, 3,728,127 shares were voted against the
proposal, 178,948 shares abstained and 560,518 shares were not
voted (includes broker non-votes); and
3. The selection of Arthur Anderson LLP as the Company's independent
auditor was ratified. 19,308,748 shares were voted in favor of
the proposal, 37,155 shares were voted against the proposal and
48,081 shares abstained.
14
<PAGE>
Item 6. -- Exhibits and Reports on Form 8-K
a) Exhibits
10.59* Unit Purchase Agreement, dated April 15, 1997, between The
Immune Response Corporation and Kevin B. Kimberlin,
including Common Stock Purchase Warrant, Promissory Note
and Stock Pledge Agreement
10.60* Unit Purchase Agreement, dated April 15, 1997, between The
Immune Response Corporation and Dennis J. Carlo, Ph.D.,
including Common Stock Purchase Warrant, Promissory Note
and Stock Pledge Agreement
10.61* Amendment No. 1 to Rights Agreements (Exhibit 10.47), dated
April 17, 1997, between The Immune Response Corporation and
Harris Trust Company of California
10.62 Common Stock Purchase Warrant, dated June 26, 1997, between
The Immune Response Corporation and Kevin B. Kimberlin.
10.63 Common Stock Purchase Warrant, dated June 26, 1997, between
The Immune Response Corporation and Dennis J. Carlo, Ph.D.
27 Financial Data Schedule
* Incorporated by reference to the Exhibits of the same number filed with the
Company's March 31, 1997 Form 10-Q.
b) Reports on Form 8-K
Not applicable
15
<PAGE>
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: August 6, 1997 s/Charles J. Cashion
--------------------- -------------------------------
Charles J. Cashion
Vice President, Finance
Secretary and Treasurer
16
<PAGE>
Exhibit 10.62
THIS WARRANT IS NON-TRANSFERABLE AND
MAY ONLY BE EXERCISED BY THE ORIGINAL PURCHASER
- -------------------------------------------------------------------------------
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
*****************************************
The Immune Response Corporation
COMMON STOCK PURCHASE WARRANT
*****************************************
This certifies that, for good and valuable consideration, The Immune
Response Corporation, a Delaware corporation (the "Company"), grants to Kevin
B. Kimberlin (the "Warrantholder"), the right to subscribe for and purchase
from the Company 18,867 validly issued, fully paid and nonassessable shares
(the "Warrant Shares") of the Company's Common Stock, $.0025 par value (the
"Common Stock"), at the purchase price per share of $14 (the "Exercise
Price"), exercisable at any time and from time to time during the period (the
"Exercise Period") commencing on the 26th day of June, 1997 and ending on the
fourth anniversary of the date hereof, all subject to the terms, conditions
and adjustments herein set forth.
- -------------------------------------------------------------------------------
1
<PAGE>
1. Duration and Exercise of Warrant; Call of Warrant; Payment of
Taxes; Information.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised in whole or in part
by the Warrantholder by (i) the surrender of this Warrant to the Company,
with a duly executed Exercise Form specifying the number of Warrant Shares to
be purchased, during normal business hours on any Business Day during the
Exercise Period and (ii) the delivery of payment to the Company, for the
account of the Company, by wire transfer of immediately available funds to a
bank account specified by the Company of the Exercise Price for the number of
Warrant Shares specified in the Exercise Form in lawful money of the United
States of America.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised in whole or in part by the
Warrantholder by the surrender of this Warrant to the Company, with a duly
executed Exercise Form marked to reflect Net Issue Exercise and specifying
the number of Warrant Shares to be purchased, during normal business hours on
any Business Day during the Exercise Period. Upon such exercise, the
Warrantholder shall be entitled to receive shares equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
to the Company together with notice of such election in which event the
Company shall issue to Warrantholder a number of shares of the Company's
Common Stock computed as of the date of surrender of this Warrant to the
Company using the following formula:
X = Y x (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock purchasable under this
Warrant, or any lesser number of shares as to which this Warrant
is being exercised (at the date of such calculation);
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Other Forms of Exercise. This Warrant may also be exercised in
whole or in part by the Warrantholder by (i) the surrender of this Warrant to
the Company, with a duly executed Exercise Form specifying the number of
Warrant Shares to be purchased, during normal business hours on any Business
Day during the Exercise Period and (ii) payment of the Exercise
2
<PAGE>
Price, in whole or in part, by delivery to the Company of (A) shares of
Common Stock owned by the Warrantholder having a fair market value as of the
close of business on the date on which this Warrant shall have been
surrendered equal to the portion of the Exercise Price being paid in such
shares, or (B) irrevocable instructions to a broker-dealer to sell (or
margin) a sufficient portion of the Warrant Shares and deliver the sale (or
margin loan) proceeds directly to the Company to pay for the Exercise Price.
(d) Procedural Issues. All Warrant Shares issued pursuant to this
Section 1.1 shall be deemed to be issued to the Warrantholder as the record
holder of such Warrant Shares as of the close of business (i) on the date on
which this Warrant shall have been surrendered and payment made for the
Warrant Shares, if issued pursuant to Section 1.1(a) or Section 1.1(c), or
(ii) on the date on which this Warrant shall have been surrendered, if issued
pursuant to Section 1.1(b). A stock certificate or certificates for the
Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder as promptly as practicable, and in any event within ten (10)
days, thereafter. The stock certificate or certificates so delivered shall
be in denominations of 100 shares each or such lesser or greater
denominations as may be reasonably specified by the Warrantholder in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or
certificates, deliver to the Warrantholder a new Warrant evidencing the
rights to purchase the remaining Warrant Shares, which new Warrant shall in
all other respects be identical with this Warrant. No adjustments shall be
made on Warrant Shares issuable on the exercise of this Warrant for any cash
dividends paid or payable to holders of record of Common Stock prior to the
date as of which the Warrantholder shall be deemed to be the record holder of
such Warrant Shares.
