U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
VOLU-SOL, INC.
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(Name of Small Business Issuer in its Charter)
Utah 87-0543981
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5095 West 2100 South, Salt Lake City, Utah 84120
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(Address of Principal Executive Offices) (Zip Code)
(801) 974-9474
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(Issuer's Telephone Number)
Securities to be registered pursuant to 12(b) of the Act: None
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Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.0001 Par Value
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(Title of Class)
<PAGE> TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business.......................................3
Item 2. Management's Discussion and Analysis or Plan of Operation.....11
Risk Factors..................................................13
Item 3. Description of Property.......................................18
Item 4. Security Ownership of Certain Beneficial
Owners and Management ........................................18
Item 5. Directors, Executive Officers, Promoters and
Control Persons...............................................20
Item 6. Executive Compensation........................................21
Item 7. Certain Relationships and Related Transactions................24
Item 8. Description of Securities.....................................24
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters.................. 25
Item 2. Legal Proceedings............................................ 26
Item 3. Changes in and Disagreements with Accountants................ 26
Item 4. Recent Sales of Unregistered Securities...................... 26
Item 5. Indemnification of Directors and Officers.................... 26
PART F/S
Financial Statements......................................... 27
PART III
Item 1. Index to Exhibits............................................ 28
Item 2. Description of Exhibits...................................... 28
<PAGE>
PART I
Preliminary Note: Pursuant to General Instruction E of Form 10-SB, the
Registrant elects to use disclosure Alternative 3.
Item 1. Description of Business
The Company
Volu-Sol, Inc. (the "Company" or "Volu-Sol") was incorporated in Utah on
July 27, 1995, as a wholly owned subsidiary of Biomune Systems, Inc., a Nevada
corporation ("Biomune"). The Company was organized to engage in the business
of manufacturing and marketing medical diagnostic stains and solutions and relat
ed equipment, which business operations were conducted prior to that time as
an unincorporated division of Biomune called the Volu-Sol Medical Division.
Biomune purchased the assets comprising the Volu-Sol Medical Division in
December 1991 from Logos Scientific, Inc. After the Company's incorporation,
Biomune transferred all of the assets of the Volu-Sol Medical Division to the
Company. Through fiscal 1995, Volu-Sol operated out of leased facilities in
Henderson, Nevada. On October 16, 1995, the Company relocated to West Valley
City, Utah (a suburb of Salt Lake City, Utah), where it continues to have its
manufacturing facility and corporate offices.
On or about September 30, 1997, approximately 2,111,216 shares of the
Company's $.0001 par value Common Stock, constituting all of the issued and
outstanding shares of the Company's Common Stock, are to be distributed pro
rata as a stock dividend to the holders of the Common Stock of Biomune as of
March 5, 1997 (the "Distribution"). In addition, the Company will reserve a
total of 323,118 shares of Common Stock for issuance upon conversion of the
Biomune Preferred Stock outstanding at March 5, 1997. As a consequence of the
Distribution, the Company will cease to be a subsidiary of Biomune and will
commence operations as of the effective date of the Distribution, as a
separate, independent company. The Company will continue the same operations
as it has conducted while it has been a subsidiary of Biomune.
Business Strategy
The Company's primary business strategy is to capitalize on the global
medical diagnostic industry by providing "building block" stains and reagents
which are not subject to regulatory overview or the risk and volatility
inherent in developing pharmaceuticals, and to grow through the selective
acquisition of medical distributors, and complementary devices and product
lines. The Company's strategy includes the following elements:
Acquire Complementary Businesses, New Products and Technologies. The Company
intends to evaluate potential acquisitions of distributors and complementary
products and businesses from time to time and to consummate transactions in
those situations where there is an appropriate economic and strategic fit.
Expand Distribution. The Company intends to increase its distribution base
through acquisition of distributors and through agreements with independent
distributors. The Company expects to increase sales through the addition of
more focused and committed sales personnel who work only for the Company,
thereby eliminating up to 35% in mark-up presently paid to independent
distributors. The payroll and related costs of in-house sales personnel will
offset to some degree the savings expected to be achieved from eliminating the
mark-up associated with the use of an outside sales force.
Develop Broader Product Lines. The Company offers over 70 products in four
major product lines in an effort to serve effectively a diverse and highly
decentralized industry. The Company believes that its many and diverse
products economically and reliably address the needs of medical diagnosticians
and laboratory technicians. Nevertheless, the Company has determined that it
can improve its revenue-generating capacity by adding to its existing product
line.
Offer Top Quality Products. The Company constantly strives to offer products
with the greatest purity and reliability possible through its quality control
system. It intends to continue to assure the quality of its product line.
Outsource Non-Stain Manufacturing. To minimize capital requirements
associated with the manufacture of products other than stains, solutions and
other chemicals, the Company intends to continue to take advantage of
strategic alliances with third-party manufacturers.
Esprit de Corps. The Company seeks to create a team spirit among its
employees, foster awareness of the Company's objectives and strategies at all
levels within the Company, and reward meritorious performance with
compensation and other incentives. The Company believes this creates loyalty
to the Company and pride in its products, which translates into greater
product quality and enhanced customer service.
Business Plan
The Company intends to continue to implement its Business Strategy by
completing a private placement of preferred stock (the "Offering"). The
Offering is intended to provide the Company with gross proceeds of up to
$2,400,000. These proceeds will be used to repay debt to Biomune, pay the
expenses of the Offering and the Distribution (including legal and accounting
fees in each transaction), and finance the Company's operations within the
framework of the Business Strategy. The primary focus will be on the
acquisition of distributors and additional products to expand the current
product line. As of the date of filing this Registration Statement, the
Company has received subscriptions for $1,225,000 of Series A Preferred, for
which cash of $325,000 has been received. Payments for the remaining
subscriptions are due as follows: $300,000 upon the effective date of this
Registration Statement (the "Effective Date"), $300,000 within 45 days of the
Effective Date, and $300,000 within 90 days of the Effective Date.
During the time the Company operated as a division and subsidiary of
Biomune, its chief focus was to manufacture and sell products to a distinct
segment of a much larger market. As a separate entity, the Company will seek
to broaden its base in the medical supply industry through adding in-house
distribution capacity to its present business. Specifically, the Company will
look to acquire small medical distributors, having 3-5 representatives and
annual sales of between $2.0 and $3.5 million. The Company expects that such
acquisitions will expand the capacity for distributing the Company's products,
as well as add to the number of products being sold by or through the Company.
The Company has not had discussions or entered into negotiations with any
acquisition candidates. Sales through in-house representatives are expected
to reduce the cost of distribution by as much as 35% thereby increasing
profitability. The primary focus will continue to be the medical diagnostic
stain business. With its own distribution, the Company believes it can expand
sales much more quickly than if it continues relying upon large independent
distributors who may sell or represent many other products or manufacturers,
including some that are unrelated to the Company's product line.
Volu-Sol's Medical Diagnostic Industry Operations
The Company provides supplies to certain segments of the medical
diagnostics industry, which the Company believes to be a $6 to $8 billion
industry globally. An important aspect of the medical diagnostic industry is
the ability of medical professionals to diagnose pathologies and otherwise
assess conditions of body fluids and other tissue by microscopically analyzing
slides containing samples of the fluids or tissue. To enhance the ability of
medical practitioners and researchers to accurately assess samples and render
diagnoses based on those samples, microscope slides are prepared by smearing a
suspension containing the target biological sample on the slide. The slide is
then allowed to dry or is heated on a slide warmer to affix the sample to the
slide. The slide is then treated with one or more chemical stains or
reagents, according to the type of stain used and the types of conditions
being assessed. The effect of this staining process is to highlight or detect
certain properties of or abnormalities in the sample.
Stains are of two general types: (1) simple stains consisting of the
addition to the slide-mounted sample of one dye that serves to delineate
certain characteristics, but leaves all of the microscopic structures the same
hue; and (2) differential stains consisting of more than one dye added in
multiple steps, which has the effect of highlighting different structures or
properties of the sample with different colors. A host of different medical
diagnostic stains, solutions and chemical agents are used with different
tissue samples and to highlight or detect different tissue characteristics or
abnormalities. The Company estimates that the current global market for such
staining products is over $75 million annually.
Current Product Line
Stains, Solutions, Reagents, and Related Equipment. The Company
manufactures and markets a diversified line of simple and differential stains
and solutions as well as related equipment used by commercial and research
laboratories as well as medical clinics, hospitals, physician-operated
laboratories ("POLs") and veterinary clinics. Volu-Sol's staining product
line includes over 90 separate products that are marketed to the hematology,
microbiology, mycology and histology/cytology segments of the medical
diagnostics industry. The Company's stain solutions and related products are
sold separately in various quantities or as integrated kits configured to the
requirements of specified diagnostic devices produced by a variety of
manufacturers. In addition to sales of its own stains, solutions and other
chemical products, Volu-Sol has contracted with several original equipment
manufacturers ("OEMs") with respect to manufacturing and packaging medical
diagnostic stains for distribution by these OEMs.
The Definitive Slide Stainer Device. In addition to manufacturing and
selling stains, solutions buffers and other biochemical products and related
equipment, in fiscal 1997, the Company introduced and commenced the contract
manufacturing and marketing of the Definitive Slide Stainer Device (the
"Definitive"), an automated staining device that improves the efficiency and
accuracy of small to medium-scale slide staining laboratory operations. The
Definitive is capable of staining up to three slides simultaneously under
controlled conditions. The Definitive's chief advantages are its small size
(having a footprint of just 12 inches wide by 14 inches long), its
self-containment allowing it to be placed anywhere in the laboratory (as
opposed to other staining devices which require placement in close proximity
to drains and water supplies), its efficiency and reliability when compared to
the chief alternative--manually preparing slides, and its relatively low
cost. The Definitive achieves increased accuracy, reliability and consistency
through the use of a proprietary microchip which regulates with exact
precision the amount of reagent timing. That chip also automatically
activates an alarm on the Definitive when the stain pack needs to be
replaced. Although other automated staining devices are commercially
available that are capable of staining as many as 70 to 100 slides
simultaneously, such equipment is cost-prohibitive for smaller laboratories,
research institutions and hospitals. The Company believes that the Definitive
will fill an important market need for smaller laboratories, clinics and POLs,
whose only alternative is labor-intensive, inefficient and less-reliable
manual preparation of slides by laboratory technicians. The Company estimates
that there is a $250 million market for automated staining devices.
The Company manufactures and markets various custom-designed stainer
packs for use with the Definitive. The Company anticipates that as more units
are sold over time, the provision of stainer packs for the devices will create
a substantial opportunity to capitalize on a continuing stream of revenues.
The Definitive is covered by a 1-year manufacturer's warranty that is serviced
by Volu-Sol. Under that warranty arrangement, Volu-Sol will repair or replace
any defective unit without charge to the end-purchaser. The same warranty is
extended by the manufacturer to Volu-Sol. Consequently, the Company incurs no
expense on repairs or replacements made under warranty.
Manufacturing
The Company historically has manufactured the majority of the stains,
solutions, reagents, powders and other chemical compounds that make up its
product line, and intends to continue to do so for the foreseeable future.
Volu-Sol's chemical manufacturing process consists of the purchase by Volu-Sol
of certain raw materials, including bulk chemicals such as alcohol, ethanol,
methanol and various powders and stains. These chemicals are purchased from
different suppliers and are widely available. The ingredients are then mixed
in vats on Volu-Sol's premises in accordance with certain non-proprietary
formulas. The finished stains are then bottled and appropriately labeled and
sold through medical supply distributors and OEMs. Since it has been engaged
in the medical diagnostic stain industry, the Company has refined its
production capabilities such that it presently is able to manufacture its
products to exacting clinical standards. It also has developed a quality
control program that allows it to both maintain the reliability, integrity and
uniformity of its product line and to quickly and accurately identify and
resolve any potential problem by keeping detailed production records by lot.
With respect to the ancillary equipment sold by the Company in connection with
its stains, solutions, reagents, and other chemicals, such as glass slides,
manual staining equipment, and other related laboratory equipment and
supplies, such products are manufactured by third parties and can easily be
obtained from a number of suppliers.
With respect to the Definitive, the Company has entered into a worldwide
exclusive licensing agreement (the "License Agreement") with GG&B Engineering,
Inc. ("GG&B"), a Texas corporation with its principal place of business in
Wichita Falls, Texas. GG&B owns the technology underlying the proprietary
microchip that is packaged with the stain packs used with the Definitive.
Under the License Agreement, GG&B manufactures the Definitive on an as-needed
basis. GG&B also provides the proprietary microchip that is packaged with the
stain packs. Other than copyright protection as to the code incorporated in
the proprietary microchips, neither the Company nor GG&B claim any proprietary
interest in the technology incorporated into the Definitive. Under the
License Agreement, Volu-Sol is obligated to use its best efforts to promote
the sale and distribution of the Definitive, in return for which GG&B must
provide Volu-Sol with its requirements for the Definitive and microchips
during the term of the Agreement, with a minimum purchase requirement of 600
units per year. Upon a default by the Company, GG&B has the right, under the
License Agreement, to convert the license into a nonexclusive license and
grant to others the right to distribute the Definitive upon written notice to
Volu-Sol. The License Agreement was signed on October 21, 1996. Unless it is
terminated earlier in accordance with its terms, the License Agreement is
perpetual. The Company has no experience in manufacturing hardware devices
such as the Definitive and does not have any manufacturing facilities for such
products. Consequently, the Company is presently dependent and will continue
to depend on third parties such as GG&B to manufacture products other than
stains, solutions and other related chemical products. In the event that the
Company's relationship with GG&B is disrupted or is no longer viable due to
financial or other difficulties of GG&B or the Company, or otherwise, or if
the Company is unable to obtain third-party manufacturing for any products it
may add to its line in the future, its operations and ability to generate
revenue would be adversely affected.
The manufacture of the Company's products is subject to the Food and Drug
Administration's current Good Manufacturing Practices ("cGMP") regulations.
These regulations require that the Company manufacture its products and
maintain its documents in a prescribed manner with respect to manufacturing,
testing and control activities. No assurance can be given that the Company's
third-party manufacturers will comply with cGMP regulations or other
regulatory requirements now or in the future. The Company's current dependence
upon third parties for the manufacture of its products may adversely affect
its profit margin, if any, on the sale of future products and the Company's
ability to deliver products on a timely and competitive basis. The Company is
inspected on a routine basis for compliance with applicable FDA laws and
regulations, in particular the extent to which it observes cGMP regulations in
connection with the manufacture of its chemical products. Further, the Company
is required to comply with various FDA requirements for labeling. If the FDA
believes the Company is not in compliance with the applicable laws or
regulations, it can institute proceedings to detain or seize the Company's
products, issue a recall, enjoin future violations and assess civil and
criminal penalties against the Company, its officers or its employees. The FDA
may proceed to ban, or request recall, repair, replacement or refund of the
cost of, any product manufactured or distributed by the Company.
Quality Control
The Company places great emphasis on providing quality products to its
customers. An integrated network of quality systems, including control
procedures that are implemented by technically trained professionals, result
in strict requirements for manufacturing and packaging materials. On a
statistical sampling basis, a quality assurance organization tests components
and finished goods at different stages in the manufacturing process to assure
that exacting standards are met. Customers may return defective merchandise
for credit or replacement. In recent years, such returns have been
insignificant.
Marketing and Sales
The Company markets and sells its products through a network of
regionally located medical diagnostic laboratory supply distributors. The
Company also employs in-house sales personnel who are involved in sales
through direct personal contact with potential customers and attending
industry and trade shows. The Company intends to expand its in-house
distribution capacity through acquisition of small medical product
distributors. The Company intends to increase its marketing and sales
efforts, capital permitting, by attending more trade shows, establishing
distributor relationships in Europe, South America and Asia, and placing
advertisements in periodic trade journals and publications.
Availability of Raw Materials
The principal raw materials for the stains, solutions and other chemical
products of the Company are "off-the-shelf" bulk chemicals that can be
purchased from any of a number of chemical companies. The Company believes
that it maintains adequate supplies of raw materials on hand to allow it to
continue to manufacture products and meet customer demand, and that those
materials that it does not produce internally are readily available from
multiple sources.
Competition
The Company believes that Volu-Sol's products have a good reputation in
the marketplace and are competitively priced. However, the medical diagnostic
industry in general and the medical diagnostic stain industry in particular
are, or potentially could be, very competitive, with several large chemical,
medical and laboratory supply companies dominating the market, many if not all
of which have vastly greater manufacturing capabilities, financial resources,
scientific expertise, research resources and much more pervasive, mature and
experienced marketing operations. Accordingly, Volu-Sol is subject to intense
competition and is subject to the pricing and distribution policies of these
large competitors. Currently, Volu-Sol's sales amount to less than 1% of
total industry sales. There can be no assurance that, in light of the level
of competition in the industry in which the Company operates, it will be able
to achieve or sustain profitable operations.
Patents and Proprietary Rights
The Company does not own any patents and does not believe that patent
protection is available for any of its products or processes. To the extent
that the Definitive and the stain packs that are marketed for use with that
device incorporate proprietary technologies, the Company licenses such
technologies from GG&B under the License Agreement. The Company claims the
name "Volu-Sol" as a trademark. The Company also believes that certain aspects
of its manufacturing, production and marketing operations are proprietary and
has generally sought to protect its interests by treating its know how as
trade secrets and by requiring all employees to execute confidentiality
agreements with the Company. The Company believes that its processes can only
be understood from direct observation and are not ascertainable by examination
of the end product. However, there can be no assurance that others will not
independently develop the same or similar information, obtain unauthorized
access to the Company's proprietary information or misuse information to which
the Company has granted access.
Government Regulation
Following are brief summaries of some of the Federal laws and regulations
which may have an impact on the Company's business. These summaries are only
illustrative of the extensive regulatory requirements of the Federal, state
and local governments and are not intended to provide the specific details of
each law or regulation.
The Clean Air Act, as amended, and the regulations promulgated thereunder,
regulates the emission of harmful pollutants to the air outside of the work
environment. Federal or state regulatory agencies may require companies to
acquire permits, perform monitoring and install control equipment for certain
pollutants.
The Clean Water Act, as amended, and the regulations promulgated thereunder,
regulates the discharge of harmful pollutants into the waters of the United
States. Federal or state regulatory agencies may require companies to acquire
permits, perform monitoring and to treat waste water before discharge to the
waters of the United States or a Publicly Owned Treatment Works (POTW).
The Occupational Safety and Health Act of 1970, including the Hazard
Communication Standard ("Right to Know"), and the regulations promulgated
thereunder, requires the labeling of hazardous substance containers, the
supplying of Material Safety Data Sheets ("MSDS") on hazardous products to
customers and hazardous substances the employee may be exposed to in the
workplace, the training of the employees in the handling of hazardous
substances and the use of the MSDS, along with other health and safety
programs.
The Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated thereunder, requires certain procedures regarding the
treatment, storage and disposal of hazardous waste.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 and the Superfund Amendments and Reauthorization Act of 1986, and the
regulations promulgated thereunder, require notification of certain chemical
spills and notification to state and local emergency response groups of the
availability of MSDS and the quantities of hazardous materials in the
Company's possession.
The Toxic Substances Control Act of 1976, requires reporting, testing and
pre-manufacture notification procedures for certain chemicals. Exemptions are
provided from some of these requirements with respect to chemicals
manufactured in small quantities solely for research and development use.
The Department of Transportation has promulgated regulations pursuant to the
Hazardous Materials Transportation Act, referred to as the Hazardous Material
Regulations, which set forth the requirements for hazard labeling,
classification and packaging of chemicals, shipment modes and other goods
destined for shipment in interstate commerce.
Without limiting the generality of the foregoing, a summary of how
certain specific governmental regulations affect the Company's operations is
as follows. The Company engages principally in the business of selling
products which are not foods or food additives, drugs or cosmetics within the
meaning of the Federal Food, Drug and Cosmetic Act, as amended (the "FDC
Act"). Nevertheless, the chemicals used to produce the medical diagnostic
stains manufactured and sold by Volu-Sol have a methanol base and generally
are classified as hazardous materials the use of which subjects the Company to
one or more of the regulatory schemes described above. Additionally, the
manufacturing and shipping operations of Volu-Sol are heavily regulated by
federal, state and local environmental, health and safety authorities.
Volu-Sol is subject to the FDA's cGMP standards and applicable Occupational
Safety and Health Administration ("OSHA") regulations. Representatives of the
FDA periodically conduct inspections at Volu-Sol's facilities regarding the
cleanliness and safety standards followed in the manufacturing process.
Moreover, representatives of OSHA periodically conduct inspections of
Volu-Sol's facilities for compliance with applicable safety and health
regulations. The Company believes that Volu-Sol is in compliance in all
material respects with applicable environmental, health and safety laws, rules
and regulations. There can be no assurance, however, that the Company will not
in the future be found in violation of some or all of these regulations, which
could materially and adversely affect the Company and its operations.
Research and Development
The Company has not invested material amounts in research and development
because of the extent of the product line acquired when Biomune purchased the
assets comprising the Volu-Sol business. The Company does not presently
anticipate investing materially different amounts in research and development
activities for the foreseeable future.
Dependence on Major Customers
Barrett Healthcare Corporation ("Barrett"), a former distributor of the
Company's products, accounted for more than 10% of Volu-Sol's total revenues
in fiscal years 1994 and 1995. During fiscal years 1994 and 1995 sales to
Barrett accounted for approximately 15% and 17%, respectively, of Volu-Sol's
(and prior to July 27, 1995, the Volu-Sol Medical Division's) total revenues.
Barrett ceased operations in March 1996. Prior to ceasing operations, Barrett
accounted for approximately 12% of Volu-Sol's sales through March 1996. Except
for Barrett, no other medical supply distributor or company has accounted for
more that 10% of Volu-Sol's revenues. After Barrett, Hardy Diagnostics
Corporation historically has been the next largest medical supply distributor
for Volu-Sol's products, representing less than 10% of Volu-Sol's revenues.
Almost 80% of Volu-Sol's sales are accomplished through medical supply
distributors who carry a large range of products for medical laboratories.
Employees
The Company has 9 full time employees. The Company will, as needed, hire
additional employees or sub-contract the balance of its personnel requirements
through independent contractors. The Company's manufacturing operations do
not require specially-skilled employees and the Company believes that it will
be able to satisfy its labor requirements for the foreseeable future. None of
the Company's employees are represented by a collective bargaining
arrangement, and the Company believes its relationship with its employees is
good.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following Management's Discussion and Analysis or Plan of Operation
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under the heading "Risk Factors," set forth below in this Item
2.
In an effort to increase Volu-Sol's revenues, in fiscal year 1994, the
Company reorganized Volu-Sol's (then the Volu-Sol Medical Division's)
management and emphasized increasing its revenues. During fiscal year 1995,
Volu-Sol experienced an approximately 25% increase in its revenues resulting
in part from this reorganization and in part from the Company's efforts to
increase Volu-Sol's revenues. During the months of June, July and August,
1997, the Company generated approximately $39,000 per month in revenues. In
order to provide greater production capacity and efficiencies and enhanced
customer service with a view to further increasing Volu-Sol's revenues, in
October 1996, the Company relocated Volu-Sol's production facilities to the
Salt Lake City, Utah metropolitan area, closer to its former parent's (Biomune
Systems, Inc.'s)current principal place of business.
Results of Operations
Nine Months ended June 30, 1997 compared to nine months ended June 30, 1996
During the nine months ended June 30, 1997, the Company generated
revenues totaling $368,731 compared to $338,016 for the same period in 1996.
Cost of goods sold increased from $280,939 for the nine months ended June 30,
1996, to $301,870 for the nine months ended June 30, 1997.
Selling, general and administrative expenses decreased from $828,522 for
the nine months ended June 30, 1996 to $542,524 for the nine months ended June
30, 1997. During the nine months ended June 30, 1996 the Company moved its
operations from Henderson, Nevada to Salt Lake City, Utah, and incurred
numerous expenses and write-offs because of the move. The move of the
manufacturing facilities accounts for the higher expenditures in 1996.
The Company incurred a net loss of $475,663 for the nine months ended
June 30, 1997 compared to $804,236 for the nine months ended June 30, 1996.
During the nine months ended June 30, 1996, the Company incurred significant
expenses with moving its facility from Henderson, Nevada to Salt Lake City,
Utah.
Fiscal Year 1996 Compared to Fiscal Year 1995
During the fiscal year ended September 30, 1996, the Company generated
revenues of $434,691 compared to $458,981 for the fiscal year ended September
30, 1995. The decrease in revenues resulted from a decision to discontinue
selling products to a customer as a result of that customer's deteriorating
financial condition. Sales to the customer previously had represented more
than 10 percent of Volu-Sol's total revenue. Cost of sales was $357,471 for
the fiscal year ended September 30, 1996 compared to $369,373 for the fiscal
year ended September 30, 1995. A gross margin of 18% was achieved for the
fiscal year ended September 30, 1996 compared to a gross margin of 20% for the
fiscal year ended September 30, 1995.
Selling, general and administrative expenses increased from $707,393
during fiscal 1995 to $1,446,651 during fiscal 1996. The increase in selling
general and administrative expenses was primarily a result of (1) the Company
moving its operations from Henderson, Nevada to Salt Lake City, Utah and (2)
the expenses associated with a concentrated marketing effort.
The Company incurred a net loss of $1,402,222 in fiscal year 1996
compared to $617,785 during fiscal year 1995. This increase in net loss is
attributable to an increase in selling, general and administrative expenses
associated with the Company moving its facilities from Henderson, Nevada to
Salt Lake City, Utah, and a concentrated marketing effort the Company
undertook to sell its products.
Fiscal Year 1995 Compared to Fiscal Year 1994
During the fiscal year ended September 30, 1995, the Company generated
revenues totaling $458,981 compared to $365,189 for the fiscal year ended
September 30, 1994. The increase in revenues resulted from a concentrated
effort to market and sell the Company's products. Cost of sales was $369,373
for the fiscal year ended September 30, 1995 compared to $250,121 for the
fiscal year ended September 30, 1994. A gross margin of 20% was achieved for
fiscal year ended September 30, 1995, compared to a gross margin of 32% for
the fiscal year ended September 30, 1994, due primarily to increased labor
expense and a one-time write-off of obsolete inventory.
Selling, general and administrative expenses increased from $445,434
during fiscal year ended September 30, 1994 to $707,393 for the fiscal year
ended September 30, 1995. This increase was the result of a concentrated
marketing effort the Company undertook to sell its products.
