<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[Mark One]
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-11572
Immunotherapeutics, Inc.
(Name of small business issuer in its charter)
Delaware 41-1505029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3233 15th Street South
Fargo, North Dakota 58104
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 701-232-9575
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of class)
Common Stock Purchase Warrants
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year - $-0-.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of April 19, 1995 was $1,316,340.
Non-affiliates have been determined on the basis of holdings set forth under
Item 11 of this Annual Report on Form 10-KSB.
The number of shares outstanding of each of the issuer's classes of common
equity, as of April 29, 1996 was 7,455,379.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
ITEM 1. GENERAL BUSINESS.
Immunotherapeutics, Inc. (the "Company") is a development stage company
which was organized to engage in research, development and commercialization of
immunopharmaceutical agents for the treatment of cancer through macrophage
activation. The Company has developed two principal products, known as
ImmTher(R) and Theramide(TM), which are or have been undergoing clinical trials
on human patients. ImmTher(R) has been under research and development by the
Company since October 1985 and Theramide(TM) has been under development since
April 1990. The Company is incorporated under the laws of the State of Delaware.
The Company's principal executive office is located at 3233 Fifteenth Street
South, Fargo, North Dakota 58104 and its telephone number is (701) 232-9575.
MACROPHAGE ACTIVATION
The body's own immune response to malignancy involves a complex of
multiple mechanisms by which the body is able to recognize and destroy a
malignant cell. The recognition of a malignant cell involves the identification
of one or more new or unique characteristics on the tumor cell surface. A number
of mechanisms exist for the recognition and destruction of the malignant cell.
One major mechanism of the destruction of tumor cells involves the
recognition and destruction of malignant cells by cells found in the blood and
tissues. These cells are referred to as monocytes, if found in the blood, or
macrophages, if found in tissues. Such cells normally recognize and bind in a
reversible and nontoxic manner to a large number of different malignant cells. A
monocyte or macrophage under the influence of drugs or lymphokines (substances
produced by certain lymphocytes which influence other cells) become more active
in the destruction of malignant cells and are referred to as "activated
macrophages." Such activated macrophages bind strongly and irreversibly to
malignant cells and secrete locally substances which kill the malignant cell.
A number of drugs and biologicals are capable of activating
macrophages. Two very potent biologicals which activate
macrophages are types of mycobacterial organisms related to
tuberculosis and substances, known as endotoxins or
lipopolysaccharides, produced by a number of bacteria. Certain
2
<PAGE>
portions of the mycobacteria, specifically the outer cell wall, are potent
agents for activating macrophages. A specific portion of the mycobacterial cell
wall, known as muramyl dipeptide, has been shown to represent the minimum
chemical structure required for macrophage activation. This material has been of
limited clinical use however because of its toxicity and short duration of
action.
For efficient macrophage activation, it is helpful to have an agent
which is easily incorporated into the macrophage and persists for a prolonged
period of time. One approach which has been used is to entrap the agents in oil
droplets. More recently the use of liposome vesicals has been shown to be an
effective method for delivery of such agents to the macrophage. Liposome
vesicles are composed of natural or synthetic lipids which are integral
components of the cell membrane surrounding every cell of living organisms.
Liposomes are man-made membrane like spheres composed of these lipids which can
be engineered to entrap drugs and biologicals within them or between layers of
the sphere. Depending on their composition, they can be engineered to improve
delivery of immunotherapeutic agents to the monocyte/macrophage.
IMMTHER(R)
The Company is engaged in research and development into disaccharide
peptide based compounds. The compounds, intended for use in immunopharmaceutical
agents, activate macrophages and are believed by management to be potentially
efficacious in treating cancer. On March 16, 1988, the Company filed an
Investigational New Drug Application (IND) with the FDA relating to one proposed
product, referred to by the Company as ImmTher(R), and thereafter conducted a
Phase I clinical study intended primarily to establish the safety of ImmTher(R)
by determining toxicity and dosage levels which study was substantially
completed in August 1989. In the Phase I study, twelve patients were treated
with the drug at four different dosage levels. On the basis of these studies,
the Company has developed protocols for use of the drug in Phase II studies
intended to determine the efficacy of the drug. In the Phase I study, although
not intended for this purpose, three patients demonstrated improvement.
The Phase II studies are intended to obtain additional data to
determine the efficacy of the drug. Individual Phase II studies are conducted in
select groups of patients using the drug at a given dose level and schedule.
Each such Phase II study is expected to include up to 30 patients and is
undertaken by independent sites and investigators under the Company's
supervision. On the basis of its Phase I results and using a weekly dose
schedule, the Company recently completed at the
3
<PAGE>
University of Texas M.D. Anderson Cancer Center, a Phase II trial of ImmTher(R)
given to previously untreated patients with surgically resected colorectal
cancer which has spread to the liver. The Company believes treatment with
ImmTher(R) is more beneficial given prior to any chemotherapy which frequently
results in a suppression of the immune system.
The results of the M.D. Anderson Cancer Center phase II trial, while
demonstrating laboratory evidence of macrophage activation and arresting the
disease for a period of time in three of the thirteen patients, did not provide
sufficient evidence of efficacy to proceed to a phase III trial of the drug as a
single agent for the treatment of overt disease. During the past year the
Company completed a study in eight patients with metastatic colorectal cancer
using an intensified twice weekly dosing schedule. Results of that trial
demonstrated that the drug could be safely given on a twice weekly dosing
schedule. One of eight patients with metastatic colorectal cancer showed
clinical stability. These results are consistent with the prior experience of an
approximately 20% response rate in patients with metastatic colorectal cancer.
Based on data obtained from these trials, the Company believes that ImmTher(R)
would be beneficial as part of an adjuvant therapy program for patients with
resected colon cancer who have a high probability of recurrence.
To further develop ImmTher(R) for this indication, the Company is
seeking a collaboration with a cooperative clinical group which would have the
large number of patients required for a phase III randomized study.
Additionally, for such a trial the Company must establish the manufacturing
capability required, the appropriate FDA review process for a trial for drug
approval and the data management and monitoring capabilities for such a trial.
It is likely one or more of these activities may need to be contracted to an
outside provider.
Over the past year, the Company has, based on preliminary data,
completed a phase II clinical trial in patients with metastatic malignant
melanoma and metastatic prostate cancer. Neither of these trials provided
sufficient evidence of efficacy to warrant further investigation.
The Company's currently available cash resources are not sufficient to
fully fund the studies required for FDA approval of ImmTher(R) in any of the
diseases currently under study. Accordingly, the Company will require additional
capital to complete the drug approval process of ImmTher(R) for any of the
currently targeted diseases which by virtue of a successful phase II trial the
Company would be able to proceed to a phase III trial for drug approval.
4
<PAGE>
The Company's procedures for producing its product involve substantial
expenditures of both time and money. Several months are required in the
manufacturing process. In addition, certain of the materials used in producing
the product, including in particular a compound used in the liposome
formulation, are currently available only in limited quantities from a single
supplier. This limited availability may adversely affect the Company; however,
the Company is currently seeking additional suppliers.
THERAMIDE(TM)
The Company is engaged in research and development activities into a
second disaccharide peptide-based compound for macrophage activation in treating
cancer named "Theramide(TM)." An IND for this proposed product was filed with
the FDA in September 1993 and a Phase I clinical trial was begun in February
1994. Theramide(TM), due to its stability, is a longer acting drug which can be
administered without the necessity of a liposome carrier. Based on initial
studies by the Company, Theramide(TM) appears to be superior, in comparison to
ImmTher(R), for vaccine formulations and for the potential treatment of
infectious diseases.
The Company is currently conducting further exploratory studies of
Theramide(TM) in animal models for the potential treatment of infectious
diseases and for use in vaccines. The Company's currently available cash
resources will not be sufficient to support to any substantial degree the
development of Theramide(TM). Based on the results obtained, the Company will
need to raise additional capital or enter into cooperative agreements to further
the development of Theramide(TM).
GOVERNMENT REGULATIONS
The manufacture and sale of pharmaceutical and biological products are
subject to extensive regulation by the FDA in the United States and by
comparable regulatory agencies in certain foreign countries. The FDA has
established guidelines and safety standards which are applicable to the
preclinical evaluation and clinical investigation of therapeutic products and
stringent regulations which govern the manufacture and sale of such products.
ImmTher(R) is regulated by the FDA's Center for Biologic Evaluation and Research
which exercises regulatory authority over the manufacture, marketing, and
distribution of the product. In order to obtain regulatory approval from the
FDA, the Company must establish that its product is safe and effective through
clinical trials and that the Company or another manufacturer of the product
5
<PAGE>
is capable of producing it according to established standards of
purity and potency.
The process of obtaining FDA approval for a new therapeutic product may
take several years from the commencement of clinical investigations and often
involves the expenditure of substantial resources. The steps typically required
before such a product can be produced and marketed for human use include
preclinical evaluation in vitro and in animal models and the filing of a Claimed
Exemption for an Investigational New Drug ("IND").
Preclinical studies are conducted in vitro and in animal models in
order to gain preliminary information on the safety and efficacy of a drug. The
results of such preclinical studies are submitted to the FDA as part of the IND
application. After the sponsor files an IND, the sponsor may commence
investigating the drug in humans within 30 days unless otherwise notified by the
FDA.
Clinical trials are conducted in accordance with Good Clinical
Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
The human clinical testing program for a drug involves three phases.
Phase I investigations are conducted on volunteers or, in the case of certain
anti-tumor agents, on patients with a malignant disease, to determine the
maximum tolerated doses and any side effects of the product. Phase II studies
are conducted on patients with the disease or condition to be studied, in order
to determine whether the product demonstrates effectiveness against the disease
and to determine the most effective doses and schedule of administration. Phase
III studies involve controlled investigations on patients who have the disease
or condition for the purpose of determining whether the drug is effective in a
randomized trial compared to standard treatment. With respect to ImmTher(R),
which is regulated by the Center for Biologics Evaluation and Research, data
from Phase I, Phase II, and Phase III trials are submitted to the FDA in a
Product License Application ("PLA"). The PLA involves considerable data
collection, verification and analysis, as well as the preparation of summaries
of the manufacturing and testing processes, preclinical studies, and clinical
trials. The FDA's Center for Biologic Evaluation and Research must approve a PLA
for a drug before the drug may be
6
<PAGE>
marketed in the United States. At the same time as the PLA is submitted, the
Company or another manufacturer of the product must apply for an establishment
license by demonstrating an ability to produce the product in accordance with
established standards of potency and purity and otherwise to comply with
applicable good manufacturing practices.
Theramide(TM) is regulated by the FDA's Center for Drug Evaluation and
Research (CDER). Following Phase I, II, and III studies, as noted above, the
Company must submit to the FDA CDER a New Drug Application (NDA) containing
information related to the chemistry, manufacturing, nonclinical pharmacology
and toxicology, human pharmacokinetics and bioavailability, and human clinical
data.
The Company's research and development activities are at an early
stage. The Company has completed a Phase I trial of ImmTher(R) involving twelve
patients where toxicity was studied. Three patients demonstrated some
responsiveness to the drug. The Company has engaged in limited Phase II trials
and subsequent to August 1992 conducted a Phase II clinical trial of ImmTher(R).
Further Phase II and Phase III trials will be necessary. The Company has
initiated Phase I trials of its second proposed product Theramide(TM). The
Company will be required to raise additional funds to complete these trials for
drug approval. The Company may be required to enter into joint development,
licensing or similar collaborative arrangements with one or more large
pharmaceutical companies which will assume the costs and responsibility for
further clinical testing and obtaining FDA approval for the Company's proposed
products. To the extent that the Company is unable to enter into such
arrangements, it will not have the resources to complete the regulatory approval
process with respect to its proposed product. See Item 6. Management's
Discussion and Analysis or Plan of Operations.
At such time, if ever, that the Company begins marketing its product
for commercial sale in the United States, any manufacturing operations which may
be established within or outside the United States will be subject to rigorous
regulation, including the need to comply with Federal Good Manufacturing
Practice Regulations. See "Manufacturing and Marketing." The Company may also be
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substance Control Act, Export Control
Act and other present and future laws of general application.
7
<PAGE>
PATENTS AND PROPRIETARY RIGHTS
The Company owns two United States patents and has pending one patent
application relating to disaccharide compounds in the United States and foreign
countries. There can be no assurance that the claims in the pending patent
applications will issue as patents, that any issued patent will provide the
Company with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent owned by the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity and prevent infringement would be
substantial. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate the Company's technology
or design around the patented aspects of the Company's technology. There is no
assurance the Company's proposed technology will not infringe patents or other
rights owned by others, licenses to which may not be available to the Company.
In some cases, the Company may rely on trade secrets to protect its
innovations. There can be no assurance that trade secrets will be established,
or that secrecy obligations will be honored, or that others will not
independently develop similar or superior technology. To the extent that
consultants, key employees or other third parties apply technological
information independently developed by them or by others to Company projects,
disputes may arise as to the proprietary rights to such information which may
not be resolved in favor of the Company.
In fiscal 1987, the Company was awarded two Phase I Small Business
Innovation and Research (SBIR) contracts. The United States government has the
right to use the products developed with such funding for its internal use only.
The Company did not develop any final products with this funding.
PRODUCT LIABILITY
The testing, marketing and sale of pharmaceutical products entails a
risk of product liability claims by patients and others. The Company has
obtained liability insurance with limits of liability of $1,000,000 for each
claim and $1,000,000 in the aggregate. There can be no assurance that these
coverage limits will be adequate to protect the Company from liability or that
it will be able to continue such insurance in effect for premiums acceptable to
the Company. In the event of a successful suit against the Company, lack or
insufficiency of insurance coverage could have a material adverse effect on the
Company. Further, certain distributors of pharmaceutical products require
minimum
8
<PAGE>
product liability insurance coverage as a condition precedent to purchasing or
accepting products for distribution. Failure to satisfy such insurance
requirements could impede the ability of the Company to distribute any products
which the Company may successfully develop, which would have a material adverse
effect upon the business and financial condition of the Company. The Company has
not determined whether higher liability limits will be required, however it
believes it can obtain insurance with higher liability limits if necessary.
MANUFACTURING AND MARKETING
The Company's activities are directed to the development of products
for the treatment of human cancer, including primarily products intended for use
with patients with lung cancer, colo-rectal cancer metastatic to the liver, and
metastatic breast cancer. In addition, it is the intention of the Company,
depending on the efficacy of its proposed products, to evaluate their utility as
adjuvant therapy in patients currently free of disease but with a high
probability of relapse.
The Company does not now have and probably will not have in the
foreseeable future, the resources to manufacture or directly market on a large
commercial scale any products which it may develop. In connection with the
Company's research and development activities, it will seek to enter into
collaborative arrangements with pharmaceutical companies to assist in funding
development costs, including the costs of clinical testing necessary to obtain
regulatory approvals. It is expected that these entities will also be
responsible for commercial scale manufacturing which must be in compliance with
applicable FDA regulations. The Company anticipates that such arrangements may
involve the grant by the Company of the exclusive or semi-exclusive right to
sell specific products to specified market segments in particular geographic
territories in exchange for a royalty, joint venture, future co-marketing or
other financial interest. The Company believes that these arrangements will be
more effective in promoting and distributing therapeutic products in the United
States in view of the Company's limited resources and the extensive marketing
networks and large advertising budgets of large pharmaceutical companies. To
date, the Company has not entered into any collaborative agreements or
distributorship arrangements for any of its proposed products and there can be
no assurance that the Company will be able to enter into any such arrangements
on favorable terms or at all. The Company may ultimately determine to establish
its own manufacturing and/or marketing capability, at least for certain
products, in which case it will require substantial additional funds and
personnel.