(e) Fair Market Value. For purposes of Sections 1.1(b), 1.1(c), 1.2 and
6.1(d), fair market value of one share of the Company's Common Stock shall
mean:
(i) the closing price per share of the Company's Common Stock on the
principal national securities exchange on which the Common Stock is
listed or admitted to trading or,
(ii) if not listed or traded on any such exchange, the last reported
sales price per share on the Nasdaq National Market or the Nasdaq
Small-Cap Market (collectively, "Nasdaq") or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets"
3
<PAGE>
published by the National Quotation Bureau, Inc. (the "pink sheets") or,
(iv) if such quotations are not available, the fair market value per
share of the Company's Common Stock on the date such notice was received
by the Company as reasonably determined by the Board of Directors of the
Company.
1.2 Call of Warrant by Company. If at any time prior to the exercise of
this Warrant in full, the fair market value of one share of the Company's
Common Stock remains equal to or greater than $28 over any consecutive
forty-five (45) day period (the "Threshold Period"), the Company shall have
the option to purchase this Warrant from Warrantholder for $.05 per Warrant
Share. To exercise this call option, the Company shall, within thirty (30)
days following termination of the Threshold Period, and at least thirty (30)
days prior to exercise of the option, provide the Warrantholder with written
notice specifying the date the option will be exercised. The Warrantholder
then shall have ten (10) days after receipt of such notice to exercise its
rights under this Warrant.
If the Company fails to exercise this call option in the manner and
within the time periods specified in this Section 1.2, the Company shall be
deemed to have waived its right to invoke such option and Warrantholder shall
retain all rights granted to it under this Warrant as though the Threshold
Period had never occurred; provided, however, that the Company's call option
shall be revived should the Company's Common Stock again trade at or above
$28 for an additional Threshold Period following any previous waiver by the
Company of such option.
1.3 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the
Warrantholder shall be required to pay any and all taxes which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the then Warrantholder as reflected
upon the books of the Company.
1.4 Information. Upon receipt of a written request from a
Warrantholder, the Company agrees to deliver promptly to such Warrantholder a
copy of its current publicly available financial statements and to provide
such other publicly available information concerning the business and
operations of the Company as such Warrantholder may reasonably request in
order to assist the Warrantholder in evaluating the merits and risks of
exercising the Warrant and to make an informed investment decision in
connection with such exercise.
4
<PAGE>
2. Restrictions on Transfer; Restrictive Legends.
2.1 Restrictions on Transfer; Compliance with Securities Laws. This
Warrant is not assignable. The Warrant Shares issued upon the exercise of
the Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to
be issued upon exercise hereof are being acquired solely for the
Warrantholder's own account and not as a nominee for any other party, and for
investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Securities Act or
any state securities laws. Upon exercise of this Warrant, the Warrantholder
shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the Warrantholder's own account and not as a nominee for
any other party, for investment, and not with a view toward distribution or
resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
substitution for this Warrant issued pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
5
<PAGE>
Notwithstanding the foregoing, the Warrantholder may require the Company
to issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Listing of Shares, Etc.
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens, security
interests, charges and other encumbrances with respect to the issue thereof,
other than taxes in respect of any transfer occurring contemporaneously with
such issue. The Company further covenants and agrees that, during the
Exercise Period, the Company will at all times have authorized and reserved,
and keep available free from preemptive rights, a sufficient number of shares
of Common Stock to provide for the exercise of the rights represented by this
Warrant and will, at its expense, upon each such reservation of shares,
procure such listing of such shares of Common Stock (subject to issuance or
notice of issuance) as then may be required on all stock exchanges on which
the Common Stock is then listed or on Nasdaq.
4. Exchange, Loss or Destruction of Warrant.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case
of loss, theft or destruction, of such bond or indemnification as the Company
reasonably may require, and, in the case of such mutilation, upon surrender
and cancellation of this Warrant, the Company will execute and deliver a new
Warrant of like tenor. The term "Warrant" as used in this agreement shall be
deemed to include any Warrants issued in substitution or exchange for this
Warrant.
5. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
6
<PAGE>
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or split-up
of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
immediately after the effective date of subdivision or split-up, as the case
may be, the number of shares of Common Stock to be delivered upon exercise of
this Warrant will be increased so that the Warrantholder will be entitled to
receive the number of shares of Common Stock that such Warrantholder would
have owned immediately following such action had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as
provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have
been decreased by a combination of the outstanding shares of Common Stock,
then, immediately after the effective date of such combination, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
decreased so that the Warrantholder thereafter will be entitled to receive
the number of shares of Common Stock that such Warrantholder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto, and the Exercise Price will be adjusted as provided below in
paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company
with or merger of the Company with or into any other person or any sale,
lease or other transfer of all or substantially all of the assets of the
Company to any other person, shall be effected in such a way that the holders
of Common Stock shall be entitled to receive stock, other securities or
assets, including cash (whether such stock, other securities or assets are
issued or distributed by the Company or another person) with respect to or in
exchange for Common Stock, then, upon exercise of this Warrant the
Warrantholder shall have the right to receive the kind and amount of stock,
other securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that such Warrantholder would
have been entitled to receive upon exercise of this Warrant had this Warrant
been exercised immediately before such reorganization, reclassification,
consolidation, merger or sale, lease or other transfer, subject to
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6.