The Company incurred a net loss of $318,150 in fiscal year 1994 compared
to $617,785 for fiscal year 1995. This increase in net loss is attributable
to an increase in selling, general and administrative expenses associated with
a concentrated marketing effort the Company undertook during fiscal year 1995.
Liquidity and Capital Resources
The Company currently is unable to finance its operations solely from its
cash flows from operating activities. From October 1, 1993 through September
1, 1997, Biomune financed the Company's operations through a series of loans
and other capital contributions totaling approximately $2,750,000. Of this
amount, $332,500 represents loans which bear interest at the rate of 10% per
year and which are payable on demand. After the Distribution, the Company
does not anticipate receiving additional amounts from Biomune, from loans or
otherwise. The Company has agreed to sell up to 12,000 shares of Series A 10%
Convertible Non-Voting Preferred Stock (the "Series A Preferred"), for a total
of up to $2,400,000. The Series A Preferred will be convertible to Common
Stock of the Company commencing January 1, 1998. The "conversion price" which
is the basis for such conversion is the lesser of (i) 80% of the average
closing bid price of the Company's Common Stock for the three trading days
immediately preceding the date of conversion or (ii) $1.25 per share. The
Company and Biomune have agreed that if the Securities and Exchange Commission
has not declared the Company's Registration Statement on Form 10-SB effective
within 180 days of its filing, then the holders of the Series A Preferred may
exchange such shares as they then hold to Biomune Common Stock. To date, the
Company has received subscriptions for $1,225,000 of Series A Preferred, for
which cash of $325,000 has been received. Payments for the remaining
subscriptions are due as follows: $300,000 upon the Effective Date, $300,000
within 45 days of the Effective Date, and $300,000 within 90 days of the
Effective Date.
The Company intends to use the proceeds from such Offering to repay its
indebtedness to Biomune, pay the expenses of the Offering and the Distribution
(including legal and accounting fees incurred in each transaction), acquire
yet-to-be identified medical product distributors or product rights, and
supplement working capital. The Company believes that cash generated by
operations, together with the proceeds of the Offering will be sufficient to
meet its capital requirements for a minimum of 12 months.
As of June 30, 1997, the Company had cash and cash equivalents of
$110,605 and a working capital deficit of $71,448 as compared to cash of
$12,167 and working capital of $94,380 as of September 30, 1996.
During the nine months ended June 30, 1997, the Company's operating
activities used cash of $424,486, much of which was provided primarily by
loans and capital contributions from Biomune. Similarly, during fiscal year
1996, the Company's operating activities required cash in the amount of
$987,680, which was provided by capital contributions from Biomune. During
fiscal year 1995, the Company's operating activities required cash in the
amount of $552,261, which was provided primarily by capital contributions from
Biomune.
The Company presently has no credit facility with any commercial lending
institution. In the past, the Company has borrowed and received capital from
time to time from Biomune, but the Company has no formal financing
arrangement, agreement or understanding with Biomune or any other party to
provide debt financing in the future.
The Company has agreed to sell its Series A Preferred shares to raise
funds to finance operations, market the Definitive and acquire or develop
in-house distribution capacity and new products and devices. There can be no
assurance that additional financing will not be needed in the future.
Risk Factors
This Registration Statement contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Registration Statement.
Absence of Profitable Operations
Between the time Biomune acquired the assets used in conducting its
medical diagnostic supply business and July 1995 when the Company was
incorporated and acquired those assets from Biomune, Biomune's medical
diagnostic division did not have profitable operations. Moreover, from the
Company's incorporation to date, the Company has not achieved profitable
operations and continues to operate at a loss. The Company's present business
strategy is to improve its cash flow by adding to its existing product line
and expanding its sales and marketing efforts, including the addition of
in-house sales personnel. These expanded sales and marketing efforts are
expected to be funded through sales of the Company's securities and/or debt,
including the Series A Preferred financing which will close in advance of or
concurrent with the Distribution. While management believes the cash
generated by operations together with the proceeds from the sale of shares of
its Series A Preferred will satisfy the Company's ordinary cash requirements
for at least 12 months, there can be no assurance that the Company will ever
be able to achieve profitable operations or that it will not require
additional financing to fulfill its business plan. See "Management's
Discussion and Analysis or Plan of Operation."
"Going Concern" Issues
The financial statements of the Company have been prepared on the
assumption that the Company will continue as a going concern. The Company's
independent public accountants have issued their report dated August 15, 1997
that includes an explanatory paragraph stating that the Company's recurring
losses and accumulated deficit raise substantial doubt about the Company's
ability to continue as a going concern. The Company's product line is limited
and it has been necessary to rely upon loans and capital contributions from
Biomune to sustain operations. The Company intends to sell up to $2.4 million
of its Series A Preferred to unrelated accredited investors. To date,
subscriptions for $1,225,000 of Series A Preferred have been received, for
which cash of $325,000 has been received. Payments for the remaining
subscriptions are due as follows: $300,000 upon the effective date, $300,000
within 45 days of the Effective Date, and $300,000 within 90 days of the
Effective Date. Management believes the proceeds from such offering will
provide sufficient capital when combined with revenues from operations to meet
the Company's operating cash needs for a minimum of 12 months. Additional
financing may be required if the Company is to continue as a going concern. If
such additional funding is needed and cannot be obtained, the Company may be
required to scale back or discontinue its operations.
Uncertainty of Future Financial Results
Profitability depends upon many factors, including the success of the
Company's marketing program, the Company's ability to identify and obtain the
rights to additional products to add to its existing product line, expansion
of its distribution and customer base, maintenance or reduction of expense
levels and the success of the Company's business activities. The Company
(since its incorporation in July 1995) has an accumulated deficit as of June
30, 1997 of $1,980,849. The Company anticipates that it will continue to
incur operating losses in the future or until such time as it is able to
successfully market the Definitive or other devices that it may yet add to its
product line. The Company's ability to achieve profitable operations will
also depend on its ability to develop and maintain an adequate marketing and
distribution system. There can be no assurance that the Company will be able
to develop and maintain adequate marketing and distribution resources. If
adequate funds are not available, the Company may be required to materially
curtail or cease its operations. See "Management's Discussion and Analysis or
Plan of Operation."
Lack of Proprietary Technologies
The Company uses certain trademarks and tradenames with certain of its
products. Nevertheless, the Company's core products, medical diagnostic
stains and solutions and other biochemical products, as well as the
Definitive, are not based on technology proprietary to the Company. Indeed,
the majority of the Company's present product line is based on technology that
is in the public domain and therefore there are effectively no entry barriers
for potential competitors to the Company. The Company has entered into an
exclusive license agreement with the third-party entity that owns the
intellectual property rights associated with the Definitive and manufactures
the Definitive for the Company. There can be no assurance that such
third-party entity will be able in the future to adequately protect its
proprietary rights upon which the Definitive is based or that such third party
will continue to manufacture the Definitive on terms favorable to the
Company. If the third party fails to meet its obligations to manufacture a
sufficient number of units for any reason, the Company would be forced to
locate a new manufacturer for the Definitive which may disrupt and adversely
affect the Company's operations.
Intense Competition
The medical diagnostic supply and biochemical industries, including those
segments devoted to manufacturing and distributing laboratory equipment, stain
solutions and chemical reagents are characterized by intense competition. The
Company faces, and will continue to face, competition in the stain solution,
reagent and related equipment fields. Many, if not most, of the Company's
competitors and potential competitors are much larger and consequently have
greater access to capital as well as mature and highly sophisticated
distribution channels. Some of the Company's larger competitors are able to
manufacture chemical products on a much larger scale and therefore presumably
would be able to take advantage of economies of scale not presently enjoyed by
the Company. Moreover, many of the Company's competitors have far greater
name recognition and experience in the medical diagnostic supply industry.
There can be no assurance that competition from other companies will not
render the Company's products noncompetitive.
Uncertainties Related to Ability to License Proprietary Technology
The Company historically has not been involved in research and
development of new technologies. Consequently, the Company's success in
adding to its existing product line will depend on its ability to acquire or
otherwise license competitive technologies and products and to operate without
infringing the proprietary rights of others, both in the United States and
internationally. No assurance can be given that any licenses required from
third parties will be made available on terms acceptable to the Company, or at
all. If the Company does not obtain such licenses, it could encounter delays
in product introductions while it attempts to adopt alternate measures, or
could find that the manufacture or sale of products requiring such licenses is
not possible. Litigation may be necessary to defend against claims of
infringement, to protect trade secrets or know-how owned by the Company, or to
determine the scope and validity of the proprietary rights of others. Such
litigation could have an adverse and material impact on the Company and its
operations.
Inability to Adequately Protect Proprietary Information
The Company relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its employees and consultants. There can be no
assurance that such agreements will not be breached or that they will be
enforceable by the Company, or that the Company's trade secrets and know-how
will not otherwise be compromised.
Uncertainty of Ability to Attract and Retain Key Management, Employees and
Consultants
The Company is highly dependent on its executive officers and certain of
its scientific, technical and operations employees. The loss of services of
any of these personnel could impede the achievement of the Company's
objectives. There can be no assurance that the Company will be able to attract
and retain qualified executive personnel on acceptable terms.
Reliance on Third-Party Manufacturing
The Company's manufacturing experience and capabilities are limited to
the manufacture of staining solution, reagent and certain related chemical
compounds. With respect to the manufacturing of devices and equipment related
to the staining solution products, including without limitation the
Definitive, the Company has in the past used, and intends to continue to use,
third-party manufacturing resources. Consequently, the Company is dependent
on contract manufacturers for the production of existing products and will
depend on third-party manufacturing resources to manufacture equipment and
devices it may add to its product line in the future. In the event that the
Company is unable to obtain or retain third-party manufacturing, it will not
be able to continue its operations as they relate to the sale of equipment and
devices. The Company's current dependence upon a third party for the
manufacture of the Definitive may adversely affect its profit margins and the
Company's ability to deliver products on a timely and competitive basis.
Environmental Risks
The chemical manufacturing processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal,
state and local laws and regulations governing the use, manufacture, storage, ha
ndling and disposal of such materials and certain waste products. Although
the Company believes that its activities currently comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination
or injury from these materials cannot be eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. In addition, there
can be no assurance that the Company will not be required to incur significant
costs to comply with environmental laws and regulations in the future.
Sufficiency of Marketing and Sales Capabilities
The Company sells its products to approximately 75 independent
distributors who are free to resell the products. In order to achieve
profitable operations, the Company must maintain its current base of sales
staff and must expand that base in the future. There can be no assurance that
the Company will be able to enter into arrangements with qualified sales staff
if and when such additional staff are required. The Company's sales staff
will compete with other companies that currently have experienced and well
funded marketing and sales operations. To the extent that the Company enters
into co-promotion or other marketing and sales arrangements with other
companies, any revenues to be received by the Company will be dependent on the
efforts of others, and there can be no assurance that such efforts will be
successful.
Potential Product Liability Exposure and Limited Insurance Coverage
The use of any of the Company's existing or potential products in
laboratory or clinical settings may expose the Company to liability claims.
These claims could be made directly by persons who assert that inaccuracies or
deficiencies in their test results were caused by defects in the Company's
products. Alternatively, the Company could be exposed to liability indirectly
by being named as a third-party defendant in actions brought against companies
or persons who have purchased the Company's products. The Company has
obtained limited product liability insurance coverage in the amount of $1
million per occurrence and $2 million in the aggregate. The Company intends to
expand its insurance coverage on an as-needed basis as its sales revenue
increases. However, insurance coverage is becoming increasingly expensive,
and no assurance can be given that the Company will be able to maintain
insurance coverage at a reasonable cost or in sufficient amounts to protect
the Company against losses due to liability. There can also be no assurance
that the Company will be able to obtain commercially reasonable product
liability insurance for any products added to its product line in the future.
A successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations.
Uncertainty Related to Health Care Reform Measures and Third-Party
Reimbursement
Political, economic and regulatory influences are likely to lead to
fundamental change in the health care industry in the United States. Numerous
proposals for comprehensive reform of the nation's health care system have
been introduced in Congress over the past years. In addition, certain states
are considering various health care reform proposals. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery systems and payment methodologies, and that
public debate of these issues will likely continue in the future. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any,
reforms will be adopted, when they may be adopted, or what impact they may
have on the Company. The Company's ability to earn sufficient returns on its
products may also depend in part on the extent to which reimbursement for the
costs of such products will be available from government health administration
authorities, private health insurers and other organizations. Third-party
payors are increasingly challenging the price and cost effectiveness of
medical products and services, including medical diagnostic procedures. There
can be no assurance that adequate reimbursement will be available or
sufficient to allow the Company to sell its products on a competitive basis.
Certain Tax Considerations
Biomune has not sought or received and does not intend to seek a ruling
from the IRS to the effect, among other things, that the Distribution will
qualify as a tax free distribution under Section 355 of the Code. If the
Distribution were not to qualify under Section 355 of the Code, then in
general, a corporate tax would be payable by the consolidated group of which
Biomune is the common parent based upon the difference between (i) the fair
market value of Company Common Stock and (ii) the adjusted basis of Volu-Sol
Common Stock. The corporate level tax would be payable one-half by Biomune
and one-half by the Company. In addition, under the consolidated return
regulations, each member of the consolidated group (including the Company) is
severally liable for such tax liability. Furthermore, if the Distribution
were not to qualify under Section 355 of the Code, then each holder of Biomune
Common Stock who receives shares of Volu-Sol Common Stock in the Distribution
would be treated as if such shareholder received a taxable distribution in an
amount equal to the fair market value of Volu-Sol Common Stock received, which
would result in (i) a dividend to the extent paid out of Biomune's current and
accumulated earnings and profits; then (ii) a reduction in such shareholder's
basis in Biomune Common Stock to the extent the amount received exceeds the
amount referenced in clause (i); and then (iii) gain from the exchange of
Biomune Common Stock to the extent the amount received exceeds the sum of the
amounts referenced in clauses (i) and (ii).
Fraudulent Transfer Considerations; Legal Dividend Requirements
It is a condition to the consummation of the Distribution that the
Biomune Board shall have determined the permissibility of the Distribution
under Nevada corporation law. In February 1997, the Biomune Board made such a
determination. There is no certainty, however, that a court would find the
decision of the Biomune Board to be binding on creditors of the Company and
Biomune or that a court would reach the same conclusions as the Biomune Board
in determining whether the Company or Biomune was insolvent at the time of, or
after giving effect to, the Distribution. If a court in a lawsuit by an
unpaid creditor or representative of creditors, such as a trustee in
bankruptcy, were to find that at the time Biomune effected the Distribution,
the Company or Biomune, as the case may be, (i)was insolvent; (ii) was
rendered insolvent by reason of the Distribution; (iii) was engaged in a
business or transaction for which the Company's or Biomune's remaining assets,
as the case may be, constituted unreasonably small capital; or (iv) intended
to incur, or believed it would incur, debts beyond its ability to pay as such
debts matured, such court may be asked to void the Distribution (in whole or
in part) as a fraudulent conveyance and require that the shareholders return
the special dividend (in whole or in part) to Biomune or require the Company
to fund certain liabilities for the benefit of creditors. The measure of
insolvency for purposes of the foregoing will vary depending upon the
jurisdiction whose law is being applied. Generally, however, the Company or
Biomune, as the case may be, would be considered insolvent if the fair value
of their respective assets were less than the amount of their respective
liabilities or if they incurred debt beyond their ability to repay such debt
as it matures. The Biomune Board and management believe that, in accordance
with their own examination of the financial statements of Biomune and the
Company and expected capital infusions concurrent with or in advance of the
Distribution, the Company will be solvent at the time of the Distribution (in
accordance with the foregoing definitions), will be able to repay or refinance
its debts as they mature following the Distribution and will have sufficient
capital to carry on its business.
Item 3. Description of Property
The Company leases approximately 11,500 square feet of laboratory
facilities at 5095 West 2100 South, West Valley City, Utah. The leased
premises serve as the Company's manufacturing, warehouse and shipping
facilities as well as its corporate headquarters and offices. Base monthly
rent payments are $4,620 until November 1997, after which the monthly base
rent amount will be adjusted according to changes in the Consumer Price Index.
The leased premises originally were leased by Biomune, but Biomune has
assigned its rights under the lease to the Company. The lessor of the
Company's facility is an unaffiliated third party. The lease was the product
of arms-length negotiations. The lease extends through November 2000. The
Company believes that its facilities will be adequate to meet its needs at
least through fiscal year 1998.
Item 4. Security Ownership of Certain Beneficial Owners and Management
Presently, Volu-Sol is a wholly owned subsidiary of Biomune. In the
Distribution, each holder of Biomune Common Stock at March 5, 1997 will
receive one share of Volu-Sol Common Stock for every ten shares of Biomune
Common Stock held at that date. In addition, the Company will reserve a total
of 323,118 shares of Common Stock for issuance in connection with the
conversion of the Biomune Preferred Stock outstanding at March 5, 1997. The
Company also will reserve a total of 709,602 shares of Common Stock for
issuance upon exercise of the Add-on Volu-Sol Options and 247,059 shares of
Common Stock for issuance upon exercise of certain warrants to acquire Biomune
Common Stock.
The following table sets forth certain information on a pro forma basis
regarding beneficial ownership of the Company's Common Stock after giving
effect to the Distribution of 2,111,216 shares of Common Stock (i) by each
person (or group of affiliated persons) who is expected by the Company to own
beneficially more than 5 percent of the outstanding shares of Common Stock,
(ii) by each director and Named Executive Officer of the Company, and (iii) by
all of the directors and executive officers of the Company as a group. As of
March 5, 1997, Biomune had 21,112,156 shares of Common Stock issued and
outstanding. The chart below does not give effect to the possible conversion
of the Biomune Preferred Stock or the Company's Series A Preferred.
Name and Address Shares of Common Stock
of Beneficial Owner (1) Beneficially Owned (2) Percentage of Class
______________________________ ____________________ ___________________
David G. Derrick (3) 169,850 7.60%
2401 S. Foothill Dr.
Salt Lake City, Utah 84109
Leviticus Trust (4) 210,755 9.98%
1233 Beech Street, #315
Atlantic Beach, NY 11509
Michael G. Acton (5) 23,544 1.10%
(Director and Executive Officer)
James R. Derrick - -
(Director)
Jack W. Job - -
(Director)
All executive officers and
directors as a group (3 persons) 23,544 1.10%
______________________________
(1) Unless otherwise indicated, such person's address is the same as the
Company's address.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Memorandum upon
the exercise of options or warrants. Each beneficial owner's percentage of
ownership is determined by assuming that options or warrants held by such
person (but not those held by any other person) and exercisable within 60 days
from the date of this Memorandum have been fully exercised. Unless otherwise
noted, the Company believes the persons named in this table will possess sole
voting and investment power with respect to all shares of Common Stock shown
as being beneficially owned. Percentages are calculated based on 2,111,216
shares of Common Stock outstanding immediately following the Distribution (as
adjusted for shares deemed to be beneficially owned by such shareholder).
(3) David Derrick will own 45,850 shares of Common Stock directly and will
receive options to purchase 124,000 shares of Common Stock. Mr. Derrick is
the CEO and Chairman of Biomune and the brother of the Company's President,
James R. Derrick.
(4) The Leviticus Trust will own approximately 210,755 shares of Common
Stock directly.
(5) Mr. Acton will own approximately 44 shares of Common Stock directly and
will hold options to purchase 23,500 shares of Common Stock.
Except for the matters described herein, there are no arrangements known to
the Company, the operation of which may, at a subsequent date, result in a
change of ownership or control of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons
Executive Officers, Key Employees and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
- ---------------------- ---------------- -------------------------
Michael G. Acton 34 Chairman, Chief Executive
Officer and Chief Financial
Officer
James R. Derrick 53 President, Director
Jack W. Job 35 Director
Michael G. Acton, CPA. Mr. Acton has been Chairman, Chief Financial Officer,
and Chief Executive Officer of Volu-Sol since February 1997. He has also been
Chief Financial Officer and Controller of Biomune since October 1994. From
June 1989 through October 1994, Mr. Acton was employed by Arthur Andersen LLP
in Salt Lake City, Utah, where he performed various tax, audit and business
advisory services. Mr. Acton received a Bachelor of Science degree in
Accounting in 1988 and a Master of Professional Accountancy degree in 1989,
both from the University of Utah. He is a Certified Public Accountant in the
State of Utah. Biomune has a class of securities registered under the
Securities Exchange Act of 1934 and, until the consummation of the
Distribution was the parent of the Company.
James R. Derrick. Mr. Derrick has been the Company's President since February
1997, and a director since May 1997. Between July 1994 and February 1997, he
was employed as a business and engineering consultant by Derrick Consultants.
From October 1979 to July 1994, Mr. Derrick was the chief executive officer of
Crib Retaining Walls, Inc., a manufacturing and construction firm based in
North Salt Lake, Utah. Mr. Derrick received a Bachelor of Science degree in
Industrial Engineering from the University of Utah in 1971.
Jack W. Job. Mr. Job has been a director of the Company since May 1997. He
presently is the Chief Financial Officer of Utah Technology Finance
Corporation located in Salt Lake City, Utah. Prior to his present position
with UTFC, from May 1990 to May 1995, Mr. Job was employed by Arthur Andersen
LLP in its Salt Lake City office as a senior accountant performing tax and
audit functions. He is a Certified Public Accountant and a member of the Utah
Association of Certified Public Accountants and the American Institute of
Certified Public Accountants. Mr. Job received a bachelor of science degree
and masters of accountancy degree (Magna Cum Laude) from Brigham Young
University.
In addition to the foregoing executive officers and directors, the
Company expects the following employee to make significant contributions to
the Company:
Dawn Perdue. Ms. Perdue, age 36, is Director of Operations and acts as the
Company's Compliance Officer for regulatory affairs. She came to the Company
in October 1995 with more than 12 years experience in science and management
positions in clinical and industrial operations. Prior to joining the
Company, Ms. Perdue was Manager of Research and Development of Genzyme
Corporation, a leading biotechnical company. She graduated in biology from
Western New England College (Massachusetts) and has a Certificate of Special
Studies in Administration from Harvard University.
None of the Company's executive officers or directors are related to any other
executive officer or director of the Company.
Item 6. Executive Compensation
EXECUTIVE COMPENSATION
Since March 1997, the Company has paid Mr. Acton, its Chief Executive
Officer, Chief Financial Officer, and Chairman, a consulting fee of $6,000 per
month. No executive officer or employee of the Company is paid more than
$100,000 per year in salary and benefits. Mr. Acton provides his services on
a part-time basis. Following the Distribution, he will continue to provide
such services on the same basis. He also serves as Chief Financial Officer of
Biomune. The Company's President, James R. Derrick, receives an annual salary
of $60,000.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company
are paid $500 for each meeting of the Board of Directors attended. Following
the Distribution, this fee is to be paid $250 in cash and $250 in shares of
the Company's Common Stock, valued based upon the fair market value of such
shares.
EMPLOYMENT AGREEMENTS
Aside from the payments described above to Mr. Acton and to Mr. Derrick,
there are no consulting or employment contracts with management at this time.
STOCK PLANS
The 1997 Volu-Sol, Inc. Transition Plan
The Company has adopted the 1997 Volu-Sol, Inc. Transition Plan (the
"Transition Plan") to govern the issuance and exercise of certain options to
purchase the Company's Common Stock. Certain officers, directors and
employees of Biomune have been granted options to purchase shares of Biomune
Common Stock (the "Biomune Options"). The Biomune Options have been granted
pursuant to various stock plans of the Company (the "Biomune Plans"). The
Biomune Plans give the committee of the Biomune Board that administers the
plans (the "Biomune Plan Committee") the authority to make equitable
adjustments to outstanding Biomune Options in the event of certain
transactions, of which the Distribution is one.
The Biomune Plan Committee and the Biomune Board have determined that,
immediately prior to the Distribution, each Biomune Option will be divided
into two separately exercisable options: (i) an option to purchase Volu-Sol
Common Stock (the "Add-on Volu-Sol Option") in an amount that would have been
issued in the Distribution in respect of the shares of Biomune Common Stock
subject to the applicable Biomune Option, if such Biomune Option had been
exercised in full immediately prior to the Distribution Record Date, and
containing substantially equivalent terms as the existing Biomune Option, and
(ii) an option to purchase Biomune Common Stock (an "Adjusted Biomune
Option"), exercisable for the same number of shares of Biomune Common Stock as
the corresponding Biomune Option had been. The per share exercise price of
the Biomune Option will remain the same in the Adjusted Biomune Option, and
all other terms of such Biomune Option will remain the same in all material
respects. The Add-on Volu-Sol Option will carry an option exercise price per
share equal to the price per share of the exercise price under the Biomune
Option.
As a result of the foregoing, certain persons who remain Biomune
employees or non-employee directors after the Distribution and certain persons
who were Biomune employees prior to the Distribution but become Volu-Sol
employees after the Distribution will hold both Adjusted Biomune Options and
separate Add-on Volu-Sol Options. The obligations with respect to the
Adjusted Biomune Options and Add-on Volu-Sol Options held by Biomune employees
and non-employee directors following the distribution will be obligations
solely of Biomune. The obligations with respect to the Adjusted Biomune
Options and the Add-on Volu-Sol Options held by persons who are Volu-Sol
employees following the distribution and are no longer Biomune employees will
be obligations solely of Volu-Sol. The Company will reserve a total of
709,602 shares of Common Stock for issuance upon exercise of the Add-on
Volu-Sol Options.
The Transition Plan will be administered by the Board of Directors or a
Committee of the Board of Directors appointed by the Board.
Other Stock Purchase Rights
Biomune has granted rights to purchase Biomune Common Stock in the form
of warrants (the "Biomune Warrants"). Under the agreements governing the grant
and exercise of the Biomune Warrants, Biomune has agreed to issue to the
holders of such rights securities otherwise issuable with respect to the
Biomune Common Shares underlying the Biomune Warrants if and to the extent the
Biomune Warrants are exercised. Consequently, if the holders of the Biomune
Warrants exercise their rights thereunder, Biomune must issue to those holders
one share of Volu-Sol Common Stock for each ten shares of Biomune Common Stock
issued in connection with such exercise. Volu-Sol has agreed to sell to
Biomune the shares of Volu-Sol Common Stock needed to meet this obligation of
Biomune. The purchase price of such shares of Volu-Sol Common Stock will be a
sum equal to 10% of the consideration received by Biomune in exercise of the
Biomune Warrants. The Company will reserve 247,059 shares of Common Stock for
issuance upon exercise of the Biomune Warrants. If all of such Biomune
Warrants are exercised, the Company will receive $588,000 from Biomune as
consideration for the Volu-Sol Common Stock sold to Biomune as described
above.