9
<PAGE>
COMPETITION
The pharmaceutical industry is characterized by rapidly evolving
technology and intense competition. Many companies of all sizes, including major
pharmaceutical companies and specialized biotechnology companies, are engaged in
activities similar to those of the Company. Many of the Company's competitors
have substantially greater financial and other resources, larger research and
development staffs and, unlike the Company, have significant experience in
pre-clinical testing, human clinical trials and other regulatory approval
procedures. In addition, colleges, universities, governmental agencies and other
public and private research organizations will continue to conduct research and
are becoming more active in seeking patent protection and licensing arrangements
to collect royalties for use of technology that they have developed, some of
which may be directly competitive with that of the Company. In addition, these
institutions compete with companies such as the Company in recruiting highly
qualified scientific personnel. The Company does not have the resources and does
not intend to compete with major pharmaceutical companies in the areas of
clinical testing, regulatory approvals, manufacturing and marketing. See
"Manufacturing and Marketing" and "Government Regulation."
EMPLOYEES
The Company currently has six full time and two part-time employees.
Dr. Vosika serves in both an executive and research capacity. Three full time
research and development personnel are currently employed in drug development
and quality control. The two part-time employees include an animal caretaker and
accountant.
ITEM 2. FACILITIES
The Company leases an approximately 7,500 square foot executive office,
research, development and production facility. The lease, which commenced on
July 1, 1993, provides for an initial annual rental of $31,872 plus the
Company's proportionate share of increases in taxes and operating expenses. The
lease is for a term of three years expiring June 30, 1996 with an option to
renew for up to three additional three year terms with increases in rent of up
to 10%. In conjunction with leasing these facilities, the Company expended
$410,000 for leasehold improvements and approximately $232,000 for research
equipment.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is
a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the
fiscal year ended January 31, 1996 to a vote of security holders.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
Quotations for the Company's Common Stock appear in the "pink sheets"
published by the National Quotations Bureau, Inc. and on the "Bulletin Board" of
the National Association of Securities Dealers, Inc. The following table sets
forth the high and low bid and asked quotations as provided by the National
Quotation Bureau, Inc., for the Company's Common Stock during the period January
1, 1994 through March 31, 1996. The amounts represent inter-dealer quotations
without adjustment for retail markups, markdowns or commissions and do not
represent the prices of actual transactions.
Bid
High Low
1994
1st Quarter.................. $5.00 $3.00
2nd Quarter.................. $3.00 $2.25
3rd Quarter.................. $2.13 $.062
4th Quarter.................. $.375 $.062
1995
1st Quarter.................. $.125 $.062
2nd Quarter.................. $.094 $.031
3rd Quarter.................. $.094 $.062
4th Quarter.................. $.100 $.031
1996
1st Quarter.................. $.20 $.07
As of April 25, 1996, the Company had approximately 927 stockholders of
record and believes there are in excess of 9,000 beneficial owners.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
(A) PLAN OF OPERATION
The Company is a development stage enterprise and expects no
significant revenue from the sale of products for the current fiscal year.
On August 20, 1992, the Company completed a public offering of
securities and realized net proceeds of approximately $6,750,000, before
deducting expenses related to the offering of approximately $500,000. At January
31, 1996, the Company had cash and cash equivalents of $1,022,120 and it had
working capital of $1,008,943. At January 31, 1995 the Company had cash and cash
equivalents of $2,236,156 and working capital of $2,205,557.
In November 1995, the Company purchased from Primedex Health Systems,
Inc., 1,150,001 shares of its Common Stock at a price of $.125 per share, or an
aggregate of $143,750.
On March 1, 1996, the Company agreed to sell 5,000,000 shares of its
Common Stock for a price of $.065 per share, or an aggregate of $325,000. The
purchaser has the right to designate one person to the Company's Board of
Directors. The proceeds from the sale of the shares are intended to be used for
general corporate purposes.
The Company's current level of research and development activities
requires the expenditure of approximately $120,000 per month. Additional
expenses will be incurred in outside expanded clinical trials to accomplish the
necessary data collection and clinical trials required by the FDA for the
commercial production, marketing and distribution of the Company's proposed
products. Management of the Company believes that its current cash resources
will be sufficient to support its operations for at least through July, 1997.
The Company's cash resources will not be sufficient to permit the Company to
complete the clinical trials of its initial proposed product necessary to obtain
any FDA approvals. Accordingly, the Company may be required to collaborate with
one or more large pharmaceutical companies which will provide the necessary
financing and expertise to obtain regulatory approvals, complete clinical
development, manufacture and market such product. Alternatively, the Company
will be required to seek additional funds from other sources not now identified.
There can be no assurance that the Company will be able to enter into the
collaborative arrangements or raise additional capital necessary to complete its
clinical trials, obtain necessary regulatory approvals, or fully develop or
commercialize its proposed product on acceptable terms. In such event, if the
Company was unable to
13
<PAGE>
obtain from alternative sources the substantial financing necessary on
acceptable terms, it would be unable to complete the development or
commercialize any products.
ITEM 7. FINANCIAL STATEMENTS.
Pursuant to Rule 12b-23, the financial statements set forth on pages
F-1 et seq attached hereto are incorporated hereunder by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Since February 1, 1994, there has been no change in the Company's
independent public accountants and therefore no response to this Item is
required.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The executive officers and Directors of the Company, their ages and
positions are as follows:
Name Age Position
Gerald J. Vosika, M.D. 52 Chairman of the Board,
President, Scientific Director
and Director of the Company
Carl Gilbert, Ph.D. 43 Director of the Company
William McManus 40 Director of the Company
All of the Company's Directors will serve until the next annual meeting
of stockholders and until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors. Directors of the Company do
not receive any compensation for serving in that capacity; however, they are
reimbursed for their out-of-pocket expenses in attending meetings.
DR. VOSIKA has been Scientific Director and a Director of the Company,
which he founded, since its inception in February 1985. He was President of the
Company from inception until August 1990 when he was elected Chairman of the
Board. He has been a practicing physician and an investigator of
immunotherapeutic agents for the past 21 years. Dr. Vosika was employed by the
United States Veteran's Administration from July 1980 until May 1987. He was a
part-time employee of the University of North Dakota from July 1980 to March
1993 and a part-time employee of the United States Veterans Administration from
December 1990 to March 1993. Dr. Vosika devotes his full time to the Company.
From 1980 through March 1988, he was Chief of Hematology for the University of
North Dakota and Chief of Oncology for the Fargo, North Dakota, Veterans
Administration Hospital.
DR. CARL GILBERT has been employed by Enzon Corporation since July,
1991. Prior thereto he was employed by the Company from June 1987 to July 1991
and held a variety of research positions, including responsibilities for drug
development, testing production and quality control. He has a Bachelor of
Science degree in biochemistry from the University of Wisconsin, Madison in
1973. He
15
<PAGE>
has a Masters degree in biochemistry (1975) and a Ph.D. degree in cell biology
(1983) from the University of Illinois. From 1983 until joining the Company he
was a post-doctoral research associate at Michigan State University. He has done
extensive research on the interaction of tumor cells with natural killer cells.
He was elected to the Board of Directors in December 1990.
WILLIAM E. MCMANUS has been an attorney-at-law for more than the past
five years. Mr. McManus is also President and a Director of Dominion Resources,
Inc., a principal shareholder of the Company. Mr. McManus was elected to the
Company's Board of Directors in March 1996 pursuant to an agreement dated March
1, 1996 between the Company and Dominion Resources, Inc. which gave to Dominion
Resources, Inc. the right to designate one person for election to the Company's
Board of Directors.
Except for Mr. McManus, none of the Company's Directors are Directors
of any other corporation which is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934 or is a registered investment company
under the Investment Company Act of
1940.
SCIENTIFIC AND CORPORATE DEVELOPMENT CONSULTANTS BOARD
The Company has entered into consulting agreements with individuals to
advise and assist the Company in scientific and corporate development matters.
ROBERT N. BREY, PH.D. hold a Ph.D. in Microbiology from the University
School of Medicine. His current position is as a Consultant with the Vaccine
Design Group. His most recent position was Director of Research and Development,
and Chief Scientific Officer at Vaxcel, Inc. Prior to that he held positions at
Lederle-Praxis Biologicals and GENEX Corporation. Dr. Brey assists the Company
in its vaccine development programs.
BLAIR P. MOWERY has been, since November 1992, the President of the
BioScrene Ltd., which provides general management consulting support to the
biotechnology and biopharmaceutical industry. From 1986 to November 1993, he was
President of GalaGen, Inc. and its predecessor Procor Technologies, Inc. engaged
in developing biopharmaceuticals from bovine milk and for human and animal
applications. Mr. Mowery assists the Company in identifying and developing
corporate relationships.
16
<PAGE>
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal securities laws require the Company's Directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
any equity securities of the Company. Copies of such reports are required to be
furnished to the Company. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company, all of such persons subject
to these reporting requirements filed the required reports on a timely basis
with respect to the Company's most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid during the
Company's three fiscal years ended January 31, 1996, 1995 and 1994 to the chief
executive officer of the Company. No other executive officer of the Company
received compensation exceeding $100,000 in any of those years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long term
Compensation
Awards
Name and Other Annual All Other
Principal Position Year(1) Salary(2) Bonus($) Compensation($) Options(#) Compensation
<S> <C> <C> <C> <C> <C> <C>
Gerald Vosika 1996 $213,560 -0- -0- -0- -0-
1995 $197,600 -0- -0- 75,000 -0-
1994 $191,161 -0- $42,829(2) -0- -0-
</TABLE>
(1) During the year ended January 31.
(2) Includes life insurance premiums and related tax adjustment.
17
<PAGE>
Stock Option Holdings
The following table provides information with respect to the above
named executive officer regarding Company options held at the end of the
Company's year ended January 31, 1996 (such officers did not exercise any
options during the most recent fiscal year).
Aggregate Option Exercises in 1996
and Option Values at January 31, 1996
Value of Unexercised
Number of Unexercised In-the-Money
Options at Jan. 31, 1996(#) Options at Jan. 31, 1996($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Gerald Vosika 75,000(2) 200,000(2)(3) -0- -0-
(1) Based on the closing sale price of $0.10 on January 26, 1996.
(2) Exercisable at $0.275 per share.
(3) Does not include an option to purchase 2,000,000 shares of common stock at
an exercise price of $.065 per share granted on March 22, 1996.
No options were granted or exercised during the year ended January 31,
1996. On March 22, 1996, Dr. Vosika was granted a ten-year option to purchase
2,000,000 shares of the Company's Common
Stock at an exercise price of $.065 per share.
EMPLOYMENT AGREEMENTS
Dr. Vosika is currently employed by the Company at a salary of $197,600
per year. Under the terms of such agreement, Dr. Vosika is restricted from
engaging in any activities in competition with the Company during the period of
his employment and an additional twelve months thereafter.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of April 25, 1996, information with
respect to each person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934)who is known to the Company to
be the beneficial owner of more than five percent of the Company's Common Stock
as well as shares of Common Stock beneficially owned by all Directors of the
Company and all Directors and executive officers of the Company as a group. As
of April 25, 1996 the Company had 10,788,713 shares of
18
<PAGE>
Common Stock outstanding, including all 5,000,000 shares agreed to be issued to
Dominion Resources, Inc. pursuant to the agreement dated March 1, 1996.
Percentage of
Name of Outstanding Shares
Beneficial Owner (1) Amount Owned (1)
- -------------------- -------------- --------------
Dr. Gerald Vosika 2,139,499(2) 16.6%
3505 Riverview Circle
Moorhead, MN 56560
Dr. Carl Gilbert 27,000(3) -
c/o Immunotherapeutics, Inc.
3505 Riverview Circle
Moorhead, MN 56560
William E. McManus, III, Esquire (4) -
Spencer's Corner
90 Main Street - Suite 211
Centerbrook, CT 06409-1058
Dominion Resources, Inc. 5,000,000(5) 46.3%
c/o The Abbey
355 Madison Avenue
Morristown, New Jersey 07960
All Directors and officers as a
group (2 persons).............. 2,166,499(2) 16.8%
(1) Each beneficial owner's percentage ownership is determined by assuming the
exercise of options and warrants that are held by such person (but not those
held by any other person) and which are exercisable within 60 days.
(2) Includes 64,499 shares held beneficially by Dr. Vosika. In addition, it
includes 2,075,000 shares which are the subject of options held by Dr. Vosika.
(3) Includes 1,000 shares held beneficially by Dr. Gilbert. In addition, it
includes 26,000 shares which are the subject of options held by Dr. Gilbert.
19
<PAGE>
(4) Does not include 5,000,000 shares held by Dominion Resources, Inc. Mr.
McManus is the President and a Director of Dominion Resources, Inc. Mr. McManus
disclaims beneficial ownership of the shares held by Dominion Resources, Inc.
(5) Dominion Resources, Inc. is a party to an agreement to purchase 5,000,000
shares of the Company's Common Stock through May 15, 1996.
The Company has a Shareholders' Rights Plan which may require the
issuance of Series A Preferred Stock, $.05 par value, in connection with the
exercise of certain stock purchase rights. Under the Shareholders' Rights Plan
each outstanding share of the Company's common stock has attached to it one
stock purchase right. These rights will continue to be represented by and trade
with the Company's common stock certificates unless and until certain
takeover-related events occur. Following such events, each right will become
exercisable to purchase one one-hundredth of a share of Series A Preferred
Stock, par value $.05, at an exercise price of $15 per one one-hundredth share
subject to adjustment. In the event any person acquires beneficial ownership of
20% or more of the outstanding common shares, each right will be exercisable,
for a sixty-day period following the announcement of such acquisition, to
purchase the Company's common stock or common stock equivalent having a market
value equal to two times the exercise price. The Shareholders' Rights Plan
further provides that if, after the occurrence of such an acquisition, the
Company is merged into any other corporation or 50% or more of the Company's
assets are sold, each right will be exercisable to purchase common shares of the
acquiring corporation having a market value equal to two times the exercise
price. The rights expire on September 23, 2001, and are subject to redemption by
the Company's Board of Directors at $.001 per right at any time prior to the
first date upon which they become exercisable to purchase common shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 23, 1994, the Board of Directors authorized the grant to
Dr. Vosika of a five-year option to purchase an aggregate of 250,000 shares of
Common Stock at a price of $.275 per share which option vests and becomes
exercisable to the extent of 50,000 shares on each of any of the following
events occurring: (i) 50,000 shares are to vest at such time as the market price
for the Company's Common Stock reaches each of $.50, $1.00, $2.00, $3.00 and
$4.00 per share, (ii) an IND and initiation of clinical trials relating to a
treatment for Hepatitis C, on or before September 23,
20
<PAGE>
1995, (iii) FDA approval is received for a pivotal phase III trial for
colorectal cancer on or before September 23, 1996, (iv) the development of a
potential new product as evidenced by the filing of an IND on or before
September 23, 1997, or (v) the completion of a corporate transaction resulting
in a $2 million investment in the Company. On the basis of the filing of an IND
for treating Hepatitis C, the option has vested with respect to 50,000 shares.
At a meeting of the Board of Directors held January 6, 1995, Dr. Vosika
was granted a five-year option to purchase 25,000 shares of Common Stock at an
exercise price of $0.27 per share in lieu of the Company continuing to pay the
premiums on a policy insuring the life of Dr. Vosika.
On March 22, 1996, the Board of Directors granted to Dr. Vosika a
ten-year option to purchase 2,000,000 shares of the Company's Common Stock at an
exercise price of $.065 per share.