7
<PAGE>
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would
otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in an
amount equal to that fractional interest of the then current fair market
value per share of Common Stock, determined in accordance with Section 1.1(e)
hereof.
(e) Carryover. Notwithstanding any other provision of this Section 6,
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to 1% or more of the number of
shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be
adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of the Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment
that otherwise would be made under the provisions of this Section 6 is made
by the Company for any such event to the number of shares of Common Stock (or
other securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of
the chief financial officer of the Company setting forth the number of
Warrant Shares and the Exercise Price of such Warrant Shares after such
adjustment, setting forth a brief statement of the
8
<PAGE>
facts requiring such adjustment and setting forth the computation by which
such adjustment was made.
7. Registration Rights.
7.1 Certain Additional Definitions.
As used in this Warrant, the following capitalized terms shall have the
following meanings:
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and
all material incorporated by reference in such prospectus.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing with the SEC a registration statement or
similar document in compliance with the Securities Act, and such registration
statement or document becoming effective under the Securities Act.
"Registrable Securities" shall mean (i) the Warrant Shares and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Warrant Shares.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the
provisions of this Warrant, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
7.2 Registration. Upon the written request of Warrantholder (a "Demand
Request"), but in no event later than four (4) years from the date hereof,
the Company shall:
(a) within ten (10) days of the Company's receipt of a Demand Request,
give written notice of such request to all holders of Registerable Securities
("Holders");
(b) prepare and file with the SEC within sixty (60) days of the
Company's receipt of a Demand Request, and use its reasonable best efforts to
have declared effective by the SEC, a Registration Statement on any
appropriate form under the Securities Act as may then be available to the
Company relating to resale of all of the Registrable Securities which the
Holders
9
<PAGE>
request to be registered within twenty (20) days of the mailing of the notice
required under Section 7.2(a) and use its reasonable best efforts to cause
such Registration Statement to remain continuously effective for a period of
one (1) year or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold; provided
that a registration will not count as the permitted demand registration until
the Registration Statement becomes effective and remains effective for the
period specified herein, so long as such registration is not withdrawn at the
request of the holder;
(c) prepare and file with the SEC such amendments, supplements and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep such Registration Statement effective for the period
specified in Section 7.2(a) and to comply with the provisions of the
Securities Act and the Exchange Act with respect to the distribution of all
Registrable Securities during such period;
(d) notify the Warrantholder promptly, and confirm such notice in
writing, (i) when the Prospectus or any supplement or post-effective
amendment has been filed and, with respect to the Registration Statement or
any post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to the Registration
Statement or Prospectus or for additional information, (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and (v)
when a Prospectus or a Prospectus supplement is required to be delivered
under the Securities Act upon discovery that the Prospectus, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact necessary to make the statements therein not misleading in
light of the circumstances then existing, which requires amendment or
supplementation of the Registration Statement or Prospectus;
(e) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(f) deliver to the Warrantholder without charge as many copies of the
Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as Warrantholder may reasonably request in order to
facilitate the disposition of the Registrable Securities in compliance with
the Securities Act;
(g) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange or market on which shares
of the Common Stock are then listed,
10
<PAGE>
and if the shares of the Common Stock are not so listed, use its reasonable
best efforts promptly to cause all such Registerable Securities to be listed
on either the New York Stock Exchange, the American Stock Exchange or the
Nasdaq Stock Market;
(h) use its reasonable best efforts to qualify or register the
Registrable Securities for sale under (or obtain exemptions from the
application of) the Blue Sky laws of such jurisdictions as are reasonably
requested by Investor. The Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
such jurisdiction where it is not presently qualified or where it would be
subject to general service of process or taxation as a foreign corporation in
any jurisdiction where it is not now so subject;
(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC under the Securities Act and the
Exchange Act and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder.
Warrantholder shall furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time
reasonably request in writing.
If the Company delivers a certificate in writing to Warrantholder to the
effect that a delay in the sale of Registrable Securities by Warrantholder
under the Registration Statement is necessary because a sale pursuant to such
Registration Statement in its then current form would reasonably be expected
to constitute a violation of the federal securities laws, then Warrantholder
shall agree not to sell or otherwise transfer such Registrable Securities for
the period of time specified by the Company in its certificate. In no event
shall such delay exceed ten (10) business days; provided, however, that if,
prior to the expiration of such ten (10) business day period, the Company
delivers a certificate in writing to Warrantholder to the effect that a
further delay in such sale beyond such ten (10) business day period is
necessary because a sale pursuant to such Registration Statement in its then
current form would reasonably be expected to constitute a violation of the
federal securities laws, the Company may refuse to permit Warrantholder to
resell any Registrable Securities pursuant to such Registration Statement for
one additional period not to exceed five (5) business days.
7.3 Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees with respect to the filings
required to be made with the National Association of Securities Dealers,
Inc., fees and expenses of compliance with the securities or Blue Sky laws,
printing expenses, messenger, telephone and delivery expenses, fees and
disbursements of counsel for the Company, fees and
11
<PAGE>
disbursements of all independent certified public accountants of the Company,
fees and expenses incurred in connection with the listing of the securities,
rating agency fees and the fees and expenses of any person, including special
experts, retained by the Company, will be borne by the Company, regardless of
whether the Registration Statement becomes effective; provided, however, that
the Company will not be required to pay discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
fees or disbursements of any counsel to Warrantholder.