The 1997 Volu-Sol, Inc. Stock Incentive Plan
The Company has adopted the 1997 Volu-Sol, Inc. Stock Incentive Plan
("1997 Plan"). The 1997 Plan was approved by action of Biomune, the sole
shareholder of the Company, in August 1997. Under the 1997 Plan, the Company
may issue stock options, stock appreciation rights ("SARs"), restricted stock
awards, and other incentives to employees, officers and directors of the
Company. The principal features of the 1997 Plan are summarized below, but the
following Summary is qualified in its entirety by the written plan.
The 1997 Plan provides for the award of incentive stock options to key
employees and directors of the Company and the award of nonqualified stock
options, stock appreciation rights, bonus rights, and other incentive grants
to employees and certain non-employees who have important relationships with
the Company or its subsidiaries. 5,000,000 shares are available for issuance
pursuant to awards granted under the 1997 Plan. To date no awards of any kind
have been made under the 1997 Plan. The Board of Directors presently acts as
the committee that administers the 1997 Plan (the "Plan Committee").
Stock Option Grants. The Plan Committee may grant Incentive Stock
Options ("ISOs") and Non-Statutory Stock Options ("NSOs") under the 1997 Plan.
With respect to each option grant, the Plan Committee will determine the
number of shares subject to the option, the option price, the period of the
option, the time or times at which the option may be exercised (including
whether the option will be subject to any vesting requirements and whether
there will be any conditions precedent to exercise of the option), and the
other terms and conditions of the option.
Stock Appreciation Rights ("SARs") may be granted under the 1997 Plan.
Each SAR entitles the holder, upon exercise, to receive from the Company an
amount equal to the excess of the fair market value on the date of exercise of
one share of Common Stock of the Company over its fair market value on the
date of grant (or, in the case of a SAR granted in connection with an option,
the excess of the fair market value of one share of Common Stock of the
Company over the option price per share under the option to which the SAR
relates), multiplied by the number of shares covered by the SAR, may be made
in Common Stock, in cash, or in any combination of Common Stock and cash. No
SARs have been granted under the 1997 Plan.
Restricted Stock. The Plan Committee may issue shares of Common Stock
under the 1997 Plan subject to the terms, conditions, and restrictions
determined thereby. Upon the issuance of restricted stock the number of
shares reserved for issuance under the 1997 Plan will be reduced by the number
of shares issued. No restricted shares have been granted under the 1997 Plan.
Cash Bonus Rights. The Plan Committee may grant cash bonus rights under
the 1997 Plan in connection with (i) options granted or previously granted,
(ii) SARs granted or previously granted, (iii) stock bonuses awarded or
previously awarded and (iv) shares issued under the 1997 Plan. No bonus
rights have been granted under the 1997 Plan.
Changes in Capital Structure. The 1997 Plan provides that if the
outstanding Common Stock of the Company is increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any recapitalization,
stock split or certain other transactions, appropriate adjustment will be made
by the Plan Committee in the number and kind of shares available for grants
under the 1997 Plan. In addition, the 1997 Plan Committee will make
appropriate adjustments in the number and kind of shares as to which
outstanding options will be exercisable. In the event of a merger,
consolidation or other fundamental corporate transformation, the Board may, in
its sole discretion, permit outstanding options to remain in effect in
accordance with their terms; to be converted into options to purchase stock in
the surviving or acquiring corporation in the transaction; or to be exercised,
to the extent then exercisable, during a period prior to the consummation of
the transaction established by the Plan Committee or as may otherwise be
provided in the 1997 Plan.
Item 7. Certain Relationships and Related Transactions
The Company has agreed to indemnify each of its directors and officers to
the fullest extent permitted by the Revised Utah Business Corporation Act. See
Item 5 of Part II.
Item 8. Description of Securities
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.0001 par value per share. As of March 5, 1997, there were 21,112,156 shares
of Common Stock of Biomune outstanding held of record by approximately 1,070
shareholders. Accordingly, immediately after the Distribution, the Company
will have approximately 1,070 shareholders of record and approximately
2,111,216 shares outstanding. The Company also will reserve 323,118 shares of
Common Stock for issuance upon conversion of the Biomune Preferred Stock
outstanding at March 5, 1997. The Company has agreed with Biomune to sell
247,059 shares of its Common Stock to Biomune to permit Biomune to meet its
obligations to deliver Common Stock of the Company upon exercise of certain
warrants and options (other than options issued under employee stock option
plans). The purchase price of such shares of Common Stock will be a sum equal
to 10% of the consideration received by Biomune in connection with the
exercise of the right to acquire Biomune Common Stock.
Holders of the Company's Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the shareholders,
and do not have cumulative voting rights. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of Common Stock are
entitled to receive ratably the dividends, if any, that may be declared from
time to time by the Board of Directors out of funds legally available for such
dividends. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock would be entitled to share ratably in all
assets remaining after payment of liabilities and the satisfaction of any
liquidation preferences granted the holders of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive rights and no
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All the outstanding
shares of Common Stock are, and the Common Stock to be distributed by Biomune
hereby, when issued, will be validly issued, fully paid and non-assessable.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of undesignated
Preferred Stock, $0.0001 par value per share. Pursuant to the Company's
Articles of Incorporation, the Company's board of directors has the authority
to amend the Company's Articles of Incorporation, without further shareholder
approval, to designate and determine, in whole or in part, the preferences,
limitations and relative rights of the Preferred Stock before any issuance of
the Preferred Stock and to create one or more series of Preferred Stock and
fix the number of shares of each such series and determine the preferences,
limitations and relative rights of each series of Preferred Stock, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, and liquidation preferences. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the shareholders
and may adversely affect the voting and other rights of the holders of Common
Stock. The Company has authorized the issuance of 20,000 shares of Series A
Preferred and intends to issue up to 12,000 shares of such preferred stock for
gross proceeds of up to $2.4 million concurrent with or prior to the
Distribution. The Company and Biomune have agreed that if the Securities and
Exchange Commission has not declared the Company's Registration Statement on
Form 10-SB effective within 180 days of its filing, then the holders of the
Series A Preferred may exchange such shares as they then hold to Biomune
Common Stock. As of the date of this Registration Statement, the Company has
received subscriptions for $1,225,000 of Series A Preferred, for which cash of
$325,000 has been received. Payments for the remaining subscriptions are due
as follows: $300,000 upon the effective date, $300,000 within 45 days of the
Effective Date, and $300,000 within 90 days of the Effective Date. See,
"Business."
Anti-Takeover Provisions
Certain provisions of Volu-Sol's Articles of Incorporation and Bylaws, as
each will be in effect as of the date of Distribution, and of applicable Utah
State Corporation Law, have the effect of making more difficult an acquisition
of control of Volu-Sol in a transaction not approved by Volu-Sol's Board of
Directors.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
Market Information
Prior to the Distribution, all of the Company's Common Stock was owned by
Biomune and consequently there has been no public trading market for the
Company's securities. Although the Company anticipates that a public market
for over-the-counter trading of the Company's securities may develop after the
Distribution is completed, there can be no assurance that such a market will
develop or that it will be sustained. At such time, if any, as the Company
satisfies applicable entry or listing criteria, the Company may seek to
include or list its Common Stock on the NASDAQ Stock Market or a securities
exchange. There can be no assurance that the Company will ever be able to
satisfy such criteria or that its application for inclusion or listing on the
NASDAQ Stock Market or securities exchange will be accepted. After the
Distribution, all of the Company's issued stock will be unrestricted and
freely salable, except to the extent such Common Stock is owned by affiliates
of the Company.
Holders
Immediately following the Distribution, the Company anticipates that
there will be approximately, 1,070 record holders of the Company's Common
Stock.
Dividends
Since its incorporation, the Company has not declared any dividend on any
of its Common Stock. The Company does not anticipate declaring a dividend on
any of its Common Stock for the foreseeable future. The Series A Preferred
shares will be entitled to a 10% dividend annually which may be paid in cash
or additional shares of Preferred Stock at the option of the Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock will be
American Stock Transfer & Trust Company, 40 Wall Street, New York City, New
York 10005.
Item 2. Legal Proceedings
The Company currently is not a party to, and none of its property is
subject to, any pending or threatened legal proceedings which, in the opinion
of management, are likely to have a material adverse impact on the financial
condition of the Company.
Item 3. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company's independent public accountants will be Arthur Andersen
LLP. Arthur Andersen LLP are also the independent public accountants of
Biomune and in that capacity have performed the audit of the Company's (and
its predecessor's) financial statements for the fiscal years ended September
30, 1994, 1995 and 1996. There have been no disagreements with Arthur
Andersen LLP on any accounting or financial disclosure issues.
Item 4. Recent Sales of Unregistered Securities
The following information sets forth certain information for all
securities the Company sold during the past three years without registration
under the Securities Act of 1933 (the "Securities Act").
On July 27, 1995, in connection with the incorporation of the Company as
a wholly owned subsidiary of Biomune, 10,000 shares of the Company's Common
Stock, consisting of all of the issued and outstanding shares of Common Stock
prior to the Distribution, were issued to Biomune. Such issuance was
accomplished without registration under the Securities Act in reliance on the
exemption afforded by Section 4(2) of the Securities Act. Prior to the
Distribution, such securities will be subject to a forward split of
approximately 211 for 1 to permit the issuance of a sufficient number of
shares to the shareholders of record of Biomune as of March 5, 1997. In
addition, the Company will reserve a total of 323,118 shares of Common Stock
for issuance upon conversion of the Biomune Preferred Stock outstanding at
March 5, 1997, as well as 709,602 shares for issuance upon the exercise of the
Add-on Volu-Sol Options and 247,059 shares for issuance upon exercise of the
Biomune Warrants.
The Company has also agreed to issue up to 12,000 shares of its Series A
Preferred to accredited investors as described elsewhere herein. Such offer
and sale is to be made in accordance with exemptions under Section 4(2) and
3(b) of the Securities Act, including Rule 506 of Regulation D. As of the
filing of this Registration Statement, the Company has received subscriptions
for a total of $1,225,000. Of this amount, cash of $325,000 has been paid to
the Company. Payments for the remaining subscriptions are to be received as
follows: $300,000 upon the effective date, $300,000 within 45 days of the
Effective Date, and $300,000 within 90 days of the Effective Date. Shares
will be issued as payment is received. The Company and Biomune have agreed
that if the Commission has not declared the Company's Registration Statement
on Form 10-SB effective within 180 days of its filing, then the holders of the
Series A Preferred may exchange such shares as they then hold to Biomune
Common Stock.
Item 5. Indemnification of Directors and Officers
The Company's articles of incorporation and Article VIII of the Company's
Bylaws provides for indemnification of the officers and directors to the
fullest extent permitted by the provisions of the Utah Revised Business
Corporation Act (the "Utah Act").
Under Section 16-10a-902 of the Utah Act, a corporation may indemnify a
past or present director against liability incurred in a proceeding if (1) the
director conducted himself in good faith, (2) the director reasonably believed
that his conduct was in, or not opposed to, the corporation's best interest,
and (3) in the case of any criminal proceeding, the director had no reasonable
cause to believe his conduct was unlawful; provided, however, that a
corporation may not indemnify a director (i) in connection with a proceeding
by or in the right of the corporation in which the director is adjudged liable
to the corporation, or (ii) in connection with any other proceeding charging
improper personal benefit to him in which he is adjudged liable on the basis
that personal benefit was improperly received by him.
In addition, pursuant to Section 16-10a-903 of the Utah Act, unless
limited by the articles of incorporation, a corporation shall indemnify a
director who is wholly successful, on the merits or otherwise, in the defense
of any proceeding to which he is party because he is or was a director against
reasonable expenses incurred by him in connection with the proceeding.
Under 16-10a-905 of the Utah Act, an officer is entitled to the benefit
of the same indemnification provisions as apply to directors, but in addition
a corporation may indemnify and advance expenses to an officer who is not a
director to the extent, consistent with public policy, provided by the
corporation's articles of incorporation, the corporation's bylaws, general or
specific action of the board of directors, or contract. Unless the
corporation's articles of incorporation provide otherwise, Section 16-10a-905
of the Utah Act permits a court in certain circumstances to order the payment
of indemnification to a director, whether or not he met the applicable
standard of conduct, if the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances.
PART F/S
The following financial statements are filed as part of this Registration
Statement on Form 10-SB:
Report of Independent Public Accountants
Balance Sheets as of September 30, 1995 and 1996, and June 30, 1997
(unaudited)
Statements of Operations for the years ended September 30, 1994, 1995 and
1996, and for the Nine Months ended June 30, 1996 and 1997 (unaudited)
Statements of Stockholders' Equity/Parent's Investment for the years ended
September 30, 1994, 1995 and 1996, and for the Nine Months ended June 30, 1997
(unaudited)
Statements of Cash Flows for the years ended September 30, 1994, 1995 and
1996, and for the Nine Months ended June 30, 1996 and 1997 (unaudited)
<PAGE>
VOLU-SOL, INC. (INCLUDING ITS PREDECESSOR)
FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 1995 AND 1996 AND
JUNE 30, 1997 (UNAUDITED) AND
FOR EACH OF THE THREE YEARS IN
THE PERIOD ENDED SEPTEMBER 30, 1996
AND THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 (UNAUDITED)
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Volu-Sol, Inc.:
We have audited the accompanying balance sheets of Volu-Sol, Inc. (the
"Company"), a Utah corporation and wholly owned subsidiary of Biomune
Systems, Inc., as of September 30, 1995 and 1996, and the related
statements of operations, stockholder's equity/parent's investment and cash
flows (including Volu-Sol, Inc.'s predecessor) for each of the three years
in the period ended September 30, 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 misstatements. 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.
As discussed in Note 1 to the financial statements, the accompanying
financial statements present the carved-out portion of Biomune Systems,
Inc.'s net assets and results of operations related to its medical stain
manufacturing and sales operations prior to July 27, 1995 and its wholly
owned subsidiary, Volu-Sol, Inc., from July 27, 1995 through September 30,
1996, and may not necessarily be indicative of the financial condition or
the results of operations that would have existed if the medical stain
operations or the subsidiary had been operated as an unaffiliated company.
Certain expenses are the result of allocations of total expenses incurred
by Biomune Systems, Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Volu-Sol, Inc. as of
September 30, 1995 and 1996, and the results of its operations and its cash
flows (including those of its predecessor) for each of the three years in
the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and as of June 30, 1997 has an unaudited accumulated deficit
totaling $1,980,849. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
August 15, 1997 (except with respect
to the matters discussed in the first
paragraph of Note 4 and Note 10,
as to which the date is September 29, 1997)
<PAGE>
VOLU-SOL, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
-------------------------------- June 30,
1995 1996 1997
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 4,753 $ 12,167 $ 110,605
Accounts receivable, less allowance for
doubtful accounts of $10,000, $13,000
and $13,000, respectively 95,402 74,784 67,293
Inventories 100,324 112,726 190,986
-------------- -------------- --------------
Total current assets 200,479 199,677 368,884
-------------- -------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 85,207 221,063 221,165
Furniture and fixtures 72,561 30,924 30,924
Machinery and equipment 64,408 166,052 167,650
-------------- -------------- --------------
222,176 418,039 419,739
Less accumulated depreciation and amortization (170,842) (83,167) (134,528)
-------------- -------------- --------------
Net property and equipment 51,334 334,872 285,211
-------------- -------------- --------------
INTANGIBLE AND OTHER ASSETS, net 297,263 6,249 6,199
-------------- -------------- --------------
Total assets $ 549,076 $ 540,798 $ 660,294
============== ============== ==============
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
Related-party notes payable $ - $ - $ 264,500
Accounts payable 64,140 55,090 129,768
Accrued liabilities 16,176 50,207 46,064
-------------- -------------- --------------
Total current liabilities 80,316 105,297 440,332
-------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5, 9 and 10)
STOCKHOLDER'S EQUITY:
Preferred stock, $.0001 par value; 10,000,000
shares authorized, none issued - - -
Common stock, $.0001 par value; 50,000,000
shares authorized, 10,000 shares outstanding 1 1 1
Additional paid-in capital 571,723 1,940,686 2,200,810
Accumulated deficit (102,964) (1,505,186) (1,980,849)
-------------- -------------- --------------
Total stockholder's equity 468,760 435,501 219,962
-------------- -------------- --------------
Total liabilities and stockholder's equity $ 549,076 $ 540,798 $ 660,294
============== ============== ==============
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
<PAGE>
VOLU-SOL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended September 30, June 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
SALES $ 365,189 $ 458,981 $ 434,691 $ 338,016 $ 368,731
COST OF GOODS SOLD 250,121 369,373 357,471 280,939 301,870
------------- ------------- ------------- ------------- -------------
Gross margin 115,068 89,608 77,220 57,077 66,861
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 445,434 707,393 1,446,651 828,522 542,524
------------- ------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (330,366) (617,785) (1,369,431) (771,445) (475,663)
OTHER INCOME (EXPENSE) 12,216 - (32,791) (32,791) -
------------- ------------- ------------- ------------- -------------
NET LOSS $ (318,150) $ (617,785) $ (1,402,222) $ (804,236) $ (475,663)
============= ============= ============= ============= =============
NET LOSS PER COMMON
SHARE (Note 2) $ (140.22) $ (80.42) $ (47.57)
============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 2) 10,000 10,000 10,000
============= ============= =============
PRO FORMA NET LOSS PER
COMMON SHARE (Note 2) $ (.66) $ (.38) $ (.23)
============= ============= =============
PRO FORMA WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING
(Note 2) 2,111,216 2,111,216 2,111,216
============= ============= =============
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<PAGE>
VOLU-SOL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY/PARENT'S INVESTMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
Parent's ------------------- Paid-in Accumulated Total
Investment Shares Amount Capital Deficit Equity
----------- --------- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $ 622,063 - $ - $ - $ - $ 622,063
Contributions from Parent 234,987 - - - - 234,987
Net loss (318,150) - - - - (318,150)
----------- --------- -------- ------------ ------------- -------------
Balance at September 30, 1994 538,900 - - - - 538,900
Contributions from Parent 547,645 - - - - 547,645
Net loss through July 26, 1995 (514,821) - - - - (514,821)
Incorporation on July 27, 1995 (571,724) 10,000 1 571,723 - -
Net loss from date of
incorporation through
September 30, 1995 - - - - (102,964) (102,964)
----------- --------- -------- ------------ ------------- -------------
Balance at September 30, 1995 - 10,000 1 571,723 (102,964) 468,760
Contributions from Parent - - - 1,368,963 - 1,368,963
Net loss - - - - (1,402,222) (1,402,222)
----------- --------- -------- ------------ ------------- -------------
Balance at September 30, 1996 - 10,000 1 1,940,686 (1,505,186) 435,501
Contributions from Parent
(unaudited) - - - 260,124 - 260,124
Net loss (unaudited) - - - - (475,663) (475,663)
----------- --------- -------- ------------ ------------- -------------
Balance at June 30, 1997 (unaudited) $ - 10,000 $ 1 $ 2,200,810 $(1,980,849) $ 219,962
=========== ========= ======== ============ ============= =============
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements
<PAGE>
VOLU-SOL, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended September 30, June 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (318,150) $ (617,785) $(1,402,222) $ (804,236) $ (475,663)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 48,551 48,547 57,540 35,703 51,361
Amortization of intangibles 46,636 46,636 46,636 34,769 -
Write down of intangible asset - - 244,836 - -
Loss on disposal of fixed assets - - 32,791 32,791 -
Change in assets and liabilities-
(Increase) decrease in
accounts receivable 23,233 (47,478) 20,618 (16,875) 7,491
(Increase) decrease in
inventories 17,403 (36,940) (12,402) 8,662 (78,260)
(Increase) decrease in
other assets - (3,000) (458) (558) 50
Increase (decrease) in
accounts payable (15,960) 47,298 (9,050) (4,250) 74,678
Increase (decrease) in
accrued liabilities (18,170) 10,461 34,031 7,057 (4,143)
------------ ------------ ------------ ------------ ------------
Net cash used in
operating activities (216,457) (552,261) (987,680) (706,937) (424,486)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,439) (17,361) (373,869) (377,911) (1,700)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net investment from parent 234,987 547,645 1,368,963 1,107,758 260,124
Proceeds from issuance of notes
payable to Parent - - - - 264,500
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities 234,987 547,645 1,368,963 1,107,758 524,624
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 14,091 (21,977) 7,414 22,910 98,438
CASH AT BEGINNING OF PERIOD 12,639 26,730 4,753 4,753 12,167
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 26,730 $ 4,753 $ 12,167 $ 27,663 $ 110,605
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<PAGE>
VOLU-SOL, INC.
NOTES TO FINANCIAL STATEMENTS
(Including notes related to unaudited periods)
(1) Nature of Operations and Organization
Volu-Sol, Inc. (the "Company"),a wholly owned subsidiary of Biomune Systems,
Inc. ("Biomune"), was incorporated on July 27, 1995 in the state of Utah.
Biomune contributed certain assets and operations to the Company that had been
previously acquired by Biomune in December 1991. Prior to its incorporation,
the Company had been operated as a division of Biomune. The accompanying
financial statements present the carved-out portion of Biomune's net assets
and results of operations related to its medical stain manufacturing and sales
operations (operated as a division through July 26, 1995 and as a subsidiary
thereafter). Certain expenses presented in the financial statements are the
result of allocations of total expenses incurred by Biomune. These reported
results may not be indicative of the financial condition and results of
operations that would have existed if the medical stain manufacturing and
sales business would have been operated as an unaffiliated company.
The Company engages in the manufacturing, marketing and distribution of
medical diagnostic stains and the marketing and distribution of a related
medical instrument.
On February 25, 1997, the board of directors of Biomune approved the
distribution of the Company to the Biomune common stockholders of record as
of March 5, 1997 (the "Distribution"). This approval is subject to the
completion of certain definitive agreements. Stockholders of record as of
March 5, 1997 are expected to receive one share of Volu-Sol, Inc. common stock
for every ten shares of Biomune common stock owned. Immediately upon
completion of the Distribution, there are expected to be 2,111,216 shares of
Volu-Sol, Inc. common stock outstanding.
The Company has experienced net losses of $318,150, $617,785 and $1,402,222
and negative cash flows from operating activities of $216,457, $552,261 and
$987,680 for the years ended September 30, 1994, 1995 and 1996, respectively.
For the nine months ended June 30, 1996 and 1997, the Company experienced net
losses of $804,236 and $475,663, respectively and negative cash flows from
operating activities of $706,937 and $424,486, respectively. Historically,
the Company has depended upon funding from Biomune to fund its operations and
such funding will not be available after the Distribution. The Company's
continued existence is dependent upon its ability to increase revenues to a
self-sustaining level and to obtain debt or equity funding to meet its short-
term and long-term liquidity needs. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Management's plans with respect to this uncertainty include obtaining debt or
equity funding to finance the Company's operations. The Company is in the
process of completing a private placement of Series A 10% Convertible, Non-
Voting Preferred Stock (the "Offering"). The Offering is intended to provide
the Company with gross proceeds of up to $2,400,000. Subsequent to year-end,
the Company has received subscriptions to purchase $1,225,000 of preferred
stock, for which cash of $325,000 has been collected (see Note 10). The
Company has recently introduced a new hematology staining instrument (the
"Definitive") that contains a microchip (proprietary to a third party) that
regulates precise stain amounts. Management believes that this new product
will enhance future revenues of the Company. Management plans to acquire
other related instruments to further enhance its product offerings.
<PAGE>
-2-
The Company is subject to special risk factors. These risk factors include:
(a) The Company did not achieve profitable operations while it was operated
as a division of Biomune, nor has the Company achieved profitable
operations since the date of its incorporation. The Company's present
business strategy is to improve its cash flows by adding to its existing
product line and expanding its sales and marketing efforts. There can
be no assurance that the Company will be able to achieve profitable
operations.
(b) The Company anticipates that it will continue to incur operating losses
in the future until such time as it is able to successfully market the
Definitive or other devices that it has yet to add to its product line.
There can be no assurance that the Company will be able to achieve
profitable operations with its existing product line or that the Company
will be able to supplement its existing product line with additional
products that will allow it to achieve profitable operations. The
Company's ability to achieve profitable operations will also depend on
its ability to develop and maintain an adequate marketing and
distribution system. There can be no assurance that the Company will
be able to develop and maintain adequate distribution resources.
(c) The Company will require substantial additional funding in order to
acquire or license additional technologies and products to add to its
existing product line, for operational expenses, and for establishing
and maintaining manufacturing and marketing capabilities in the future.
There can be no assurance that the Company's cash reserves and other
liquid assets, including the proceeds of any future third-party
financings will be adequate to satisfy its capital and operating
requirements.
(d) The Company uses certain trademarks and tradenames for certain of its
products. Nevertheless, the Company's core products, medical diagnostic
stains and solutions and other biochemical products, as well as the
Definitive, are not based on technology proprietary to the Company. The
majority of the Company's present product line is based on technology
that is in the public domain and therefore there are effectively no
entry barriers to potential competitors of the Company. The Company has
entered into a license agreement with the third-party entity that owns
the intellectual property rights associated with the Definitive and
manufactures the Definitive for the Company. There can be no assurance
that such third party will be able to adequately protect its proprietary
rights or to continue to manufacture the Definitive on terms favorable
to the Company.
(e) The medical diagnostic supply and biochemical industries are
characterized by intense competition. Many, if not most, of the
Company's competitors and potential competitors are much larger and
consequently have greater access to capital as well as mature and highly
sophisticated distribution channels. Many of the Company's larger
competitors are able to manufacture chemical products on a much larger
scale and therefore presumably would be able to take advantage of
economies of scale not presently enjoyed by the Company. There can be
no assurance that competition from other companies will not render the
Company's products noncompetitive.
(f) The Company historically has not been involved in significant research
and development of new technologies. Consequently, the Company's
success in adding to its existing product line will depend on its
<PAGE>
-3-
ability to acquire or otherwise license competitive technologies and
products and to operate without infringing the proprietary rights of
others. No assurance can be given that any licenses required from third
parties will be made available on terms acceptable to the Company, or
at all.