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Dominion Resources, Inc. ("Dominion") pursuant to which Dominion agreed to
purchase and the Company agreed to sell 5,000,000 shares of the Company's Common
Stock at a purchase price per share of $.065. Such shares are to be sold in
three approximately equal installments at closings held or to be held on March
18, April 15, and May 15, 1996. The Purchase Agreement contains various
representations and warranties concerning the Company and its activities and
also various affirmative and negative covenants, including a covenant to elect
as a Director of the Company one person designated by Dominion. Mr. William
McManus, President and a Director of Dominion, serves as Dominion's designee to
the Company's Board of Directors. The Purchase Agreement also grants to Dominion
the right to have registered under the Securities Act of 1933, as amended, the
shares sold to Dominion to enable the public offer and sale of those shares. The
agreement restricts the Company from entering into mergers, acquisitions or
sales of its assets without the prior approval of Dominion's representative on
the Company's Board of Directors.
21
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following financial statements are filed as part of this
report:
(i) Independent Auditors' Report
(ii) Balance Sheet as of January 31, 1996
(iii) Statements of Operations for the years ended January
31, 1996 and 1995 and cumulative from February 15,
1985 (date of inception) to January 31, 1996
(iv) Statements of Cash Flows for the years ended January
31, 1996 and 1995 and cumulative from February 15,
1985 (date of inception) to January 31, 1996
(v) Statements of Common Stockholders' Equity for the
period from February 15, 1985 (date of inception)
to January 31, 1996
(vi) Notes to Financial Statements
(b) Reports on Form 8-K
During the fiscal quarter ended January 31, 1996 the Company
did not file any Current Reports on Form 8-K.
(c) Exhibits:
2 Agreement and Plan of Merger dated as of January 26, 1987
and Amendment No. 1 thereto dated March 25, 1987*
3(a) Certificate of Incorporation of Registrant(1)
(b) Certificate of Merger filed March 30, 1987(1)
(c) By-laws of Registrant(1)
(d) Certificate of Amendment filed September 7, 1989(2)
(e) Certificate of Amendment filed November 13, 1990(3)
22
<PAGE>
(f) Certificate of Amendment to Certificate of Incorporation of
the Registrant filed May 9, 1992(3)
(g) Certificate of Amendment to Certificate of Incorporation filed
February 27, 1992 (reverse stock split)(3)
(h) Certificate of Amendment to Certificate of Incorporation filed
February 27, 1992 (increase in authorized shares)(3)
4(a) Specimen Common Stock Certificate(1)
(b) Form of Warrant Agreement between Registrant and American
Stock Transfer Company relating to warrants dated June _____
1987(1)
10(a) Underwriter's Unit Purchase Option(1)
(b) Employment Agreement between Registrant and Gerald Vosika(3)
(c) Lease between Registrant and University of North Dakota dated
November 13, 1986(1)
(d) Incentive Stock Option Plan(1)
(e) Purchase Agreement dated October 31, 1990(3)
(f) Purchase Agreement dated June 17, 1991 including 10%
Subordinated Note and Common Stock Purchase Warrant(3)
(g) Letter agreement dated November 15, 1991 between Registrant
and Abbott Health Services Corporation(3)
(h) Purchase Agreement dated November 19, 1991 between Registrant
and Primedex(3)
(i) Purchase Agreement dated March 1, 1996 between Registrant and
Dominion Resources, Inc.(4)
22 Subsidiaries
None
28 Documents incorporated by reference
None
23
<PAGE>
(1) Incorporated by reference from Company's Registration Statement on Form S-1
(File No. 33-13492).
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
(file no. 0-11572) for the fiscal year ended January 31, 1989.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
(file No. 0-11572) for the fiscal year ended January 31, 1992.
(4) Filed herewith.
24
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
ImmunoTherapeutics, Inc.
Fargo, North Dakota
We have audited the accompanying balance sheet of
ImmunoTherapeutics, Inc. [a development stage enterprise] as of January 31,
1996, and the related statements of operations, stockholders' equity, and cash
flows for each of the two fiscal years in the period ended January 31, 1996, and
for the cumulative period from February 15, 1985 [date of inception] to January
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
ImmunoTherapeutics, Inc. as of January 31, 1996, and the results of its
operations and its cash flows for each of the two fiscal years in the period
ended January 31, 1996, and for the cumulative period from February 15, 1985
[date of inception] to January 31, 1996, in conformity with generally accepted
accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 15, 1996
F-1
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
- --------------------------------------------------------------------------------
BALANCE SHEET AS OF JANUARY 31, 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,022,120
Prepaid Expenses 44,306
---------------
TOTAL CURRENT ASSETS 1,066,426
Leasehold Improvements, Net of Accumulated
Amortization of $333,374 81,296
Office and Lab Equipment, Net of Accumulated
Depreciation of $408,549 102,282
Patent Issuance Costs, Net of Accumulated
Amortization of $6,197 185,670
---------------
TOTAL ASSETS $ 1,435,674
===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 57,483
---------------
COMMITMENTS --
STOCKHOLDERS' EQUITY:
Preferred Stock, Series A , $.05 Par Value,
Authorized 100,000 Shares; None Issued and Outstanding --
Preferred Stock, $.05 Par Value, Authorized
400,000 Shares; None Issued and Outstanding --
Common Stock, $.001 Par Value, Authorized
50,000,000 Shares; Issued 5,901,675 Shares, Outstanding
4,122,047 Shares 5,902
Additional Paid-in Capital 10,072,842
[Deficit] Accumulated During the Development Stage (8,256,803)
---------------
Total 1,821,941
Less: Treasury Stock, At Cost, 1,779,628 Shares (443,750)
---------------
TOTAL STOCKHOLDERS' EQUITY 1,378,191
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,435,674
===============
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 15, 1985
YEARS ENDED [DATE OF INCEPTION]
JANUARY 31, TO JANUARY 31,
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
SBIR CONTRACT REVENUE $ -- $ -- $ 100,000
--------------- --------------- ---------------
EXPENSES:
SBIR Contract Research and Development -- -- 86,168
Proprietary Research and Development 906,461 1,151,701 6,551,756
Rent 39,128 35,250 355,403
General and Administrative 317,244 270,417 2,100,426
--------------- --------------- ---------------
TOTAL EXPENSES 1,262,833 1,457,368 9,093,753
--------------- --------------- ---------------
[LOSS] FROM OPERATIONS (1,262,833) (1,457,368) (8,993,753)
OTHER INCOME -- -- 1,512
INTEREST INCOME 74,848 107,690 776,076
INTEREST EXPENSE -- -- (40,638)
--------------- --------------- ---------------
[LOSS] BEFORE INCOME TAXES (1,187,985) (1,349,678) (8,256,803)
INCOME TAXES -- -- --
--------------- --------------- ---------------
NET [LOSS] $ (1,187,985) $ (1,349,678) $ (8,256,803)
=============== =============== ===============
NET [LOSS] PER SHARE $ (.23) $ (.24)
=============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,067,253 5,694,675
=============== ===============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
- --------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[DEFICIT]
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID-IN DEVELOPMENT TREASURY STOCK
SHARES PAR VALUE CAPITAL STAGE SHARES COST
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Issued for Cash in
February 1985 at $.10 Per Share 10,000 $ 10 $ 990 $ -- -- $ --
Net Earnings for the Period from
February 15, 1985 to January 31, 1986 -- -- -- 6,512 -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1986 10,000 10 990 6,512 -- --
Common Stock Issued for Cash in
October 1986 at $50.00 Per Share 10,000 10 499,990 -- -- --
Excess of Fair Market Value Over Option Price
of Non-Qualified Stock Options Granted -- -- 13,230 -- -- --
Net [Loss] for the Year -- -- -- (34,851) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1987 20,000 20 514,210 (28,339) -- --
Net Proceeds from Initial Public Stock
Offering, in June 1987 at $400.00 Per
Share, Less Issuance Costs 5,000 5 1,627,828 -- -- --
Common Stock Issued in May 1987 at
$50 Per Share for Legal Services
Performed for the Company 100 -- 5,000 -- -- --
Non-Qualified Stock Options Exercised 720 1 33,807 -- -- --
Amortization of Deferred Compensation -- -- -- -- -- --
Excess of Fair Market Value Over Option
Price of Non-Qualified Stock Options Granted -- -- 75,063 -- -- --
Net [Loss] for the Year -- -- -- (627,652) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1988 25,820 26 2,255,908 (655,991) -- --
Non-Qualified Stock Options Exercised 256 -- 256 -- -- --
Stock Warrants Exercised 20 -- 12,000 -- -- --
Common Stock Redeemed and Retired (150) -- (150) -- -- --
Excess of Fair Market Value Over Option
Price of Non-Qualified Stock Options Granted -- -- 36,524 -- -- --
Amortization of Deferred Compensation -- -- -- -- -- --
Net [Loss] for the Year -- -- -- (1,092,266) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1989 - FORWARD 25,946 $ 26 $ 2,304,538 $ (1,748,257) -- $ --
<CAPTION>
TOTAL
DEFERRED NOTE STOCKHOLDERS'
COMPENSATION RECEIVABLE EQUITY
<S> <C> <C> <C>
Common Stock Issued for Cash in
February 1985 at $.10 Per Share $ -- $ -- $ 1,000
Net Earnings for the Period from
February 15, 1985 to January 31, 1986 -- -- 6,512
----------- ----------- ------------
BALANCE - JANUARY 31, 1986 -- -- 7,512
Common Stock Issued for Cash in
October 1986 at $50.00 Per Share -- -- 500,000
Excess of Fair Market Value Over Option Price
of Non-Qualified Stock Options Granted -- -- 13,230
Net [Loss] for the Year -- -- (34,851)
----------- ----------- ------------
BALANCE - JANUARY 31, 1987 -- -- 485,891
Net Proceeds from Initial Public Stock
Offering, in June 1987 at $400.00 Per
Share, Less Issuance Costs -- -- 1,627,833
Common Stock Issued in May 1987 at
$50 Per Share for Legal Services
Performed for the Company -- -- 5,000
Non-Qualified Stock Options Exercised (28,188) -- 5,620
Amortization of Deferred Compensation 7,425 -- 7,425
Excess of Fair Market Value Over Option
Price of Non-Qualified Stock Options Granted -- -- 75,063
Net [Loss] for the Year -- -- (627,652)
----------- ----------- ------------
BALANCE - JANUARY 31, 1988 (20,763) -- 1,579,180
Non-Qualified Stock Options Exercised -- -- 256
Stock Warrants Exercised -- -- 12,000
Common Stock Redeemed and Retired -- -- (150)
Excess of Fair Market Value Over Option
Price of Non-Qualified Stock Options Granted -- -- 36,524
Amortization of Deferred Compensation 19,113 -- 19,113
Net [Loss] for the Year -- -- (1,092,266)
----------- ----------- ------------
BALANCE - JANUARY 31, 1989 - FORWARD $ (1,650) $ -- $ 554,657
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
- -------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[DEFICIT]
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID-IN DEVELOPMENT TREASURY STOCK
SHARES PAR VALUE CAPITAL STAGE SHARES COST
BALANCE - JANUARY 31, 1989 - FORWARDED 25,946 $ 26 $ 2,304,538 $ (1,748,257) -- $ --
Non-Qualified Stock Options Exercised 1,060 1 1,059 -- -- --
Common Stock Redeemed and Retired (175) -- (175) -- -- --
Excess of Fair Market Value Over Option Price
of Non-Qualified Stock Options Granted -- -- 113,037 -- -- --
Net Proceeds from Secondary Public Stock
Offering in April 1989 at $35.00 Per Share,
Less Issuance Cost 32,611 32 980,148 -- -- --
Amortization of Deferred Compensation -- -- -- -- -- --
Net [Loss] for the Year -- -- -- (1,129,477) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1990 59,442 59 3,398,607 (2,877,734) -- --
Common Stock Issued for Cash in October 1990
through January 1991 at $.60 Per Share 85,416 86 51,164 -- -- --
Excess of Fair Market Value Over Option Price of
Non-Qualified Stock Options Granted -- -- 30,635 -- -- --
Net [Loss] for the Year -- -- -- (854,202) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1991 144,858 145 3,480,406 (3,731,936) -- --
Common Stock Issued for Cash in February 1991
through April 1991 at $.60 Per Share 41,583 41 24,909 -- -- --
Common Stock Issued for Cash and Services in
November 1991 at $.10 Per Share 230,000 230 22,770 -- -- --
Common Stock Issued for Cash and Note
in December 1991 at $.05 Per Share 4,454,224 4,455 195,860 -- -- --
Excess of Fair Market Value Over Option Price of
Non-Qualified Stock Options Granted -- -- 16,570 -- -- --
Non-Qualified Stock Options Exercised 10 -- 1 -- -- --
Net [Loss] for the Year -- -- -- (410,149) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1992 - FORWARD 4,870,675 $ 4,871 $ 3,740,516 $ (4,142,085) -- $ --
<CAPTION>
TOTAL
DEFERRED NOTE STOCKHOLDERS'
COMPENSATION RECEIVABLE EQUITY
<S> <C> <C> <C>
BALANCE - JANUARY 31, 1989 - FORWARDED $ (1,650) $ -- $ 554,657
Non-Qualified Stock Options Exercised -- -- 1,060
Common Stock Redeemed and Retired -- -- (175)
Excess of Fair Market Value Over Option Price
of Non-Qualified Stock Options Granted -- -- 113,037
Net Proceeds from Secondary Public Stock
Offering in April 1989 at $35.00 Per Share,
Less Issuance Cost -- -- 980,180
Amortization of Deferred Compensation 1,650 -- 1,650
Net [Loss] for the Year -- -- (1,129,477)
----------- ----------- ------------
BALANCE - JANUARY 31, 1990 -- -- 520,932
Common Stock Issued for Cash in October 1990
through January 1991 at $.60 Per Share -- -- 51,250
Excess of Fair Market Value Over Option Price of
Non-Qualified Stock Options Granted -- -- 30,635
Net [Loss] for the Year -- -- (854,202)
----------- ----------- ------------
BALANCE - JANUARY 31, 1991 -- -- (251,385)
Common Stock Issued for Cash in February 1991
through April 1991 at $.60 Per Share -- -- 24,950
Common Stock Issued for Cash and Services in
November 1991 at $.10 Per Share -- -- 23,000
Common Stock Issued for Cash and Note
in December 1991 at $.05 Per Share -- (50,315) 150,000
Excess of Fair Market Value Over Option Price of
Non-Qualified Stock Options Granted -- -- 16,570
Non-Qualified Stock Options Exercised -- 1 1
Net [Loss] for the Year -- -- (410,149)
----------- ----------- ------------
BALANCE - JANUARY 31, 1992 - FORWARD $ -- $ (50,315) $ (447,013)
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
-------------------------------------------------------------------------------
BALANCE - JANUARY 31, 1992 - FORWARD
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[DEFICIT]
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID-IN DEVELOPMENT TREASURY STOCK
SHARES PAR VALUE CAPITAL STAGE SHARES COST
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 31, 1992 - FORWARDED 4,870,675 $ 4,871 $ 3,740,516 $ (4,142,085) -- $ --
Payment on Note Receivable -- -- -- -- -- --
Net Proceeds from Secondary Public
Stock Offering in August 1992 at
$7.50 Per Share, Less Issuance Cost 1,000,000 1,000 6,230,051 -- -- --
Non-Qualified Stock Options Exercised 30,000 30 -- -- -- --
Net [Loss] for the Year -- -- -- (564,173) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1993 5,900,675 5,901 9,970,567 (4,706,258) -- --
Excess of Fair Market Value Over Option Price
of Non-Qualified Stock Options Granted -- -- 126,000 -- -- --
Amortization of Deferred Compensation -- -- -- -- -- --
Non-Qualified Stock Options Exercised 1,000 1 56 -- -- --
Collection of Note Receivable -- -- -- -- -- --
Net [Loss] for the Year -- -- -- (1,012,882) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1994 5,901,675 5,902 10,096,623 (5,719,140) -- --
Acquisition of Treasury Stock -- -- -- -- 629,627 (300,000)
Forfeiture of Non-Qualified Stock Options Granted -- -- (22,402) -- -- --
Amortization of Deferred Compensation -- -- -- -- -- --
Net [Loss] for the Year -- -- -- (1,349,678) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1995 5,901,675 5,902 10,074,221 (7,068,818) 629,627 (300,000)
Acquisition of Treasury Stock -- -- -- -- 1,150,001 (143,750)
Forfeiture of Non-Qualified Stock Options Granted -- -- (1,379) -- -- --
Amortization of Deferred Compensation -- -- -- -- -- --
Net [Loss] for the Year -- -- -- (1,187,985) -- --
------------ ---------- ------------ ------------ ---------- ----------
