FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-11572
Endorex Corporation
(Exact name of registrant as specified in its charter)
Delaware 41-1505029
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3233 15th Street South, Fargo, ND 58104
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (701) 232-9575
ImmunoTherapeutics, Inc.
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities 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
At September 8 1996, 16,262,047 shares of the registrant's common stock
(par value, $.001 per share) were outstanding.
<PAGE>
ENDOREX CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of July 31, 1996 2
Statements of Operations for the three
and six month periods ended July 31, 1996
and July 31, 1995 3
Statements of Cash Flows for the
six month periods ended July 31, 1996
and July 31, 1995 4
Condensed Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8K 11
Signatures 12
1
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(UNAUDITED)
<CAPTION>
July 31,
1996
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,829,018
Prepaid Expenses 53,824
TOTAL CURRENT ASSETS $ 1,882,840
Office and lab equipment, Net of Accumulated Depreciation of
$442,810. $ 89,560
Leasehold improvements, Net of Accumulated Amortization of
$402,485. 12,185
Patent issuance costs, Net of Accumulated Amortization of
$14,774 173,753
TOTAL ASSETS $ 2,158,338
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable and accrued expenses $ 9,524
TOTAL CURRENT LIABILITIES $ 9,524
STOCKHOLDERS' EQUITY:
Preferred stock, $.05 par value. Authorized 500,000 shares;
none issued and outstanding $ --
Common stock, $.001 par value. Authorized 50,000,000 shares;
issued 18,041,675; outstanding 16,262,047 18,042
Additional paid-in capital 11,517,742
(Deficit) accumulated during the development stage (8,943,217)
Total $ 2,592,567
Treasury Stock, at cost, 1,779,628 shares (443,750)
TOTAL STOCKHOLDERS' EQUITY $ 2,148,817
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,158,338
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
2
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Three Months Ended July 31, (date of inception)
1996 1995 to July 31, 1996
<S> <C> <C> <C>
SBIR contract revenue $ -- $ -- $ 100,000
Operating expenses:
SBIR contract research
and development $ -- $ -- 86,168
Proprietary research
and development 273,654 $ 180,469 7,060,596
Rent expenses 6,904 $ 6,562 372,151
General and Admini-
strative expenses $ 138,142 $ 158,31 2,282,943
Total Operating Expenses $ 418,701 $ 345,343 9,801,859
(Loss) from Operations $ (418,701) $ (345,343) $ (9,701,857)
Other Income $ -- $ -- $ 1,512
Interest Income $ 12,243 $ 21,603 $ 797,768
Interest Expense $ -- $ -- $ (40,638)
Net (Loss) $ (406,458) $ (323,740) $ (8,943,217)
Net (Loss) per share $ (0.04) $ (0.05)
Weighted average common
shares outstanding 9,276,863 5,901,6756
</TABLE>
<F/N>
See accompanying condensed notes to financial statements
3
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS (cont.)
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Three Months Ended July 31, (date of inception)
1996 1995 to July 31, 1996
<S> <C> <C> <C>
SBIR contract revenue $ -- $ -- $ 100,000
Operating expenses:
SBIR contract research
and development $ -- $ -- 86,168
Proprietary research
and development 508,840 $ 411,549 7,060,596
Rent expenses 16,748 $ 16,406 372,151
General and Admini-
strative expenses $ 182,517 $ 215,168 2,282,943
Total Operating Expenses $ 708,106 $ 643,123 9,801,859
(Loss) from Operations $ (708,106) $ (643,123) $ (9,701,857)
Other Income $ -- $ -- $ 1,512
Interest Income $ 21,692 $ 45,441 $ 797,768
Interest Expense $ -- $ -- $ (40,638)
Net (Loss) $ (686,414) $ (597,682) $ (8,943,217)
Net (Loss) per share $ (0.08) $ (0.10)
Weighted average common
shares outstanding 8,626,586 5,901,675
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
3a
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Six Months ended July 31, (date of inception)
1996 1995 to July 31, 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (686,414) $ (597,682) $ (8,943,217)
Adjustments to Reconcile
Net (Loss) to Cash
Provided by Operating
Activities:
Depreciation and
Amortization $ 91,950 $ 96,934 851,097
Amortization of
Discounted Note
Receivable -- -- --
Amortization of
Deferred Revenue -- -- --
Amortization of
Deferred Compensation -- 11,250 131,786
Excess of Fair Market