(g) The Company is highly dependent on certain of its scientific, technical
and operations employees. The loss of services of any of these
personnel could impede the achievement of the Company's objectives.
There can be no assurance that the Company will be able to attract and
retain qualified personnel on acceptable terms.
(h) The use of any of the Company's existing or potential products in
laboratory or clinical settings may expose the Company to liability
claims. These claims could be made directly by persons who assert that
inaccuracies or deficiencies in their test results were caused by
defects in the Company's products. The Company has obtained limited
product liability insurance coverage. However, there can be no
assurance that the Company will be able to obtain commercially
reasonable product liability insurance for any products added to its
product line in the future. A successful product liability claim or
series of claims brought against the Company could have a material
adverse effect on its business, financial condition and results of
operations.
(i) Political, economic and regulatory influences are likely to lead to
fundamental change in the health care industry in the United States.
Third-party payors are increasingly challenging the price and cost
effectiveness of medical products and services, including medical
diagnostic procedures. There can be no assurance that adequate
reimbursement will be available or sufficient to allow the Company to
sell its products on a competitive basis.
<PAGE>
-4-
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Period Presentation
The accompanying balance sheet at June 30, 1997, the statements of operations
and cash flows for the nine months ended June 30, 1996 and 1997 and the
statement of stockholder's equity for the nine months ended June 30, 1997 are
unaudited. In the opinion of management, these statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair statement of the results of the interim periods. The data disclosed
in the notes to financial statements for these periods are also unaudited.
Results for the unaudited nine-month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the Company's full
fiscal year.
Revenue Recognition
Revenues from the sale of the Company's products are recognized when the
products are shipped to the customer.
Allocation of Parent Company General and Administrative Expenses
Expenses specifically identifiable to the Company and paid by Biomune have
been presented as those of the Company. A portion of expenses which are not
specifically identifiable, consisting primarily of payroll-related expenses,
have been allocated to the Company based on estimates of personnel involvement
related to the respective activities and totaled approximately $53,000,
$189,000, $165,000, $124,000 and $40,000 for the years ended September 30,
1994, 1995 and 1996 and for the nine months ended June 30, 1996 and June 30,
1997, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Raw materials, packaging and
Supplies $ 78,731 $ 62,545 $ 61,789
Instruments, biological stains
and reagents 21,593 50,181 129,197
------------ ------------ ------------
$ 100,324 $ 112,726 $ 190,986
============ ============ ============
</TABLE>
<PAGE>
-5-
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives of 2 to 10 years.
Maintenance, repairs, minor renewals and betterments are expensed as incurred.
Major renewals and betterments are capitalized. The cost of property and
equipment sold or otherwise disposed of and the related accumulated
depreciation are relieved from the accounts, and any resulting gains or losses
are included in the determination of net loss.
Intangible Asset
The Company's intangible asset consists of medical diagnostic technologies
acquired by Biomune in its acquisition of the Company's predecessor's net
assets in 1991. During fiscal 1996, the Company determined that facts and
circumstances warranted the write off of the remaining net book value of
approximately $245,000. The determination that this asset was impaired was
based on continuing operating losses and the framework set out in Statement
of Financial Accounting Standards No. 121.
Income Taxes
The Company recognizes a liability or asset for the deferred tax consequences
of all temporary differences between the tax bases of assets and liabilities
and their reported amounts in the financial statements that will result in
taxable or deductible amounts in future years when the reported amounts of the
assets and liabilities are recovered or settled. These deferred tax assets
or liabilities are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Concentrations of Credit Risk
Financial instruments that subject the Company to concentrations of credit
risk consist primarily of trade receivables. In the normal course of
business, the Company provides unsecured credit to its customers. In
connection with providing unsecured credit, the Company performs ongoing
credit evaluations of its customers and maintains allowances for estimated
losses.
Net Loss Per Common Share and Stock Split
The Company computes net loss per common share based on the weighted average
number of common shares outstanding during the period. Net loss per common
share information has not been presented for periods prior to the Company's
incorporation (July 27, 1995). In connection with Biomune's proposed
Distribution of the Company, approximately 2,111,216 shares of the Company's
$0.0001 par value Common Stock, constituting all of the issued and outstanding
shares of the Company's Common Stock, are to be distributed pro rata as a
stock dividend to the holders of the Common Stock of Biomune as of March 5,
1997. As a consequence of the Distribution, the Company will cease to be a
subsidiary of Biomune. Prior to the Distribution, the Company will complete
a forward common stock split of approximately 211 for 1 to permit the issuance
of a sufficient number of shares to the stockholders of record of Biomune as
of March 5, 1997. All pro forma share and per share information in the
accompanying statements of operations have been based on the outstanding
number of shares expected upon completion of the proposed Distribution.
Warrants and options outstanding have not been included in the computations
<PAGE>
-6-
since any assumption of conversion would have an antidilutive effect, thereby
reducing the net loss per common share.
Use of Estimates in the Preparation of Financial Statements
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.
(3) INCOME TAXES
The Company files a consolidated tax return with its parent, Biomune. No tax
sharing agreement exists between the Company and Biomune. Upon the completion
of the distribution, all net operating loss carryforwards and credit
carryforwards will remain with Biomune and will not be available to be
utilized by the Company.
As of June 30, 1997, the Company has a net deferred tax asset of approximately
$40,000 resulting from reserves and depreciation recorded for financial
reporting purposes but not currently deductible for income tax reporting
purposes. In accordance with SFAS No. 109, a valuation allowance is provided
when it is more likely than not that all or some portion of the deferred
income tax asset will not be realized. Accordingly, the Company has
established a valuation allowance for the entire deferred income tax asset.
(4) STOCKHOLDER'S EQUITY AND PARENT COMPANY CAPITAL CONTRIBUTIONS
The Company is authorized to issue 50,000,000 shares of Common Stock, $0.0001
par value per share, and 10,000,000 shares of Preferred Stock, $0.0001 par
value per share. Pursuant to the Company's Articles of Incorporation, the
Company's board of directors has the authority to amend the Company's Articles
of Incorporation, without further stockholder approval, to designate and
determine, in whole or in part, the preferences, limitations and relative
rights of the Preferred Stock before any issuance of the Preferred Stock and
to create one or more series of Preferred Stock. Subsequent to year-end, the
Company has authorized the issuance of 20,000 shares of Series A 10%
Convertible Non-Voting Preferred Stock and issued 1,625 shares for gross
proceeds of $325,000 (See Note 10).
From Volu-Sol's acquisition in 1991 through March 5, 1997, Biomune made
capital contributions, including expenses allocated or paid on behalf of Volu-
Sol, to the Company in order to fund the Company's cash flow needs.
Subsequent to March 5, 1997, any additional cash advances made by Biomune to
the Company were in the form of demand loans and as of June 30, 1997 totaled
$264,500 (see Note 6).
<PAGE>
-7-
(5) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under a noncancelable operating lease that
expires in November 2000. Lease expense for the years ended September 30,
1994, 1995 and 1996 was approximately $55,000, $69,000 and $69,000,
respectively. Lease expense for the nine months ended June 30, 1996 and 1997
was approximately $41,000. Future minimum lease commitments are as follows:
Fiscal Year Amount
1997 $ 55,400
1998 55,400
1999 55,400
2000 55,400
2001 9,240
--------
$230,840
========
Purchase Commitments
The Company is obligated under a manufacturing agreement with the supplier of
the Definitive to purchase 600 automated slide stainers ("stainers") per
calendar year. In the event the Company purchases fewer than 600 stainers,
the manufacturer shall have the option to convert the Company's worldwide
license and exclusive distributorship to a nonexclusive license and
nonexclusive distributorship. As of June 30, 1997, the Company had purchased
225 stainers.
The Company has agreed to pay the supplier of the Definitive a royalty of
three percent of the net sales price for all component parts sold by the
Company, exclusive of stainer sales.
(6) RELATED-PARTY TRANSACTIONS
From March 5, 1997 through June 30, 1997, the Company obtained loans from
Biomune totaling $264,500 which remain outstanding. These loans bear an
annual interest rate of ten percent and are due on demand.
Subsequent to June 30, 1997, Biomune made additional loans totaling $68,000
that bear interest at an annual rate of ten percent and are due on demand.
<PAGE>
-8-
(7) SIGNIFICANT CUSTOMER
During the years ended September 30, 1994, 1995 and 1996, sales to Barret
Healthcare Corporation ("Barret") accounted for approximately 15 percent, 17
percent and 12 percent, respectively, of the Company's total revenues. No
other single customer accounted for more than 10 percent of the Company's
total revenues. During the year ended September 30, 1996, the Company
discontinued selling products to Barret and wrote off outstanding accounts
receivable balances of approximately $55,000.
(8) STOCK INCENTIVE AND OPTION PLANS
The Company has adopted the 1997 Volu-Sol, Inc. Stock Incentive Plan ("1997
Plan"). The 1997 Plan was approved by action of Biomune, the sole stockholder
of the Company, in August 1997. Under the 1997 Plan, the Company may issue
stock options, stock appreciation rights, restricted stock awards, and other
incentives to employees, officers and directors of the Company. Five million
shares are available for grant under the 1997 Plan, but to date no grants have
been made.
(9) EVENTS CONCURRENT WITH THE DISTRIBUTION
Add-on Volu-Sol Options
The Board of Directors of Biomune has determined that, immediately prior to
the Distribution, each Biomune stock option ("Biomune Option") will be divided
into two separately exercisable options: an option to purchase Biomune Common
Stock and an option to purchase Volu-Sol Common Stock (the latter being the
"Add-on Volu-Sol Option"). The Add-on Volu-Sol Options would grant the holder
the right to purchase the Company's Common Stock in an amount that would have
been issued in the Distribution in respect of the shares of Biomune Common
Stock subject to the applicable Biomune Option, if such Biomune Option had
been exercised in full immediately prior to the Distribution, and containing
substantially equivalent terms as the existing Biomune Option. The Add-on
Volu-Sol Options will carry an option exercise price per share equal to the
price per share of the exercise price under the Biomune Option.
As a result of the foregoing, certain persons who remain Biomune employees or
non-employee directors after the Distribution and certain persons who were
Biomune employees prior to the Distribution but become Volu-Sol employees
after the Distribution will hold both Biomune Options and separate Add-on
Volu-Sol Options. The obligations with respect to the Biomune Options and
Add-on Volu-Sol Options held by Biomune employees and non-employee directors
following the Distribution will be obligations solely of Biomune. The
obligations with respect to the Biomune Options and Add-on Volu-Sol Options
held by persons who are Volu-Sol employees following the Distribution and are
no longer Biomune employees will be obligations solely of Volu-Sol. Biomune
and Volu-Sol have agreed to sell to each other from time to time shares of
Biomune Common Stock and Volu-Sol Common Stock, respectively, as necessary to
satisfy their respective obligations under the Distribution Agreement. The
sales price of such shares of Volu-Sol Common Stock will be a sum equal to the
consideration received by Biomune in exercise of the related option.
As of March 5, 1997, there were 7,096,017 Biomune Options outstanding at
exercise prices ranging from $1.16 to $4.00 with a weighted-average exercise
price of $1.80. As a result, concurrent with the Distribution, there will be
in existence options to purchase 709,602 shares of Volu-Sol Common Stock at
<PAGE>
-9-
exercise prices ranging from $1.16 to $4.00 with a weighted average exercise
price of $1.80. The Company has reserved 709,602 shares of its Common Stock
for issuance upon the exercise of these options.
Volu-Sol Warrants
Biomune has granted rights to purchase Biomune Common Stock in the form of
warrants (the "Biomune Warrants"). Under the agreements governing the
grant and exercise of the Biomune Warrants, Biomune has agreed to issue to
the holders of such rights, securities otherwise issuable with respect to
the Biomune Common Shares underlying the Biomune Warrants if and to the
extent the Biomune Warrants are exercised. Consequently, if the holders of
the Biomune Warrants exercise their rights thereunder, Biomune must issue
to those holders one share of Volu-Sol Common Stock for each ten shares of
Biomune Common Stock issued in connection with such exercise. Volu-Sol has
agreed to sell to Biomune the shares of Volu-Sol Common Stock needed to
meet this obligation of Biomune. The sales price of such shares of Volu-
Sol Common Stock will be a sum equal to 10 percent of the consideration
received by Biomune in exercise of the Biomune Warrants.
Concurrent with the Distribution, there will be in existence warrants to
purchase 247,059 shares of Volu-Sol Common Stock at exercise prices ranging
from $2.13 to $3.00 with a weighted average exercise price of $2.38. The
Company has reserved 247,059 shares of its Common Stock for issuance upon
exercise of these warrants.
Conversion of Biomune Preferred Stock
Upon conversion of the outstanding shares of Biomune's Preferred Stock, the
preferred shareholders will receive one share of the Company's Common Stock
for every ten shares of Biomune Common Stock received in the conversion.
The Company has reserved a total of 323,118 shares of Common Stock for
issuance in connection with the conversion of the Biomune Series A, B and C
Preferred Stock outstanding at March 5, 1997.
(10) SUBSEQUENT EVENT
On September 8, 1997, the Company amended its articles of incorporation to
create a series of preferred stock, the Series A 10% Convertible Non-Voting
Preferred Stock (the "Series A Preferred"). The Company is attempting to
sell up to 12,000 shares of the Series A Preferred in a private placement
for total gross proceeds of up to $2,400,000. As of September 29, 1997,
subscriptions for $1,225,000 have been received by the Company for which
cash of $325,000 has been collected. Payments with respect to the
remaining subscriptions are due as follows: $300,000 upon the effective
date of the Company's Form 10-SB, $300,000 within 45 days of the effective
date of the Company's Form 10-SB and $300,000 within 90 days of the
effective date of the Company's Form 10-SB. The Series A Preferred will be
convertible into common stock commencing January 1, 1998. The "conversion
price", which is the basis for such conversion, is the lesser of (i) 80
percent of the average closing bid price of the Company's Common Stock for
the three trading days immediately preceding the date of conversion or (ii)
$1.25 per share.
<PAGE>
PART III
Item 1. Index to Exhibits
The following list describes the exhibits filed as part of this
registration statement on Form 10-SB:
Exhibit
No. Description of Document Page
- ------- --------------------------------------------------- -----
3(i) Articles of Incorporation of the Company, as amended. __
3(ii) Bylaws of the Company. __
4.1 Form of Common Stock Certificate __
4.2 Form of Series A, 10% Convertible Non-Voting
Preferred Stock Certificate __
10.1 Distribution and Separation Agreement dated
September 10, 1997 __
10.2 Volu-Sol, Inc. 1997 Stock Incentive Plan __
10.3 1997 Transition Plan __
10.4 Subscription Agreement ($1.2 million) __
27 Financial Data Schedule __
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
VOLU-SOL, INC.
Date: September 30, 1997 By:/s/ Michael G. Acton
---------------------------
Michael G. Acton
Chief Executive Officer and
Chief Financial Officer
ARTICLES OF INCORPORATION
OF
VOLU-SOL, INC.
The undersigned, acting as an incorporator of a corporation under the
Utah Revised Business Corporation Act, as amended (the "Utah Act"), hereby
adopts the following Articles of Incorporation for such corporation:
ARTICLE I
CORPORATE NAME
--------------
The name of the Corporation is Volu-Sol, Inc.
ARTICLE II
PURPOSE
---------
The Corporation is organized to manufacture, market and distribute
medical diagnostic stains, to conduct research and development on medical
diagnostic stains and to engage in any other lawful acts, activities and
pursuits for which a corporation may be organized under the Utah Act.
ARTICLE III
CAPITAL STOCK
-------------
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stocks and "Preferred Stock." The total
number of shares of Common Stock authorized to be issued is fifty million
(50,000,000) and the total number of shares of Preferred Stock authorized to
be issued is ten million (10,000,000). The Common Stock and the Preferred
Stock shall each have a par value of $0.0001 per share.
The preferences, limitations and relative rights of each class of shares
(to the extent established hereby), and the express grant of authority to the
Board of Directors to amend these Articles of Incorporation to divide the
Preferred Stock into series, to establish and modify the preferences,
limitations and relative rights of each share of Preferred Stock, and to
otherwise impact the capitalization of the Corporation, subject to certain
limitations and procedures and as permitted by Section 602 of the Utah Act,
are as follows:
<PAGE>
A. Common Stock.
1. Voting Rights. Except as otherwise expressly provided by law or in
this Article III, each outstanding share of Common Stock shall be entitled to
one (l) vote on each matter to be voted on by the shareholders of the
Corporation.
2. Liquidation Rights. Subject to any prior or superior rights of
liquidation as may be conferred upon any shares of Preferred Stock, and after
payment or provision for payment of the debts and other liabilities of the
Corporation, upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of Common Stock then
outstanding shall be entitled to receive all of the assets and funds of the
Corporation remaining and available for distribution. Such assets and funds
shall be divided among and paid to the holders of Common Stock, on a pro-rata
basis, according to the number of shares of Common Stock held by them.
3. Dividends. Dividends may be paid on the outstanding shares of Common
Stock as and when declared by the Board of Directors, out of funds legally
available therefor; provided, however, that no dividends shall be paid with
respect to the Common Stock until any preferential dividends required to be
paid or set apart for any shares of Preferred Stock have been paid or set
apart.
4. Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for to the contrary herein or in the
Corporation's Bylaws or in any amendment hereto or thereto shall be vested in
the Common Stock.
B. Preferred Stock.
The Board of Directors, without shareholder action, may amend the
Corporation's Articles of Incorporation, pursuant to the authority granted to
the Board of Directors by Subsection 1002(1)(e) of the Utah Act and within the
limits set forth in Section 602 of the Utah Act, to do any of the following:
(i) designate and determine, in whole or in part, the preferences,
limitations and relative rights of the Preferred Stock before the issuance of
any shares of Preferred Stock;
(ii) create one or more series of Preferred Stock, fix the number of
shares of each such series (within the total number of authorized shares of
Preferred Stock available for designation as a part of such series), and
designate and determine, in whole or in part, the preferences, limitations and
relative rights of each series of Preferred Stock all before the issuance of
any shares of such series;
(iii) alter or revoke the preferences, limitations and relative
rights granted to or imposed upon the Preferred Stock (before the issuance of
any shares of Preferred Stock), or upon any wholly-unissued series of
Preferred Stock); or
(iv) increase or decrease the number of shares constituting any
series of Preferred Stock, the number of shares of which was originally fixed
by the Board of Directors, either before or after the issuance of shares of
the series, provided that the number may not be decreased below the number of
shares of such series then outstanding, or increased above the total number of
authorized shares of Preferred Stock available for designation as a part of
such series.
ARTICLE IV
LIMITATION OF LIABILITIES
-------------------------
To the fullest extent permitted by the Utah Act or any other applicable
law, as now in effect or as it may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
shareholders for monetary damages for any action taken or any failure to take
any action, as a director.
ARTICLE V
INDEMNIFICATION
---------------
The Corporation shall indemnify all officers and directors of the
Corporation against all liability for any action taken or any failure to take
action to the fullest extent permitted by the Utah Act, or any other
applicable law as now in effect or as it may hereafter be amended.
ARTICLE VI
ADDRESS AND REGISTERED AGENT
----------------------------
The street address of the initial registered office of the Corporation
is:
1000 Kearns Building
136 South Main Street
Salt Lake City, Utah 84101-1685
The name of its original registered agent at such address is:
Thomas R. Taylor, Esq.
ARTICLE VII
NAME AND ADDRESS OF INCORPORATOR
--------------------------------
The name and address of the incorporator is:
Michael G. Acton
540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108-1202
DATED this 26th day of July, 1995.
------/s/ Michael G. Acton----------
Michael G. Acton, Incorporator
The undersigned hereby accepts and acknowledges appointment as the
initial registered agent of the Corporation named above, and confirms that the
undersigned meets the requirements of Section 501 of the Utah Act.
Thomas R. Taylor
Initial Registered Agent
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VOLU-SOL, INC.
WE, THE UNDERSIGNED, being the Chief Executive Officer and the Assistant
Secretary of Volu-sol, Inc., a Utah corporation, do hereby certify and declare
as follows:
FIRST: The name of the corporation is Volu-Sol, Inc.
SECOND: The duration of the corporation is perpetual.
THIRD: The following amendments of the Articles of Incorporation
were approved by the sole Shareholder of the Corporation:
Attached hereto as Exhibit "A" and incorporated herein by this reference
is a true and correct copy of the Designation of Rights and Preferences of
Series A 10% Convertible Non-voting Preferred Stock of Volu-Sol, Inc.
FOURTH: The amendment set forth in Article III was adopted
unanimously by the members of the Board of Directors of Volu-sol, Inc. by
written consent on September 8, 1997, pursuant to the Utah Revised Business
Corporation Act, as amended.
DATED this 8th day of September, 1997.
VOLU-SOL, INC.
By: /s/ Michael G. Acton
-------------------------------------
Michael G. Acton, Chief Executive Officer
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, THE UNDERSIGNED, a Notary Public, hereby certify that on the 8th day
of September 1997 personally appeared before me Michael G. Acton, who, being
by me first duly sworn, declared that he is the Chief Executive Officer of
Volu-sol, Inc., a Utah corporation, and that the foregoing instrument was
signed on behalf of such corporation by authority of its Bylaws and such
officer acknowledged to me that the corporation executed the same.
DATED this 8th day of September, 1997.
/s/
-----------------------
NOTARY PUBLIC
Residing at Salt Lake City, Utah
My Commission Expires:
______________________
<PAGE>
EXHIBIT "A"
VOLU-SOL, INC.
DESIGNATION OF RIGHTS AND PREFERENCES
OF
SERIES A 10% CONVERTIBLE NON-VOTING PREFERRED STOCK
Pursuant to the authority vested in the Board of Directors of Volu-Sol,
Inc., a Utah corporation (the "Company"), in its Articles of Incorporation and
as permitted by Section 602 of the Utah Revised Business Corporation Act, as
amended (the "Utah Act"), the Company's Board of Directors does hereby
establish a series of the Company's Preferred Stock designated as Series A 10%
Convertible Non-Voting Preferred Stock ("Series A Preferred Stock") and does
hereby designate the rights, preferences, privileges and other attributes of
the shares of Series A Preferred Stock, as follows:
1. Designation and Number of Shares.
A series of the Company's Preferred Stock is hereby established, to
be designated and known as "Series A 10% Convertible Non-Voting Preferred
Stock" (hereinafter referred to as the "Series A Preferred Stock"), consisting
of twenty thousand (20,000) shares of the authorized and unissued shares of
the Company's Preferred Stock, $0.0001 par value per share. The Company shall
from time to time, in accordance with the laws of the State of Utah, increase
the number of shares of its Common Stock, $0.0001 par value per share, if at
any time the number of shares of the Company's Common Stock remaining unissued
and available for issuance shall not be sufficient to permit conversion of the
Series A Preferred Stock provided herein.
2. Dividends.
The holders of shares of Series A Preferred Stock shall be entitled
to receive an annual dividend out of any of the Company's assets legally
available therefor, prior and in preference to any declaration or payment of
any dividend on the Common Stock of the Company, at the rate of ten percent
(10%) per annum on the stated value of the Series A Preferred Stock (or
$200.00 per share of Series A Preferred Stock). Dividends will be paid either
in cash or in additional shares of Series A Preferred stock at the discretion
of the Board of Directors to holders of record of shares of Series A Preferred
Stock as they appear on the books and records of the Company on such record
dates not less than ten (10) days nor more than sixty (60) days preceding the
payment dates thereof, as may be fixed by the Board of Directors of the
Company. Dividends shall be fully cumulative and shall accrue from the date
of original issuance of the Series A Preferred Stock. Once dividends are paid
on the Series A Preferred Stock, holders of shares of Series A Preferred Stock
will not participate in dividends paid to holders of Common Stock. Except as
described below, no dividends shall be paid or declared and set apart for
payment on any class or series of shares of the Company that are junior to the
Series A Preferred Stock for any period unless full cumulative dividends have
been paid ro contemporaneously are declared and paid or set apart for payment
on the Series A Preferred Stock. A dividend payable in shares of Common Stock
or in shares of another class of shares junior to the Series A Preferred Stock
may, however, be made. Dividends on the Series A Preferred Stock may, at the
option of the Company's Board of Directors, be paid in either cash or in
additional shares of Series A Preferred Stock; provided, however, that if
accrued dividends on the Series A Preferred Stock are paid in additional
shares of Series A Preferred Stock, accrued dividends paid subsequent thereto
shall not be paid on shares of Series A Preferred Stock that were previously
paid as stock dividends. Holders of Series A Preferred Stock shall not
participate in excess dividends remaining following payment of all accrued and
unpaid dividends owing to holders of Series A Preferred Stock.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Series A Preferred
Stock shall be entitled to receive out of the assets of the Company available
for distribution to shareholders before any distribution or payment is made to
holders of shares of Common Stock, or to holders of any other shares of the
Company ranking junior upon liquidation to the Series A Preferred Stock,
liquidation distributions in the amount of Two Dollars ($2.00) per share plus
all accrued and unpaid regular or special dividends, if any, multiplied by (i)
125% if such liquidation occurs prior to January 1, 1998; and (ii) 133% if
such liquidation occurs afer January 1, 1998, before any payment is made to
holders of shares of the Company's equity securities that are junior to the
Series A Preferred Stock. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets of the Company shall be
insufficient to make the full payment on the Series A Preferred Stock as
described in the immediately preceding sentence, and similar payments on any
other class of shares ranking on a parity with the Series C Preferred Stock
upon liquidation, then the holders of the Series A Preferred Stock and of such
other class of shares will share ratably in any such distribution of assets of
the Company in proportion to the full respective distributable amounts to
which they are entitled.
(b) After payment to the holders of the Series A Preferred Stock
of the amounts set forth in subparagraph 3(a) above, the holders of Series A
Preferred Stock will not be entitled to any further participation in any
distribution or payment by the Company, and the entire remaining assets and
funds of the Company legally available for distribution, if any, shall be
distributed among the holders of shares of Common Stock in proportion to the
shares of Common Stock then held by them.