BALANCE - JANUARY 31, 1996 5,901,675 $ 5,902 $ 10,072,842 $ (8,256,803) 1,779,628 $ (443,750)
============ ========== ============ ============ ========== ==========
<CAPTION>
TOTAL
DEFERRED NOTE STOCKHOLDERS'
COMPENSATION RECEIVABLE EQUITY
<S> <C> <C> <C>
BALANCE - JANUARY 31, 1992 - FORWARDED $ -- $ (50,315) $ (447,013)
Payment on Note Receivable -- 11,300 11,300
Net Proceeds from Secondary Public
Stock Offering in August 1992 at
$7.50 Per Share, Less Issuance Cost -- -- 6,231,051
Non-Qualified Stock Options Exercised -- -- 30
Net [Loss] for the Year -- -- (564,173)
----------- ----------- ------------
BALANCE - JANUARY 31, 1993 -- (39,015) 5,231,195
Excess of Fair Market Value Over Option Price
of Non-Qualified Stock Options Granted (126,000) -- --
Amortization of Deferred Compensation 40,750 -- 40,750
Non-Qualified Stock Options Exercised -- -- 57
Collection of Note Receivable -- 39,015 39,015
Net [Loss] for the Year -- -- (1,012,882)
----------- ----------- ------------
BALANCE - JANUARY 31, 1994 (85,250) -- 4,298,135
Acquisition of Treasury Stock -- -- (300,000)
Forfeiture of Non-Qualified Stock Options Granted 22,402 -- --
Amortization of Deferred Compensation 49,348 -- 49,348
Net [Loss] for the Year -- -- (1,349,678)
----------- ----------- ------------
BALANCE - JANUARY 31, 1995 (13,500) -- 2,697,805
Acquisition of Treasury Stock -- -- (143,750)
Forfeiture of Non-Qualified Stock Options Granted 1,379 -- --
Amortization of Deferred Compensation 12,121 -- 12,121
Net [Loss] for the Year -- -- (1,187,985)
----------- ----------- ------------
BALANCE - JANUARY 31, 1996 $ -- $ -- $ 1,378,191
=========== =========== ============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 15, 1985
YEARS ENDED [DATE OF INCEPTION]
JANUARY 31, TO JANUARY 31,
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net [Loss] $ (1,187,985) $ (1,349,678) $ (8,256,803)
--------------- --------------- ---------------
Adjustments to Reconcile Net [Loss] to Net
Cash [Used for] Operating Activities:
Depreciation and Amortization 190,957 188,670 759,147
Amortization of Deferred Compensation 13,500 49,348 131,786
Excess of Fair Market Value Over Option Price on
Non-Qualified Stock Options Granted (1,379) -- 283,680
Gain on Sale of Assets -- -- (740)
Write-off of Patent Issuance Cost -- 20,913 101,006
Changes in Assets and Liabilities:
[Increase] Decrease in:
Prepaid Expenses 9,347 (18,529) (44,307)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (26,770) (293) 147,452
Accrued Payroll Taxes -- (1,584) --
Deferred Revenue -- -- --
--------------- --------------- ---------------
Total Adjustments 185,655 238,525 1,378,024
--------------- --------------- ---------------
NET CASH - OPERATING ACTIVITIES - FORWARD (1,002,330) (1,111,153) (6,878,779)
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Patent Issuance Costs (61,330) (40,921) (292,873)
Organizational Costs Incurred -- -- (135)
Deposits on Leasehold Improvements -- -- (5,000)
Purchases of Leasehold Improvements -- (4,803) (414,671)
Purchases of Office and Lab Equipment (6,626) (5,606) (516,982)
Proceeds from Assets Sold -- -- 1,000
--------------- --------------- ---------------
NET CASH - INVESTING ACTIVITIES - FORWARD $ (67,956) $ (51,330) $ (1,228,661)
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 15, 1985
YEARS ENDED [DATE OF INCEPTION]
JANUARY 31, TO JANUARY 31,
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (1,002,330) $ (1,111,153) $ (6,878,779)
--------------- --------------- ---------------
NET CASH - INVESTING ACTIVITIES - FORWARDED (67,956) (51,330) (1,228,661)
--------------- --------------- ---------------
FINANCING ACTIVITIES:
Net Proceeds from Issuance of Common Stock -- -- 9,594,876
Proceeds from Exercise of Options -- -- 87
Proceeds from Borrowings from President -- -- 41,433
Repayment of Borrowings from President -- -- (41,433)
Proceeds from Borrowings Under Line of Credit -- -- 300,000
Repayment of Borrowings Under Line of Credit -- -- (300,000)
Proceeds from Note Payable to Bank -- -- 150,000
Payments of Note Payable to Bank -- -- (150,000)
Proceeds from Borrowings from Stockholders -- -- 15,867
Repayment of Borrowings from Stockholders -- -- (15,867)
Advances from Parent Company -- -- 135,000
Payments to Parent Company -- -- (135,000)
Repayment of Long-Term Note Receivable -- -- 50,315
Repayment of Note Payable Issued in Exchange for
Legal Services -- -- (71,968)
Purchase of Treasury Stock (143,750) (300,000) (443,750)
--------------- --------------- ---------------
NET CASH - FINANCING ACTIVITIES (143,750) (300,000) 9,129,560
--------------- --------------- ---------------
NET [DECREASE] INCREASE IN CASH AND
CASH EQUIVALENTS (1,214,036) (1,462,483) 1,022,120
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 2,236,156 3,698,639 --
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,022,120 $ 2,236,156 $ 1,022,120
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ -- $ -- $ 40,648
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
IMMUNOTHERAPEUTICS, INC.
[A DEVELOPMENT STAGE ENTERPRISE]
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
[1] OPERATIONS
BASIS OF PRESENTATION - ImmunoTherapeutics, Inc. [the "Company"] was
incorporated in January 1987 as a wholly-owned subsidiary of Biological
Therapeutics, Inc. ["BTI"]. BTI was incorporated on December 19, 1984 and
commenced operations on February 15, 1985 [inception date]. On March 30, 1987
BTI was merged into the Company. The financial statements of the Company include
the accounts of its predecessor, BTI, for all periods presented.
NATURE OF BUSINESS - The Company is engaged in research and development of
pharmaceutical agents for the treatment and prevention of human malignancy and
other diseases. The Company operates out of a single research facility in Fargo,
North Dakota.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
OFFICE AND LAB EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Office and lab equipment
is stated at cost. Depreciation is computed on the straight-line basis over five
years. Leasehold improvements are amortized utilizing the straight-line method
over the three-year term of the lease. Depreciation expense was $188,644 and
$187,790 for the years ended January 31, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT COSTS - Expenditures for research and development
activities are charged to operations as incurred.
PATENT ISSUANCE COSTS - The cost of patents is accumulated during the approval
process. Patents granted are amortized on a straight-line basis over 17 years or
the estimated remaining economic life. When a patent is not granted or the
process is terminated the accumulated cost is charged to operations.
NET [LOSS] PER SHARE - The net [loss] per share is computed by dividing the net
loss by the weighted average number of shares outstanding during the period.
Shares issuable upon the exercise of stock options granted are excluded from the
computation since the effect on the net loss per common share would be
anti-dilutive.
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk is limited to cash and cash
equivalents. The Company places its cash with high credit quality financial
institutions. At January 31, 1996, the Company has approximately $950,000 in
financial institutions that is subject to normal credit risk beyond the insured
amounts.
[3] USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
[4] FAIR VALUE OF FINANCIAL INSTRUMENTS
At January 31, 1996, the Company's financial instruments included cash and cash
equivalents and trade payables. At January 31, 1996, the fair value of these
financial instruments approximated carrying value because of the short-term
nature of these instruments.
F-9
<PAGE>
IMMUNOTHERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS, SHEET #2
- --------------------------------------------------------------------------------
[5] DEVELOPMENT STAGE ACTIVITIES, OPERATIONS AND BUSINESS COMBINATION
For the period from its incorporation to date, the Company has been a
"development stage enterprise" and the Company's operations have consisted
primarily of financial planning, raising capital, and research and development
activities. The Company has not produced any revenues from product sales since
its inception and incurred a net loss of $1,187,985 for the year ended January
31, 1996 and accumulated losses since inception of $8,256,803. The Company
raised additional capital in public equity offerings in fiscal 1988, 1990 and
1993 and in a private placement in fiscal 1991 to finance continued research and
development activities. On December 4, 1991, the Company issued 4,454,224 shares
of common stock to Primedex Health Systems, Inc. The shares issued represented
90 percent of the outstanding stock, warrants and options of the Company. In
exchange, the Company received $150,000 and a $295,422, non-interest bearing
note due on December 31, 2014. Through sales of the Company's common stock
Primedex Health Systems, Inc. had reduced its ownership to 21.8 percent at
January 31, 1995, and had repaid the full face value of the note. On November
27, 1995, the Company repurchased the remaining 1,150,001 of its shares owned by
Primedex Health Systems, Inc. for $143,750.
[6] REVENUE RECOGNITION
In fiscal 1987, the Company was awarded two Phase I Small Business Innovation
and Research ["SBIR"] contracts amounting to $50,000 each. Revenue related to
such contracts has been recorded in the period in which the contract revenue was
earned based upon the terms of the contracts. The U.S. Government has the right
to use the products developed with the above funding for its internal use only.
Expenses directly related to performing research under the SBIR contracts have
been included in SBIR contract research and development expense in the
accompanying statements of operations.
[7] STOCKHOLDERS' EQUITY
In October 1990, the Company entered into a stock purchase agreement to sell up
to 166,666 shares to six investors in consideration for $100,000. In addition,
the holders of these shares have the right to require the Company to register
these shares for public sale under the Securities Act of 1933, as amended. In
accordance with the agreement, the Company issued 85,416 shares of common stock
for $51,250 from November 1990 through January 1991. Of the shares sold, 25,000
were sold to the President of the Company. During the period from February 1,
1991 through April 15, 1991, an additional 41,583 shares were sold under this
agreement for $24,950 of which 9,500 shares were sold to the President of the
Company.
On May 14, 1991, the Company changed the par value of its stock from $.01 per
share to $.001 per share and increased the authorized shares of its common stock
from 120,000,000 to 500,000,000.
On November 15, 1991, the Company issued 230,000 shares of common stock valued
at $23,000 in exchange for $5,000 and financial services valued at $18,000.
On December 4, 1991, the Company issued 4,454,224 shares of common stock to
Primedex Health Systems, Inc. The shares issued represented 90 percent of the
outstanding stock, warrants and options of the Company. In exchange, the Company
received $150,000 and a $295,422 non-interest bearing note due on December 31,
2014. The note was discounted at 8 percent to a principal amount of $50,315.
This note has been paid.
On January 31, 1992, the stockholders approved a 1 for 100 share reverse stock
split. The stock split has been retroactively reflected in all share and per
share data in these financial statements. On the same date, the Company changed
the par value of its post split shares from .10 to .001 and increased the
authorized shares of its post split common stock from 5,000,000 to 500,000,000.
These changes do not affect the reduction in option exercise price approved on
October 31, 1991.
On August 24, 1992, the Company completed a secondary public offering of
1,000,000 units consisting of 1,000,000 shares of common stock and 1,000,000
common stock purchase warrants. The net proceeds of the offering was $6,231,051.
F-10
<PAGE>
IMMUNOTHERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS, SHEET #3
- -------------------------------------------------------------------------------
[7] STOCKHOLDERS' EQUITY [CONTINUED]
On June 29, 1993, the stockholders approved a decrease in the number of
authorized common shares from 500,000,000 to 50,000,000 and an increase in the
number of common shares reserved under the incentive stock option plan from 750
to 250,000.
On September 23, 1994, the Board of Directors authorized the designation of
100,000 shares of the Company's authorized preferred stock as Series A Preferred
Stock. This preferred stock is intended to be issued in connection with a
Stockholders Rights Plan. Under the Stockholders' Rights Plan each outstanding
share of the Company's common stock has attached to it one stock purchase right.
These rights will continue to be represented by and trade with the Company's
common stock certificates unless and until certain takeover-related events
occur. Following such events, each right will become exercisable to purchase one
one-hundredth of a share of Series A Preferred Stock, par value $.05, at an
exercise price of $15 per one one-hundredth share subject to adjustment. In the
event any person acquires beneficial ownership of 20% or more of the outstanding
common shares, each right will be exercisable, for a sixty-day period following
the announcement of such acquisition, to purchase the Company's common stock or
common stock equivalent having a market value equal to two times the exercise
price. The Stockholders' Rights Plan further provides that if, after the
occurrence of such an acquisition, the Company is merged into any other
corporation or 50% or more of the Company's assets are sold, each right will be
exercisable to purchase common shares of the acquiring corporation having a
market value equal to two times the exercise price. The rights expire on
September 23, 2001, and are subject to redemption by the Company's Board of
Directors at $.001 per right at any time prior to the first date upon which they
become exercisable to purchase common shares.
NON-QUALIFIED STOCK OPTIONS - The Company periodically grants non-qualified
stock options to officers and certain key employees which in some cases have
exercise prices below the market value of the common stock at the date the
options were granted. Accordingly, compensation expense, equal to the difference
between the exercise price of the options and the fair value of the stock at the
date of grant is being recognized ratably over the period during which the
grantee performs services and becomes vested in the options granted.
The Company recognized compensation expense of $12,121 and $49,348 in fiscal
1996 and 1995, respectively, related to these options. The shares granted
originally had an exercise price of between $.001 and $35.00, have individually
defined exercise periods, and expire at various times through September 1999.
On October 31, 1991, the Board of Directors extended the expiration date of all
options expiring in March 1992 to March 1997. The Board also reduced the
exercise price to $.001 for all outstanding non-qualified options.
NON-EMPLOYEE STOCK OPTIONS - The Company periodically grants non-qualified stock
options to non-employee consultants. Stock options to purchase an aggregate of
150,000 shares of common stock may be granted under the plan. Members of the
Company's Board of Scientific Advisors each receive options to purchase 2,000
shares of common stock at the end of each year of their three-year contracts
plus 2,000 additional shares for attendance at each meeting. At January 31,
1996, 300,000 shares are reserved for issuance under the plan. Options are
granted at exercise prices equal to the fair value of the stock on the grant
date.
INCENTIVE STOCK OPTIONS - The Company maintains incentive stock option plans
which provide that stock options to purchase an aggregate of 1,000,000 shares of
common stock may be granted to officers and key employees. Options granted are
at prices equal to the fair market value of the stock at the date of grant,
except for owners of more than 10 percent of the Company, for which the exercise
price is equal to 110 percent of the fair market value of the stock at the date
of grant.