Value Over Option
Price on Non-Qualified
Stock Options Granted -- (5,474) 283,680
Gain on Sale of Assets -- -- (740)
Write-off on Patent
Issuance Cost -- -- 101,006
Changes in Assets and
Liabilities:
(Increase) Decrease in:
Prepaid Expenses (9,518) 13,581
(53,826)
Increase (Decrease) in:
Accounts Payable and
Accrued Expenses (46,459) (62,614) 100,933
Accrued Salaries (1,479) -- (1,479)
Accrued Payroll Taxes (23) -- (23)
Total Adjustments $ 34,470 $ 53,677 $ 1,412,494
NET CASH - OPERATING
ACTIVITIES - Forward $ (651,944) $ (544,005) $ (7,530,723)
INVESTING ACTIVITIES:
Patent Issuance Cost $ 3,380 $ (28,796) $ (289,493)
Organizational Costs
Incurred -- -- (135)
Deposit on Leasehold
Improvements -- -- (5,000)
Purchase of Leasehold
Improvements -- -- (414,671)
Purchases of Office
and Lab Equipment (1,579) (5,144) (518,561)
Proceeds from Assets Sold -- -- 1,000
NET CASH - INVESTING
ACTIVITIES - Forward $ 1,801 $ (33,940) $ (1,226,860)
<F/N>
See Accompanying Condensed Notes to Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Cumulative from
February 15, 1985
Six Months ended July 31, (date of inception)
1996 1995 to July 31, 1996
<S> <C> <C> <C>
NET CASH - OPERATING
ACTIVITIES - Forwarded $ (651,944) $ (544,005) $ (7,530,723)
NET CASH - INVESTING
ACTIVITIES - Forwarded $ 1,801 $ (33,940) $ (1,226,860)
FINANCING ACTIVITIES:
Net Proceeds from
Issuance of Common Stock $ 1,312,500 $ -- $ 10,907,376
Proceeds from Exercise of
Options 144,540 -- 144,627
Proceeds from Borrowings
from President -- -- 41,333
Repayment of Borrowings
from President -- -- (41,333)
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 on 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 Service -- -- (71,968)
Purchase of Treasury
Stock $ -- $ -- $ (443,750)
NET CASH - FINANCING
ACTIVITIES $ 1,457,040 $ -- $ 10,586,600
NET (DECREASE)INCREASE
IN CASH AND CASH
EQUIVALENTS $ 806,897 $ (577,945) $ 1,829,016
CASH AND CASH EQUIVALENTS-
BEGINNING OF PERIODS $ 1,022,119 $ 2,236,156 $ --
CASH AND CASH EQUIVALENTS -
END OF PERIODS $ 1,829,016 $ 1,658,211 $ 1,829,016
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash paid during
the periods for:
Interest $ -- $ -- $ --
<F/N>
See accompanying Condensed Notes to Financial Statements
</TABLE>
5
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Statements
The Balance Sheet as of July 31, 1996, the Statements of Operations
for the three and six month periods ended July 31, 1996 and 1995; and the
cumulative period from February 15, 1985 (date of inception) to July 31,
1996; and the Statements of Cash Flows for the six month periods ended
July 31, 1996 and July 31, 1995 have been prepared by the Company without
audit. In the opinion of management, all adjustments necessary to present
fairly the financial position at July 31, 1996 and the results of operations
and cash flows for the periods ended July 31, 1996 and July 31, 1995 have
been made. All adjustments were of a normally recurring nature. The results
of operations for interim periods are not necessarily indicative of the full
fiscal year.
6
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company is a development stage enterprise and expects no significant
revenue from the sale of products for the current fiscal year.
At January 31, 1996, and July 31, 1996, the Company had cash and cash
equivalents of $1,022,120 and $1,829,018, respectively, and working capital
of $1,008,943 and $1,873,316, respectively.
The Company's current level of research and development activities r
equires 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 first
proposed product. Management of the Company believes that its current cash
resources will be sufficient to support its current level of operations for
at least through January 31, 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 agreements 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 obtain from alternative sources the substantial
financing necessary on acceptable terms, it would be unable to complete the
development or commercialize any products.
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 or an aggregate purchase
price of $325,000. Such shares were sold in three approximately equal
installments at closings 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, was elected as a Director of the Company to serve as Dominion's
designee to the Company's Board of Directors and served until June 14, 1996.