7.4 Underwritten Registrations; Selection of Underwriter. If the
Warrantholder so elects, the offering of Registerable Securities shall be in
the form of an underwritten offering and the Company shall have the exclusive
right to designate the managing underwriter or underwriters with respect to
the related offering of the Registerable Securities, which underwriter or
underwriters must be reasonably acceptable to the Warrantholder.
7.5 Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
it will take such further action as Warrantholder may reasonably request, all
to the extent required to enable Warrantholder to sell Registrable Securities
without registration under the Securities Act in reliance on the exemption
provided by Rule 144 or Rule 144A or any successor or similar rules or
statues. Upon the request of Warrantholder, the Company will deliver to
Warrantholder a written statement as to whether the Company has complied with
such information and requirements.
7.6 Transfer or Assignment of Registration Rights. The rights to cause
the Company to register Securities and all related rights granted to
Warrantholder by the Company under this Section 7 may be transferred or
assigned by Warrantholder only to a transferee or assignee of not less than
100,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like), provided that the Company is given written
notice at the time of or within a reasonable time after such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the Securities with respect to which such registration rights are
being transferred or assigned, and, provided further, that the transferee or
assignee of such rights assumes the obligations of Warrantholder under this
Section 7.
7.7 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company,
Warrantholder shall not sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Company held by Warrantholder (other than
those included in the registration) during the one hundred twenty (120) day
period
12
<PAGE>
following the effective date of a registration statement of the Company filed
under the Securities Act.
The obligations described in this Section 7.7 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that
may be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the Securities subject to the foregoing
restriction until the end of such one hundred twenty (120) day period.
Each time the Company invokes its Market Stand-off rights under this
Section 7.7 while the Warrantholder is entitled to make a Demand Request, the
period during which the Warrantholder shall be entitled to make a Demand
Request under Section 7.2 hereof shall be extended by an additional one
hundred twenty (120) days; provided, however, that the Warrantholder's Demand
Request period will not be extended following the first Market Stand-Off
unless such Market Stand-Off occurs within one hundred twenty (120) days of
the expiration of the Warrantholder's Demand Request period.
7.8 Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Warrantholder, any person or entity to or through whom the
Warrantholder sells Registerable Securities that may be deemed to be an
underwriter (as defined in the Securities Act), any officer, director,
partner or agent thereof, and each person, if any, who controls the
Warrantholder or underwriter within the meaning of the Securities Act or the
Exchange Act against any and all losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or other United States federal or state securities law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
any related registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto
or offering circular or in any application or other document or communication
executed by or on behalf of the Company relating to such registration
(together, "Selling Documents"), (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act or other
United States federal or state securities law, or any rule or
13
<PAGE>
regulation promulgated under the Securities Act, the Exchange Act or other
United States federal or state securities law; and the Company will pay to
the Warrantholder, underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action as incurred;
provided, however, that the indemnity agreement contained in this subsection
7.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by the Warrantholder, underwriter or controlling person.
(b) To the extent permitted by law, the Warrantholder will indemnify and
hold harmless the Company, each of its directors, each of its officers who
has signed the Selling Document, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter, any
officer, director, partner or agent thereof and any controlling person of any
such underwriter, against any losses, claims, damages, or liabilities (joint
or several) to which any of the foregoing persons may become subject, under
the Securities Act, the Exchange Act or other United States federal or state
securities law insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by the
Warrantholder expressly for use in connection with such registration; and the
Warrantholder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 7.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 7.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Warrantholder, which
consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this subsection 7.8(b) exceed the proceeds
(net of underwriting discounts and commissions) from the related offering of
the Registerable Securities received by the Warrantholder.
(c) After receipt by an indemnified party under this Section 7.8 of
notice of the commencement of any action (including any governmental action)
involving a claim referred to in Sections 7.8(a) or 7.8(b) hereof, such
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7.8, deliver to the
14
<PAGE>
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.8.
(d) If the indemnification provided for in this Section 7.8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations; provided, however, that in any such case, (A) the
Warrantholder will not be required to contribute any amount in excess of the
proceeds (net of underwriting discounts and commissions) received by the
Warrantholder from all Registrable Securities offered and sold by the
Warrantholder pursuant to the applicable Selling Document; and (B) no person
or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
The relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the
Violation relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
15
<PAGE>
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement
entered into by the Company in connection with an underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control, provided that the Warrantholder is a
signatory to the underwriting agreement.
(f) The obligations of the Company and the Warrantholder under this
Section 7.8 shall survive the completion of any offering of Registrable
Securities in a Registration Statement under this Section 7 and otherwise.
8. Notices of Corporate Action.
In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of
Control, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date
or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, Change of
Control, dissolution, liquidation or winding-up and (iii) that in the event
of a Change of Control, the Warrants are exercisable immediately prior to the
consummation of such Change of Control. Such notice shall be mailed at least
20 days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least 20 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
16
<PAGE>
9. Definitions.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of New York, State
of New York.
Change of Control: shall mean (i) the consolidation of the Company with
or merger of the Company with or into any other person in which the Company
is not the surviving corporation, (ii) the sale of all or substantially all
of the assets of the Company to any other person or (iii) any sale or
transfer of any capital stock of the Company after the date of this
agreement, following which more than fifty percent (50%) of the combined
voting power of the Company becomes beneficially owned by one person or group
acting together. For purposes of this definition, "group" shall have the
meaning as such term is used in Section 13(d)(1) under the Exchange Act.