F-11
<PAGE>
IMMUNOTHERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS, SHEET #4
- --------------------------------------------------------------------------------
[7] STOCKHOLDERS' EQUITY [CONTINUED]
The plan also provides that options granted under the plan will expire not later
than ten years from the date of grant except for owners of more than 10 percent
of the Company for which options granted will expire not later than five years
from the date of grant. Options granted under the plan may be immediately
exercisable.
Information with respect to these options is summarized as follows:
Number of Range of Price
Shares Per Share
OUTSTANDING AT JANUARY 31, 1994 178,270 $ .001 - 35.00
Granted -- --
Expired -- --
Cancelled 6,731 .01
Exercised -- --
------------- -----------------
OUTSTANDING AT JANUARY 31, 1995 171,539 35.00
Granted 510,000 .07
Expired -- --
Cancelled (30,786) 1.80 - 2.00
Exercised -- --
------------- -----------------
OUTSTANDING AT JANUARY 31, 1996 650,753 $ .001 - 35.00
------------------------------- ============= =================
EXERCISABLE AT JANUARY 31, 1996 188,753 $ .001 - 35.00
------------------------------- ============= =================
WARRANTS - On June 17, 1991, the Company issued an aggregate 35,180 five-year
common stock purchase warrants. The warrants are exercisable at $.60 per share
and expire June 16, 1996.
In connection with the Company's secondary public offering on August 13, 1992,
the Company issued 1,000,000 five-year common stock purchase warrants at an
exercise price of $7.50. 412,943 of these warrants were acquired and retired by
the Company in connection with its acquisition of treasury stock. The warrants
are redeemable by the Company at $.005 per warrant subject to certain conditions
relating to the market price of the Company's common stock.
[8] INCOME TAXES
At January 31, 1996, the Company had a useable net operating loss carryforward
of approximately $3,600,000 after limitations based on changes in ownership. If
not utilized to offset future taxable income, this carryforward will expire at a
rate of approximately $480,000 in 2006, $90,000 in 2007, $980,000 in 2008,
$910,000 in 2009 and $1,140,000 in 2010. In addition, the Company has research
and development tax credit carryforwards of approximately $207,000 which expire
to the extent of $66,000 in 2003, $39,000 in 2004, $15,000 in 2005, $36,000 in
2008 and $51,000 in 2009.
Pursuant to the adoption by the Company of Statement of Financial Accounting
Standard No. 109 on February 1, 1992, the Company has a deferred tax asset of
$1,500,000 arising from net operating loss carryforwards of $1,200,000, tax
credit carryforwards of $207,000 and excess financial reporting depreciation of
$93,000. However, due to the uncertainty that the Company will generate income
in the future sufficient to fully or partially utilize these carryovers, an
allowance of $1,500,000 has been established to offset this asset. This
represents an increase of $480,000 over the valuation allowance at January 31,
1995 [See Note 10].
F-12
<PAGE>
IMMUNOTHERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS, SHEET #5
- --------------------------------------------------------------------------------
[9] LEASES
The Company leases its office and laboratory facilities under an operating lease
expiring July 31, 1996. The lease provides for minimum annual rentals and
provides for additional rent based on increases in operating costs and real
estate taxes. The lease also provides for three renewals for a period of three
years each at an annual rental of $39,375 plus a Consumer Price Index adjustment
to a maximum of 10 percent. Future minimum lease payments are $19,688 for the
year ended January 31, 1997.
Rent expense was $39,375 and $35,250 for the years ended January 31, 1996 and
1995, respectively.
[10] SUBSEQUENT EVENT
On March 1, 1996, the Company entered into an agreement to issue 5,000,000
shares of its common stock to Dominion Resources, Inc. ["Dominion"] for
$325,000. The sale of common stock will take place in three successive closings.
The first closing for 1,666,666 shares will take place on March 18, 1996, the
second closing for 1,666,666 shares will take place on April 15, 1996 and the
third closing for 1,666,668 shares will take place on May 15, 1996. Upon
consummation of the third closing, Dominion will hold a 54.8 percent ownership
interest in the Company. As a consequence of this transaction, the Company will
lose the future benefit of substantially all of its net operating loss and tax
credit carryforwards.
[11] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
[12] SUBSEQUENT EVENT [UNAUDITED]
The closings on the sale of common stock discussed in Note 10 took place on
March 18, 1996 and April 15, 1996.
On March 22, 1996, the President of the Company, was granted a ten-year option
to purchase 2,000,000 shares of the Company's common stock at an exercise price
of $.065 per share.
. . . . . . . . .
F-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
IMMUNOTHERAPEUTICS INC.
By:
Gerald Vosika
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board __________, 1996
Gerald Vosika Director (Principal
Executive Officer and
Principal Financial and
Accounting Officer)
Director __________, 1996
Carl Gilbert
Director __________, 1996
William E. McManus, III
<PAGE>
PURCHASE AGREEMENT
AGREEMENT dated as of March 1, 1996 by and between Immunotherapeutics,
Inc., a Delaware corporation (the "Company"), Dominion Resources, Inc., a
Delaware corporation ("Dominion").
WITNESSETH:
WHEREAS, the Company desires to issue and sell to Dominion, at a price
of $.065 per share, 5,000,000 shares of the Company's Common Stock (the
"Shares"); and
WHEREAS, Dominion desires to purchase the Shares upon and
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Purchase and Sale of the Shares. Subject to the terms and conditions
set forth herein, the Company hereby agrees to issue and sell to Dominion, and
Dominion hereby agrees to purchase from the Company, 1,666,666 Shares at the
First Closing (as such term is defined in Section 2.1 hereof) and 1,666,666
Shares at the Second Closing (as such term is defined in Section 2.1 hereof),
and 1,666,668 Shares at the Third Closing (as such term is defined in Section
2.1 hereof). The purchase price for the Shares sold pursuant to this Agreement
shall be $.065 per Share.
2. Closings; Dominion Breach; Termination.
2.1. Closings. There shall be three (3) closings of the
purchase and sale of the Shares, each of which will take place at the offices of
Dominion at The Abbey, 355 Madison Avenue, Morristown, New Jersey. The first
such closing (the "First Closing") will take place at 10:00 A.M., local time, on
March 18, 1996, the second such closing (the "Second Closing") will take place
at 10:00 A.M., local time, on April 15, 1996, and the third such closing (the
"Third Closing") will take place at 10:00 A.M., local time, on May 15, 1996. Any
such Closing may take place at such other time and place or on such later date
as may be mutually agreeable to the parties hereto. At each such Closing, the
Company will deliver to Dominion certificates for the Shares purchased as set
forth in Section 1 hereof, against payment of the purchase price therefor by
Dominion, by wire transfer or check payable to
<PAGE>
the Company. The Shares shall be registered in Dominion's name or the name of
the nominee of Dominion in such denominations as Dominion shall request
according to its instructions delivered to the Company not less than two days
prior to each Closing.
2.2. Termination. In the event that the transactions
contemplated by this Agreement to take place at or prior to the First Closing
have not been consummated by March 22, 1996, this Agreement shall, at the option
of Dominion, terminate and be of no further force and effect, and there shall be
no further liability on the part of any party hereto except for breaches of this
Agreement prior to the time of such termination.
3. Conditions to the Obligations of Dominion at the First Closing. The
obligation of Dominion to purchase and pay for the Shares to be purchased by
Dominion at the First Closing is subject to the satisfaction on or prior to the
date of the First Closing of the following conditions, any of which may be
waived by Dominion:
3.1. Opinion of Counsel to the Company. Dominion shall have
received from William S. Clarke, P.A., counsel for the Company, its opinion
dated the date of the First Closing substantially in the form of Exhibit A
hereto.
3.2. Representations and Warranties. All of the
representations and warranties of the Company contained in this Agreement shall
be true and correct at and as of the date of the First Closing with the same
effect as if made on the date of the First Closing, except to the extent of
changes caused by the transactions contemplated hereby.
3.3. Performance of Covenants. All of the covenants and
agreements of the Company contained in this Agreement and required to be
performed on or prior to the date of the First Closing shall have been performed
in a manner reasonably satisfactory in all respects to Dominion.
3.4. Board and Committee Representation. The person
designated by Dominion shall have been elected as a member of the
Company's Board of Directors.
3.5. Legal Action. No action or proceeding before any court or
governmental body shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement or
any of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded.
2
<PAGE>
3.6. Consents. The Company shall have obtained in
writing all consents required to enable it to observe and comply
with all of its obligations under this Agreement and to consummate
the transactions contemplated hereby.
3.7. Closing Documents. The Company shall have delivered to
Dominion (a) a certificate executed by the President of the Company dated the
date of the First Closing stating that the conditions set forth in Sections 3.2
through 3.6 hereof have been satisfied and (b) such certificates, other
documents and instruments as Dominion may reasonably request in connection with,
and to effect, the transactions contemplated by this Agreement.
3.8. Proceedings. All corporate and other proceedings
taken or to be taken in connection with the transactions
contemplated hereby to be consummated at the First Closing and all
documents incident thereto shall be reasonably satisfactory in form
and substance to Dominion.
4. Conditions to the Obligations of the Company at the First Closing.
The obligation of the Company to issue and sell the Shares to Dominion as set
forth herein at the First Closing is subject to the satisfaction on or prior to
the date of the First Closing of the following conditions, any of which may be
waived by the Company:
4.1. Representations and Warranties. The representations and
warranties of Dominion contained in this Agreement shall be true and correct at
and as of the date of the First Closing with the same effect as if made on the
date of the First Closing, except to the extent of changes caused by the
transactions contemplated hereby.
4.2. Legal Action. No action or proceeding before any court or
governmental body shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement or
any of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded.
4.3. Proceedings. All proceedings taken or to be taken
by Dominion in connection with the transactions contemplated hereby
to be consummated at the First Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to
the Company.
3
<PAGE>
5. Conditions Precedent to the Purchase and Sale of Firm Shares at the
Second Closing and Third Closing. The obligation of Dominion to purchase and pay
for the Shares to be purchased by Dominion at each of the Second Closing and the
Third Closing is subject to the delivery by the Company at each such Closing of
a certificate signed by the principal executive officer and the principal
financial officer of the Company that there has been no material adverse change
or development involving a prospective material change in the condition or
prospects or the business activities, financial or otherwise, of the Company
since the Balance Sheet Date.
6. Representations and Warranties of the Company. The
Company hereby represents and warrants to Dominion as follows:
6.1. Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority, and holds
all licenses, permits and other required authorizations from governmental
authorities, necessary to conduct its business as it is now being conducted or
proposed to be conducted and to own or lease the properties and assets it now
owns or holds under lease. The Company is duly qualified or licensed and in good
standing as a foreign corporation in each jurisdiction wherein the character of
its properties or the nature of the activities conducted by it makes such
qualification or licensing necessary.
6.2. Charter Documents. The Company has heretofore delivered
to Dominion true, correct and complete copies of the Company's Certificate of
Incorporation and By-Laws as in full force and effect on the date hereof. Except
as expressly contemplated by this Agreement, there will be no changes or
amendments to such Certificate of Incorporation or By-laws between the date
hereof and the date of the First Closing.
6.3. Capitalization. As of the date hereof and the First
Closing, the Company's authorized capitalization consists of 50,000,000 shares
of Common Stock, of which 4,122,047 shares are presently issued and outstanding
and 2,089,140 shares are reserved for issuance upon the conversion or exercise
of presently outstanding convertible securities, options, warrants or other
rights to purchase Common Stock. All outstanding shares of the Company are
validly issued, fully paid and nonassessable. No stockholder of the Company is,
or as of the First Closing will be, entitled to any preemptive rights with
respect to the purchase or sale of any securities by the Company. Except as has
been set forth in Schedule 6.3 hereto, there are no outstanding options,
warrants or other rights, commitments or arrangements, written or
4
<PAGE>
oral, to purchase or otherwise acquire any authorized but unissued shares of
capital stock of the Company or any security directly or indirectly convertible
into or exchangeable for any capital stock of the Company or under which any
such option, warrant or convertible security may be issued in the future. None
of the shares of Common Stock is reserved for any purpose, and the Company is
neither subject to any obligation (contingent or otherwise), nor has any option
to repurchase or otherwise acquire or retire any shares of its capital stock.
6.4. Subsidiaries. The Company has no wholly or partially
owned subsidiaries and does not control, directly or indirectly, any other
corporation, business trust, firm, partnership, association, joint venture,
entity or organization. The Company does not own any shares of stock,
partnership interest, joint venture interest or any other security or interest
in any other corporation or other organization or entity.
6.5. Authorization; No Breach. The Company has the full
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder, and the execution, delivery and performance of this
Agreement and all other transactions contemplated hereby have been duly
authorized by the Company, and this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as the enforceability hereof may be limited by (a) bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights generally
and (b) the availability of remedies under general equitable principles. The
execution and delivery by the Company of this Agreement, the offering, sale and
issuance of the Shares pursuant to this Agreement, and the performance and
fulfillment of the Company, do not and will not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, or event which, with notice or lapse of time or both, would constitute a
breach of or default under, (iii) result in the creation of any lien, security
interest, charge or encumbrance upon the capital stock or assets of the Company
pursuant to, (iv) give any third party the right to accelerate any obligation
under or terminate, (v) result in a violation of, (vi) result in the loss of any
license, certificate, legal privilege or legal right enjoyed or possessed by the
Company under, or (vii) require any authorization, consent, approval, exemption
or other action by or notice to any court or administrative or governmental body
pursuant to or require the consent of any other person under, the Certificate of
Incorporation or By-Laws of the Company or any law, statute, rule or regulation
to which the Company is subject or by which any of its properties are bound, or
any agreement, instrument, order, judgment or decree to which the Company is
subject or by which its properties are bound.
5
<PAGE>
6.6. Financial Statements. Annexed hereto as Schedule 6.6 are
(a) the audited financial statements of the Company for the fiscal year ended
January 31, 1995, including balance sheet as at the end of such fiscal year and
the related statements of income and cash flow statements for such fiscal year,
reported on by Mortenson & Associates, and (b) the unaudited financial
statements of the Company for the nine (9) month period ended October 31, 1995,
including a balance sheet as at the end of such period (together with any
related notes, the "Company Balance Sheet") and the related statements of income
and retained earnings and cash flow statements for such nine (9) month period
(the financial statements referred to in Clauses (a) and (b) collectively, the
"Financial Statements"). For purposes of this Agreement, October 31, 1995, shall
be hereinafter referred to as the "Balance Sheet Date". The Financial Statements
have been prepared in accordance with generally accepted accounting principles,
applied consistently with the past practices of the Company (except as otherwise
noted in such Financial Statements), reflect all known liabilities of the
Company, including all known contingent liabilities, as of their respective
dates, and present fairly the financial position of the Company and the results
of its operations as of the time and for the period indicated therein.
6.7. No Material Adverse Changes. Except as set forth on
Schedule 6.7 hereto, since the Balance Sheet Date there has not at any time been
(a) any material adverse change in the financial condition, operating results,
business prospects, employee relations or customer relations of the Company, or
(b) other adverse changes, which in the aggregate have been materially adverse
to the Company.