The purchase agreement also grants to Dominion the right to have registered
7
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2 (Cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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. The purchase price was paid from Dominion's working
capital.
On June 13, 1996, Dominion entered into an agreement with Aries Fund, a
Cayman Island Trust, and the Aries Domestic Fund, L.P., a Delaware limited
partnership ("The Aries Fund" and the "Aries Domestic Fund, L.P." are
collectively referred to as "Aries"), with the Company a party to the
agreement, whereby Dominion sold and Aries purchased an aggregate of
4,000,000 shares of the Company's Common Stock at a price of $.10 per share.
The purchase price was paid from Aries general funds. As part of the
transaction, Dominion transferred to Aries certain of its rights under the
March 1, 1996 agreement including, among others, the right to designate a
Director of the Company and rights to have the shares registered under the
Securities Act of 1933, as amended. Upon completion of the sale of the
4,000,000 shares, Mr. Steve Kanzer was elected a Director of the Company as
the designee of Aries and Mr. McManus resigned. Also concurrently with the
completion of the transaction, the Company redeemed its outstanding rights
under the Shareholders Rights Agreement dated as of September 23, 1994. On
June 26, 1996, Aries purchased from the Company an additional 5,000,000
shares of the Company's Common Stock at a price of $.20 per share or an
aggregate of $1,000,000. The purchase price was paid from Aries' general
funds. The purchase agreement relating to such shares contains various
representations and warranties concerning the Company and its activities and
also various affirmative and negative covenants. The purchase agreement
grants to Aries the right to have registered under the Securities Act of
1933, as amended, the shares sold to Aries 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 Aries.
On July 25, 1996, the Company entered into an Employment Agreement with
Michael S. Rosen to serve as the President, Chief Executive Officer and a
Director of the Company. Mr. Rosen's employment with the Company commenced
on August 19, 1996 and terminates on August 30, 2000. Mr. Rosen's initial
salary pursuant to the agreement is $200,000. Mr. Rosen was elected a
Director of the Company on August 22, 1996. Mr. Rosen was also granted a
seven-year option to purchase 700,000 shares of the Company's Common Stock
at an exercise price of $1.25 per share with such option to vest as to
100,000 shares on August 19, 1996 and quarterly thereafter at the rate of
25,000 shares per quarter through June 30, 1997, 37,500 shares per quarter
through September 30, 2000, and 12,500 shares on December 31, 2000 at which
time the option shall be fully vested. If Mr. Rosen's employment terminates
prior to December 31, 2000 the option shall be exercisable thereafter only
to the extent exercisable on the date of termination. The agreement
contains other provisions, including, among others, a covenant restricting
Mr. Rosen's ability to engage in activities competitive with the Company for
the term of the agreement and for 18 months thereafter.
8
<PAGE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Item 2 (Cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On July 31, 1996, Dr. Gerald Vosika, the Chairman of the Board and a
Director of the Company, purchased an aggregate of 2,100,000 shares of
Common Stock on exercise of options.
The Company intends, from time to time in the future, to seek to expand
its research and development activities into other immunopharmaceutical
agents that it either may license from other persons or seek to develop.
There can be no assurance that the Company will be successful in this
regard. Any such activities may require the expenditure of funds not
presently available to the Company. The Company intends to seek to obtain
these funds from possible future public or private sales of its securities
or other sources, none of which have been presently identified.
Results of Operations
Six Months Ended July 31, 1996 Compared With Six Months Ended July 31, 1995.
Total operating expenses for the six months ended July 31, 1996 were
$708,106 compared to $643,123 in the preceding year representing an increase
of $64,983 or 10%. The increase resulted from a increase in the Company's
research and development activities and increased administrative cost.
Proprietary research and development expenses increased by $97,291 to
$508,840 in 1996 compared to $411,549 in 1995, due to the increase in
research and development activities. Total general and administrative
expenses decreased by $32,651 or 15% reflecting largely lower insurance
rates.
Interest income decreased from $45,441 to $21,692, reflecting the decrease
in the Company's average cash balances.
The Company's net loss increased from $597,682 to $686,414 or 16%,
reflecting the Company's increase in operating expenses as noted above.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held an annual meeting of stockholders on August
8, 1996.