Company: The Immune Response Corporation, a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to a comparable section, if any, of any successor federal
statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified on the cover of this Warrant, as
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
SEC: the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act or the Exchange Act, whichever
is the relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Act of 1933, as amended, shall include a reference
to the comparable section, if any, of any successor federal statute.
17
<PAGE>
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 6.
10. Miscellaneous.
10.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant and
supersede all prior agreements and understandings, both written and oral,
with regard to the subject matter hereof.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and
the Warrantholder. Either the Company or the Warrantholder may, by an
instrument in writing, waive compliance by the other party with any term or
provision of this Warrant on the part of such other party hereto to be
performed or complied with. The waiver by any such party of a breach of any
term or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
10.4 Section and Other Headings. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all
such other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this agreement.
10.6 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by United States mail,
postage prepaid, to the parties hereto at the following addresses or to such
other address as any party hereto shall hereafter specify by notice to the
other party hereto:
18
<PAGE>
(a) if to the Company, addressed to:
The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Attention: President
Telecopier: (760) 431-8636
(b) if to the Warrantholder, addressed to:
Kevin B. Kimberlin
Spencer Trask, Inc.
535 Madison Avenue
New York, NY 10022
Telecopier: (212) 751-3483
Except as otherwise provided herein, all such notices and communications
shall be deemed to have been received on the date of delivery thereof, if
delivered personally, or on the third Business Day after the mailing thereof.
10.7 Severability. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant
or affecting the validity or enforceability of any of the terms or provisions
of this Warrant in any other jurisdiction.
10.8 Governing Law. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of Delaware, except as they may be
preempted by federal law. In any action brought or arising out of this
Warrant, the Warrantholder and the Company hereby consent to the jurisdiction
of any federal or state court having proper venue within the State of
California and also consent to the service of process by any means authorized
by California or federal law.
10.9 Termination. This Warrant shall expire at 5:00 P.M., Pacific
standard time, on the fourth anniversary hereof; provided, however, that the
rights and obligations of the Company and the Warrantholder under Section 7.8
hereof shall survive such termination.
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights
as a stockholder of the Company until the Warrantholder exercises this
Warrant in whole or in part, or as imposing any liabilities on the
Warrantholder to
19
<PAGE>
purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Dated: June 26, 1997.
THE IMMUNE RESPONSE CORPORATION
By /s/ Charles J. Cashion
----------------------------
Title Vice President
-------------------------
20
<PAGE>
Exhibit A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
/ / herewith tenders payment for _______ of the Warrant Shares to the
order of The Immune Response Corporation in the amount of $_________
in accordance with the terms of this Warrant; or
/ / herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired for investment solely
for the account of the undersigned and not as a nominee for any other party,
and that the undersigned will not offer, sell or otherwise dispose of any
such Warrant Shares except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws.
Dated: ___________________.
Signature -----------------------------------
-----------------------------------
(Print Name)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
<PAGE>
Exhibit 10.63
THIS WARRANT IS NON-TRANSFERABLE AND
MAY ONLY BE EXERCISED BY THE ORIGINAL PURCHASER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
*****************************************
The Immune Response Corporation
COMMON STOCK PURCHASE WARRANT
*****************************************
This certifies that, for good and valuable consideration, The Immune
Response Corporation, a Delaware corporation (the "Company"), grants to Dennis
J. Carlo, Ph.D. (the "Warrantholder"), the right to subscribe for and purchase
from the Company 2,695 validly issued, fully paid and nonassessable shares (the
"Warrant Shares") of the Company's Common Stock, $.0025 par value (the "Common
Stock"), at the purchase price per share of $14 (the "Exercise Price"),
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the 26th day of June, 1997 and ending on the fourth
anniversary of the date hereof, all subject to the terms, conditions and
adjustments herein set forth.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1
<PAGE>
1. Duration and Exercise of Warrant; Call of Warrant; Payment of
Taxes; Information.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised in whole or in part by
the Warrantholder by (i) the surrender of this Warrant to the Company, with a
duly executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day during the Exercise
Period and (ii) the delivery of payment to the Company, for the account of the
Company, by wire transfer of immediately available funds to a bank account
specified by the Company of the Exercise Price for the number of Warrant Shares
specified in the Exercise Form in lawful money of the United States of America.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised in whole or in part by the
Warrantholder by the surrender of this Warrant to the Company, with a duly
executed Exercise Form marked to reflect Net Issue Exercise and specifying the
number of Warrant Shares to be purchased, during normal business hours on any
Business Day during the Exercise Period. Upon such exercise, the Warrantholder
shall be entitled to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant to the Company
together with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
Y x (A-B)
X = ---------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock purchasable under this
Warrant, or any lesser number of shares as to which this Warrant
is being exercised (at the date of such calculation);
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Other Forms of Exercise. This Warrant may also be exercised in whole
or in part by the Warrantholder by (i) the surrender of this Warrant to the
Company, with a duly executed Exercise Form specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day during
the Exercise Period and (ii) payment of the Exercise
2
<PAGE>
Price, in whole or in part, by delivery to the Company of (A) shares of
Common Stock owned by the Warrantholder having a fair market value as of the
close of business on the date on which this Warrant shall have been
surrendered equal to the portion of the Exercise Price being paid in such
shares, or (B) irrevocable instructions to a broker-dealer to sell (or
margin) a sufficient portion of the Warrant Shares and deliver the sale (or
margin loan) proceeds directly to the Company to pay for the Exercise Price.