6.8 Absence of Certain Developments. Except as contemplated by
this Agreement, and except as set forth in Schedule 6.8 hereto, since the
Balance Sheet Date, the Company has not, nor will have prior to the First
Closing; (a) issued any corporate securities; (b) borrowed any amount or
incurred or became subject to any liabilities (absolute or contingent), other
than liabilities incurred in the ordinary course of business and liabilities
under contracts entered into in the ordinary course of business, none of which
are or shall be material; (c) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business; (d) declared or made any
payment or distribution of cash or other property to the stockholders of the
Company with respect to the Common Stock or purchased or redeemed any shares of
Common Stock; (e) mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, any of its properties or assets, except for liens for taxes
not yet due and payable; (f) sold, assigned or transferred any of its assets,
tangible or
6
<PAGE>
intangible, except in the ordinary course of business, or disclosed any
proprietary confidential information to any person, firm or entity; (g) suffered
any extraordinary losses or waived any rights of material value; (h) made any
capital expenditures or commitments therefor; (i) entered into any other
transaction other than in the ordinary course of business or entered into any
material transaction, whether or not in the ordinary course of business; (j)
made any charitable contributions or pledges; (k) suffered damages, destruction
or casualty loss, whether or not covered by insurance, affecting any of the
properties or assets of the Company or any other properties or assets of the
Company which could have a material adverse effect on the business or operations
of the Company; or (l) made any change in the nature or operations of the
business of the Company.
6.9 Properties. The Company has good and marketable title to
all of the real property and good title to all of the personal property and
assets it purports to own, including those reflected as owned on the Company
Balance Sheet or acquired thereafter, and a good and valid leasehold interest in
all property indicated as leased on the Company Balance Sheet, whether such
property is real or personal, free and clear of all liens, charges, encumbrances
or restrictions of any nature whatsoever, except (a) such as are reflected on
the Company Balance Sheet or described in Schedule 6.9 hereto and (b) for
receivables and charges collected in the ordinary course of business. Except as
disclosed in Schedule 6.9 hereto, the Company owns or leases all such properties
as are necessary to its operations as now conducted and as presently proposed to
be conducted and all such properties are, in all material respects, in good
operating condition and repair.
6.10. Taxes. Except as referred to in Schedule 6.10 hereto,
the Company has filed all federal, state, local and foreign tax returns and
reports required to be filed, and all taxes, fees, assessments and governmental
charges of any nature shown by such returns and reports to be due and payable
have been paid except for those amounts being contested in good faith and for
which appropriate amounts have been reserved in accordance with generally
accepted accounting principles and are reflected on the Company Balance Sheet.
There is no tax deficiency which has been, or, to the knowledge of the Company
might be, asserted against the Company which would adversely affect the business
or operations, or proposed business or operations, of the Company. All such tax
returns and reports were prepared in accordance with the relevant rules and
regulations of each taxing authority having jurisdiction over the Company and
are true and correct. The Company has neither given nor been requested to give
any waiver of any statute of limitations relating to the payment of federal,
state, local or foreign taxes. The Company has not been, nor is it now being,
7
<PAGE>
audited by any federal, state, local or foreign tax authorities. The Company has
made all required deposits for taxes applicable to the current tax year.
6.11. Litigation. Except as set forth on Schedule 6.11 hereto,
there are no actions, suits, proceedings, orders, investigations or claims
pending or threatened against or affecting the Company, at law or in equity or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality; there are no arbitration
proceedings pending under collective bargaining agreements or otherwise; and, to
the knowledge of the Company, there is no basis for any of the foregoing.
6.12. Compliance with Law. The Company has complied in all
respects with all applicable statutes and regulations of the United States and
of all states, municipalities and agencies in respect of the conduct of its
business and operations, and the failure, if any, by the Company to have fully
complied with any such statute or regulation does not and will not materially
adversely affect the business or operations of the Company.
6.13. Trademarks and Patents. Schedule 6.13 annexed hereto
contains a true and correct list of all trademarks, trade names, patents and
copyrights (and applications therefor) if any, heretofore or presently used or
required to be used by the Company in connection with its business; and each
such trademark, trade name, patent and copyright (and application therefor)
listed in Schedule 6.13 as being owned by the Company is not subject to any
license, royalty arrangement or dispute. To the knowledge of the Company, none
of the trademarks, trade names, patents or copyrights used by the Company in
connection with its business infringe any trademark, trade name, patent or
copyright of others in the United States or in any other country, in any way
which materially adversely affects or which in the future may materially
adversely affect the business or operations of the Company. Except as set forth
in Schedule 6.13, no stockholder, officer or director of the Company or any
other person owns or has any interest in any trademark, trade name, patent,
copyright or application therefor, or trade secret, invention or process, if
any, used by the Company in connection with its business. To the knowledge of
the Company, the business of the Company does not and will not cause the Company
to violate any trademark, trade name, patent, copyright, trade secret, license
or proprietary interest of any other person, in any way which materially
adversely affects or which in the future may materially adversely affect the
business or operations of the Company. Except as disclosed in Schedule 6.13
hereto, the Company possesses all proprietary technology necessary for the
conduct of
8
<PAGE>
business by the Company, both as presently conducted and as presently proposed
to be conducted.
6.14. Insurance. Schedule 6.14 annexed hereto contains a brief
description of each insurance policy maintained by the Company with respect to
its properties, assets and business; each such policy is in full force and
effect; and the Company is not in default with respect to its obligations under
any of such insurance policies. The insurance coverage of the Company is in
amounts not less than is customarily maintained by corporations engaged in the
same or similar business and similarly situated, including, without limitation,
insurance against loss, damage, fire, theft, public liability and other risks.
The activities and operations of the Company have been conducted in a manner so
as to conform to all applicable provisions of these insurance policies and the
Company has not taken or failed to take any action which would cause any such
insurance policy to lapse.
6.15. Agreements. Except as set forth in Schedule 6.15 hereto,
the Company is neither a party to nor bound by any agreement or commitment,
written or oral, which obligates the Company to make payments to any person, or
which obligates any person to make payments to the Company, in the case of each
such agreement in an amount exceeding $5,000, or in the aggregate in an amount
exceeding $10,000, or which is otherwise material to the conduct and operation
of the Company's business or proposed business or any of its properties or
assets, including, without limitation, all shareholder, employment,
non-competition and consulting agreements and employee benefit plans and
arrangements and collective bargaining agreements to which the Company is a
party or by which it is bound. All such agreements are legal, valid and binding
obligations of the Company, in full force and effect, and enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by (a) bankruptcy, insolvency, moratorium, and similar laws affecting
creditors' rights generally and (b) the availability of remedies under general
equitable principles. The Company has performed all obligations required to be
performed by it, and is not in default, or in receipt of any claim, under any
such agreement or commitment, and the Company has no present expectation or
intention of not fully performing all of such obligations, nor does the Company
have any knowledge of any breach or anticipated breach by the other parties to
any such agreement or commitment. The Company is not a party to any contract,
agreement, instrument or understanding which materially adversely affects the
business, properties, operations, assets or condition (financial or otherwise)
of the Company. Dominion has been furnished with a true and correct copy of each
written agreement referred to in Schedule 6.15, together with all amendments,
waivers or other changes thereto.
9
<PAGE>
6.16. Undisclosed Liabilities. Except as set forth on Schedule
6.16 hereto, the Company has no obligation or liability (whether accrued,
absolute, contingent, unliquidated, or otherwise, whether or not known to the
Company, whether due or to become due) arising out of transactions entered into
at or prior to the First Closing of this Agreement, or any action or inaction at
or prior to the First Closing of this Agreement, or any state of facts existing
at or prior to the First Closing of this Agreement, except (a) liabilities
reflected on the Company Balance Sheet; (b) liabilities incurred in the ordinary
course of business since the Balance Sheet Date (none of which is a liability
for breach of contract, breach of warranty, torts, infringements, claims or
lawsuits); and (c) liabilities or obligations disclosed in the schedules hereto.
6.17. Conflicting Agreements. Except as set forth on Schedule
6.17, no stockholder, director, officer or key employee of the Company is a
party to or bound by any agreement, contract or commitment, or subject to any
restrictions in connection with any previous or current employment of any such
person, which adversely affects, or which in the future may adversely affect,
the business or the proposed business of the Company.
6.18. Disclosure. Neither this Agreement nor any of the
schedules, exhibits, written statements, documents or certificates prepared or
supplied by the Company with respect to the transactions contemplated hereby
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained herein or therein not misleading.
Except as disclosed in Schedule 6.18 hereto, there exists no fact or
circumstance which, to the knowledge of the Company, materially adversely
affects, or which could reasonably be anticipated to have a material adverse
effect on, the existing or expected financial condition, operating results,
assets, customer relations, employee relations or business prospects of the
Company.
6.19. Closing Date. The representations and warranties of the
Company contained in this Agreement, and all information contained in any
exhibit, schedule or attachment hereto or in any writing delivered by the
Company to Dominion, will be true and correct in all material respects on the
date of the First Closing as though then made and as though the date of the
First Closing were substituted for the date of this Agreement throughout this
Agreement, except as affected by the transactions expressly contemplated by this
Agreement.
6.20. Compliance with the Securities Laws. Except as set
forth on Schedule 6.20 hereto, neither the Company nor anyone
acting on its behalf has directly or indirectly offered the Shares
or any part thereof or any similar security of the Company (or any
10
<PAGE>
other securities convertible or exchangeable for the Shares or any similar
security), for sale to, or solicited any offer to buy the same from, anyone
other than Dominion. All securities of the Company heretofore sold and issued by
it were sold and issued, and the Shares were offered and will be sold and
issued, in compliance with all applicable federal and state securities laws.
6.21. Brokers. No finder, broker, agent, financial person or
other intermediary has acted on behalf of the Company in connection with the
offering of the Shares or the consummation of this Agreement or any of the
transactions contemplated hereby.
7. Representations and Warranties of Dominion. Dominion
hereby represents and warrants to the Company as follows:
7.1. Investment Intent. Dominion is acquiring the Shares for
its own account and not with a present view to, or for sale in connection with,
any distribution thereof in violation of the registration requirements of the
Securities Act. Dominion consents to the placing of a legend on the certificates
representing the Shares to the effect that such shares of Common Stock have not
been registered under the Securities Act and may not be transferred unless (a) a
registration statement under such Act shall have become effective with respect
thereto, (b) a written opinion of William S. Clarke, P.A., or counsel for the
holder reasonably acceptable to the Company, has been obtained to the effect
that no such registration is required or (c) a no-action letter or its
equivalent has been issued by the staff of the Securities and Exchange
Commission to the effect that registration under such Act is not required in
connection with such proposed transfer.
7.2. Authorization. Dominion has the power and authority
to execute and deliver this Agreement and to perform all of its
obligations hereunder, having obtained all required consents, if
any.
7.3. Brokers. No finder, broker, agent, financial
person or other intermediary has acted on behalf of Dominion in
connection with the offering of the Shares or the consummation of
this Agreement or any of the transactions contemplated hereby.
7.4. Closing Date. The representations and warranties of
Dominion contained in this Agreement or in any writing delivered by Dominion to
the Company will be true and correct on the date of the First Closing as though
then made and as though the date of the First Closing were substituted for the
date of this Agreement throughout this Agreement, except as affected by the
transactions expressly contemplated by this Agreement.
11
<PAGE>
8. Covenants of the Company. The Company covenants and agrees
with Dominion as follows:
8.1. Books and Accounts. The Company will and will cause each
Subsidiary hereafter formed or acquired to: (a) make and keep books, records and
accounts, which, in reasonable detail, accurately and fairly reflect its
transactions and dispositions of its assets; and (b) devise and maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and in accordance with the Company's past
practices or any other criteria applicable to such statements, and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
8.2. Periodic Reports.
(a) The Company will furnish to Dominion as soon as
practicable, and in any event within ninety (90) days after the end of each
fiscal year of the Company (commencing with the fiscal year ended January 31,
1996), a consolidated and consolidating annual report of the Company and its
Subsidiaries, including a consolidated and consolidating balance sheet as at the
end of such fiscal year and consolidated and consolidating statements of income
and retained earnings, and changes in consolidated financial position for such
fiscal year, together with the related notes thereto, setting forth in each case
in comparative form corresponding figures for the preceding fiscal year, all of
which will be correct and complete and will present fairly the consolidated
financial position of the Company and its Subsidiaries and the consolidated
results of their operations and changes in their financial position as of the
time and for the period then ended. The consolidated portions of such financial
statements shall be accompanied by an unqualified report (other than
qualifications contingent upon the Company's ability to obtain additional
financing), in form and substance reasonably satisfactory to Dominion, of
independent public accountants reasonably satisfactory to Dominion to the effect
that such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior years
(except as otherwise specified in such report), and present fairly the
consolidated financial position of the Company and its Subsidiaries and the
consolidated results of
12
<PAGE>
their operations and changes in their consolidated financial position as of the
time and for the period then ended. The Company will use its best efforts to
conduct its business so that such report of the independent public accountants
will not contain any qualifications as to the scope of the audit, the
continuance of the Company and its Subsidiaries, or with respect to the
Company's compliance with generally accepted accounting principles consistently
applied, except for changes in methods of accounting in which such accountants
concur.
(b) The Company will furnish to Dominion, as soon as
practicable and in any event within forty-five (45) days after the end of each
of the first three (3) fiscal quarters of the Company, a quarterly report of the
Company and its Subsidiaries consisting of an unaudited consolidated and
consolidating balance sheet as at the end of such quarter and an unaudited
consolidated and consolidating statement of income and retained earnings and
changes in consolidated financial position for such quarter and the portion of
the fiscal year then ended, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year. All such reports shall be
certified by the chief financial officer of the Company to be correct and
complete, to present fairly the consolidated financial position of the Company
and its Subsidiaries and the consolidated results of their operations and
changes in their consolidated financial position as of the time and for the
period then ended and to have been prepared in accordance with generally
accepted accounting principles.
8.3. Certificates of Compliance. Concurrently with the
furnishing of the reports pursuant to Sections 8.2(a) and 8.2(b) hereof, the
Company will furnish to Dominion an Officer's Certificate stating that neither
the Company nor any Subsidiary is in default under, or has breached, any
material agreement or obligation, including, without limitation, this Agreement,
or if any such default or breach exists, specifying the nature thereof and what
actions the Company has taken and proposes to take with respect thereto. The
Company covenants that promptly after the occurrence of any default hereunder or
any default under or breach of any material agreement, or any other material
adverse event or circumstance affecting the Company or any of its Subsidiaries,
it will deliver to Dominion an Officers' Certificate specifying in reasonable
detail the nature and period of existence thereof, and what actions the Company
has taken and proposes to take with respect thereto.
8.4. Other Reports and Inspection. The Company will furnish to
Dominion (a) as soon as practicable after issuance, copies of any financial
statements or reports prepared by the Company or its Subsidiaries for, or
otherwise furnished to, its
13
<PAGE>
stockholders or the Securities and Exchange Commission and (b) promptly, such
other documents, reports and financial data as Dominion may reasonably request.
In addition the Company will, upon reasonable prior notice, make available
during regular business hours to Dominion or its representatives or designees
(a) all assets, properties and business records of the Company and its
Subsidiaries for inspection and/or copying and (b) the directors, officers and
employees of the Company and its Subsidiaries for interviews concerning the
business, affairs and finances of the Company and its Subsidiaries, provided,
however, nothing herein shall require the Company to provide Dominion with
copies of or access to its scientific data.
8.5. Insurance. The Company will at all times maintain valid
policies of worker's compensation insurance and such insurance with respect to
its properties and business and the properties and business of its Subsidiaries
of the kinds and in amounts not less than is customarily maintained by
corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against fire, loss, damage, theft,
public liability and other risks.
8.6. Use of Proceeds. After the date of each respective
Closing, the Company will use the proceeds from the sale of the
Shares for the purposes set forth on Schedule 8.6 hereto.