(b) At the meeting, the following persons were elected as
Directors to serve until the annual meeting of stockholders
in 1997 and until their successors have been elected and
qualified:
Votes in Favor Votes Withheld
Gerald J. Vosika, M.D. 13,618,860 28,480
Carl Gilbert, Ph.D. 13,619,050 28,490
Steve Kanzer 13,618,910 28,430
(c) Also at the meeting, a proposal was adopted by the votes
indicated to amend the Company's Certificate of Corporation
to change its corporate name to Endorex Corp.:
In Favor 13,599,655
Against or Withheld 33,664
Abstentions 13,438
Not Voted 475,290
Item 5. Other Information
On July 25, 1995, the Company entered into an Employment Agreement with
Michael S. Rosen to serve as the President, Chief Executive Officer and a
Director of the Company. Mr. Rosen's employment with the Company commenced
on August 19, 1996 and terminates on August 30, 2000. Mr. Rosen was elected
a Director of the Company on August 22, 1996. Mr. Rosen was also granted a
seven-year option to purchase 700,000 shares of the Company's Common Stock
at an exercise price of $1.25 per share with such option to vest as to
100,000 shares on August 19, 1996 and quarterly thereafter at the rate of
25,000 shares per quarter through June 30, 1997, 37,500 shares per quarter
through September 30, 2000, and 12,500 shares on December 31, 2000 at which
time the option shall be fully vested. If Mr. Rosen's employment terminates
prior to December 31, 2000 the option shall be exercisable thereafter only
to the extent exercisable on the date of termination. The agreement
contains other provisions, including, among others, a covenant restricting
Mr. Rosen's ability to engage in activities competitive with the Company for
the term of the agreement and for 18 months thereafter.
10
<PAGE>
PART II - OTHER INFORMATION (Cont.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-QSB.
(i) Employment Agreement dated July 25, 1996 with Michael Rosen.
(ii) Option Agreement with Michael Rosen.
(b) No report on Form 8-K was filed by the registrant during the
fiscal quarter ended July 31, 1996.
11
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENDOREX CORPORATION
By _____________________________________
Gerald J. Vosika
Chairman and Director of the Company
Date _______________________
By ____________________________________
James Burrow
Chief Financial Officer
12
<PAGE>
EMPLOYMENT AGREEMENT
By and Between
ImmunoTherapeutics, Inc.
and
Michael S. Rosen
Agreement made this 25th day of July, 1996, between ImmunoTherapeutics,
Inc., a Delaware corporation (the "Company") and Michael S. Rosen (the
"Executive").
The Company is desirous of employing the Executive as its President,
Chief Executive Officer and a Director, and the Executive is desirous of
becoming employed by the Company in those capacities.
The Company and the Executive desire to set forth in this Agreement the
terms and conditions on which the Executive will be employed by the Company
as its President, Chief Executive Officer and a Director.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to
be legally bound hereby, the parties hereto agree as follows:
1. Employment
The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
2. Term
The employment of the Executive by the Company as provided in
Section 1 will commence on August 19, 1996 and end on August 30, 2000,
unless further extended or sooner terminated as hereinafter provided.
3. Position and Duties
The Executive shall serve as President, Chief Executive Officer
and a Director of the Company, and shall have such responsibilities and
authority consistent with those positions as may, from time to time, be
assigned to the Executive by the Board of Directors of the Company. The
Executive shall devote substantially all his working time and efforts to the
business and affairs of the Company. Executive may remain a director of
Pharma Mar, S.A. and, subject to the prior approval of the Company's Board
of Directors, may be elected a director of one or more other corporations,
provided, however, time expended by the Executive in connection with serving
as a director of Pharma Mar S.A. and such other corporations shall be
treated as vacation time by the Company.
13
<PAGE>
4. Place of Performance
In connection with the Executive's employment by the Company, the
Executive shall be based at the principal executive offices of the Company
intended to be located in Chicago, Illinois, except for required travel on
the Company's business.
5. Compensation and Related Matters
(a) Salary. During the period of the Executive's employment
hereunder, the Company shall pay to the Executive a salary at a rate of not
less than $200,000 per annum in equal monthly or other installments, which
salary shall be increased to $225,000 per annum following the receipt by the
Company of $3,000,000 in aggregate equity financings following the
commencement of the term of the Executive's employment hereunder. The
Executive's salary shall be subject to an annual review commencing twelve
(12) months following the commencement of the term of the Executive's
employment hereunder.
(b) Bonuses. At the end of the first year of employment,
Executive shall be entitled to a bonus of up to $100,000 based upon meeting
mutually agreed to milestones. In addition, at the discretion of the Board
of Directors of the Company, Executive shall also be eligible for a bonus of
up to $100,000.