(d) Procedural Issues. All Warrant Shares issued pursuant to this Section
1.1 shall be deemed to be issued to the Warrantholder as the record holder of
such Warrant Shares as of the close of business (i) on the date on which this
Warrant shall have been surrendered and payment made for the Warrant Shares, if
issued pursuant to Section 1.1(a) or Section 1.1(c), or (ii) on the date on
which this Warrant shall have been surrendered, if issued pursuant to Section
1.1(b). A stock certificate or certificates for the Warrant Shares specified in
the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within ten (10) days, thereafter. The stock
certificate or certificates so delivered shall be in denominations of 100 shares
each or such lesser or greater denominations as may be reasonably specified by
the Warrantholder in the Exercise Form. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(e) Fair Market Value. For purposes of Sections 1.1(b), 1.1(c), 1.2 and
6.1(d), fair market value of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on
the principal national securities exchange on which the Common Stock
is listed or admitted to trading or,
(ii) if not listed or traded on any such exchange, the last
reported sales price per share on the Nasdaq National Market or the
Nasdaq Small-Cap Market (collectively, "Nasdaq") or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets"
3
<PAGE>
published by the National Quotation Bureau, Inc. (the "pink sheets") or,
(iv) if such quotations are not available, the fair market value
per share of the Company's Common Stock on the date such notice was
received by the Company as reasonably determined by the Board of
Directors of the Company.
1.2 Call of Warrant by Company. If at any time prior to the exercise of
this Warrant in full, the fair market value of one share of the Company's Common
Stock remains equal to or greater than $28 over any consecutive forty-five (45)
day period (the "Threshold Period"), the Company shall have the option to
purchase this Warrant from Warrantholder for $.05 per Warrant Share. To
exercise this call option, the Company shall, within thirty (30) days following
termination of the Threshold Period, and at least thirty (30) days prior to
exercise of the option, provide the Warrantholder with written notice specifying
the date the option will be exercised. The Warrantholder then shall have ten
(10) days after receipt of such notice to exercise its rights under this
Warrant.
If the Company fails to exercise this call option in the manner and within
the time periods specified in this Section 1.2, the Company shall be deemed to
have waived its right to invoke such option and Warrantholder shall retain all
rights granted to it under this Warrant as though the Threshold Period had never
occurred; provided, however, that the Company's call option shall be revived
should the Company's Common Stock again trade at or above $28 for an additional
Threshold Period following any previous waiver by the Company of such option.
1.3 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.4 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
4
<PAGE>
2. Restrictions on Transfer; Restrictive Legends.
2.1 Restrictions on Transfer; Compliance with Securities Laws. This
Warrant is not assignable. The Warrant Shares issued upon the exercise of the
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and transferee (including the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if such are
requested by the Company). The Warrantholder, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon exercise
hereof are being acquired solely for the Warrantholder's own account and not as
a nominee for any other party, and for investment, and that the Warrantholder
will not offer, sell or otherwise dispose of any Warrant Shares to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the Securities Act or any state securities laws. Upon exercise of
this Warrant, the Warrantholder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the Warrant Shares so
purchased are being acquired solely for the Warrantholder's own account and not
as a nominee for any other party, for investment, and not with a view toward
distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
5
<PAGE>
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Listing of Shares, Etc.
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. Exchange, Loss or Destruction of Warrant.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company
reasonably may require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor. The term "Warrant" as used in this agreement shall be deemed to
include any Warrants issued in substitution or exchange for this Warrant.
5. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
6
<PAGE>
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets, including cash
(whether such stock, other securities or assets are issued or distributed by the
Company or another person) with respect to or in exchange for Common Stock,
then, upon exercise of this Warrant the Warrantholder shall have the right to
receive the kind and amount of stock, other securities or assets receivable upon
such reorganization, reclassification, consolidation, merger or sale, lease or
other transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
7
<PAGE>
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current fair market value per share of
Common Stock, determined in accordance with Section 1.1(e) hereof.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the
8
<PAGE>
facts requiring such adjustment and setting forth the computation by which
such adjustment was made.
7. Registration Rights.
7.1 Certain Additional Definitions.
As used in this Warrant, the following capitalized terms shall have the
following meanings:
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing with the SEC a registration statement or
similar document in compliance with the Securities Act, and such registration
statement or document becoming effective under the Securities Act.