8.7. Material Changes. The Company will promptly notify
Dominion of any material adverse change in the business, properties, assets or
condition, financial or otherwise, of the Company or any of its Subsidiaries, or
any other material adverse event or circumstance affecting the Company or any of
its Subsidiaries, and of any litigation or governmental proceeding pending or,
to the knowledge of the Company or any Subsidiary, threatened against the
Company or any of its Subsidiaries or against any director or officer of the
Company or any of its Subsidiaries.
8.8. Transactions with Affiliates. Except for the transactions
contemplated by this Agreement, neither the Company nor any Subsidiary shall (a)
engage in any transaction with, (b) make any loans to, nor (c) enter into any
contract, agreement or other arrangement (i) providing for (x) the employment
of, (y) the furnishing of services by, or (z) the rental of real or personal
property from, or (ii) otherwise requiring payments to, any officer, director or
key employee of the Company or any Subsidiary or any relative of such persons or
any other "affiliate" or "associate" of such persons (as such terms are defined
in the rules and regulations promulgated under the Securities Act), without the
prior approval of the Company's Board of Directors.
14
<PAGE>
8.9. Corporate Existence, Licenses and Permits; Maintenance of
Properties; New Businesses. The Company will at all times conduct its business
in the ordinary course and cause to be done all things necessary to maintain,
preserve and renew its existence and the corporate existence of each of its
Subsidiaries and will preserve and keep in force and effect, and cause each
Subsidiary to preserve and keep in force and effect, all licenses, permits and
authorizations necessary to the conduct of its and their respective businesses.
The Company will also maintain and keep, and cause each Subsidiary to maintain
and keep, its and their respective properties in good repair, working order and
condition, and from time to time, to make all needful and proper repairs,
renewals and replacements, so that the business carried on in connection
therewith may be properly conducted at all times.
8.10. Other Material Obligations. The Company will comply
with, and will cause each Subsidiary to comply with, (a) all material
obligations which it or its Subsidiaries are subject to, or become subject to,
pursuant to any contract or agreement, whether oral or written, as such
obligations are required to be observed or performed, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
and the Company and its Subsidiaries have set aside on their books adequate
reserves with respect thereto, and (b) all applicable laws, rules, and
regulations of all governmental authorities, the violation of which could have a
material adverse effect upon the business of the Company or any Subsidiary.
8.11. Amendment to the Certificate of Incorporation and the
By-Laws. The Company will perform and be in compliance with and observe all of
the provisions set forth in its Certificate of Incorporation and By-Laws to the
extent that the performance of such obligations is legally permissible; provided
that the fact that performance is not legally permissible will not prevent such
nonperformance from constituting an event of default under this Agreement. The
Company will not amend its Certificate of Incorporation or By-Laws so as to
adversely affect the rights of Dominion under this Agreement, the Certificate of
Incorporation or the By-Laws.
8.12. Board of Directors. Commencing as of the date of the
First Closing and so long as Dominion holds more than 500,000 Shares, Dominion
may, by written notice to the Company, designate one representative to be
elected as a member of the Company's Board of Directors and the Company hereby
agrees to include such representative among management's nominees and to cause
such representative to be elected to, and at all times to be a member of, the
Company's Board of Directors. At all times the Company's Certificate of
Incorporation or By-Laws will contain provisions
15
<PAGE>
authorizing not more than five members of the Company's Board of Directors. If
any director designated by Dominion shall be removed, resign or otherwise fail
to be a director for the whole term for which elected, the Company will use its
best efforts to cause such vacancy to be filled in accordance with this Section
8.12. The Company agrees to reimburse the director designated by Dominion
pursuant to this Section 8.12 for their out-of-pocket expenses incurred by such
director in attending meetings of the Board of Directors. Meetings of the Board
of Directors shall be held no less frequently than once every three (3) months.
8.13. Merger; Sale of Assets. Neither the Company nor any
Subsidiary will become a party to any merger or consolidation, or sell, lease or
otherwise dispose of any of its assets, other than sales and leases of assets in
the ordinary course of business, without the prior approval of Dominion's
representative on the Company's Board of Directors, except that (a) any
Subsidiary may merge or consolidate with any other Subsidiary or Subsidiaries,
(b) any Subsidiary may merge or consolidate with the Company so long as the
Company is the surviving entity of such merger or consolidation, and (c) any
Subsidiary may lease, sell, transfer or otherwise dispose of all or any part of
its properties and assets to the Company or any other Subsidiary.
8.14. Acquisition. The Company will not acquire, or permit any
Subsidiary to acquire, any interest in any business from any person, firm or
entity (whether by a purchase of assets, purchase of stock, merger or otherwise)
without the prior approval of Dominion's representative on the Company's Board
of Directors, except the acquisition of 1% or less of any class of outstanding
securities of a company whose securities are listed on a national securities
exchange or which has not fewer than 1,000 stockholders and except as otherwise
specifically permitted pursuant to the provisions of this Agreement.
8.15. Dividends; Distributions; Repurchases of Common Stock;
Treasury Stock. The Company shall not declare or pay any dividends on, or make
any other distribution with respect to, its capital stock, whether now or
hereafter outstanding, other than dividends payable in shares of such stock, or
purchase, acquire, redeem or retire any shares of its capital stock, without the
consent of Dominion's representative on the Company's Board of Directors,
provided, however, the foregoing shall not prohibit the Company from
repurchasing any shares of its Common Stock from any present or former officer,
Director or employee of the Company.
16
<PAGE>
8.16. Consents. Prior to the First Closing the Company
shall obtain all consents needed to enable it to perform all of its
obligations under this Agreement and the transactions contemplated
hereby.
8.17. Taxes and Liens. The Company will duly pay and
discharge, and will cause each of its Subsidiaries to duly pay and discharge,
when payable, all taxes, assessments and governmental charges imposed upon or
against the Company or its Subsidiaries or their respective properties, or any
part thereof or upon the income or profits therefrom, in each case before the
same become delinquent and before penalties accrue thereon, as well as all
claims for labor, materials or supplies which if unpaid might by law become a
lien upon any of its property or any property of any Subsidiary, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings and the Company and its Subsidiaries have set aside on their books
adequate reserves with respect thereto.
8.18. Restrictive Agreement. The Company covenants and
agrees that subsequent to the First Closing, neither it nor any of
its Subsidiaries will be a party to any agreement or instrument
which by its terms would restrict the Company's performance of its
obligations pursuant to this Agreement.
9. Registration of Common Stock.
9.1. Demand Registration. Upon the written request of one or
more registered holders of Securities, which request will state the intended
method of disposition by such holders and will request that the Company effect
the registration under the Securities Act of all or part of the Registrable
Common Stock (as defined in Section 10.5 hereof) of such holders, the Company
will, within ten (10) days after the receipt of such request give written notice
of such requested registration to all registered holders of Securities and
thereupon (except as expressly provided herein) will use reasonable efforts to
effect the registration ("Demand Registration") under the Securities Act of (x)
the shares of Registrable Common Stock included in the initial request for
registration (for disposition in accordance with the intended method of
disposition stated in such request) and (y) all other shares of Registrable
Common Stock the holders of which have made written request to the Company for
registration thereof within 15 days after the receipt of such written notice
from the Company, provided that:
17
<PAGE>
(a) the Company shall be required to effect only
two Demand Registrations hereunder, each of which shall have been initially
requested by holders of at least 60% of the Securities outstanding at the time
of such request, except that, upon request of any holder of Securities
(regardless of the number of Securities held by such holder), the Company shall
be required to effect an unlimited number of registrations on Form S-3, or a
similar short form registration statement, which registrations (hereinafter
referred to as "Short Form Registrations") shall not be included for purposes of
this Section 9.1(a) in the total of two Demand Registrations which the Company
is required to effect;
(b) if a Demand Registration is in connection with
an underwritten public offering, the underwriters will be selected by holders of
a majority of Registrable Common Stock being included in such offering, subject
to the approval of the Company (which approval shall not be unreasonably
withheld), and each holder of Securities agrees by acquisition of such
Securities not to effect any public sale or distribution of such Securities or
Registrable Common Stock (other than as part of such underwritten public
offering) during the period commencing seven days prior to, and expiring ninety
(90) days after, such underwritten public offering has become effective;
(c) the Company shall not include and shall not
permit third parties to include additional securities in any Demand Registration
without the consent of the holders of a majority of the shares of Registrable
Common Stock sought to be included in such Demand Registration;
(d) if a Demand Registration is in connection with
an underwritten public offering, and if the managing underwriters advise the
Company in writing that in their opinion the amount of Registrable Common Stock
requested to be included in such registration exceeds the amount of such
Registrable Common Stock which can be sold in such offering, the Company will
nevertheless include such Registrable Common Stock in such registration prior to
the inclusion of any securities which are not Registrable Common Stock
(notwithstanding any consent obtained in accordance with Section 9.1(c) hereof)
pro rata among the holders of Registrable Common Stock requesting inclusion on
the basis of the number of shares of Registrable Common Stock of such holders;
and
(e) registrations under this Section 9.1 will be on
a form permitted by the rules and regulations of the Securities and Exchange
Commission selected by the underwriters if the Demand Registration is in
connection with an underwritten public offering or otherwise by the Company.
18
<PAGE>
9.2. Incidental Registrations.
(a) If the Company at any time proposes to register
any of its securities under the Securities Act (other than pursuant to Section
9.1) whether of its own accord or at the demand of any holder of such securities
pursuant to an agreement with respect to the registration thereof, and if the
form of registration statement proposed to be used may be used for the
registration of Registrable Common Stock, the Company will give notice to all
holders of Securities not less than fifteen (15) days prior to the filing of
such registration statement of its intention to proceed with the proposed
registration (the "Incidental Registration"), and, upon the written request of
any such holder made within ten (10) days after the receipt of any such notice
(which request will specify the Registrable Common Stock intended to be disposed
of by such holder and state the intended method of disposition thereof), the
Company will use reasonable efforts to cause all Registrable Common Stock as to
which registration has been requested to be registered under the Securities Act,
provided that if such registration is in connection with an underwritten public
offering, such holder's Securities to be included in such registration shall be
offered upon the same terms and conditions as apply to any other securities
included in such registration.
(b) If an Incidental Registration is a primary
registration on behalf of the Company and is in connection with an underwritten
public offering, and if the managing underwriters advise the Company in writing
that in their opinion the amount of securities requested to be included in such
registration (whether by the Company, the holders of Securities pursuant to
Section 9.2(a) or other holders of its securities pursuant to any other rights
granted by the Company to demand inclusion of any such securities in such
registration) exceeds the amount of such securities which can be sold in such
offering, the Company will include in such registration the amount of securities
requested to be included which in the opinion of such underwriters can be sold,
in the following order (i) first, all of the securities the Company proposes to
sell, (ii) second, subject to the terms of any other agreement to which the
Company is a party, all of the Registrable Common Stock requested to be included
in such registration, pro rata among the holders thereof on the basis of the
number of shares of Registrable Common Stock then owned by such holders, and
(iii) third, any other securities requested to be included in such registration,
pro rata among the holders thereof on the basis of the amount of such securities
then owned by such holders.
(c) If an Incidental Registration is a secondary
registration on behalf of holders of securities of the Company and
is in connection with an underwritten public offering, and if the
19
<PAGE>
managing underwriters advise the Company in writing that in their opinion the
amount of securities requested to be included in such registration (whether by
such holders, by holders of Securities pursuant to Section 9.2(a) or by holders
of its securities pursuant to any other rights granted by the Company to demand
inclusion of securities in such registration) exceeds the amount of such
securities which can be sold in such offering, the Company will include in such
registration, the amount of securities requested to be included which in the
opinion of such underwriters can be sold, in the following order (i) first, all
of the securities requested to be included by holders demanding or requesting
such registration, (ii) second, subject to the terms of any other agreement to
which the Company is a party, all of the Registrable Common Stock requested to
be included in such registration, pro rata among the holders thereof on the
basis of the number of shares of Registrable Common Stock then owned by such
holders; and (iii) third, any other securities requested to be included in such
registration, pro rata among the holders thereof on the basis of the amount of
such securities then owned by such holders.
9.3. Registration Procedures. If and whenever the
Company is required to use reasonable efforts to effect or cause
the registration of any Registrable Common Stock under the
Securities Act as provided in this Section 9, the Company will, as
expeditiously as possible:
(a) prepare and file with the Securities and
Exchange Commission a registration statement with respect to such Registrable
Common Stock and use reasonable efforts to cause such registration statement to
become effective;
(b) prepare and file with the Securities and
Exchange Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than nine
(9) months or such shorter period in which the disposition of all securities in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement shall be completed, and to
comply with the provisions of the Securities Act (to the extent applicable to
the Company) with respect to such dispositions;
(c) furnish to each seller of such Registrable
Common Stock such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus), in conformity with the requirements of
the Securities
20
<PAGE>
Act, and such other documents, as such seller may reasonably request, in order
to facilitate the disposition of the Registrable Common Stock owned by such
seller;
(d) use its reasonable efforts to register or
qualify such Registrable Common Stock covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as any seller
reasonably requests, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Common Stock owned by such
seller, except that (i) the Company will not be required to register or qualify
such Registrable Common Stock in any jurisdiction in which the officers or
Directors of the Company would be required by the relevant securities commission
or its equivalent in such jurisdiction to enter into an agreement restricting
their rights to transfer their shares of Common Stock, and (ii) the Company will
not for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not, but for the
requirements of this Section 9.3(d) be obligated to be qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;
(e) provide a transfer agent and registrar for all
such Registrable Common Stock covered by such registration statement not later
than the effective date of such registration statement;
(f) notify each seller of such Registrable Common
Stock at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Common Stock, such prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(g) cause all such Registrable Common Stock to be
listed on each securities exchange or automated over-the-counter trading system
on which similar securities issued by the Company are then listed;
21
<PAGE>
(h) enter into such customary agreements (including
an underwriting agreement in customary form) and take all such other actions as
reasonably required in order to expedite or facilitate the disposition of such
Registrable Common Stock; and
(i) make available for inspection by any seller of
Registrable Common Stock, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any such seller and/or representative of such seller or
underwriter, all financial and other records, pertinent corporation documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement, provided, however, nothing herein shall require the Company to
provide Dominion with copies of or access to its scientific data.
9.4. Registration and Selling Expenses.
(a) All expenses incurred by the Company in
connection with the Company's performance of or compliance with this Section 9,
including, without limitation (i) all registration and filing fees (including
all expenses incident to filing with the National Association of Securities
Dealers, Inc.), (ii) blue sky fees and expenses, (iii) all necessary printing
and duplicating expenses and (iv) all fees and disbursements of counsel and
accountants for the Company (including the expenses of any audit of financial
statements), retained by the Company (all such expenses being herein called
"Registration Expenses"), will be paid by the Company except as otherwise
expressly provided in this Section 9.4.
(b) The Company will, in any event, in connection
with any registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of audits
of year-end financial statements), the expense of liability insurance and the
expenses and fees for listing the securities to be registered on one or more
securities exchanges or automated over-the-counter trading systems on which
similar securities issued by the Company are then listed.
(c) The Company shall bear the Registration
Expenses of the first Demand Registration (which is not a Short Form
Registration) and of each Short Form Registration hereunder. Nothing herein
shall be construed to prevent any holder or holders from retaining such counsel
as they shall choose, the expenses of which shall be borne by such holder or
holders.