(c) Expenses. The Company shall reimburse Executive for all
normal, usual and necessary expenses incurred by Executive in furtherance of
the business and affairs of the Company (including up to $50,000 of
reasonable relocation expenses for Executive and his family, and travel
between Spain and the U.S.), against receipt by the Company of appropriate
vouchers or other proof of the Executive's expenditures and otherwise in
accordance with such expense reimbursement policy as may, from time to time,
be adopted by the Board of Directors of the Company.
(d) Other Benefits. The Company shall provide to Executive paid
medical (including for the benefit of the dependents of Executive), long-
term disability and life insurance up to $1,000,000. In addition, the
Company shall maintain in full force and effect, and the Executive shall be
entitled to participate in, all of its employee benefit plans and
arrangements in effect on the date hereof or plans or arrangements providing
the Executive with at least equivalent benefits thereunder (including,
without limitation, each pension and retirement plan and arrangement,
supplemental pension and retirement plan and arrangement, stock option plan,
life insurance and health and accident plan and arrangement, medical
insurance plan, disability plan, survivor income plan, relocation plan and
vacation plan). The Company shall not make any changes in such plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to
all executives of the Company and does not result in a proportionately
greater reduction in the rights of or benefits to the Executive as compared
with any other executive of the Company. The Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement made available by the Company in the future to its executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Nothing paid to the Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to the Executive pursuant to paragraph (a) of this Section.
14
<PAGE>
(e) Vacations. The Executive shall be entitled to three (3)
weeks of vacation in each year of his employment. The Executive shall also
be entitled to all paid holidays given by the Company to its executives.
(f) Services Furnished. The Company shall furnish the Executive
with office space, stenographic assistance and such other facilities and
services as shall be suitable to the Executive's position and adequate for
the performance of his duties as set forth in Section 3 hereof.
(g) Options. Subject to execution of this Agreement, Executive
shall have been granted an option on July 16, 1996 to purchase 700,000
shares of the Company's Common Stock, exercisable for a period of seven (7)
years at an exercise price of $1.25 per share (the fair market value of the
Common Stock on July 16, 1996, based on the bid quotations for the Common
Stock in the over-the-counter market on that date). Such option shall vest
and become exercisable at the rate of (i) 100,000 shares on August 19, 1996,
(ii) a cumulative additional 25,000 shares at the close of business on the
last day of each calendar quarter commencing September 30, 1996 through June
30, 1997, (iii) a cumulative additional 37,500 shares at the close of
business on the last day of each calendar quarter commencing September 30,
1997 through September 30, 2000, and (iv) an additional 12,500 shares at the
close of business on December 31, 2000, at which time this option shall have
vested in full. If Executive's employment with the Company shall terminate
before such option is fully vested, such option shall be exercisable only to
the extent the option is exercisable on the date Executive's employment
terminates. The grant of the foregoing option shall not preclude the
participation of the Executive in any other stock option plan of the
Company.
15
<PAGE>
6. Offices
The Executive agrees to serve without additional compensation, if
elected or appointed thereto, as a Director of any of the Company's
subsidiaries and in one or more executive offices of any of the Company's
subsidiaries, provided that the Executive is indemnified for serving in any
and all such capacities on a basis no less favorable than is currently
provided by Article VII of the Company's By-Laws. Executive agrees that,
upon termination of his employment with the Company for any reason
whatsoever, he will resign from all positions as an executive officer and
Director of the Company and all of its subsidiaries.
7. Confidential Information
Executive covenants and agrees that he will not (except as
required in the course of his employment), while in the employment of the
Company or thereafter, communicate or divulge to, or use for the benefit of
himself, or any other person, firm, association or corporation, without the
consent of the Company, any information concerning any inventions,
discoveries, improvements, processes, formulas, apparatus, equipment,
methods, trade secrets, research, secret data, costs or uses or purchasers
of the Company's products, research activities, immunopharmaceutical agents,
or services, or other confidential matters possessed, owned, or used by the
Company that may be communicated to, acquired by, or learned of by the
Executive in the course of, or as a result of, his employment with the
Company. All records, files, memoranda, reports, price lists, customer
lists, drawings, plans, sketches, documents, equipment, and the like,
relating to the business of the Company, which the Company shall use or
prepare or come into contact with, shall remain the sole property of the
Company.