(c) A consolidation or merger of the Company with or into any
other corporation or corporations, or a sale of all or substantially all of
the assets of the Company that does not involve a distribution by the Company
of cash or other property to the holders of shares of Common Stock, shall be
deemed to be a liquidation, dissolution or winding up of the Company within
the meaning of this Section 3, but rather shall be subject to the provisions
of Section 6 below.
4.Voting Rights.
(a) Except as otherwise expressly provided herein or as required
by Utah law, the holders of Series A Preferred Stock shall not be entitled to
voting rights, except that without the approval of holders of a majority of
the outstanding shares of Series A Preferred Stock, the Company will not (i)
authorize, create or issue any shares of any class or series ranking senior to
the Series A Preferred Stock as to liquidation rights; (ii) amend, alter or
repeal by any means the Company's Articles of Incorporation if the powers,
preferences or special rights of the Series A Preferred Stock would be
materially adversely affected; or (iii) become subject to any restriction on
the Series A Preferred Stock other than restrictions arising solely under the
Utah Act or existing under the Company's Articles of Incorporation as in
effect on August 31, 1997. Upon conversion of shares of Series A Preferred
Stock by holders thereof into Common Stock of the Company, holders (to the
extent of their Common Stock) shall be entitled to voting rights pertaining to
the Common Stock received upon such conversion.
5. Conversion of Series A Preferred Stock. The holders of shares of
Series A Preferred Stock shall have the following conversion rights.
(a) Right to Convert. Subject to the Conversion Limitation set
forth in Section 5(c) below, each share of Series A Preferred Stock may be
converted at the holder's option at any time after January 1, 1998 into the
number of shares of the Company's Common Stock determined by dividing $200.00
plus any accrued and unpaid regular or special dividends by an amount equal to
the lesser of (i) the Market Price (as defined below) less 20%; or (ii)
$1.25. The applicable denominator in the formula set forth in the foregoing
sentence shall be referred to herein as the "Conversion Factor." "Market
Price" shall mean the average closing bid price of the Company's Common Stock
for the three (3) trading days immediately preceding the applicable Conversion
Date (as defined below), as reported by the National Association of Securities
Dealers Automated Quotation System or such other inter-dealer system as may
list the Company's Common Stock. Subject to the Conversion Limitation set
forth in Section 5(c) below, each conversion shall be effected by the holder
surrendering the certificate(s) for the shares of Series A Preferred Stock to
be converted to the Company with a Conversion Certificate executed by the
holder for not less than $25,000.00 aggregate conversion amount including any
accrued and unpaid regular and special dividends and accompanied, as required
by the Company, by proper assignment. The date of execution of such
Conversion Certificate and delivery by facsimile to the Company at
(801)974-9553 shall be defined as the "Conversion Date." Upon conversion the
Company shall use its reasonable best efforts to deliver to the holder
certificates evidencing shares of the Company's Common Stock within five (5)
business days of the Conversion Date. The Company shall use reasonable best
efforts to deliver to the holder certificates evidencing shares of Series A
Preferred Stock that are not converted within three (3) business days of the
Conversion date. In the event a merger, consolidation or sale of all or
substantially all of the assets of the Company or a similar business
combination involving the Company, all of the shares of Series A Preferred
Stock, at the option of the holder, may be converted into the number of shares
of Common Stock into which the shares of Series A Preferred Stock are
convertible at the time of the closing of such transaction. In the event the
Company shall fail to deliver certificates evidencing shares of the Company's
Common Stock upon any conversion of shares of Series A Preferred Stock within
five (5) business days of the Conversion Date, the Company shall pay the
holder daily liquidated damages in an amount equal to one percent (1%) of the
principal amount of the shares of Series A Preferred Stock converted into
Common Stock for each day beyond said five (5) business days.
(b) Conversion Limitation. Notwithstanding the conversion
rights regarding the Series A Preferred Stock set forth in Section 5(a) above,
any single holder (or affiliated holders) may not at any time hold shares of
the Company's Common Stock exceeding 4.9% of the total number of issued and
outstanding shares of Common Stock. Thus, any holder or group of affiliated
holders will only be allowed to convert shares of Series A Preferred Stock
into shares of Common Stock in an amount such that such holder's ownership of
shares of Common Stock does not exceed 4.9% of the total number of issued and
outstanding shares of Common Stock.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates thereof,
duly endorsed, at the office of the Company or of any transfer agent for such
stock with the form of conversion certificate executed by the holder thereof,
or a specified portion thereof (as provided in the Conversion Certificate and
for not less than $25,000.00 aggregate conversion amount including accrued and
unpaid regular and special dividends, if any) and accompanied, if required by
the Company, by proper assignment in blank, and shall give written notice to
the Company at such office that such holder elects to convert the same and
shall state therein the name or names into which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. The
Company shall, as soon as practicable thereafter, issue and deliver at such
office to such holder a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. The
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Adjustments for Combinations or Subdivisions of Common
Stock. In the event the Company at any time or from time to time after the
date on which a share of Series A Preferred Stock was first issued shall
declare or pay any dividend on the Common Stock payable in shares of Common
Stock or in any right to acquire shares of Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise), or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Series A Preferred Stock conversion formula set
forth in Section 5(a) above in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately
increased or decreased, as appropriate.
(e) Other Distributions. In the event the Company shall at any
time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company or any of its
subsidiaries, if any, then in each such event a provision shall be made so
that the holders of shares of Series A Preferred Stock shall receive, upon the
conversion thereof, the securities of the Company that they would have
received had their Series A Preferred Stock been converted into shares of
Common Stock on the date of such event.
(f) No Impairment. The Company will not, by amendment to its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series
A Preferred Stock against impairment. No amendment shall be made to the
Company's Articles of Incorporation that would alter or change the powers,
preferences or privileges of the shares of Series A Preferred Stock so as to
affect them adversely without the vote or approval of the holders of at least
a majority of the outstanding shares of Series A Preferred Stock.
(g) Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Preferred Stock conversion formula
pursuant to this Section 5, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and cause
an independent public accountant selected by the Company's Board of Directors
to verify such computation and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any holder
of Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments; (ii)
the Series A Preferred Stock conversion formula at the time in effect; and
(iii) the number of shares of Common Stock that at the time would be received
upon the conversion of shares of Series A Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, any security or right convertible into or entitling the
holder thereof to receive additional shares of Common Stock, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property or to receive any other right, the Company
shall mail to each holder of Series A Preferred Stock at least ten (10) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right, and the amount and character of such dividend,
distribution, security or right.
(i) Issue Taxes. The Company shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares
of Common Stock upon conversion of shares of Series A Preferred Stock pursuant
hereto; provided, however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder of shares
of Series A Preferred Stock in connection with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the shares of issued and outstanding Series A Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all of the
shares of issued and outstanding Series A Preferred Stock, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to the Company's Articles of
Incorporation.
(k) Fractional Shares. No fractional share of Common Stock or
securities representing fractional shares of Common Stock shall be issued upon
the conversion of any share or shares of Series A Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion of more
than one (1) share of Series A Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the Company shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal
to the current market value of such fraction on the date of conversion.
(l) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at such holder's address appearing on
the books and records of the Company.
(m) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation or corporations, or the
conveyance of all or substantially all of the assets of the Company to another
corporation, each share of Series A Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such shares of Series A Preferred Stock would
have been entitled upon the record date (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; any, in any case, appropriate adjustment (as determined by the
Company's Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of such Series A Preferred Stock, to the end that
the provisions set forth herein shall thereafter be applicable, as nearly as
equivalent as is practicable, in relation to any shares of stock or the
securities or property (including cash) thereafter deliverable upon the
conversion of the shares of such Series A Preferred Stock.
6.Merger or Consolidation.
(a) At any time, in the event of:
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
that will result in the Company's shareholders immediately prior to such
transaction not holding (by virtue of such shares or securities issued solely
with respect thereto) at least fifty percent (50%) of the voting power of the
surviving or continuing entity; or
(ii) a sale of all or substantially all of the assets of the
Company, unless the Company's shareholders immediately prior to such sale
will, as a result of such sale, hold (by virtue of securities issued as
consideration for the Company's sale) at least fifty percent (50%) of the
voting power of the purchasing entity;
(the foregoing events are individually referred to herein as a "Sales
Transaction"), then, holders of the Series A Preferred Stock of record as of
the date of consummation of the Sales Transaction shall be entitled to
receive, prior and in preference to any payment of consideration to the
holders of Common Stock, in cash or in securities received from the acquiring
corporation, or in a combination thereof, at the closing of any such Sales
Transaction, at the holder's discretion, an amount per share equal to Two
Hundred Dollars ($200.00) per share (as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares), plus all declared or accumulated but unpaid dividends on such shares
as of the date of closing of such Sales Transaction. In the event the
proceeds of the Sales Transaction are not sufficient to make full payment of
the aforementioned preferential amounts to the holders of the Series A
Preferred Stock in accordance herewith, then the entire amount payable in
respect of the proposed Sales Transaction shall be distributed ratably among
the holders of the Series A Preferred Stock in proportion to the product of
the liquidation preference of each such share and the number of such shares
owned by each such holder. Upon completion of the payment to the holders of
Series A Preferred Stock as provided above, the remaining proceeds of such
Sales Transaction shall be distributed among the holders of record (as of the
date of the consummation of the Sales Transaction) of shares of Common Stock
in proportion to the number of shares of Common Stock then held. Unless
otherwise consented to by the holders of a majority of the outstanding shares
of Series A Preferred Stock, such payments shall be made with respect to the
Series A Preferred Stock and to holders of Common Stock by purchase of such
shares of Series A Preferred Stock and Common Stock by the surviving
corporation, entity or person, or by redemption of such shares by the Company,
in the discretion of the Company.
(b) Any securities to be delivered to the holders of Series A
Preferred Stock pursuant to Section 6(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability as provided for in subsection (ii) below:
(A) If traded on a securities exchange or reported on the NASDAQ
SmallCap Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty (30) day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the Company's Board of
Directors and the holders of a majority of the outstanding shares of Series A
Preferred Stock.
(iii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate of the Company) shall be to make an appropriate
discount from the market value determined in Section 6(b)(i)(A), (B) or (C)
above to reflect the approximate fair market value thereof, as mutually
determined by the Company and the holders of a majority of the outstanding
shares of Series A Preferred Stock.
(c) In the event the requirements of Section 6(a) above are not
complied with, the Company shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 6 have been complied with; or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section 6(d)
below.
(d) The Company shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
ten (10) days prior to the shareholders' meeting called to approve such
transaction. The notice shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 6, and the
Company shall thereafter give such holders prompt notice of any material
changes to the impending transaction. The transaction shall in no event take
place soon than twenty (20) days after the Company has given the notice
provided for herein or sooner than ten (10) days after the Company has given
the notice of any material changes in the impending transaction as provided
for herein; provided, however, that such periods may be shortened upon the
written consent of the holders of a majority of the outstanding shares of
Series A Preferred Stock.
7. Restrictions and Limitations. So long as any shares of Series A
Preferred Stock remain issued and outstanding, the Company shall not without
the consent of the holders of a majority of the shares of Series A Preferred
Stock then outstanding:
(a) Purchase, redeem, or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any of the Common Stock of the
Company; provided, however, that this restriction shall not apply to the
repurchase of fractional shares, odd lots or shares of Common Stock from
directors, officers, consultants or employees of the Company or any
subsidiary, if any; or
(b) Effect any reclassification, recapitalization or other
change with respect to any outstanding shares of stock that results in the
issuance of shares of stock having any preference or priority as to dividends,
redemption rights, liquidation preferences, conversion rights, voting rights
or otherwise, that are superior to any such preference or priority of the
Series A Preferred Stock; or
(c) Increase or decrease (other than by redemption or
conversion) the total number of authorized shares of the Company's Preferred
Stock or the total number of shares of the Company's Preferred Stock
designated as Series A Preferred Stock; or
(d) Authorize or issue, or obligate itself to issue, any other
equity security senior to the Series A Preferred Stock as to dividends,
redemption rights, liquidation preferences, conversion rights, voting rights
or otherwise, or create any obligation or security convertible into or
exchangeable for, or having any option or rights to purchase, any such equity
security that is senior to, the Series A Preferred Stock. The consent of the
holders of a majority of the shares of Series A Preferred Stock shall not be
required if any other equity security on parity with the Series A Preferred
Stock as to dividends, redemption rights, liquidation preferences, conversion
rights, voting rights, or otherwise is to be issued.
8. No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be returned to the status of undesignated shares of the Company's Preferred
Stock.
9. Redemption. The Company shall have the right to call for
redemption up to 66-2/3% of the total number of shares of Series A Preferred
stock initially issued at its option at any time. Notwithstanding what the
Market Price or the Conversion Factor may be at any time, the Company may
designate a different and lower conversion price (the "New Conversion Price")
and the call price for all shares of Series A Preferred Stock called for
redemption by the Company shall be as follows: (i) 125% of the New Conversion
Price for all shares of Series A Preferred Stock called prior to January 1,
1998; and (ii) 133% of the New Conversion Price for all shares of Series A
Preferred Stock called after January 1, 1998. The Company's call option shall
be assignable, in whole or in part, and shall be exercised in writing with
payment to accompany the exercise notice or to be paid within two (2) business
days thereafter. If less than all 66-2/3% of the issued and outstanding
shares of Series A Preferred Stock are to be redeemed, the Company will select
those shares to be redeemed by lot or on a pro rata basis or by any other
method deemed by the Company's Board of Directors to be equitable (with any
necessary adjustments to avoid fractional shares). Any shares of Series A
Preferred Stock for which a written notice of redemption has been given may be
converted into shares of Common Stock at any time before the close of business
on the date fixed for the redemption of such shares of Series A Preferred
Stock. After the date fixed for redemption, dividends on shares of Series A
Preferred stock called for redemption shall cease to accrue, such shares shall
no longer be deemed to be issued and outstanding, and all rights of the
holders thereof as shareholders of the Company shall cease unless the Company
defaults on the payment of the redemption price.
10. United States Dollars. All references herein to Dollars shall be
deemed to refer to United States Dollars.
BYLAWS
OF
VOLU-SOL, INC.
Adopted August 28, 1995
<PAGE>
BYLAWS
OF
VOLU-SOL, INC.
ARTICLE 1
CORPORATE OFFICES
1.1 Business Office. The principal office of the corporation shall be
located in Salt Lake City, Utah, or at any other place either within or
outside the State of Utah, as may be determined by the Board of Directors. The
corporation may have such other offices, either within or without the State of
Utah as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.2 Registered Office. The registered office of the corporation shall be
located within the State of Utah and may be, but need not be, identical with
the principal office (if located within the State of Utah). The address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE 2
SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of shareholders shall be held each
year on a date and at a time designated by the Board of Directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. If the election of directors shall not be held on the day
designated for the annual meeting of the shareholders, or at any adjournment
thereof, the Board of Directors shall cause the election to be held at a
special meeting of the shareholders as soon thereafter as may be convenient.
2.2 Special Meetings. Special meetings of the shareholders may be called
at any time by the Chairman of the Board, by the President, or by the Board of
Directors. Special meetings of the shareholders may also be called by the
holders of not less than one-tenth (1/10) of all the shares entitled to vote
on any issue proposed to be considered at the proposed special meeting by
delivery of one or more signed and dated written demands for the meeting
stating the purpose for which it is to be held to the corporation's Secretary
or other designated officer.
2.3 Place of Meetings. Meetings of shareholders may be held at any place
within or outside the State of Utah as designated by the Board of Directors.
In the absence of any such designation, meetings shall be held at the
principal office of the corporation.
<PAGE>
2.4 Notice of Meetings. Written or printed notice stating the place,
date, and hour of the meeting, and in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally, by facsimile, mail, or express courier by or at the direction of
the Chairman of the Board of Directors, the President, the Secretary, or the
of fleer or person(s) calling the meeting, to each shareholder of record
entitled to vote at such meeting or to any other shareholder entitled by the
Utah Revised Business Corporation Act, as amended (the "Revised Act"), or the
corporation's Articles of Incorporation to receive notice of the meeting.
2.5 Fixing of Record Date. For the purpose of determining shareholders of
any voting group entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to take action without a meeting, or
shareholders entitled to receive payment of any distribution or dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors may fix in advance a date as the record date. Such
record date shall not be more than seventy (70) days prior to the date on
which the particular action requiring such determination of the shareholders
is to be taken. If no record date is so fixed by the Board of Directors, the
record date for determination of such shareholders shall be determined in
accordance with the Revised Act.
2.6 Voting List. Unless otherwise directed by the Board of Directors, the
Secretary of the corporation shall prepare a list of the names of all of the
shareholders who are entitled to be given notice of the meeting. The list
shall be arranged by voting group, and within each voting group by class or
series of shares. The list shall be alphabetical within each class or series
and must show the address of, and the number of shares held by, each
shareholder. The shareholder list must be made available for inspection by any
shareholder in accordance with the Revised Act.
2.7 Meetings By Telecommunication. Any or all of the shareholders may
participate in an annual or special meeting of the shareholders by, or the
meeting may be conducted through the use of, any means of communication by
which all persons participating in the meeting can hear each other during the
meeting.
2.8 Shareholder Quorum and Voting Requirements. If the corporation's
Articles of Incorporation or the Revised Act provides for voting by a single
voting group on a matter, action on that matter is taken when voted upon by
that voting group.
If the Articles of Incorporation or the Revised Act provide for voting by
two or more voting groups on a matter, action on that matter is taken only
when voted upon by each of those voting groups counted separately. Action may
be taken by one voting group on a matter even though no action is taken by
another voting group entitled to vote on the matter.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the Articles of Incorporation, these Bylaws or the Revised
Act provide otherwise, a majority of the votes entitled to be cast on the
matter by the voting group constitutes a quorum of that voting group for
action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for the
adjourned meeting.
If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless
the Articles of Incorporation, these Bylaws, or the Revised Act require a
greater number of affirmative votes.
2.9 Proxies. At all meetings of shareholders, a shareholder may vote in
person, or vote by a proxy that is executed by the shareholder or that is
executed by the shareholder's duly authorized attorney-in-fact, or by a
written statement of the appointment transmitted by telegram, teletype,
telecopy, or other electronic transmission along with written evidence from
which it can be determined that the shareholder transmitted or authorized the
transmission of the appointment. Such proxy shall be filed with the Secretary
of the corporation or any other person authorized to tabulate votes before or
at the time of the meeting. No proxy shall be valid after eleven (11) months
from the date of its execution unless otherwise provided in the proxy.
2.10 Voting Shares. Each outstanding share, regardless of class, and
except as otherwise required by the Revised Act, shall be entitled to one (1)
vote, and each fractional share is entitled to a corresponding fractional
vote, on each matter submitted to a vote at a meeting of the shareholders,
except to the extent that the voting rights of the shares of any class or
classes are limited or denied by the Articles of Incorporation of this
corporation as permitted by the Revised Act.
Redeemable shares are not entitled to vote after notice of redemption is
mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price upon surrender
of the shares.
Unless the Articles of Incorporation of this corporation provide
otherwise, at each election for directors, every shareholder entitled to vote
at such election shall have the right to vote, in person or by proxy, all of
the votes to which the shareholder's shares are entitled for as many persons
as there are directors to be elected and for whose election such shareholder
has a right to vote.
2.11 Shareholder Action Without a Meeting. Any action required to be
taken at a meeting of the shareholders, or any other action that may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
2.12 Waiver. A shareholder may waive any required notice in accordance
with the Revised
ARTICLE 3
BOARD OF DIRECTORS
3.1 General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors, subject to any
limitation set forth in the Articles of Incorporation or in a shareholder's
agreement authorized under the Revised Act.
3.2 Number of Directors and Qualification. The authorized number of
directors shall be six (6) unless otherwise specified from time to time by
resolution of the Board of Directors, but shall not be less than three (3)
unless the number of shareholders of the corporation is less than three (3),
in which event the corporation may have a number of directors equal to or
greater than the number of shareholders. Directors need not be residents of
the State of Utah or shareholders of the corporation.
3.3 Election and Term of Office. Directors shall be elected at each
annual meeting of the shareholders to hold office until the next succeeding
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until
a successor has been elected and qualified. No decrease in the authorized
number of directors shall have the effect of shortening the term of any
incumbent director.
3.4 Chairman of the Board of Directors. The Board of Directors may elect
a Chairman of the Board of Directors, which person shall at all times be a
director. The Chairman of the Board of Directors, if such a person is elected,
shall, if present, preside at meetings of the Board of Directors and exercise
and perform such other powers and duties as may from time to time be assigned
to him or her by the Board of Directors or as may be prescribed by these
Bylaws. Unless otherwise restricted by law, the Chairman of the Board of
Directors may also be given the duties of an officer of the corporation, as
well as serve as an officer, as determined by the Board of Directors. The
period(s) of service by the Chairman of the Board of Directors shall be
determined by the Board of Directors. In the absence of the Chairman of the
Board of Directors, if elected, the Board of Directors may appoint another
member of the Board of Directors to conduct the meeting(s) of the Board of
Directors.
3.5 Regular Meetings. The Board of Directors may provide by resolution
the time and place, either within or without the State of Utah, for the
holding of regular meetings without notice other than such resolution.
3.6 Special Meetings. Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by or at the request of the
Chairman of the Board of Directors, the President, or any two (2) directors.
The person or persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Utah, as
the place for holding any special meeting of the Board of Directors.
3.7 Notice. Notice of the date, time, and place of any special meeting of
the Board of Directors shall be delivered personally or by telephone to each
director or sent by mail, express courier, or facsimile, charges prepaid,
addressed to each director at that director's address as it is shown on the
records of the corporation. If the notice is mailed, it shall be deposited in
the United States mail at least five (5) days before the time of the holding
of the meeting. If the notice is delivered personally, by express courier, or
by telephone, facsimile, or telegraph, it shall be delivered at least
forty-eight (48) hours before the meeting begins. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving notice has reason
to believe will promptly communicate it to the director. Any director may
waive notice of any meeting by delivering a written waiver to the corporation
to file in its corporate records, and attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where the director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened and does
not thereafter vote for or consent to action taken at the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors needs to be specified in the notice or
waiver of notice of such meeting.
3.8 Quorum. A majority of the authorized number of directors as fixed in
accordance with these Bylaws shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than a majority
is present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice until a quorum shall be
present.
3.9 Manner of Acting. The act of a majority of the directors present at a
meeting at which a quorum is present shall, unless the act of a greater number
of directors is required by the Articles of Incorporation of the corporation
or these Bylaws, be the act of the Board of Directors.
3.10 Vacancies and Newly-Created Directorships. Any vacancy occurring in
the Board of Directors may be filled by the affirmative vote of a majority of
the remaining directors, though less than a quorum, or by the affirmative vote
of the majority of shares entitled to vote for directors. A director elected
to fill a vacancy shall be elected for the unexpired term of his or her
predecessor in office.
3.11 Fees and Compensation. Directors may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This section shall not be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation for those services.
3.12 Presumption of Assent. A director who is present at a meeting of the
Board of Directors when corporate action is taken is considered to have
consented to the action taken at the meeting unless the director objects at
the beginning of the meeting, or promptly upon arrival, to holding the meeting
or transacting business at the meeting and does not thereafter vote for or
consent to any action taken at the meeting, or the director contemporaneously
requests his or her dissent or abstention as to any specific action to be
entered into the minutes of the meeting, or the director causes written notice
of a dissent or abstention as to a specific action to be received by the
presiding officer of the meeting before adjournment of the meeting or by the
corporation promptly after adjournment of the meeting.
13. Resignations. A director may resign at any time by giving a written
notice of resignation to either the Chairman of the Board of Directors, the
President, a Vice-President, or the Secretary or Assistant Secretary, if any.
Unless otherwise provided in the resignation, the resignation shall become
effective when the notice is received by an officer or director of the
corporation. If the resignation is effective at a future time, the Board of
Directors may elect a successor to take of flee when the resignation becomes
effective.
3.14 Action by Written Consent. Any action required to be taken at a
meeting of the Board of Directors of the corporation or any other action that
may be taken at a meeting of the Board of Directors or of a committee, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all of the directors, or all of the members of the
committee, as the case may be. Such consent shall have the same legal effect
as a unanimous vote of all the directors or members of the committee and may
be described as such in any document or instrument. Action taken pursuant to
this Section is effective when the last director signs a writing describing
the action taken, unless the Board of Directors establishes a different
effective date.
3.15 Meetings by Telephone Conference Call. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or committee, as the case
may be, by means of conference telephone call or similar communications
equipment by which all persons participating in the meeting can hear each
other throughout the meeting. Participation in such a meeting shall constitute
presence in person at such meeting.
3.16 Removal of Directors. The shareholders may remove one (1) or more
directors at a meeting called for that purpose if notice has been given that a
purpose of the meeting is such removal. The removal may be with or without
cause unless the Articles of Incorporation provide that directors may only be
removed with cause. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in
the vote to remove such director. A director may be removed only if the number
of votes cast to remove such director exceeds the number of votes cast not to
remove such director.
ARTICLE 4
COMMITTEES
4.1 Committees. The Board of Directors may from time to time by
resolution adopted by a majority of the Board of Directors designate from
among its members one (1) or more committees, including, but not limited to, a
Compensation Committee and an audit Committee, each of which shall have such
authority of the Board of Directors as may be specified in the resolution of
the Board of Directors designating such committee; provided, however, that any
such committee so designated shall not have any powers not allowed under the
Revised Act. The chairman of any such committee shall be designated by the
Board of Directors. Each committee must have at least two (2) directors as
members. The Board of Directors shall have power at any time to change the
members of any such committee, designate alternate members of any such
committee, and fill all vacancies therein. Any such committee shall serve at
the pleasure of the Board of Directors.
4.2 Procedures. Meetings and Quorum. Meetings of any committee designated
by the Board of Directors may be held at such times and places as the chairman
of such committee shall from time to time determine. Notice of such meetings
shall be given within the same times and by the same means as set forth in
these Bylaws for meetings of the Board of Directors. At every meeting of any
such committee, the presence of a majority of all of the members of such
committee shall be necessary for the transaction of business, and the action
of any such committee must be authorized by the affirmative vote of a majority
of the members present at such meeting at which a quorum is present. Any such
committee shall keep minutes of its proceedings, and all action by such
committee shall be reported to the Board of Directors at its meeting next
succeeding such action. Any action by a committee shall be subject to review
by the Board of Directors, provided, no rights of third parties shall be
affected by such review.