22
<PAGE>
(d) The holders of Registrable Common Stock covered
by the second Demand Registration (which is not a Short Form Registration) shall
pay or reimburse the Company for the Registration Expenses in connection
therewith, provided that they shall not be liable for expenses which would
otherwise have been incurred by the Company in the ordinary course of business
or in excess of an aggregate of $60,000; and provided further that to the extent
securities of the Company or third parties are included in such registration,
the Registration Expenses of such registration shall be borne pro rata by the
Company and selling security holders in proportion to the dollar value of the
securities being sold by each such person.
(e) The holders of Registrable Common Stock covered
by any Incidental Registration shall pay or reimburse the Company for any
incremental Registration Expenses incurred by reason of the inclusion of such
Registrable Common Stock in such registration.
(f) Notwithstanding any of the foregoing, all
underwriting discounts, selling commissions and stock transfer taxes applicable
to sales of Registrable Common Stock in connection with any Demand Registration
or Incidental Registration shall be borne by all persons who are selling
Registrable Common Stock pursuant to such Registration Statement in proportion
to the dollar value of the securities being sold by each such person, or in such
other proportion as they may agree.
(g) All fees and expenses required to be paid by
the holders of Registrable Common Stock in connection with any Demand
Registration or Incidental Registration hereunder shall be borne by said holders
in proportion to the dollar value of the securities of such holder covered by
such Demand Registration or Incidental Registration.
9.5. Other Public Sales and Registrations. The Company agrees
that if it has previously filed a registration statement with respect to
Registrable Common Stock in connection with a Demand Registration or Incidental
Registration hereunder, and if such previous registration has not been withdrawn
or abandoned, the Company will not file or cause to become effective any other
registration of any of its securities under the Securities Act or otherwise
effect a public sale or distribution of its securities (except pursuant to
registration on Form S-8 or any successor form relating to a special offering to
the employees or security holders of the Company or any Subsidiary), whether on
its own behalf or at the request of any holder of such securities, until at
least ninety (90) days have elapsed after the effective date of such previous
registration.
23
<PAGE>
9.6. Transferees of Securities. Notwithstanding anything else
set forth in this Section 9, no person to whom Securities are transferred shall
have any rights under this Section 9 as a holder of such Securities unless such
person agrees to be bound by the terms and conditions of this Agreement.
9.7. Indemnification.
(a) The Company hereby agrees to indemnify, to the
extent permitted by law, each holder of Registrable Common Stock, its officers
and directors, if any, and each person, if any, who controls such holder within
the meaning of the Securities Act, against all losses, claims, damages,
liabilities and expenses (under the Securities Act or common law or otherwise)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended or
supplemented if the Company has furnished any amendments or supplements thereto)
or any preliminary prospectus, which registration statement, prospectus or
preliminary prospectus shall be prepared in connection with a Demand
Registration or Incidental Registration, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement contained in or by any omission or alleged
omission from information furnished to the Company by such holder in connection
with a Demand Registration or Incidental Registration, provided the Company will
not be liable pursuant to this Section 9.7 if such losses, claims, damages,
liabilities or expenses have been caused by any selling security holder's
failure to deliver a copy of the registration statement or prospectus, or any
amendments or supplements thereto, after the Company has furnished such holder
with a sufficient amount of copies of the same.
(b) In connection with any registration statement
in which a holder of Registrable Common Stock is participating, each such holder
shall furnish to the Company in writing such information as is reasonably
requested by the Company for use in any such registration statement or
prospectus and shall indemnify, to the extent permitted by law, the Company, its
directors and officers and each person, if any, who controls the Company within
the meaning of the Securities Act, against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, but only to the extent such losses, claims,
24
<PAGE>
damages, liabilities or expenses are caused by an untrue statement or alleged
untrue statement contained in or by an omission or alleged omission from
information so furnished by such holder in connection with the Demand
Registration or Incidental Registration. If the offering pursuant to any such
registration is made through underwriters, each such holder agrees to enter into
an underwriting agreement in customary form with such underwriters and to
indemnify such underwriters, their officers and directors, if any, and each
person who controls such underwriters within the meaning of the Securities Act
to the same extent as hereinabove provided with respect to indemnification by
such holder of the Company.
(c) Promptly after receipt by an indemnified party
under Section 9.7(a) or Section 9.7(b) of notice of the commencement of any
action or proceeding, such indemnified party will, if a claim in respect thereof
is made against the indemnifying party under such Section, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under such Section. In case any
such action or proceeding is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and, to the extent that it
wishes, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel approved by such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under such Section for any legal or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless incurred at the
written request of the indemnifying party. Notwithstanding the above, the
indemnified party will have the right to employ counsel of its own choice in any
such action or proceeding if the indemnified party has reasonably concluded that
there may be defenses available to it which are different from or additional to
those of the indemnifying party, or counsel to the indemnified party is of the
opinion that it would not be desirable for the same counsel to represent both
the indemnifying party and the indemnified party because such representation
might result in a conflict of interest (in either of which cases the
indemnifying party will not have the right to assume the defense of any such
action or proceeding on behalf of the indemnified party or parties and such
legal and other expenses will be borne by the indemnifying party). An
indemnifying party will not be liable to any indemnified party for any
settlement of any such action or proceeding effected without the consent of such
indemnifying party.
25
<PAGE>
(d) If the indemnification provided for in
Section 9.7(a) or Section 9.7(b) is unavailable under applicable law to an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and of the holders of Registrable Common Stock on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages, or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
holders of Registrable Common Stock on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or by the holders of Registrable Common
Stock and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages and liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in Section 9.7(c), any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
(e) Promptly after receipt by the Company or any
holder of Securities of notice of the commencement of any action or proceeding,
such party will, if a claim for contribution in respect thereof is to be made
against another party (the "contributing party"), notify the contributing party
of the commencement thereof; but the omission so to notify the contributing
party will not relieve it from any liability which it may have to any other
party other than for contribution hereunder. In case any such action, suit, or
proceeding is brought against any party, and such party notifies a contributing
party of the commencement thereof, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party
similarly notified.
10. Certain Definitions. For the purposes of this Agreement
the following terms have the respective meanings set forth below:
26
<PAGE>
10.1. "Affiliate" means any person, corporation, firm or
entity which directly or indirectly controls, is controlled by, or is under
common control with the indicated person, corporation, firm or entity.
10.2. "Common Stock" means the Company's Common Stock.
10.3. "Generally Accepted Accounting Principles" means
generally accepted accounting principles consistently applied.
10.4. "Officers' Certificate" means a certificate
executed on behalf of the Company by its President, Chairman of the
Board, Chief Financial Officer, Secretary or one of its Vice-
Presidents.
10.5. "Registrable Common Stock" means any Common Stock owned
by, or any Common Stock issuable upon exercise of any options, warrants or other
rights to purchase Common Stock owned by, a holder of Securities.
10.6. "Securities" means the Shares, whether issued at the
First Closing or thereafter, but shall not include any such Shares or Common
Stock sold or distributed by the Company in any public offering.
10.7. "Securities Act" means, as of any given time, the
Securities Act of 1933, as amended, or any similar federal law then
in force.
10.8. "Securities Exchange Act" means, as of any given
time, the Securities Exchange Act of 1934, as amended, or any
similar federal law then in force.
10.9. "Securities and Exchange Commission" includes any
governmental body or agency succeeding to the functions thereof.
10.10. "Subsidiary" means any person, corporation, firm or
entity at least the majority of the equity securities (or equivalent interest)
of which are, at the time as of which any determination is being made, owned of
record or beneficially by the Company, directly or indirectly, through any
Subsidiary or otherwise.
11. Miscellaneous.
11.1. Survival of Representations, Warranties and Covenants.
All representations, warranties, covenants and agreements contained in this
Agreement, or in any document, exhibit, schedule or certificate by any party
delivered in
27
<PAGE>
connection herewith shall survive the execution and delivery of this Agreement
and the date of each Closing and the consummation of the transactions
contemplated hereby, regardless of any investigation made by Dominion or on its
behalf, provided that, except as otherwise provided herein, the obligations of
the Company to perform the covenants and agreements set forth in Section 8
hereof will continue only so long as any holder owns in excess of 25% of the
Securities or until the Securities have been registered under the Securities Act
and distributed to the public, and, further provided that, such representations
and warranties shall survive until December 31, 1996.
11.2. Expenses. The Company agrees to pay, and save Dominion
harmless against liability for the payment of (a) fees and expenses (including,
without limitation, attorneys' fees) incurred with respect to any amendments or
waivers (whether or not the same shall become effective) under or with respect
to this Agreement and the transactions contemplated hereby, (b) stamp and other
taxes which may be payable in respect of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby including
the issuance, delivery and acquisition of the Shares, and (c) fees and expenses
(including, without limitation, reasonable attorneys' fees) incurred in respect
of the enforcement of the rights granted under this Agreement and the
transactions contemplated hereby.
11.3. Amendments and Waivers. This Agreement and all exhibits
and schedules hereto set forth the entire agreement and understanding among the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
This Agreement may be amended, the Company may take any action herein prohibited
or omit to take any action herein required to be performed by it, and any breach
of any covenant, agreement, warranty or representation may be waived, only if
the Company has obtained the written consent or waiver of (a) Dominion, if the
amendment, action, omission or waiver is one which affects its rights or
obligations under this Agreement and (b) the holders of 51% of the Securities
then outstanding if the amendment, action, omission or waiver is one which
affects their rights or obligations under this Agreement. No course of dealing
between or among any persons having any interest in this Agreement will be
deemed effective to modify, amend or discharge any part of this Agreement or any
rights or obligations of any person under or by reason of this Agreement.
11.4. Successors and Assigns. This Agreement may not be
assigned by the Company except with the prior written consent of
the holders of 51% of the Securities then outstanding. This
Agreement shall be binding upon and inure to the benefit of the
28
<PAGE>
Company and its permitted successors and assigns and Dominion and its successors
and assigns. The provisions hereof which are for Dominion's benefit as purchaser
or holder of the Shares, are also for the benefit of, and enforceable by, any
subsequent holder of such Shares.
11.5. Notices. All notices, demands and other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given personally or when
mailed by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the addresses of the respective parties set forth
below or to such changed addresses as such parties may have fixed by notice;
provided, however, that any notice of change of address shall be effective only
upon receipt:
To the Company:
Immunotherapeutics, Inc.
3233 Fifteenth Street South
Fargo, North Dakota 58104
Attention: Dr. Gerald Vosika
With a Copy to:
William S. Clarke, P.A.
5 Independence Way
Princeton, New Jersey 08540
To Dominion:
Dominion Resources, Inc.
The Abbey
355 Madison Avenue
Morristown, New Jersey 07960
With a Copy to:
William E. McManus, III, Esquire
Spencer's Corner
90 Main Street - Suite 211
Centerbrook, Connecticut 06409-1058
11.6. Governing Law. The validity, performance,
construction and effect of this Agreement shall be governed by the
internal laws of the State of New Jersey without giving effect to
principles of conflicts of law.
29
<PAGE>
11.7 Counterparts. This Agreement may be executed in any
number of counterparts and, notwithstanding that any of the parties did not
execute the same counterpart, each of such counterparts shall, for all purposes,
be deemed an original, and all such counterparts shall constitute one and the
same instrument binding on all of the parties thereto.
11.8 Headings. The headings of the Sections hereof are
inserted as a matter of convenience and for reference only and in no way define,
limit or describe the scope of this Agreement or the meaning of any provision
hereof.
11.9. Severability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless the provision
held invalid shall substantially impair the benefit of the remaining portion of
this Agreement.
11.10. Approval of Dominion. Whenever the approval of
Dominion's representatives on the Company's Board of Directors is required
pursuant to this Agreement, if, at such time, Dominion has no such
representatives, then the approval of Dominion shall be required in lieu
thereof.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Immunotherapeutics, Inc.
By: /s/ Gerald Vosika, Chairman
Name: Gerald Vosika
Title: Chairman
Dominion Resources, Inc.
By: /s/ Gene Mulvihill
Name: Gene Mulvihill
Title: Chairman
31
<PAGE>
SCHEDULE 6.3
CAPITALIZATION
It has been proposed and Dominion has agreed to the grant of a ten-year
stock option to Dr. Gerald Vosika to purchase 2,000,000 shares of the Company's
Common Stock at an exercise price of $.065 per share. Dominion has agreed to
cause its designee on the Company's Board of Directors to vote in favor of the
grant of such option.
Certain of the options granted to employees require or may require the
Company to repurchase their shares of Common Stock issued on exercise of such
options in the event of the termination of the employment of such employee.
i
<PAGE>
SCHEDULE 6.6
FINANCIAL STATEMENTS
1. Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1995.
2. Quarterly Report on Form 10-QSB for the fiscal quarter
ended October 31, 1995.
ii
<PAGE>
SCHEDULE 6.7
ADVERSE CHANGES
Since October 31, 1995, the Company has continued to expend
funds at the rate of approximately $90,000 per month. The Company
has had no revenue during this period of time.
On November 27, 1995, the Company repurchased 1,150,001 shares
of Common Stock from Primedex Health Systems, Inc. at a purchase
price of $143,750.12.
iii
<PAGE>
SCHEDULE 6.8
CERTAIN DEVELOPMENTS
None
iv
<PAGE>
SCHEDULE 6.9
PROPERTIES
None
v
<PAGE>
SCHEDULE 6.10
TAXES
None
vi
<PAGE>
SCHEDULE 6.11
LITIGATION
None
vii
<PAGE>
SCHEDULE 6.13
TRADEMARKS AND PATENTS
viii
<PAGE>
SCHEDULE 6.14
INSURANCE
ix
<PAGE>
SCHEDULE 6.15
AGREEMENTS
Agreement with Blair Mowery providing for payments of $5,000 per month.
The agreement is terminable upon mutual agreement of the parties.
Agreement with Robert Brey providing for payments of $5,000 per month
through June 30, 1996.
x
<PAGE>
SCHEDULE 6.16
UNDISCLOSED LIABILITIES
None other than as set forth in Schedules 6.7 and 6.15.
xi
<PAGE>
SCHEDULE 6.17
CONFLICTING AGREEMENTS
None
xii
<PAGE>
SCHEDULE 6.18
DISCLOSURE
None
xiii
<PAGE>
SCHEDULE 6.20
COMPLIANCE WITH SECURITIES LAWS
None
xiv
<PAGE>
SCHEDULE 8.6
USE OF PROCEEDS
General corporate purposes and working capital.
xv
<PAGE>
EXHIBIT 11
IMMUNOTHERAPEUTICS, INC.
- -------------------------------------------------------------------------------
SCHEDULE OF COMPUTATION OF NET INCOME PER COMMON SHARE
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Net Loss $ (1,187,985)
Assumed Interest on 5% Government Securities, Net of Tax Effect 222,125
---------------
NET LOSS USED FOR PER SHARE AMOUNTS $ (965,860)
===============
Average Shares Outstanding 5,067,253
Add: Common Equivalent Shares, Determined Using the
"Modified Treasury Stock Method" 348,571
WEIGHTED AVERAGE NUMBER OF SHARES USED IN CALCULATION
OF LOSS PER SHARE 5,415,824
NET LOSS PER COMMON SHARE $ (.18)
===============
</TABLE>
This computation is submitted in accordance with Regulation S-K, Item 601(b)(11)
although it is contrary to paragraph 40 of APB Opinion No. 15 in that its result
is antidilutive in 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,022,120
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,066,426
<PP&E> 183,578
<DEPRECIATION> 741,923
<TOTAL-ASSETS> 1,435,674
<CURRENT-LIABILITIES> 57,483
<BONDS> 0
0
0
<COMMON> 5,902
<OTHER-SE> 10,072,842
<TOTAL-LIABILITY-AND-EQUITY> 1,435,674
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,262,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,187,985)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,187,985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,187,985)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