8. Competition
(a) During the period of the Executive's employment by the
Company, and for a period of eighteen (18) months after such employment
(whether such employment shall have ended by reason of the expiration or
termination of this Agreement or otherwise), Executive will not (i) engage
in; (ii) have any interest in any person, firm, or corporation that engages
in; or (iii) perform any services for any person, firm, or corporation that
engages in competition with the Company, or any of its subsidiaries in the
development, research relating to, manufacture, processing, marketing,
distribution, or sale of any products that were the subject of research
activities, developed, licensed, manufactured, processed, distributed, or
sold by the Company, or any of its subsidiaries, at any time during the
period of his employment by the Company, in any area in which such business
shall be carried on.
(b) Executive will not, directly or indirectly, employ, solicit
for employment, or advise or recommend to any other person that they employ
or solicit for employment, any employee of the Company during the period of
Executive's employment by the Company and for a period of two (2) years
thereafter.
(c) Notwithstanding any provision of this Section 8 to the
contrary, Executive may own no more than three percent (3%) of the total
shares of all classes of stock outstanding of any corporation having
securities registered with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934.
(d) Executive represents that his experience and capabilities are
such that the provisions of this Section 8 will not prevent him from earning
a livelihood.
16
<PAGE>
9. Termination
Notwithstanding any provision of this Agreement to the contrary,
Executive's employment shall terminate upon his death, and the Company at
any time may terminate his employment by giving him written notice of such
termination (i) for cause, as hereinafter defined; (ii) if Executive shall
violate any of the provisions of Sections 7 or 8 hereof; or (iii) if
Executive shall become physically or mentally incapacitated and by reason
thereof unable to perform his duties here under for a period of ninety (90)
consecutive days. For the purpose of clause (i) of this subsection 9, ``for
cause'' shall mean any of the following events: (x) conviction in a court
of law of any crime or offense involving money or other property of the
Company, or any of its subsidiaries, or any felony, or (y) violation of
specific written directions of the Board of Directors of the Company,
provided, however, no discharge shall be deemed ``for cause'' under this
clause (y) unless Executive shall have first received written notice from
the Board of Directors of the Company advising of the acts or omissions that
constitute such violation, and such violation continues uncured for a period
of thirty (30) days after Executive shall have received such notice.
10. Compensation Upon Termination
In the event Executive's employment hereunder is terminated
otherwise than for cause, or Executive terminates his employment as a
consequence of the Company's breach of this Agreement, Executive shall be
entitled to receive as severance his base salary for one (1) year following
such termination (plus bonuses earned but not yet paid), subject to setoff
for amounts earned from alternative employment.
11. Successors; Binding Agreement
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement
in form and substance satisfactory to the Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had
taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 11, or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement, and all rights of the Executive hereunder,
shall inure to the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continue to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate.
17
<PAGE>
12. Notice
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Michael S. Rosen
If to the Company:
ImmunoTherapeutics, Inc.
3233 Fifteenth Street South
Fargo, North Dakota 58104
Attention: Gerald Vosika, M.D.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
13. Miscellaneous
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the parties hereto. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Dakota.
14. Validity
The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
15. Counterparts
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
16. Arbitration
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted before
a panel of three arbitrators, in Chicago, Illinois, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction. The
expense of such arbitration shall be borne by the Company.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ImmunoTherapeutics, Inc.
/s/ Fenfeng Ma By: /s/ Gerald Vosika
Attest Name: Gerald Vosika
Title: President
/s/ Michael S. Rosen
Michael S. Rosen
18
<PAGE>
IMMUNOTHERAPEUTICS, INC.
STOCK OPTION AGREEMENT
ImmunoTherapeutics, Inc., a Delaware corporation (the "Company"), in
consideration of, and as an inducement to Michael S. Rosen (the "Officer")
becoming employed by the Company pursuant to an Employment Agreement dated
July 7, 1996, grants to Officer a stock option to purchase up to 700,000
shares of the Company's Common Stock (the "Shares") at a price of $1.25 per
share (the "Purchase Price"), all on the following terms and conditions.