"Registrable Securities" shall mean (i) the Warrant Shares and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Warrant Shares.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Warrant, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
7.2 Registration. Upon the written request of Warrantholder (a "Demand
Request"), but in no event later than four (4) years from the date hereof, the
Company shall:
(a) within ten (10) days of the Company's receipt of a Demand Request,
give written notice of such request to all holders of Registerable Securities
("Holders");
(b) prepare and file with the SEC within sixty (60) days of the Company's
receipt of a Demand Request, and use its reasonable best efforts to have
declared effective by the SEC, a Registration Statement on any appropriate form
under the Securities Act as may then be available to the Company relating to
resale of all of the Registrable Securities which the Holders
9
<PAGE>
request to be registered within twenty (20) days of the mailing of the notice
required under Section 7.2(a) and use its reasonable best efforts to cause
such Registration Statement to remain continuously effective for a period of
one (1) year or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold; provided
that a registration will not count as the permitted demand registration until
the Registration Statement becomes effective and remains effective for the
period specified herein, so long as such registration is not withdrawn at the
request of the holder;
(c) prepare and file with the SEC such amendments, supplements and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep such Registration Statement effective for the period
specified in Section 7.2(a) and to comply with the provisions of the Securities
Act and the Exchange Act with respect to the distribution of all Registrable
Securities during such period;
(d) notify the Warrantholder promptly, and confirm such notice in writing,
(i) when the Prospectus or any supplement or post-effective amendment has been
filed and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to the Registration Statement or Prospectus or for
additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) when a Prospectus or a
Prospectus supplement is required to be delivered under the Securities Act upon
discovery that the Prospectus, as then in effect, includes an untrue statement
of material fact or omits to state a material fact necessary to make the
statements therein not misleading in light of the circumstances then existing,
which requires amendment or supplementation of the Registration Statement or
Prospectus;
(e) use its reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(f) deliver to the Warrantholder without charge as many copies of the
Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as Warrantholder may reasonably request in order to
facilitate the disposition of the Registrable Securities in compliance with the
Securities Act;
(g) cause all Registrable Securities covered by the Registration Statement
to be listed on each securities exchange or market on which shares of the Common
Stock are then listed,
10
<PAGE>
and if the shares of the Common Stock are not so listed, use its reasonable
best efforts promptly to cause all such Registerable Securities to be listed
on either the New York Stock Exchange, the American Stock Exchange or the
Nasdaq Stock Market;
(h) use its reasonable best efforts to qualify or register the Registrable
Securities for sale under (or obtain exemptions from the application of) the
Blue Sky laws of such jurisdictions as are reasonably requested by Investor.
The Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to general service of process
or taxation as a foreign corporation in any jurisdiction where it is not now so
subject;
(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC under the Securities Act and the
Exchange Act and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder.
Warrantholder shall furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request in writing.
If the Company delivers a certificate in writing to Warrantholder to the
effect that a delay in the sale of Registrable Securities by Warrantholder under
the Registration Statement is necessary because a sale pursuant to such
Registration Statement in its then current form would reasonably be expected to
constitute a violation of the federal securities laws, then Warrantholder shall
agree not to sell or otherwise transfer such Registrable Securities for the
period of time specified by the Company in its certificate. In no event shall
such delay exceed ten (10) business days; provided, however, that if, prior to
the expiration of such ten (10) business day period, the Company delivers a
certificate in writing to Warrantholder to the effect that a further delay in
such sale beyond such ten (10) business day period is necessary because a sale
pursuant to such Registration Statement in its then current form would
reasonably be expected to constitute a violation of the federal securities laws,
the Company may refuse to permit Warrantholder to resell any Registrable
Securities pursuant to such Registration Statement for one additional period not
to exceed five (5) business days.
7.3 Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees with respect to the filings
required to be made with the National Association of Securities Dealers,
Inc., fees and expenses of compliance with the securities or Blue Sky laws,
printing expenses, messenger, telephone and delivery expenses, fees and
disbursements of counsel for the Company, fees and
11
<PAGE>
disbursements of all independent certified public accountants of the Company,
fees and expenses incurred in connection with the listing of the securities,
rating agency fees and the fees and expenses of any person, including special
experts, retained by the Company, will be borne by the Company, regardless of
whether the Registration Statement becomes effective; provided, however, that
the Company will not be required to pay discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
fees or disbursements of any counsel to Warrantholder.
7.4 Underwritten Registrations; Selection of Underwriter. If the
Warrantholder so elects, the offering of Registerable Securities shall be in the
form of an underwritten offering and the Company shall have the exclusive right
to designate the managing underwriter or underwriters with respect to the
related offering of the Registerable Securities, which underwriter or
underwriters must be reasonably acceptable to the Warrantholder.
7.5 Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and it
will take such further action as Warrantholder may reasonably request, all to
the extent required to enable Warrantholder to sell Registrable Securities
without registration under the Securities Act in reliance on the exemption
provided by Rule 144 or Rule 144A or any successor or similar rules or statues.
Upon the request of Warrantholder, the Company will deliver to Warrantholder a
written statement as to whether the Company has complied with such information
and requirements.
7.6 Transfer or Assignment of Registration Rights. The rights to cause
the Company to register Securities and all related rights granted to
Warrantholder by the Company under this Section 7 may be transferred or assigned
by Warrantholder only to a transferee or assignee of not less than 100,000
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), provided that the Company is given written notice at the time of
or within a reasonable time after such transfer or assignment, stating the name
and address of the transferee or assignee and identifying the Securities with
respect to which such registration rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes
the obligations of Warrantholder under this Section 7.
7.7 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, Warrantholder
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Warrantholder (other than those included in
the registration) during the one hundred twenty (120) day period
12
<PAGE>
following the effective date of a registration statement of the Company filed
under the Securities Act.
The obligations described in this Section 7.7 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the Securities subject to the foregoing restriction until the
end of such one hundred twenty (120) day period.
Each time the Company invokes its Market Stand-off rights under this
Section 7.7 while the Warrantholder is entitled to make a Demand Request, the
period during which the Warrantholder shall be entitled to make a Demand Request
under Section 7.2 hereof shall be extended by an additional one hundred twenty
(120) days; provided, however, that the Warrantholder's Demand Request period
will not be extended following the first Market Stand-Off unless such Market
Stand-Off occurs within one hundred twenty (120) days of the expiration of the
Warrantholder's Demand Request period.
