-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BCOmoSiYhLch+MVhF6zNEpkNByQ5uwV0ZqFBrRVYb+ZClWppiLpdX8hL/wh17twi rK/3rKbpP9GjovwerhcFFA== 0000950168-96-000717.txt : 19960501 0000950168-96-000717.hdr.sgml : 19960501 ACCESSION NUMBER: 0000950168-96-000717 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960430 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNOTHERAPEUTICS INC CENTRAL INDEX KEY: 0000812796 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 411505029 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16929 FILM NUMBER: 96553986 BUSINESS ADDRESS: STREET 1: 3233 15TH STREET SOUTH CITY: FARGO STATE: ND ZIP: 58104 BUSINESS PHONE: 7012329575 MAIL ADDRESS: STREET 1: 3233 15TH STREET SOUTH CITY: FARGO STATE: ND ZIP: 58104 10KSB 1 IMMUNOTHERAPEUTICS, INC. #43219.1 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 $100,000 in any of those years.
SUMMARY COMPENSATION TABLE Long term Compensation Awards Name and Other Annual All Other Principal Position Year(1) Salary(2) Bonus($) Compensation($) Options(#) Compensation Gerald Vosika 1996 $213,560 -0- -0- -0- -0- 1995 $197,600 -0- -0- 75,000 -0- 1994 $191,161 -0- $42,829(2) -0- -0-
(1) During the year ended January 31. (2) Includes life insurance premiums and related tax adjustment. 17 Stock Option Holdings The following table provides information with respect to the above named executive officer regarding Company options held at the end of the Company's year ended January 31, 1996 (such officers did not exercise any options during the most recent fiscal year). Aggregate Option Exercises in 1996 and Option Values at January 31, 1996 Value of Unexercised Number of Unexercised In-the-Money Options at Jan. 31, 1996(#) Options at Jan. 31, 1996($)(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 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 (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 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 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 (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 (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 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 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] - -------------------------------------------------------------------------------- BALANCE SHEET AS OF JANUARY 31, 1996. - --------------------------------------------------------------------------------
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 ===============
See Notes to Financial Statements. F-2 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
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 ------- ------- ------- 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 =============== ===============
See Notes to Financial Statements. F-3 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] - -------------------------------------------------------------------------------- STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
[DEFICIT] ACCUMULATED ADDITIONAL DURING THE COMMON STOCK PAID-IN DEVELOPMENT TREASURY STOCK SHARES PAR VALUE CAPITAL STAGE SHARES COST 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) -- $ -- TOTAL DEFERRED NOTE STOCKHOLDERS' COMPENSATION RECEIVABLE EQUITY 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
See Notes to Financial Statements. F-4 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] - ------------------------------------------------------------------------------- STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
[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) -- $ -- TOTAL DEFERRED NOTE STOCKHOLDERS' COMPENSATION RECEIVABLE EQUITY 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)
See Notes to Financial Statements. F-5 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] ------------------------------------------------------------------------------- BALANCE - JANUARY 31, 1992 - FORWARD STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
[DEFICIT] ACCUMULATED ADDITIONAL DURING THE COMMON STOCK PAID-IN DEVELOPMENT TREASURY STOCK SHARES PAR VALUE CAPITAL STAGE SHARES COST 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) ============ ========== ============ ============ ========== ========== TOTAL DEFERRED NOTE STOCKHOLDERS' COMPENSATION RECEIVABLE EQUITY 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 =========== =========== ============
See Notes to Financial Statements. F-6 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] - -------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
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 ------- ------- ------- 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)
See Notes to Financial Statements. F-7 IMMUNOTHERAPEUTICS, INC. [A DEVELOPMENT STAGE ENTERPRISE] - ------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
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 ------- ------- ------- 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
See Notes to Financial Statements. F-8 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 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 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 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 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 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 EX-10 2 EXHIBIT 10(I) 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 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 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 (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 (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 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 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 (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 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 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 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 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 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 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 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 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 SCHEDULE 6.8 CERTAIN DEVELOPMENTS None iv SCHEDULE 6.9 PROPERTIES None v SCHEDULE 6.10 TAXES None vi SCHEDULE 6.11 LITIGATION None vii SCHEDULE 6.13 TRADEMARKS AND PATENTS viii SCHEDULE 6.14 INSURANCE ix 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 SCHEDULE 6.16 UNDISCLOSED LIABILITIES None other than as set forth in Schedules 6.7 and 6.15. xi SCHEDULE 6.17 CONFLICTING AGREEMENTS None xii SCHEDULE 6.18 DISCLOSURE None xiii SCHEDULE 6.20 COMPLIANCE WITH SECURITIES LAWS None xiv SCHEDULE 8.6 USE OF PROCEEDS General corporate purposes and working capital. xv EX-11 3 EXHIBIT 11 EXHIBIT 11 IMMUNOTHERAPEUTICS, INC. - ------------------------------------------------------------------------------- SCHEDULE OF COMPUTATION OF NET INCOME PER COMMON SHARE JANUARY 31, 1996 - --------------------------------------------------------------------------------
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) ===============
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. EX-27 4 EXHIBIT 27
5 YEAR DEC-31-1995 DEC-31-1995 1,022,120 0 0 0 0 1,066,426 183,578 741,923 1,435,674 57,483 0 0 0 5,902 10,072,842 1,435,674 0 0 0 1,262,833 0 0 0 (1,187,985) 0 (1,187,985) 0 0 0 (1,187,985) (.23) 0
-----END PRIVACY-ENHANCED MESSAGE-----