ARTICLE 5
OFFICERS
5.1 Officers. Except as provided otherwise by a resolution of the Board
of Directors, the officers of the corporation shall be a President, one or
more Vice Presidents as may be determined by resolution of the Board of
Directors, a Secretary, and a Treasurer. Any two (2) or more offices may be
held by the same person. The corporation may also have, at the discretion of
the Board of Directors, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be appointed by the Board
of Directors. Officers need not be shareholders of the corporation.
5.2 Appointments of Office and Qualification.. The of ricers of the
corporation shall be appointed by, and serve at the pleasure of, the Board of
Directors, subject to any rights of an officer under any contract of
employment. Appointment of officers shall take place annually or at such other
intervals as the Board of Directors may determine, and may be made at regular
or special meetings of the Board of Directors or by the written consent of the
directors. Each officer shall hold office until his or her successor shall
have been duly appointed and qualified or until such officer's death,
resignation, or removal in the manner provided in these Bylaws. No officer
provided for in this Article S need be a director of the corporation nor shall
any such officer be a director unless elected a director in accordance with
these Bylaws.
5.3 Resignations. Any officer may resign at any time by delivering a
written resignation to the Board of Directors, the President, or the
Secretary. Unless otherwise specified therein, such resignation shall take
effect upon such delivery of the resignation; and, unless otherwise specified
in the resignation, the acceptance of the resignation shall not be necessary
to make it effective. Any resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
5.4 Removal. Any officer may be removed by the Board of Directors or by a
committee, if any, if so authorized by the Board of Directors, whenever in its
judgment the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
5.5 Vacancies and Newly-Created Offices. A vacancy in any office may be
filled by the Board of Directors at any regular or special meeting or by the
unanimous written consent of the directors.
5.6 President. Unless the Board of Directors shall otherwise determine,
the President shall be the chief executive officer of the corporation, and, if
so designated by resolution of the Board of Directors, shall also have the
title Chief Executive Officer, and shall, subject to the control of the Board
of Directors, have general supervision, direction, and control of the business,
officers, employees, and agents of the corporation. The President shall, when
present, preside at meetings of the shareholders. The President shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws.
5.7 Vice Presidents. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors or,
if not ranked, a Vice President designated by the Board of Directors, shall
perform all the duties of the President and, when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the President. The
Vice Presidents shall have such other powers and perform such other duties as
may from time to time be prescribed for them by the Board of Directors, these
Bylaws, the President, or the Chairman of the Board of Directors and, unless
otherwise so prescribed, the powers and duties customarily vested in the
office of Vice President of a corporation.
5.8 Secretary. The Secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the Board
of Directors may direct, a book of minutes of the proceedings of all meetings
of, and a record of all actions taken by, the Board of Directors or any
committees of the Board of Directors. The Secretary shall cause all notices of
meetings to be duly given in accordance with the provisions of these Bylaws
and as required by the Revised Act.
The Secretary shall be the custodian of the corporate records and of the
seal, if any, of the corporation. Unless otherwise required by law or by the
Board of Directors, the adoption or use of a corporate seal is not required.
The Secretary shall see that the books, reports, statements, certificates, and
other documents and records required by the Revised Act are properly kept and
filed.
The Secretary shall have charge of the stock books of the corporation and
cause the stock and transfer books to be kept in such manner as to show at any
time the amount of the stock of the corporation of each class issued and
outstanding, the manner in which and the time when such stock was paid for,
the alphabetically arranged names and addresses of the holders of record
thereof, the number of shares held by each holder, and the time when each
became a holder of record. The Secretary shall exhibit at all reasonable times
to any director, upon application, the original or duplicate stock register.
The Secretary shall cause the stock ledger to be kept and exhibited at the
principal office of the corporation in the manner and for the purposes
provided by these Bylaws and the Revised Act.
The Secretary shall perform all duties incident to the office of
Secretary and such other duties as are given to him or her by law or these
Bylaws or as from time to time may be assigned by the Board of Directors.
5.9 Treasurer. The Treasurer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse the funds
of the corporation as may be ordered by the Board of Directors, shall render
to the President and the Board of Directors, whenever they request it, an
account of all of transactions taken as Treasurer and of the financial
condition of the corporation, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or these
Bylaws.
5.10 Assistant Secretaries and Treasurers. Any Assistant Secretaries or
Assistant Treasurers elected by the Board of Directors shall perform such of
the duties of the Secretary or the Treasurer, respectively, as may be assigned
to them by the officers are elected to assist, or as may otherwise be
prescribed for them by the Board of Directors.
5.11 Salaries. The salaries or other compensation of the officers of the
corporation shall be fixed from time to time by the Board of Directors, except
that the Board of Directors may delegate to any person or group of persons the
power to fix the salaries or other compensation of any officers. No officer
shall be prevented from receiving any such salary or compensation by reason of
the fact that he or she is also a director of the corporation.
5.12 Surety Bonds. In the event the Board of Directors shall so require,
any officer or agent of the corporation shall provide the corporation with a
bond, in such sum and with such surety or sureties
as the Board of Directors may direct, conditioned upon the faithful
performance of his or her duties to the corporation, including responsibility
for negligence and for the accounting of all property, monies, or securities
of the corporation that may come under his or her responsibility.
ARTICLE 6
EXECUTION OF INSTRUMENTS. BORROWING OF MONEY
AND DEPOSIT OF CORPORATE FUNDS
6.1 Instruments. The Board of Directors may authorize any of ricer, or
agents, to enter into any contract or execute and deliver any instrument in
the name of, and on behalf of, the corporation, and such authority may be
general or confined to specific instances.
6.2 Loans. No loan to the corporation shall be contracted, no negotiable
paper or other evidence of its obligation under any loan to the corporation
shall be issued in its name, and no property of the corporation shall be
mortgaged, pledged, hypothecated, transferred, or conveyed as security for the
payment of any loan, advance, indebtedness, or liability of the corporation,
unless and except as authorized by the Board of Directors. Any such
authorization may be general or confined to specific instances.
6.3 Deposits. All monies of the corporation not otherwise employed shall
be deposited from time to time to its credit in such banks or trust companies
or with such bankers or other depositories as the Board of Directors may
select, or as from time to time may be selected by any officer or agent
authorized so to do by the Board of Directors.
6.4 Checks. Drafts. etc. All checks, drafts, acceptances, notes,
endorsements, and, subject to the provisions of these Bylaws, evidences of
indebtedness of the corporation shall be signed by such officer or officers or
such agent or agents of the corporation and in such manner as the Board of
Directors from time to time may determine. Endorsements for deposit to the
credit of the corporation in any of its duly authorized depositories shall be
in such manner as the Board of Directors from time to time may determine.
6.5 Bonds and Debentures. Every bond or debenture issued by the
corporation shall be evidenced by an appropriate instrument signed by the
President or a Vice President and by the Secretary. Where such bond or
debenture is authenticated with the manual signature of an authorized officer
of the corporation or other trustee designated by the indenture of trust or
other agreement under which such security is issued, the signature of any of
the corporation's officers named thereon may be a facsimile. In case any
officer who signed, or whose facsimile signature has been used on any such
bond or debenture, shall cease to be an officer of the corporation for any
reason before the same has been delivered by the corporation, such bond or
debenture may nevertheless be adopted by the corporation and issued and
delivered as though the person who signed it or whose facsimile signature has
been used thereon had not ceased to be such officer..
6.6 Sale. Transfer. etc.. of Securities. Sales, transfers, endorsements,
and assignments of shares of stock, bonds, and other securities owned by or
standing in the name of the corporation and the execution and delivery on
behalf of the corporation of any and all instruments in writing incident to
any such sale, transfer, endorsement, or assignment, shall be effected by the
President, or by any Vice
President, together with the Secretary, or by any officer or agent "hereunto
authorized by the Board of Directors.
6.7 Proxies. Proxies to vote with respect to shares of stock of other
corporations owned by or standing in the name of the corporation shall be
executed and delivered on behalf of the corporation by the President or any
Vice President and the Secretary of the corporation or by any officer agent
"hereunto authorized by the Board of Directors.
ARTICLE 7
CAPITAL STOCK
7.1 Stock Certificates. The shares of the corporation may, but need not
be, represented by certificates. If the shares are represented by
certificates, the certificates shall be signed by two (2) officers as
designated by the Board of Directors, or in the absence of such designation,
any two (2) of the following officers: the President, any Vice President, the
Secretary, or any Assistant Secretary of the corporation. The signatures of
the designated officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent, or registered by a
registrar, other than the corporation itself or an employee of the
corporation. In case any officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such of fleer
before such certificate is issued, it may be issued by the corporation with
the same effect as if he or she were such officer at the date of its issue.
If the corporation is authorized to issue different classes of shares or
a different series within a class, the designations, preferences, limitations,
and relative rights applicable to each class, the variations in preferences,
limitations, and relative rights determined for each series, and the authority
of the Board of Directors to determine variations for any existing or future
class or series, must be summarized on the front or back of each share
certificate. Alternatively, each certificate may state conspicuously on its
front or back that the corporation will furnish the shareholder this
information on request in writing, without charge.
Each certificate representing shares shall also state upon the face
thereof:
(a) The name of the issuing corporation and that it is organized
under the laws of the State of Utah.
(b) The name of the person to whom the certificate is issued.
(c) The number and class of shares, and the designation of the
series, if any, which such certificate represents.
There shall be entered upon the stock transfer books of the corporation
at the time of issuance of each share, the number of the certificate issued,
the name and address of the person owning the shares represented thereby, the
number and kind, class, or series of such shares, and the date of issuance
thereof. Every certificate exchanged or returned to the corporation shall be
marked "Canceled" with the date of cancellation. Unless otherwise required by
the Revised Act, or by the Board of Directors in accordance with applicable
law, the foregoing with respect to shares does not affect shares already
represented by certificates.
7.2 Shares Without Certificates. The Board of Directors may authorize the
issuance of some or all of the shares of any or all of the classes or series
of the corporation's stock without certificates. The authorization does not
affect shares already represented by certificates until they are surrendered
to the corporation. Within a reasonable time after the issuance or transfer of
shares without certificates, the corporation shall send the shareholder a
written statement of the information required on certificates as stated in
Section 7.1 of these Bylaws.
7.3 Transfer of Stock. Transfers of stock shall be made only upon the
stock transfer books of the corporation kept at the principal office of the
corporation or by the transfer agent(s) designated to transfer shares of the
stock of the corporation. Except where a certificate is issued in replacement
of a lost or destroyed certificate as provided in these Bylaws, an outstanding
certificate for the number of shares involved shall be surrendered for
cancellation before a new certificate is issued therefor. Except as otherwise
provided by law, the corporation and the transfer agent(s) and registrar(s),
if any, shall be entitled to treat the holder of record of any share or shares
of stock as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable, or other claim to or
interest in such share or shares on the part of any other person whether or
not it or they shall have express or other notice thereof.
7.4 Restrictions on Transfer or Registration of Shares. The Board of
Directors may, as they may deem expedient, impose restrictions on the transfer
or registration of transfer of shares of the corporation. The restriction does
not affect shares issued before the restriction was adopted unless the holders
of the shares are parties to the restriction agreement or voted in favor of
the restriction or otherwise consented to the restriction.
The restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder, if the
restriction is authorized by the Revised Act and its existence is noted
conspicuously on the front or back of the certificate, or if the restriction
is contained in the information statement that is sent to shareholders whose
shares are not represented by certificates pursuant to Section 7.2 of these
Bylaws.
7.5 Regulations. Subject to the provisions of these Bylaws and of the
Articles of Incorporation, the Board of Directors may make such rules and
regulations as it may deem expedient concerning the issuance, transfer,
redemption, and registration of certificates for shares of the stock of the
corporation.
7.6 Transfer Agent(s) and Registrar(sl. The Board of Directors may
appoint one (1) or more transfer agent(s) and one (1) or more registrar(s)
with respect to the certificates representing shares of stock of the
corporation, and may require all such certificates to bear the signature of
either or both. The Board of Directors may from time to time define the
respective duties of such transfer agent(s) and registrar(s).
7.7 Lost or Destroyed Certificates. In the event of the loss or
destruction of any certificate of stock, another may be issued in its place
pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft, or destruction and concerning the giving
of a satisfactory bond or bonds of indemnity.
7.8 Consideration for Shares. The Board of Directors may authorize the
issuance of shares for consideration consisting of any tangible or intangible
property or benefits to the corporation, including cash, promissory notes,
services performed, contracts or arrangements for services to be performed, or
other securities of the corporation. The terms and conditions of any tangible
or intangible property or benefit to be provided in the future to the
corporation, including contracts or arrangements for services to be performed,
shall be set forth in writing. The corporation may place in escrow shares
issued in consideration for contracts, arrangements for future services or
benefits, or in consideration of a promissory note, or make other arrangements
to restrict transfer of the shares issued for any such consideration, and may
credit distributions in respect of the shares against the purchase price until
the services are performed, the note is paid, or the payments are received. If
the specified future services are not performed, the note is not paid, or the
benefits are not received, the shares escrowed or restricted or the
distributions credited may be canceled in whole or in part.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification. Except as provided in Section 8.2 of these Bylaws,
the corporation may, to the maximum extent and in the manner permitted by the
Revised Act, indemnify an individual made a party to a proceeding because he
or she is or was a director, against liability incurred in the proceeding if
his or her conduct was in good faith, he or she reasonably believed that his
or her conduct was in, or not opposed to, the corporation's best interests,
and in the case of any criminal proceeding, he or she had no reasonable cause
to believe his or her conduct was unlawful. Termination of the proceeding by
judgment, order, settlement, conviction, upon a plea of nolo contendere or its
equivalent, is not, of itself, determinative that the director did not meet
the standard of conduct described in this section.
8.2 Certain Restrictions on Indemnification. The corporation may not
indemnify a director under Section 8.1 of these Bylaws, in connection with a
proceeding by or in the right of a corporation in which the director was
adjudged liable to the corporation, or in connection with any other proceeding
charging that the director derived an improper personal benefit, whether or
not involving action in his or her official capacity, in which proceeding he
or she was adjudged liable on the basis that he or she derived an improper
personal benefit.
8.3 Mandatory Indemnification. The corporation shall indemnify a director
who was successful, on the merits or otherwise, in the defense of any
proceeding, or in the defense of any claim, issue, or matter in the
proceeding, to which he or she was a party because he or she is or was a
director of the corporation, against reasonable expenses incurred by him or
her in connection with the proceeding or claim with respect to which he or she
has been successful.
8.4 Determination. The corporation may not indemnify a director under
Section 8.1 of these Bylaws unless authorized and a determination has been
made in a specific case that indemnification of the director is permissible in
the circumstances because the director has met the applicable standard of
conduct set forth in Section 8.1 of these Bylaws. Such determination shall be
made either (a) by the Board of Directors by majority vote of those present at
a meeting at which a quorum is present, and only those directors not parties
to the proceedings shall be counted in satisfying the quorum requirement, (b)
if a quorum cannot be obtained, by majority vote of a committee of the Board
of Directors designated by the Board of Directors, which committee shall
consist of two (2) or more directors not parties to the proceeding, except
that the directors who are not parties to the proceeding may participate in
the designation of directors for the committee, (c) by special legal counsel
selected by the Board of Directors or a committee of the Board of Directors in
the manner prescribed by the Revised Act, or (d) by the shareholders, by a
majority of the votes entitled to be cast by holders of qualified shares
present in person or by proxy at a meeting. The majority of the votes entitled
to be cast by the holders of all qualified shares constitutes a quorum for
purposes of action that complies with this Section. Shareholders' action that
otherwise complies with this Section is not affected by the presence of
holders, or the voting, of shares that are not qualified shares as determined
under the Revised Act.
8.5 General Indemnification. The indemnification and advancement of
expenses provided by this Article 8 shall not be construed to be exclusive of
any other rights to which a person seeking indemnification or advancement of
expenses may be entitled under the Articles of Incorporation, these Bylaws,
any agreement, any vote of shareholders or disinterested directors, or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office.
8.6 Advances. The corporation in accordance with the Revised Act may pay
for or reimburse the reasonable expenses incurred by any director who is a
party to a proceeding in advance of final disposition of the proceeding if (a)
the director furnishes the corporation a written affirmation of his or her
good faith belief that he or she has met the applicable standard of conduct
described in Section 8.1 of these Bylaws, (b) the director furnishes to the
corporation a written undertaking in the form required by the Revised Act,
executed personally or on his or her behalf, to repay the advance if it is
ultimately determined that he did not meet the standard of conduct, and (c) a
determination is made that the facts then known to those making a
determination would not preclude indemnification under this Article 8.
8.7 Scope of Indemnification. The indemnification and advancement of
expenses authorized by this Article 8 is intended to permit the corporation to
indemnify to the fullest extent permitted by the laws of the State of Utah,
any and all persons whom it shall have power to indemnify under such laws from
and against any and all of the expenses, liabilities, or other matters
referred to in or covered by such laws. Any indemnification or advancement of
expenses hereunder shall, unless otherwise provided when the indemnification
or advancement of expenses is authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee, or agent of the
corporation and shall inure to the benefit of such person's heirs, executors
and administrators. This Article 8 is a summary of the indemnification
provisions of the Revised Act. In the event of a conflict between the
provisions of this Article 8 and the Revised Act, the Revised Act shall
control.
8.8 Insurance. The corporation may purchase and maintain liability
insurance on behalf of a person who is or was a director, officer, employee,
fiduciary, or agent of the corporation, or who, while serving as a director,
officer, employee, fiduciary, or agent of the corporation, is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent of another foreign or domestic corporation, or
other person, or of an employee benefit plan, against liability asserted
against or incurred by him or her in any such capacity or arising out of his
or her status in any such capacity, whether or not the corporation would have
the power to indemnify him or her against the liability under the provisions
of this Article 8 or the laws of the State of Utah, as the same may hereafter
be amended or modified.
ARTICLE 9
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE 10
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law.
ARTICLE 11
AMENDMENTS
These Bylaws may be amended by the Board of Directors or by the
shareholders.
EXHIBIT
4.1
VOLU-SOL,
INC.
Number
_____
________ Shares
of Common Stock,
$.0001 par value
per share
Incorporated Under
The
Laws of the
State
of Utah
THIS CERTIFIES THAT
_____________________________________________________________ is the
recordholder of ____________ (________) fully paid and non-assessable shares
of Common Stock of Volu-Sol, Inc. (the "Corporation"), transferable only on
the share register of the Corporation by the holder hereof in person, or by
duly authorized attorney, upon surrender of this Certificate properly endorsed
or assigned for transfer.
A full statement of all of the voting powers, designations, preferences,
limitations, restrictions and relative rights granted to or imposed upon the
respective classes and/or series of shares of stock of the Corporation and the
qualifications, limitations and restrictions of such rights may be obtained by
any shareholder upon request at the principal office of the Corporation, and
the Corporation will furnish such shareholder, without charge, a copy of such
statement.
WITNESS the signatures of its duly authorized officers.
DATED: _______________, 1997
________________________________
____________________________________ _____________,
Secretary
________________, President
<PAGE>
FOR VALUE RECEIVED, ____________________hereby sell(s), assign(s) and
transfer(s) unto
______________________________________________________________________________
the Shares
represented by the within Certificate, and does hereby irrevocably constitute
and appoint______________________________ attorney to transfer said shares on
the books of the within named Corporation with full power of substitution in
the premises.
Dated: _______________________________
In Presence
of _______________________
____________________________________
(Shareholder)
____________________________________
(Shareholder)
NOTICE: THE SIGNATURES ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAMES AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS.
THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS THE SHARES ARE
REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS
THE CORPORATION RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
EXHIBIT
4.2
Incorporated under
the laws of
Utah
Number
_____
________ Shares
VOLU-SOL,
INC.
a Utah
corporation
Series A 10% Convertible
Non-voting Preferred
THIS CERTIFIES THAT
_____________________________________________________________ is the owner of
____________ (________) shares of the Capital Stock of Volu-Sol, Inc., a Utah
corporation, (the "Corporation"), transferable only on the Books of the
Corporation by the holder hereof in person, or by duly authorized attorney, on
surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF the duly authorized officers of this Corporation have
hereunto subscribed their names and caused the corporate Seal to be hereunto
affixed at Salt Lake City this _____ day of ______________ A.D. _________
________________________________
____________________________________ _____________,
CEO
________________, Secretary
Shares $.0001
Each.
<PAGE>
A full statement of the voting powers, designations, preferences, limitations,
restrictions and relative rights granted to or imposed upon the respective
classes and/or series of shares of stock of the Corporation and the
qualifications, limitations and restrictions of such rights may be obtained by
any shareholder upon request at the principal office of the Corporation, and
the Corporation will furnish such shareholder, without charge, a copy of such
statement.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS.
THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS THE SHARES ARE
REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS
THE CORPORATION RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, ____________________hereby sell, assign and transfer unto
______________________________________________________________________________
Shares of the Capital Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint______________________________ to
transfer the said Stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated: _______________________________
In Presence of _______________________
____________________________________
(Shareholder)
____________________________________
(Shareholder)
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SEPARATION AND DISTRIBUTION AGREEMENT
This SEPARATION AND DISTRIBUTION AGREEMENT (this "Agreement"), dated
as of September 10, 1997, is made by and between BIOMUNE SYSTEMS, INC., a
Nevada corporation ("Biomune") and VOLU-SOL, INC., a wholly owned subsidiary
of Biomune and a Utah corporation ("Volu-Sol").
R E C I T A L S :
A. The Board of Directors of Biomune ("Biomune Board") has determined
that it is appropriate and desirable to separate Volu-Sol from Biomune by
distributing as a dividend to the holders of shares of common stock, par value
$.0001 per share, of Biomune (the "Biomune Common Stock") all outstanding
shares of common stock, par value $.0001 per share, of Volu-Sol (the "Volu-Sol
Common Stock") such transaction, as hereinafter described, being sometimes
referred to as the "Distribution."
B. Biomune and Volu-Sol have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
such separation and dividend distribution and to set forth other agreements
that will govern certain other matters following such distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
1.1 Action. Any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
1.2 Add-on Volu-Sol Option. An option to acquire Volu-Sol Common
Stock granted as provided in Section 3.03(a).
1.3 Adjusted Biomune Option. A Biomune Stock Option, adjusted as
provided in Section 3.03(a)
1.4 Affiliate. As defined in Rule 12b-2 promulgated under the
Exchange Act, as such Rule is in effect on the date hereof.
1.5 Biomune 401(k) Plan. The Biomune Systems, Inc. Savings and
Investment Plan.
1.6 Biomune Business. The pharmaceutical and nutrition research and
development business and any other businesses conducted by Biomune or any
Biomune Subsidiary other than the Volu-Sol Business, in the past, at the date
hereof or in the future.
1.7 Biomune Employee. Any individual employed (or retained as a
consultant, agent, advisor or independent contractor) by Biomune or a Biomune
Subsidiary on, before or following the Distribution Date, but only during the
time such individual was or is employed (or retained) by Biomune or a Biomune
Subsidiary.
1.8 Biomune Liabilities. Collectively, (i) all the Liabilities of
Biomune under this Agreement, (ii) all the Liabilities, whenever arising
(whether prior to, on or following the Effective Time), arising out of or in
connection with or otherwise relating to the management or conduct of the
Biomune Business, including, without limitation, the products made, sold or
distributed by any Biomune Subsidiary prior to, on or following the
Distribution Date, the former, present or future assets of Biomune or any
Biomune Subsidiary (other than assets of Volu-Sol) or the former, present or
future Biomune Employees (but only with respect to the time any such
individual was a Biomune Employee) and (iii) all the Liabilities arising out
of or based upon any untrue statement of material fact contained in the
Information Statement, or the omission or alleged omission to state a material
fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, other than liabilities arising out of or based upon the
incorporation of any document in the Information Statement and the description
of the Volu-Sol Business or otherwise relating to Volu-Sol in the Information
Statement.
1.9 Biomune Policies. All insurance policies and insurance contracts
of any kind, including, without limitation, primary and excess policies,
comprehensive general liability policies, workers' compensation insurance
policies, and self-insurance and captive insurance company arrangements,
together with the rights, benefits and privileges thereunder, in effect for
periods prior to the Effective Time which are owned or maintained by or on
behalf of Biomune or any of its predecessors which relate to both the Biomune
Business and the Volu-Sol Business.
1.10 Biomune Stock Option Plans. The Biomune Stock Incentive Plans,
as amended, for the years 1992, 1993, 1995 and 1996.
1.11 Biomune Stock Option. An option to purchase shares of Biomune
Common Stock granted pursuant to any of the Biomune Stock Option Plans.
1.12 Biomune Subsidiary. Any subsidiary of Biomune on or before the
Distribution Date and any subsidiary of Biomune which may thereafter be
organized or acquired, other than Volu-Sol.
1.13 Code. The Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder, including any successor
legislation.
1.14 Commission. The Securities and Exchange Commission.
1.15 Distribution Agent. American Stock Transfer & Trust Company, or
other entity appointed by Biomune to distribute shares of Volu-Sol Common
Stock pursuant to the Distribution.
1.16 Distribution Date. The date determined by Biomune Board as of
which the Distribution will be effected.
1.17 Distribution Record Date. March 5, 1997, the date determined by
Biomune Board as the record date for determining the holders of Biomune Common
Stock who are entitled to participate in the Distribution.
1.18 Effective Time. The time on the Distribution Date when Biomune
delivers to the Distribution Agent instructions directing the Distribution
Agent to effect the Distribution.
1.19 ERISA. The Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
1.20 Exchange Act. The Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
1.21 Indemnifiable Losses. Any and all losses, Liabilities, claims,
damages, costs or expenses (including, without limitation, reasonable
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any Actions or threatened
Actions).
1.22 Information Statement. The information statement to be sent to
the holders of shares of Biomune Common Stock and Preferred Stock as of the
Distribution Record Date in connection with the Distribution.
1.23 Insurance Proceeds. Those monies (i) received by an insured
from an insurance carrier or (ii) paid by an insurance carrier on behalf of
the insured, in either case net of any applicable premium adjustment,
retrospectively rated premium, deductible, retention, cost or reserve paid or
held by or for the benefit of such insured.
1.24 Insured Claims. Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Biomune
Policies, whether or not subject to deductibles, co-insurance,
uncollectability or retrospectively rated premium adjustments, but only to the
extent that such Liabilities are within applicable policy limits, including
aggregates.