7.8 Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Warrantholder, any person or entity to or through whom the
Warrantholder sells Registerable Securities that may be deemed to be an
underwriter (as defined in the Securities Act), any officer, director, partner
or agent thereof, and each person, if any, who controls the Warrantholder or
underwriter within the meaning of the Securities Act or the Exchange Act against
any and all losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
United States federal or state securities law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in any related registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto or offering circular or in any application
or other document or communication executed by or on behalf of the Company
relating to such registration (together, "Selling Documents"), (ii) the omission
or alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or other United States federal or state securities law, or any rule
or
13
<PAGE>
regulation promulgated under the Securities Act, the Exchange Act or other
United States federal or state securities law; and the Company will pay to
the Warrantholder, underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action as incurred;
provided, however, that the indemnity agreement contained in this subsection
7.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by the Warrantholder, underwriter or controlling person.
(b) To the extent permitted by law, the Warrantholder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the Selling Document, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any officer,
director, partner or agent thereof and any controlling person of any such
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other United States federal or state
securities law insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Warrantholder expressly for use in connection with such registration; and the
Warrantholder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 7.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 7.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Warrantholder, which consent shall not be
unreasonably withheld; provided further, that in no event shall any indemnity
under this subsection 7.8(b) exceed the proceeds (net of underwriting discounts
and commissions) from the related offering of the Registerable Securities
received by the Warrantholder.
(c) After receipt by an indemnified party under this Section 7.8 of notice
of the commencement of any action (including any governmental action) involving
a claim referred to in Sections 7.8(a) or 7.8(b) hereof, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 7.8, deliver to the
14
<PAGE>
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.8.
(d) If the indemnification provided for in this Section 7.8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations;
provided, however, that in any such case, (A) the Warrantholder will not be
required to contribute any amount in excess of the proceeds (net of underwriting
discounts and commissions) received by the Warrantholder from all Registrable
Securities offered and sold by the Warrantholder pursuant to the applicable
Selling Document; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
15
<PAGE>
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into by the Company in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control, provided that the Warrantholder is a signatory to the
underwriting agreement.
(f) The obligations of the Company and the Warrantholder under this
Section 7.8 shall survive the completion of any offering of Registrable
Securities in a Registration Statement under this Section 7 and otherwise.
8. Notices of Corporate Action.
In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior
to the date therein specified, in the case of any date referred to in the
foregoing subdivision (i), and at least 20 days prior to the date therein
specified, in the case of the date referred to in the foregoing subdivision
(ii).
16
<PAGE>
9. Definitions.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of New York, State of
New York.
Change of Control: shall mean (i) the consolidation of the Company with or
merger of the Company with or into any other person in which the Company is not
the surviving corporation, (ii) the sale of all or substantially all of the
assets of the Company to any other person or (iii) any sale or transfer of any
capital stock of the Company after the date of this agreement, following which
more than fifty percent (50%) of the combined voting power of the Company
becomes beneficially owned by one person or group acting together. For purposes
of this definition, "group" shall have the meaning as such term is used in
Section 13(d)(1) under the Exchange Act.
Company: The Immune Response Corporation, a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified on the cover of this Warrant, as
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
SEC: the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
17
<PAGE>
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 6.
10. Miscellaneous.
10.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant and
supersede all prior agreements and understandings, both written and oral, with
regard to the subject matter hereof.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
10.4 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this agreement.
10.6 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
18
<PAGE>
(a) if to the Company, addressed to:
The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Attention: President
Telecopier: (760) 431-8636
(b) if to the Warrantholder, addressed to:
Dennis J. Carlo, Ph.D.
The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Telecopier: (760) 431-8636
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 Severability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.8 Governing Law. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of Delaware, except as they may be
preempted by federal law. In any action brought or arising out of this Warrant,
the Warrantholder and the Company hereby consent to the jurisdiction of any
federal or state court having proper venue within the State of California and
also consent to the service of process by any means authorized by California or
federal law.
4
10.9 Termination. This Warrant shall expire at 5:00 P.M., Pacific standard
time, on the fourth anniversary hereof; provided, however, that the rights and
obligations of the Company and the Warrantholder under Section 7.8 hereof shall
survive such termination.
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company until the Warrantholder exercises this Warrant in
whole or in part, or as imposing any liabilities on the Warrantholder to
19
<PAGE>
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: June 26, 1997.
THE IMMUNE RESPONSE CORPORATION
By /s/ Charles J. Cashion
-------------------------------
Title Vice President
---------------------------
20
<PAGE>
Exhibit A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
/ / herewith tenders payment for _______ of the Warrant Shares to
the order of The Immune Response Corporation in the amount of
$_________ in accordance with the terms of this Warrant; or
/ / herewith tenders this Warrant for _______ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section
1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that
such certificate (or certificates) be delivered to the undersigned's
address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired for investment
solely for the account of the undersigned and not as a nominee for any
other party, and that the undersigned will not offer, sell or otherwise
dispose of any such Warrant Shares except under circumstances that will
not result in a violation of the Securities Act of 1933, as amended, or
any state securities laws.
Dated: ___________________.
Signature
----------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of
said undersigned for the balance remaining of the shares purchasable
thereunder.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,977,181
<SECURITIES> 23,336,595
<RECEIVABLES> 11,873,856
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,739,487
<PP&E> 11,523,910
<DEPRECIATION> 4,426,101
<TOTAL-ASSETS> 52,108,388
<CURRENT-LIABILITIES> 2,917,663
<BONDS> 0
0
0
<COMMON> 55,981
<OTHER-SE> 49,134,744
<TOTAL-LIABILITY-AND-EQUITY> 52,108,388
<SALES> 0
<TOTAL-REVENUES> 669,035
<CGS> 0
<TOTAL-COSTS> 10,601,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,932,785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,932,785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,932,785)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