1. The Officer may exercise this stock option, from time to time in
whole or in part, at any time with respect to (i) 100,000 shares on and
after August 19, 1996, (ii) a cumulative additional 25,000 shares at the
close of business on the last day of each calendar quarter commencing
September 30, 1996 through June 30, 1997, (iii) a cumulative additional
37,500 shares at the close of business on the last day of each calendar
quarter commencing September 30, 1997 through September 30, 2000, and (iv)
an additional 12,500 shares at the close of business on December 31, 2000,
at which time this option shall have vested in full; provided, however, if
the Officer's employment with the Company shall terminate before this Option
has fully vested, this Option shall thereafter be exercisable only to the
extent this Option is exercisable on the date the Officer's employment
terminates. To the extent exercisable, this Option shall terminate on
August 19, 2003.
2. This stock option shall not be transferable by the Officer, except
by will or the laws of descent and distribution and, during the Officer's
life, shall be exercisable only by the Officer. If this stock option shall
not have been exercised in full prior to the death of Officer, it may be
exercised at any time thereafter, to the extent exercisable on the date of
death of the Officer, through the expiration date of this Option by the
Officer's estate or a person who acquired the right to exercise this stock
option by bequest or inheritance or by reason of the death of Officer.
3. Subject to paragraph 1 hereof, this Stock Option may be exercised
in whole or in part, from time to time, by delivery to the Secretary of the
Company of a written notice specifying the number of Shares desired to be
purchased and accompanied by full payment of the Purchase Price, at the
election of the Officer, in cash and/or by delivery of certificate(s) duly
endorsed for transfer, in shares of the Company's Common Stock already owned
by the Officer or such other person as may exercise this Stock Option. Any
shares endorsed and delivered to the Company in payment of the Purchase
Price shall be valued on the basis of the price of the last transaction on
any national securities exchange or other quotation system on which the
Company's Common Stock is listed or traded or on which quotations appear (or
other appropriate market price) on the last business day preceding such
exercise date on which there were sales or quotations. Herein, such price
is referred to as the "Market Value." Any fractional share not required for
payment of the Purchase Price shall be paid for by the Company in cash on
the basis of the same value utilized for such exercise.
19
<PAGE>
4. Unless the issuance of the Shares purchased upon the exercise of
this Stock Option is registered with federal and state regulatory
authorities, or is determined by counsel for the Company to be exempt from
such registration, the Officer shall be required to execute and deliver to
the Company an investment representation in connection with such exercise
and purchase, and transfer of the Shares received shall be appropriately
restricted and requisite legends placed upon the certificates for the
Shares.
5. If and to the extent that the number of issued shares of Common
Stock of the Company shall be increased or reduced by change in par value,
split up, reclassification, distribution of a dividend payable in stock,
share combination, or the like, the number of shares subject to this Stock
Option and the Purchase Price per share shall be proportionately adjusted.
Additionally, in the event that the Company effects or is a party to a
statutory merger, consolidation or other reorganization, then shares in the
surviving corporation receivable by shareholders of the Company upon such
statutory merger, consolidation or other reorganization (or cash or other
property, in the event cash or other property is receivable by shareholders
of the Company) will be substituted for the Company's shares subject to this
Stock Option at the valuation established in such statutory merger,
consolidation or reorganization. In the event of the sale of all or
substantially all the assets of the Company (other than a sale, leaseback or
other financial transaction), the Company shall cause provision to be made
so that the Officer by exercising this Stock Option, shall have the right
and option to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable upon such sale by a
holder of the number of shares of Common Stock that might have been
purchased upon exercise of this Stock Option immediately prior to such sale.
6. In the event of a "merger or sale transaction" (as hereinafter
defined) involving the Company, this Option shall fully vest at the time of
completion of the "merger or sale transaction," notwithstanding anything to
the contrary contained herein. The Executive agrees to continue to provide
services to and be employed by the "surviving corporation," if so requested,
for at least one (1) year after completion of the "merger or sale
transaction" pursuant to the terms of his employment by the Company at the
time of completion of the "merger or sale transaction." A "merger or sale
transaction" is defined as a merger, consolidation, reorganization, or sale
of all or substantially all of the assets of the Company (other than in a
transaction where the Company is the surviving entity or the Company's
shareholders prior to such transaction hold, after consummation of such
transaction, a majority of the outstanding voting stock of the combined
entity) with or to a non-affiliated entity. The "surviving corporation" is
defined as the corporation or other entity that is the surviving entity in a
merger or sale transaction to which the Company is a party.
IN WITNESS WHEREOF, this Stock Option Agreement is dated as of July 16,
1996.
ImmunoTherapeutics, Inc.
/s/ Fenfeng Ma By: /s/ Gerald Vosika
Witness Name: Gerald Vosika
Title: President
20
<PAGE>