1.25 IRS. The Internal Revenue Service.
1.26 Liabilities. Any and all debts, liabilities and obligations,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, including, without
limitation, those debts, liabilities and obligations arising under any law,
rule, regulation, Action, threatened Action, order or consent decree of any
court, any governmental or other regulatory or administrative agency or
commission or any award of any arbitration tribunal, and those arising under
any contract, commitment or undertaking.
1.27 Nasdaq SmallCap Stock Market or SCM. The National Association of
Securities Dealers, Inc., SmallCap Stock Market.
1.28 Plan. Any plan, policy, arrangement or contract providing
benefits for any group of employees or former employees or individual employee
or former employee, or the beneficiary or beneficiaries of any such employee
or former employee, whether formal or informal, written or unwritten and
whether or not legally binding, including, without limitation, any means,
whether or not legally required, pursuant to which any benefit is provided by
an employer or any employee or former employee to the beneficiary or
beneficiaries of any such employee or former employee.
1.29 Qualified Plan. A Plan which is an employee pension benefit
plan (within the meaning of Section 3(2) of ERISA) and which constitutes or is
intended in good faith to constitute a qualified plan under Section 401(a) of
the Code, including, without limitation, the Plans listed on Schedule A.
1.30 Registration Statement. The Volu-Sol Registration Statement on
Form 10-SB relating to the registration of the Volu-Sol Common Stock under the
Exchange Act.
1.31 Securities Act. The Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
1.32 Subsidiary. Any entity at least 51% of the total outstanding
voting interests of which are owned, directly or indirectly, by another
entity.
1.33 Volu-Sol Business. The medical diagnostic stain business and
any other businesses conducted by Volu-Sol in the past, at the date hereof or
in the future.
1.34 Volu-Sol Employee. Any individual employed (or retained as a
consultant, agent, advisor or independent contractor) by Volu-Sol on, before
or following the Distribution Date, but only during the time such individual
was or is employed (or retained) by Volu-Sol.
1.35 Volu-Sol Liabilities. Collectively, (i) all the Liabilities of
Volu-Sol under this Agreement, (ii) all the Liabilities, whenever arising
(whether prior to, on or following the Effective Time), arising out of or in
connection with or otherwise relating to the management or conduct of the
Volu-Sol Business, including without limitation, the products made, sold or
distributed by Volu-Sol prior to, on or following the Distribution Date, the
former, present or future assets of Volu-Sol or the former, present or future
Volu-Sol Employees (but only with respect to the time any such individual was
a Volu-Sol Employee), and (iii) all the Liabilities arising out of or based
upon any untrue statement of material fact contained in the Information
Statement or in the portion of the Proxy Statement/Prospectus describing the
Volu-Sol Business or otherwise relating to Volu-Sol, or the omission or
alleged omission to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
1.36 Volu-Sol Transition Plan. The Volu-Sol Transition Plan to be
adopted by Volu-Sol pursuant to which shares of Volu-Sol Common Stock may be
issued to holders of Add-on Volu-Sol Options and which is expected to provide
substantially identical benefits to the Biomune Stock Option Plans.
1.37 Welfare Plan. Any Plan, including, without limitation, the
Plans listed on Schedule B, which is not a Qualified Plan and which provides
medical, health, disability, accident, life insurance, death, dental,
severance or any other welfare benefit within the meaning of Section 3(1) of
ERISA.
References to an "Exhibit" or to a "Schedule" are, unless otherwise
specified, to one of the Exhibits or Schedules attached to this Agreement, and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
ARTICLE II
DISTRIBUTION AND RELATED TRANSACTIONS
2.1 Biomune Board Action. The Biomune Board shall, in its
discretion, establish the Distribution Record Date and the Distribution Date
and any procedures necessary or appropriate to effect the Distribution. Such
action shall not create any obligation on the part of Biomune to effect the
Distribution or in any way limit Biomune's power of termination set forth in
Section 8.7 or alter the consequences of any such termination from those
specified in such Section.
2.2 The Distribution. Subject to the conditions contained in this
Agreement, including without limitation, those set forth in Section 2.14
below, immediately prior to the Effective Time on the Distribution Date,
Volu-Sol will effect a reverse split of its issued and outstanding shares to
that number of shares of Volu-Sol Common Stock equal to one share of Volu-Sol
Common Stock for each ten (10) shares of Biomune Common Stock outstanding at
the Effective Time. At the Effective Time, subject to the conditions and
rights of termination set forth in this Agreement, Biomune will deliver to the
Distribution Agent a certificate representing all the then outstanding shares
of Volu-Sol Common Stock and will deliver to the Distribution Agent
instructions to distribute on, or as soon as practicable following the
Distribution Date, one share of Volu-Sol Common Stock for each ten (10) shares
of Biomune Common Stock held by holders of record of shares of Biomune Common
Stock on the Distribution Record Date and the shares of Volu-Sol Common Stock
required by Section 2.3, below. Volu-Sol will provide all share certificates
that the Distribution Agent requires in order to effect the Distribution. The
Distribution will, for all purposes, be deemed to have been effected at the
time Biomune delivers such instructions to the Distribution Agent
notwithstanding that certificates may not be mailed for several days
thereafter. No certificates representing fractional shares of Volu-Sol Common
Stock will be distributed to holders of Biomune Common Stock. All fractional
share interests will be rounded up or down to the nearest whole share.
2.3 Certain Preferred Shareholder Rights. Biomune has two (2)
outstanding classes of Convertible Preferred Stock, i.e., Series A and Series
C Convertible Preferred Stock (collectively the "Preferred Shares"). The
statements which determined the rights and preferences of the Preferred Shares
include a provision which requires that Biomune issue upon conversion of the
Preferred Shares into Biomune Common Stock, the shares of Volu-Sol Common
Stock that would have been issued had the conversion of the Preferred Shares
occurred and the holders thereof become holders of Biomune Common Stock prior
to the Distribution Record Date. Volu-Sol agrees to reserve for issuance,
solely for the purpose of complying with this provision, a sufficient number
of shares of Volu-Sol Common Stock, to be issued to the holders of the
Preferred Shares as of the Distribution Record Date, if, when and as such
holders exercise their conversion rights under the Preferred Shares. No
shares of Volu-Sol Common Stock will be issued in respect of Preferred Shares
issued as dividends following March 4, 1997. No consideration shall be paid
to Volu-Sol for shares of Volu-Sol Common Stock issued pursuant to this
obligation.
2.4 Certain Warrants and Non-Plan Options. Certain warrants and
options granted by Biomune and unexercised as of March 5, 1997, provide for
Biomune to deliver Volu-Sol Common Stock if, when and as the warrants (or
options) to purchase Biomune Common Stock are exercised. Volu-Sol agrees to
make available and to sell to Biomune, solely for the purpose of meeting its
obligation under such instruments, that number of shares of Volu-Sol to Common
Stock representing 1/10th of the number of shares of Biomune Common Stock as
may be issued upon exercise of said warrants or options, as the case may be.
The purchase price to be paid by Biomune for such Volu-Sol Common Stock shall
be a sum equal to 1/10th of the consideration received by Biomune upon the
exercise of the related warrant or option, as the case may be.
2.5 Elimination of Intercompany Accounts. Except as provided in this
Section, the net amounts of all intercompany receivables, payables and
indebtedness between Volu-Sol, on the one hand, and Biomune or any Biomune
Subsidiary, on the other hand as of the Effective Time, will be satisfied in
full by dividend or capital contribution, as appropriate, and without the need
for any further documentation, as of the Effective Time. All advances made to
Volu-Sol by Biomune after March 5, 1997 through and including the Effective
Time will be evidenced by one or more promissory notes in the principal amount
of the aggregate of all such advances (the "Volu-Sol Notes").
2.6 Transfer of Assets. Prior to the Effective Time, Biomune will
transfer to Volu-Sol all of its interest in Volu-Sol or any assets used in the
Volu-Sol Business not previously transferred to Volu-Sol.
2.7 Assumption and Satisfaction of Liabilities. Except as otherwise
set forth herein, from and after the Effective Time, (a) Biomune will, and
will cause the Biomune Subsidiaries to assume and pay, perform or discharge in
due course all Biomune Liabilities and (b) Volu-Sol will assume and pay,
perform or discharge in due course all the Volu-Sol Liabilities.
2.8 Resignations. Biomune will use its best efforts to cause all
Biomune Employees, except for Michael G. Acton, to resign, at or before the
Effective Time, from all positions as officers or directors of Volu-Sol in
which they serve. Volu-Sol will use its best efforts to cause all Volu-Sol
Employees, except for Michael G. Acton, to resign, at or before the Effective
Time, from all positions as directors or officers of Biomune or any Biomune
Subsidiary in which they serve. Following the Distribution, the Volu-Sol board
of directors ("Volu-Sol Board") will consist of Michael G. Acton, Jack W. Job
and James R. Derrick.
2.9 Further Assurances. If after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement
or to vest Biomune or Volu-Sol with full title to all properties, assets,
rights, approvals, immunities and franchises pertaining to the Biomune
Business or the Volu-Sol Business, as the case may be, the proper officers and
each party to this Agreement will take all such necessary action. Without
limiting the foregoing, Biomune and the Biomune Subsidiaries and Volu-Sol
will use their best efforts to obtain all consents and approvals, to enter
into all amendatory agreements and to make all filings and applications and
take all other actions which may be required for the consummation of the
transactions contemplated by this Agreement, including, without limitation,
all applicable regulatory filings.
2.10 No Representations or Warranties. Each of the parties hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
making any representation or warranty whatsoever, including, without
limitation, as to title, value or legal sufficiency.
2.12 Guaranties. Except as otherwise provided in Article III hereof
with respect to employee benefit matters, Biomune and Volu-Sol will each use
their best efforts to have, on or prior to the Distribution Date, or as soon
as practicable thereafter, Biomune or any Biomune Subsidiary removed as
guarantor of or obligor for indebtedness or obligations for which Volu-Sol is
primarily liable and Volu-Sol removed as guarantor of or obligor for
indebtedness or obligations for which Biomune or any Biomune Subsidiary is
primarily liable. Without limiting the generality of the foregoing, Biomune
will use its best efforts to have the assets of Volu-Sol released as
collateral under Biomune's bank line of credit and Volu-Sol will use its best
efforts to have Biomune released as a guarantor of the lease relating to
Volu-Sol's principal office. Biomune will indemnify, defend and hold harmless
Volu-Sol from and against any and all Liabilities of Volu-Sol arising from a
guarantee or other obligation of Volu-Sol in respect of indebtedness or
obligations for which Biomune (or any Biomune Subsidiary) is primarily liable.
Volu-Sol will indemnify and hold harmless Biomune from and against any and all
Liabilities of Biomune arising from a guarantee or other obligation of Biomune
in respect of indebtedness or obligations for which Volu-Sol is primarily
liable.
2.11 Litigation.
(a) With respect to all Actions now pending or which may
hereafter be commenced or threatened which may result in a Biomune Liability,
Biomune and Volu-Sol will each use their best efforts to have Biomune or a
Biomune Subsidiary substituted as parties to such Action in the place of and
for Volu-Sol or any Volu-Sol Employee and to have Volu-Sol and any Volu-Sol
Employee removed as parties to such Action following the Distribution Date.
(b) With respect to all Actions now pending or which may
hereafter be commenced or threatened which may result in a Volu-Sol Liability,
Biomune and Volu-Sol will each use their best efforts to have Volu-Sol
substituted as parties to such Action in the place of and for Biomune, any
Biomune Subsidiary or any Biomune Employee and to have Biomune, any Biomune
Subsidiary and any Biomune Employee removed as parties to such Action
following the Distribution Date.
(c) At all times from and after the Distribution Date, each of
Volu-Sol and Biomune will use reasonable efforts to make available to the
other upon written request its and its Subsidiaries' officers, directors,
employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any Actions in which the requesting
party may from time to time be involved (without reimbursement for such
persons' salaries).
(d) The provisions of this Section 2.12 will be in addition to,
and not in limitation of, the provisions of Article V, and compliance with the
provisions of this Section 2.12 will not affect the obligations of the parties
under Article V.
2.13 Publicity. Any existing printed material implicitly or
explicitly showing any affiliation or connection between Biomune and Volu-Sol
as of the date such material is used may be used by Biomune and Volu-Sol only
for a period ending six months after the Distribution Date. After the
Distribution Date, neither party hereto will otherwise represent to third
parties that it has a present business affiliation with the other.
2.14 Conditions to the Distribution. The Biomune Board shall have
the sole discretion to determine the Distribution Record Date and the
Distribution Date, and all appropriate procedures in connection with the
Distribution; provided that the Distribution shall not occur prior to such
time as each of the following conditions shall have been satisfied or shall
have been waived by the Biomune and Volu-Sol Boards:
(a) Any material governmental approvals and consents necessary
to consummate the Distribution shall have been obtained and be in full force
and effect;
(b) No order injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Distribution shall be in effect and no other event
shall have occurred or failed to occur that prevents the consummation of the
Distribution; and
(c) The Registration Statement shall have been declared
effective by the Commission.
2.15 Qualification as Tax-Free Distribution.
(a) The parties have determined they will not seek a private
letter ruling from the IRS concerning the tax-free status of the
Distribution. Based on the counsel of their tax advisors, the parties believe
the transaction would qualify as a tax-free distribution within the meaning of
Section 355 of the Code. After the Distribution Date, neither Volu-Sol nor
Biomune will take, or permit any member of its respective corporate group to
take, any action which could reasonably be expected to prevent the
Distribution from qualifying as a tax-free distribution under Code Section 355
or any other transaction contemplated by this Agreement which is intended by
the parties to be tax-free from failing so to qualify.
(b) Notwithstanding the foregoing, nothing in this Section will
prohibit either party from taking any action or entering into any transaction
in the ordinary course of business or in the ordinary course of business
dealing, or in connection with the settlement of any audit issue or the filing
of any tax return.
ARTICLE III
EMPLOYEE BENEFITS
3.1 401(k) Plan. Presently no Biomune Employees who will become
Volu-Sol Employees participate under the Biomune 401(k) Plan. Therefore,
Volu-Sol does not intend to adopt a similar 401(k) Plan at this time.
3.2 Welfare Plans.
(a) Biomune and the Biomune Subsidiaries will assume or retain all
Liabilities and obligations whatsoever for benefits of Biomune Employees and
their spouses and dependents under any Welfare Plan. Except as provided in
Section 3.2(b), as of the Effective Time or as soon thereafter as may be
agreed upon by Biomune, Volu-Sol and the applicable insurance carriers, but no
later than December 31, 1997, Volu-Sol will cease to cosponsor any Welfare
Plans with Biomune or any Biomune Subsidiary; provided, however, that Volu-Sol
Employees and their spouses and dependents participating in Biomune Welfare
Plans cosponsored by Volu-Sol will remain entitled to benefits under (and in
accordance with the terms of) such Welfare Plans for covered expenses incurred
and benefits accrued prior to the time at which their participation in such
Welfare Plans ceases. With respect to the insured medical and dental plan(s)
cosponsored by Biomune and Volu-Sol for eligible employees and their spouses
and dependents, Volu-Sol agrees to pay a pro rata share (based on number of
participants) of any claims runoff for benefits incurred prior to the time
Volu-Sol Employees and their spouses and dependants cease to participate in
such plan(s) that requires additional payments to the insurance company over
and above the amount reserved on Biomune's books for such purpose at the
Effective Time, and Biomune agrees that it will refund to Volu-Sol, at such
time as such reserve is no longer subject to runoff claims for benefits
incurred prior to the time Volu-Sol Employees and their spouses and dependants
cease to participate in such plan(s), a pro rata share (based on number of
participants) of any portion of such reserve that is not utilized to pay such
benefits. Volu-Sol will also be responsible for providing COBRA coverage under
Code Section 4980B for former Volu-Sol Employees and their covered dependents
who are entitled to COBRA coverage on and after the date Volu-Sol ceases to
cosponsor the Biomune medical and dental plan(s). Volu-Sol will also be liable
for any retiree medical coverage liabilities to retired Volu-Sol Employees and
their dependents, and for any severance benefits payable to any Volu-Sol
Employee under a severance pay plan or policy.
(b) Biomune will permit Volu-Sol and any Volu-Sol Subsidiaries
to cosponsor any Biomune Welfare Plan(s) (except for any severance pay plan)
for such period following the Effective Time as may be agreed upon by Biomune,
Volu-Sol and the applicable insurance carriers, but not later than December
31, 1997; provided that Volu-Sol and any Volu-Sol Subsidiaries will pay the
costs associated with such co-sponsorship for Volu-Sol Employees and their
spouses and dependants on the same basis as Biomune pays the costs associated
with such co-sponsorship for Biomune Employees and their spouses and
dependants.
3.3 Stock Option Plans.
(a) The parties will cooperate and take all action necessary to
amend or otherwise provide for adjustments to outstanding awards under the
Biomune Stock Option Plans, to adopt the Volu-Sol 1997 Transition Plan and to
grant the Add-on Volu-Sol Options, so that effective as of the Distribution
Date, each Biomune Stock Option that is outstanding and exercisable, but not
then exercised, will have been adjusted immediately prior to the Distribution
Date so as to represent two separate options, one to purchase Biomune Common
Stock for the same number of shares as the related Biomune Stock Option and
the other to purchase Volu-Sol Common Stock for one-tenth (1/10) of the number
of shares as the related Biomune Stock Option (rounded down to the nearest
whole share) (an "Adjusted Biomune Option" and an "Add-on Volu-Sol Option,"
respectively). Each Add-on Volu-Sol Option will have substantially the same
terms as the related Biomune Stock Option except for the number of shares of
Volu-Sol Common Stock to be purchased and except that Add-on Volu-Sol Options
will be administered pursuant to the Volu-Sol 1997 Transition Plan. The
exercise price per share and all other terms and conditions of each Biomune
Option will not be changed in the Adjusted Biomune Option. The exercise price
per share of each Add-on Volu-Sol Option shall be the same as the per-share
exercise price of the Biomune Option to which it relates.
(b) Biomune shall cause the Biomune Stock Option Plans to be
interpreted so that employment of the Volu-Sol Employees with Volu-Sol shall
be treated as employment with Biomune for purposes of the provisions of such
plans causing outstanding Adjusted Biomune Options to expire upon the
termination of employment of the option holder. Volu-Sol agrees to promptly
notify Biomune of the termination of employment for any reason of each
Volu-Sol Employee who is a holder of Adjusted Biomune Options for Biomune's
use in administering the Biomune Stock Option Plans with respect to
outstanding Adjusted Biomune Options. Biomune agrees to promptly notify
Volu-Sol of the termination of employment for any reason of each of its
employees who is a holder of Add-on Volu-Sol Options for Volu-Sol's use in
administering the Volu-Sol 1997 Transition Plan. For so long as any Adjusted
Biomune Options remain outstanding, Biomune shall provide to Volu-Sol, and
Volu-Sol shall deliver to the Volu-Sol Employees who are holders of Adjusted
Biomune Options, copies of the prospectus or prospectuses and all amendments
and supplements thereto prepared in accordance with the Securities Act
relating to the Adjusted Biomune Options. For so long as any Add-on Volu-Sol
Options remain outstanding, Volu-Sol shall provide to Biomune, and Biomune
shall deliver to its employees who are holders of Add-on Volu-Sol Options,
copies of the prospectus or prospectuses and all amendments and supplements
thereto prepared in accordance with the Securities Act relating to the Add-on
Volu-Sol Options.
(c) If the exercise of an Adjusted Biomune Option by a Volu-Sol
Employee would have qualified for incentive stock option treatment under the
Code if such person had at all times through the time of such exercise
remained an employee of Biomune, Volu-Sol shall pay to the Volu-Sol Employee
an amount in cash intended to compensate such person for the loss of such
treatment as a result of failing to satisfy the employment requirements of
Section 422(a)(2) of the Code with respect to such option, such amount to be
determined by Volu-Sol in its discretion, but not to exceed the value of the
corresponding tax benefit to Volu-Sol. If the exercise of an Add-on Volu-Sol
Option by a Biomune employee would have qualified for incentive stock option
treatment under the Code if such person had at all times through the time of
such exercise been an employee of Volu-Sol, Biomune shall pay to the employee
an amount in cash intended to compensate such person for the loss of such
treatment as a result of failing to satisfy the employment requirements of
Section 422(a)(2) of the Code with respect to such option, such amount to be
determined by Biomune in its discretion, but not to exceed the value of the
corresponding tax benefit to Biomune. In either of the foregoing cases,
payment will be made no later than three months following the date of
exercise, and will be conditioned upon the receipt of an undertaking from the
holder not to dispose of the stock underlying the option in a disposition
described in Section 422(a)(1) of the Code (in each case treating the date of
grant of the related Biomune Stock Option as the date of grant of such
option).
(d) Any and all tax withholding and employment taxes (including
the paying over of such taxes to the government) and related reporting
required in connection with the exercise of an Adjusted or Add-on Option or
in connection with a payment described in subsection (d) hereof shall be the
responsibility of the employer (Biomune or Volu-Sol, as the case may be) of
the individual to whom the Adjusted or Add-on Option was granted, and the
employer shall be entitled to claim any tax deduction arising in connection
with such Adjusted or Add-on Option. The issuer of the shares subject to the
Adjusted or Add-on Option shall promptly notify the employer of the exercise
and shall not be required to deliver any such shares upon exercise of the
option until it shall have received satisfactory evidence that the person
exercising the option has received the payment required by (d), above.
3.4 Other Balance Sheet Adjustments. To the extent not otherwise
provided in this Agreement, Biomune and Volu-Sol will take such action as is
necessary to effect an adjustment to the books of Biomune and Volu-Sol so
that, as of the Effective Time, the prepaid expense balances and accrued
employee liabilities with respect to any employee liability or obligation
assumed or retained as of the Effective Time (except to the extent a later
time is agreed upon as provided in this Agreement) by Biomune and the Biomune
Subsidiaries, on the one hand, and Volu-Sol, on the other hand, are
appropriately reflected on the respective consolidated balance sheets as of
the Effective Time, respectively, of Biomune and Volu-Sol.
3.5 Preservation of Rights to Amend or Terminate Plans. No provision
of this Agreement, including, without limitation, the agreement of Biomune or
Volu-Sol that it, or any Biomune Subsidiary, will make a contribution or
payment to or under any Plan herein referred to for any period, will be
construed as a limitation on the right of Biomune or Volu-Sol or any Biomune
Subsidiary or to amend or terminate such Plan which Biomune or Volu-Sol or
any Biomune Subsidiary or would otherwise have under the terms of such Plan
or otherwise, and no provision of this Agreement will be construed to create a
right in any employee or former employee or beneficiary of such employee or
former employee under a Plan which such employee or former employee or
beneficiary would not otherwise have under the terms of the Plan itself.
ARTICLE IV
INSURANCE
4.1 Biomune shall keep in effect all Biomune Policies in effect as of
the date hereof insuring the Biomune Business and the Volu-Sol Business and
the operations of Biomune, the Biomune Subsidiaries and Volu-Sol until the end
of the day on the Distribution Date, unless Volu-Sol shall have earlier
obtained appropriate coverage and notified Biomune in writing to that effect.
4.2 Commencing at 12:01 a.m. on the day following the Distribution
Date, Volu-Sol will cease to be covered under the Biomune Policies with
respect to any loss, injury, damage, expense or liability that is incurred or
asserted by a third party to have been incurred after the Distribution Date
in, or in connection with, the conduct of the Volu-Sol Business.
4.3 If, subsequent to the Effective Time, any person, corporation,
firm or entity asserts such a claim against Volu-Sol, Biomune shall at the
time such claim is asserted be deemed to assign, without need of further
documentation, to Volu-Sol any and all rights of an insured party under the
applicable Biomune Policy with respect to such asserted claim, specifically
including rights of indemnity, if any, and the right, if any, to be defended
by or at the expense of the insurer; provided, however, that nothing in this
paragraph will be deemed to constitute (or to reflect) the assignment of the
Biomune Policies, or any of them, to Volu-Sol.
4.4 Agreement for Shared Defense. In the event that Insured Claims
of both Volu-Sol and Biomune exist relating to the same occurrence, Volu-Sol
and Biomune agree to jointly defend such Insured Claim; provided, that, if, in
the reasonable judgment of one party, a conflict of interest between Biomune
and Volu-Sol exists in respect of such Insured Claim or if the other party
assumes responsibility for such Insured Claim with any reservations or
exceptions, the party which concludes that a conflict exists or that has not
assumed responsibility for such Insured Claim will have the right to employ
separate counsel reasonably satisfactory to the other party. In that event,
the fees and expenses of such separate counsel will be paid by the party
retaining such counsel unless the other party will have indemnified such party
against such fees and expenses pursuant to this Agreement or otherwise.
Nothing in this Section 4.4 will be construed to limit or otherwise alter in
any way the indemnity obligations of the parties to this Agreement, by
operation of law or otherwise.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification by Biomune. Except as otherwise set forth
herein, Biomune will indemnify, defend and hold harmless Volu-Sol, each of its
directors, officers, employees and agents, each Affiliate of Volu-Sol and each
of the heirs, executors, successors and assigns of any of the foregoing (the
"Volu-Sol Indemnitees") from and against any and all Indemnifiable Losses of
the Volu-Sol Indemnitees arising out of, by reason of or otherwise in
connection with the Biomune Liabilities.
5.2 Indemnification by Volu-Sol. Except as otherwise set forth
herein, Volu-Sol will indemnify, defend and hold harmless Biomune, each of its
directors, officers, employees and agents, each Affiliate of Biomune and each
of the heirs, executors, successors and assigns of any of the foregoing (the
"Biomune Indemnitees") from and against any and all Indemnifiable Losses of
the Biomune Indemnitees arising out of, by reason of or otherwise in
connection with the Volu-Sol Liabilities.
5.3 Limitations on Indemnification Obligations. The amount which any
party (an "Indemnifying Party") is or may be required to pay to any other
party (an "Indemnitee") pursuant to Section 5.1 or Section 5.2 will be reduced
(retroactively or prospectively) by any insurance proceeds or other amounts
actually recovered by or on behalf of such Indemnitee, in reduction of the
related Indemnifiable Loss. If an Indemnitee will have received the payment
required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and will subsequently actually receive insurance proceeds
or other amounts in respect of such Indemnifiable Loss, then such Indemnitee
will pay to such Indemnifying Party a sum equal to the amount of such
insurance proceeds or other amounts actually received, up to the aggregate
amount of any payments received from such Indemnifying Party pursuant to this
Agreement in respect of such Indemnifiable Loss.
5.4 Procedure for Indemnification.
(a) If an Indemnitee shall receive notice or otherwise learn of
the assertion by a person (including, without limitation, any governmental
entity) who is not a party to this Agreement of any claim or of the
commencement by any such person of any Action (a "Third Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of
such Third Party Claim; provided, however, that the failure of any Indemnitee
to give notice as provided in this Section 5.4 shall not relieve the
applicable Indemnifying Party of its obligations under this Article V, except
to the extent that such Indemnifying Party is prejudiced by such failure to
give notice. Such notice shall describe the Third Party Claim in reasonable
detail and will indicate the amount (estimated if necessary) of the
Indemnifiable Loss that has been or may be sustained by such Indemnitee.
(b) Subject to the proviso of the following sentence, an
Indemnifying Party shall defend or seek to settle or compromise, at such
Indemnifying Party's own expense and by such Indemnifying Party's own counsel,
any Third Party Claim. Within thirty (30) days of the receipt of notice from
an Indemnitee in accordance with Section 5.4(a) (or sooner, if the nature of
such Third Party Claim so requires), the Indemnifying Party will notify the
applicable Indemnitee whether the Indemnifying Party will assume
responsibility for defending such Third Party Claim, which notice must specify
any reservations or exceptions with respect to such assumption of
responsibility; provided, however, that an Indemnifying Party may elect not to
assume responsibility for defending a Third Party Claim only in the event of a
good faith dispute that a claim was appropriately tendered under Section 5.1
or 5.2, as the case may be, in which case the Indemnitee may defend or seek to
compromise or settle such Third Party Claim. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnifying Party will not be liable to such Indemnitee under
this Article V for any legal or other expenses (except expenses approved in
advance by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; provided, that, if the defendants in any
such claim include both the Indemnifying Party and one or more Indemnitees and
in such Indemnitees' reasonable judgment a conflict of interest between such
Indemnitees and such Indemnifying Party exists in respect of such claim or if
the Indemnifying Party will assume responsibility for such claim with any
reservations or exceptions, such Indemnitees will have the right to employ
separate counsel reasonably satisfactory to the Indemnifying Party to
represent such Indemnitees, and in that event the reasonable fees and expenses
of such separate counsel (but not more than one separate counsel) will be paid
by such Indemnifying Party.
(c) If an Indemnifying Party elects to defend or to seek to
compromise any Third Party Claim, the appropriate Indemnitee will (i)
cooperate in all reasonable respects with the Indemnifying Party in connection
with such defense, (ii) not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying
Party's prior written consent and (iii) agree to any settlement, compromise or
discharge of such Third Party Claim which the Indemnifying Party may recommend
and which by its terms obligates the Indemnifying Party to pay the full amount
of the liability in connection with such Third Party Claim and which releases
the Indemnifying Party completely in connection with such Third Party Claim.
(d) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, such Indemnifying Party
will be subrogated to and will stand in the place of such Indemnitee as to any
events or circumstances with respect to which such Indemnitee may have any
right or claim relating to such Third Party Claim against any claimant or
plaintiff asserting such Third Party Claim. Such Indemnitee will cooperate
with such Indemnifying Party in a reasonable manner, and at the cost and
expense of such Indemnifying Party, in prosecuting any subrogated right or
claim.
(e) With respect to any Third Party Claim for which the
Indemnifying Party assumes responsibility for defense, the Indemnifying Party
will inform the Indemnitee, upon the reasonable written request of the
Indemnitee, of the status of efforts to resolve such Third Party Claim. With
respect to any Third Party Claim for which the Indemnifying Party does not
assume such responsibility, the Indemnitee will inform the Indemnifying Party,
upon the reasonable written request of the Indemnifying Party, of the status
of efforts to resolve such Third Party Claim.
5.5 Survival of Indemnities. The obligations of Biomune and Volu-Sol
under this Article V will survive the sale or other transfer by it of any
assets or businesses or the assignment by it of any Liabilities, with respect
to any Indemnifiable Loss of the other related to such assets, businesses or
Liabilities. All obligations of Biomune and Volu-Sol under this Article V will
terminate five years after the Distribution Date, except with respect to
claims for which one party has provided notice to the other prior to the end
of such five-year period.
ARTICLE VI
ACCESS TO INFORMATION
6.1 Provision of Corporate Records. Biomune will use its best
efforts to arrange, as soon as practicable following the Distribution Date,
for the transportation to Volu-Sol of all original agreements, documents,
books, records and files relating to or affecting Volu-Sol, any or the
Volu-Sol Business (collectively "Records"), to the extent such items are not
already in the possession of Volu-Sol, subject to the following exceptions:
(a) Volu-Sol recognizes that certain Records may contain
incidental information relating to Biomune and the Biomune Subsidiaries or may
relate primarily to Subsidiaries or divisions of Biomune other than Volu-Sol,
and that Biomune may retain such Records and provide copies of the relevant
portions thereof to Volu-Sol; and
(b) Biomune may retain any tax returns, reports, forms or work
papers, and Volu-Sol will be provided with copies of such returns, reports,
forms or work papers only to the extent that they relate to or affect
Volu-Sol's returns or tax liability.
6.2 Access to Information. From and after the Distribution Date,
each of Biomune and Volu-Sol will afford to the other and its authorized
accountants, counsel and other designated representatives reasonable access
during normal business hours, subject to appropriate restrictions for
classified information, to the personnel, properties, books and records of
such party and its subsidiaries insofar as such access is reasonably required
by the other party.
6.3 Confidentiality. Each of Biomune and the Biomune Subsidiaries on
the one hand, and Volu-Sol on the other hand, will hold, and will cause its
respective consultants and advisors to hold, in strict confidence, all
information concerning the other in its possession (except to the extent that
such information has been (a) in the public domain through no fault of such
party or (b) later lawfully acquired from other sources by such party) to the
extent such information (i) relates to the period up to the Effective Time,
(ii) relates to this Agreement or (iii) is obtained from the other party
pursuant to this Agreement, and each party will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors, unless compelled to
disclose by judicial or administrative process or, as advised by its counsel,
by other requirements of law.
ARTICLE VII
TAX MATTERS
7.1 Tax Returns. Biomune shall file all consolidated Federal income
tax returns (and combined or consolidated state and local tax returns) for
each member of the Biomune Group comprising Biomune and its Subsidiaries
(excluding Volu-Sol) that are required to be filed for periods beginning
before (or beginning and ending on) the Distribution Date. All returns with
respect to Other Taxes for a period beginning before (or beginning and ending
on) the Distribution Date shall be filed or caused to be filed by the party
that under Section 7.3(b) is responsible for paying the tax to which the
return relates. For all other taxable periods relating to taxes other than
Transaction Taxes (a) Biomune shall be responsible for filing tax returns
relating to members of the Biomune Group and (b) Volu-Sol shall be responsible
for filing tax returns relating to members of the Volu-Sol Group, comprising
Volu-Sol and its Subsidiaries, if any. Biomune shall file or cause to be
filed all tax returns relating to Transfer Taxes.
7.2 Income Tax Return Positions. Biomune and Volu-Sol agree that,
except as otherwise required by a Final Determination, the transactions
contemplated in this Agreement, except those transactions described in Section
2.3 hereof and transfers of stock in any foreign corporations, shall be
treated by Biomune and Volu-Sol as being described in Section 355 of the
Code.
7.3 Responsibility for Taxes Generally.
(a) Pre-Distribution Income Taxes. Except as otherwise provided
herein, the Biomune Group shall pay, and shall indemnify and hold harmless
each member of the Volu-Sol Group from, all Pre-Distribution Income Tax
Liabilities, and the Biomune Group shall be entitled to receive and retain all
refunds of Income Taxes for which the Biomune Group would have been
responsible hereunder in the absence of the refund.
(b) Other Taxes. Except as otherwise provided herein, the
Biomune Group shall pay, and shall indemnify and hold harmless each member of
the Volu-Sol Group from, all Other Taxes (and shall be entitled to receive and
retain all refunds of Other Taxes) attributable to the operation of the
Biomune Business immediately after the Distribution Date. Except as otherwise
provided herein, Volu-Sol shall pay, and shall indemnify and hold harmless
each member of the Biomune Group from, all Other Taxes (and shall be entitled
to receive and retain all refunds of Other Taxes) attributable to the Volu-Sol
Business immediately after the Distribution.
(c) Carrybacks. Volu-Sol agrees that, to the extent that any
carryback period for a Carryback Item would include any taxable period
beginning on or before the Distribution Date, Volu-Sol shall elect (under Code
section 172(b)(3) and any other applicable Code provision relating to the
carry back of any Carryback Item and, to the extent feasible, any similar
provision of any applicable state or local Income Tax law) to relinquish such
carryback period as to any Carryback Item which can thereby be used to create
or carry forward a tax benefit. In no event shall Biomune have any obligation
to pay to Volu-Sol any amount in respect of a Carryback Item.
(d) Transaction Taxes. The Biomune Group shall pay, and shall
indemnify and hold harmless each member of the Volu-Sol Group from, all
liabilities for Transaction Taxes, and the Biomune Group shall be entitled to
receive and retain all refunds of Transaction Taxes for which the Biomune
Group would have been responsible hereunder in the absence of the refund.
7.4 Responsibility for an Event of Loss.
(a) Volu-Sol Responsibility. Volu-Sol and any successor shall be
responsible for, and shall indemnify and hold harmless Biomune and each member
of the Biomune Group from, Income Taxes, Other Taxes and all reasonable
out-of-pocket costs and expenses directly caused by an Event of Loss which is
attributable to one or more of the following described events or transaction
occurring after the Distribution Date and within two years after the
Distribution Date with respect to Volu-Sol or any successor: a reorganization,
consolidation, merger or acquisition by any person of a fifty percent (50%) or
greater interest in Volu-Sol as determined under Section 355(d)(4) of the
Code, applying the aggregation and attribution rules under subparagraphs
(d)(7) and (8) of that Section, which is in any way solicited or approved by
the Volu-Sol Board (other than in connection with a hostile takeover); the
sale or disposition of Volu-Sol's assets other than those assets relating to
the Volu-Sol Business and other than in the ordinary course of business;
Volu-Sol's ceasing to conduct its business as an active trade or business
within the purview of Section 355 of the Code; the issuance, redemption or
repurchase of shares of Volu-Sol Common Stock by Volu-Sol or any successor or
any subsidiary of the foregoing; the purchase of Biomune Common Stock by
Volu-Sol or any successor or any subsidiary of the foregoing; the
recapitalization or other reclassification of the shares of Volu-Sol or any
successor; or the complete or partial liquidation of Volu-Sol or any
successor.
(b) Biomune Responsibility. Biomune and any successor shall be
responsible for, and shall indemnify and hold harmless Volu-Sol and each
member of the Volu-Sol Group from, Income Taxes, Other Taxes and all
reasonable out-of-pocket costs and expenses directly caused by an Event of
Loss which is attributable to one or more of the following described events or
transactions occurring within two years of the Distribution Date with respect
to Biomune or any successor; a reorganization, consolidation, merger or
acquisition by any person of a fifty percent (50%) or greater interest in
Biomune as determined under Section 355(d)(4) of the Code, applying the
aggregation and attribution rules under subparagraphs (d)(7) and (8) of that
Section, which is in any way solicited or approved by the Biomune Board (other
than in connection with a hostile takeover); the sale or disposition of assets
of any member of Biomune, other than in the ordinary course of business;
Biomune's ceasing to conduct its digital media business as an active trade or
business within the purview of Section 355 of the Code; the issuance,
redemption or repurchase of shares of Biomune Common Stock by Biomune or any
successor or any subsidiary of the foregoing; the purchase of Volu-Sol Common
Stock by Biomune or any successor or any subsidiary of the foregoing; the
recapitalization or other reclassification of the shares of Biomune or any
successor; or the complete or partial liquidation of Biomune or any
successor.
(c) Shared Responsibility. If an Event of Loss shall occur and
responsibility for the Event of Loss under Section 7.4(a) and 7.4(b) rests
either with both parties or neither party, each party shall share the Income
Taxes, Other Taxes and reasonable out-of-pocket costs and expenses directly
caused by such Event of Loss in the ratio of fifty percent (50%) for Biomune
and fifty percent (50%) for Volu-Sol, and each party shall indemnify and hold
harmless the other party for its share of that liability.
(d) Payments. If Biomune is required to make a payment to
Volu-Sol under this Section 7, such payment shall be made to Volu-Sol or any
successor, and any payment due under this Section 7 from Volu-Sol to Biomune
shall be made by Volu-Sol to Biomune or any successor. The payment shall be
made by the earlier of (a) twenty (20) days after Biomune (or a member of
Volu-Sol, as applicable) makes a tax payment (including without limitation any
payment made in connection with either an estimated or annual tax liability)
or (b) twenty (20) days after a Final Determination with respect to such
tax. The amount of any payment required to be made by any party to another
under this Section 7 shall be an amount which, after subtraction of any
additional federal, state or local taxes payable by the recipient in respect
of the receipt of such payment (the "Gross-Up Amount"), is equal to the amount
payable hereunder; provided, however, if a payment is made pursuant to Section
7.4(c) hereof and if a Gross-Up Amount is includable in the payment, the
Gross-Up Amount so includable in the payment shall be reduced by fifty percent
(50%) in the case of payments from Volu-Sol to Biomune or fifty percent (50%)
in the case of payments from Biomune to Volu-Sol. Biomune and Volu-Sol agree
that, without limiting the ultimate payment obligation of the payor set forth
in the preceding sentence, any payment shall be reported for U.S. Federal
income tax purposes as non-deductible and non-taxable unless, by reason of
changes in the law or new interpretations of the law by the Internal Revenue
Service, there is not substantial authority (within the meaning Code section
6662(d)(2)(B)(i)) for such position or such position is otherwise not
permissible under applicable law.
7.5 Cooperation and Exchange of Information.
(a) Matters Giving Rise to Indemnity.
(1) Notice. If during the course of an audit any tax
authority indicates an intention to propose an Adjustment to the tax liability
of either the Volu-Sol Group or the Biomune Group ("Indemnitee") which would
result, if such Adjustment were to be confirmed by a Final Determination, in a
loss against which the other party ("Indemnitor") may be required to indemnify
Indemnitee pursuant to this Agreement, Indemnitee shall promptly notify
Indemnitor thereof in writing. Such notice to Indemnitor shall include
sufficient information with respect to the issues as to which indemnity may be
sought to enable Indemnitor to determine whether to request Indemnitee to
contest the Adjustment.
(2) Contest Rights and Conditions. If Indemnitor shall
request that Indemnitee contest the Adjustment in writing within 20 days of
the receipt of the notification referred to in Section 7.5(a)(1) hereof,
Indemnitee will contest the Adjustment, provided that: in no event shall
Indemnitee be required to contest any Adjustment unless coincident with
Indemnitor's request (A) Indemnitee shall have received (i) a written
acknowledgment from Indemnitor of its obligation to indemnify Indemnitee
hereunder in the event it does not prevail in such contest and (ii) an
opinion of independent tax counsel to Indemnitor (which counsel shall be
reasonably acceptable to Indemnitee) to the effect that a reasonable basis
exists for contesting the Adjustment; and (B) if such contest is to be
conducted in a manner requiring payment of a proposed tax deficiency,
Indemnitor shall have advanced to Indemnitee, on an interest-free basis, an
amount sufficient to make payment of the amount attributable to the issues
being contested, together with any required interest or penalties. If any
funds are advanced by Indemnitor in connection with any tax contest, any
refund received to the extent fairly attributable to such advance shall be
returned to Indemnitor, together with any interest thereon paid by the
relevant taxing authority, promptly upon Biomune's receipt of such funds. If
Indemnitor shall have requested Indemnitee to contest an Adjustment and
complied with each of the terms and conditions set forth above, such contest
shall be conducted, at the direction of the Indemnitor, by independent tax
counsel selected by Indemnitor and reasonably acceptable to Indemnitee. If
Indemnitor or counsel selected by Indemnitor shall advocate, propose to
advocate or fail to protest before any taxing authority a position with would
result in a tax detriment to Indemnitee not subject to indemnification in
order to reduce Indemnitor's obligation hereunder, Indemnitee may replace such
counsel with counsel of its own selection and any tax detriment suffered by
Indemnitee attributable to such position shall be included among the Income
Taxes, Other Taxes and related expenses for which Indemnitee is entitled to
indemnification hereunder.
(3) Settlement: Release of Indemnification. If Indemnitor
shall have requested Indemnitee to contest an Adjustment and complied with
each of the terms and conditions set forth above, Indemnitee shall not settle
or compromise any Adjustment for which indemnity is sought hereunder without
the consent of Indemnitor unless it simultaneously releases Indemnitor from
its obligations to indemnify and reimburse Indemnitee with respect to the
issues so settled or comprised. If Indemnitor shall fail to request Indemnitee
to contest any Adjustment or shall fail to comply with the terms and
conditions entitling it to make such request as set forth in subparagraph (b),
Indemnitee may in its sole discretion elect to contest (or not contest) such
Adjustment with counsel selected by it and may at any time settle or
compromise the matter without the consent of Indemnitor and without releasing
its rights to indemnity from Indemnitor.
(4) Joint Responsibility. If for the reasons described in
Section 7.4(c) an Event of Loss shall occur or is proposed by the IRS (or
other taxing authority) to have occurred, the notice provisions in paragraph
(1) above shall apply, and notwithstanding paragraphs (2) or (3) above,
Biomune shall have sole control over all decisions regarding any contest,
dispute, litigation or settlement relating to the Event of Loss (the
"Proceedings") and the incurrence of related reasonable expenses; provided,
however, that Biomune shall keep Volu-Sol informed of the Proceedings and
shall consult with Volu-Sol regarding the material issues relating to the
Event of Loss raised in the Proceedings and that the Biomune's decisions
regarding the choice of forum of the Proceedings, any decision to appeal and
any settlement relating to the Event of Loss by Biomune with any tax authority
shall each be subject to the approval of Volu-Sol, which approval shall not be
unreasonably withheld.
(b) Notice. If during the course of an audit any tax authority
indicates an intention to propose an Adjustment to the tax liability of either
the Volu-Sol Group or the Biomune Group (the "Tax Indemnitee") which would
result, if such Adjustment were to be confirmed by a Final Determination, in a
loss against which the other party (the "Tax Indemnitor") may be required to
indemnify the Tax Indemnitee pursuant to this Section 7, the Tax Indemnitee
shall promptly notify the Tax Indemnitor thereof in writing. Such notice to
the Tax Indemnitor shall include sufficient information with respect to the
issues as to which indemnity may be sought to enable Tax Indemnitor to
determine whether to request the Tax Indemnitee to contest the Adjustment.
(c) Contest Rights and Conditions. If the Tax Indemnitor shall
request that the Tax Indemnitee contest the Adjustment in writing within
twenty (20) days of the receipt of the notification referred to in Section
7.5(b) hereof, the Tax Indemnitee will contest the Adjustment; provided that
in no event shall the Tax Indemnitee be required to contest any Adjustment
unless coincident with the Tax Indemnitor's request (a) the Tax Indemnitee
shall have received (i) a written acknowledgment from the Tax Indemnitor of
its obligation to indemnify the Tax Indemnitee hereunder in the event it does
not prevail in such contest and (ii) an opinion of independent tax counsel to
the Tax Indemnitor (which counsel shall be reasonably acceptable to the Tax
Indemnitee) to the effect that a reasonable basis exists for contesting the
Adjustment; and (b) if such contest is to be conducted in a manner requiring
payment of a proposed tax deficiency, the Tax Indemnitor shall have advanced
to the Tax Indemnitee, on an interest-free basis, an amount sufficient to make
payment of the amount attributable to the issues being contested, together
with any required interest or penalties. If any funds are advanced by the Tax
Indemnitor in connection with any tax contest, any refund received to the
extent fairly attributable to such advance shall be returned to the Tax
Indemnitor, together with any interest thereon paid by the relevant taxing
authority, promptly upon Biomune's receipt of such funds. If the Tax
Indemnitor shall have requested the Tax Indemnitee to contest an Adjustment
and complied with each of the terms and conditions set forth above, such
contest shall be conducted, at the direction of the Indemnitor, by independent
tax counsel selected by the Tax Indemnitor and reasonably acceptable to the
Tax Indemnitee. If the Tax Indemnitor or counsel selected by the Tax
Indemnitor shall advocate, propose to advocate or fail to protest before any
taxing authority a position which would result in a tax detriment to the Tax
Indemnitee not subject to indemnification in order to reduce the Tax
Indemnitor's obligation hereunder, the Tax Indemnitee may replace such counsel
with counsel of its own selection and any tax detriment suffered by the Tax
Indemnitee attributable to such position shall be included among Income Taxes,
Other Taxes and related expenses for which the Tax Indemnitee is entitled to
indemnification hereunder.
(d) Settlement; Release of Indemnification. If the Tax
Indemnitor shall have requested the Tax Indemnitee to contest an Adjustment
and complied with each of the terms and conditions set forth above, the Tax
Indemnitee shall not settle or compromise any Adjustment for which indemnity
is sought hereunder without the consent of the Tax Indemnitor unless it
simultaneously releases the Tax Indemnitor from its obligations to indemnify
and reimburse the Tax Indemnitee with respect to the issues so settled or
compromised. If the Tax Indemnitor shall fail to request the Tax Indemnitee
to contest any Adjustment or shall fail to comply with the terms and
conditions entitling it to make such request as set forth in Section 7.5(c)
hereof, the Tax Indemnitee may in its sole discretion elect to contest (or not
contest) such Adjustment with counsel selected by it and may at any time
settle or compromise the matter without the consent of the Tax Indemnitor and
without releasing its rights to indemnity from the Tax Indemnitor.
(e) Joint Responsibility. If for the reasons described in
Section 7.4(c) hereof an Event of Loss shall occur or is proposed by the IRS
(or other taxing authority) to have occurred, the notice provisions in Section
7.5(b) hereof shall apply, and notwithstanding Sections 7.5(b) and 7.5(c)
hereof, Biomune shall have control over decisions regarding any contest,
dispute, litigation or settlement relating to the Event of Loss (the
"Proceeding") and the incurrence of related reasonable expenses, including
without limitation the choice of tax counsel to represent it before any tax
authority in matters relating to the Event of Loss; provided, however, that
Biomune shall keep Volu-Sol informed of the Proceedings and shall consult with
Volu-Sol regarding the material issues relating to the Event of Loss raised in
the Proceedings; and provided, further, that (a) the choice of forum for such
Proceeding, and any decision to appeal, (b) any settlement relating to the
Event of Loss by Biomune with any tax authority shall each be subject to the
approval of Volu-Sol, which approval shall not be unreasonably withheld.
(f) Tax Return Information. Without limiting Section 7.5(e)
hereof, Biomune and Volu-Sol agree to cooperate fully with each other in
connection with the preparation of any tax return or claim for refund or in
defending any audit or other proceeding in respect of taxes for all open
taxable periods. Such cooperation shall include making personnel and records
available promptly and within thirty (30) days (or such other period as may be
reasonable under the circumstances) after a request for such personnel or
records is made by the tax-imposing authority or the other party. If Biomune
or Volu-Sol, as the case may be, fails to provide any information requested
pursuant to this Section 7.5(f), then the requesting party shall have the
right to engage a public accountant of its choice to gather such information.
Biomune and Volu-Sol public accountant full access to all appropriate records
or other information in the possession of any member of the Biomune Group or
the Volu-Sol Group, as the case may be, during reasonable business hours, and
to reimburse or pay directly all costs and expenses in connection with the
engagement of such public accountant. Biomune agrees to indemnify and hold
harmless each member of the Volu-Sol Group and its officers and employees, and
Volu-Sol agrees to indemnify and hold harmless each member of the Biomune
Group and its officers and employees against any cost, fine, penalty or other
expense of any kind attributable to the negligence or misconduct of a member
of the Biomune Group or the Volu-Sol Group, as the case may be, in supplying a
member of the other group with inaccurate or incomplete information; provided,
that, nothing set forth in this Section 7.5(f) shall require either party to
permit the other to participate in any audit even though issues are raised for
which an indemnity may be sought if such issues result in an Adjustment at the
conclusion of such audit.
(g) Record Retention. Biomune and Volu-Sol agree to retain all
records which may contain information or provide evidence relevant to the
determination of the Income Tax liability of the Biomune Group or the Volu-Sol
Group or the stockholders of either for any taxable period until such time as
a Final Determination occurs with respect to such taxable period; provided,
however, that such records need not be retained longer than fifteen (15) years
after the end of the latest taxable period to which they relate so long as
such records do not relate to an ongoing contest.
ARTICLE VIII
MISCELLANEOUS
8.1 Complete Agreement; Construction. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter
thereof, and supersedes all previous negotiations, commitments and writings
with respect to such subject matter.
8.2 Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement will survive the Distribution Date.
8.3 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Utah, without regard to the
principles of conflicts of laws thereof.
8.4 Notices. All notices and other communications hereunder must be
in writing and must be delivered by hand, mailed by registered or certified
mail (return receipt requested) or sent by facsimile transmission to the
parties at the following addresses (or at such other addresses for a party as
may be specified by like notice) and will be deemed given on the date on which
such notice is received:
If to Biomune:
Biomune Systems, Inc.
2401 South Foothill Drive
Salt Lake City, Utah 84109
Attn: Chief Executive Officer
Facsimile: (801) 466-3741
If to Volu-Sol:
Volu-Sol, Inc.
5095 West 2100 South
Salt Lake City, Utah 84120
Attn: Chief Executive Officer
Facsimile: (801) 974-9553
8.5 Amendments. This Agreement may not be modified or amended except
by an agreement in writing signed by the parties.
8.6 Successors and Assigns. Except in connection with a merger or
consolidation or the sale of all or substantially all the assets of a party
hereto, this Agreement will not be assignable, in whole or in part, directly
or indirectly, by either party hereto without the prior written consent of the
other, and any attempt to assign any rights or obligations arising under this
Agreement without such consent will be void; provided, however, that the
provisions of this Agreement will be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and permitted
assigns.
8.7 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Record Date by
and in the sole discretion of the Biomune Board without the approval of
Volu-Sol or of Biomune's shareholders. In the event of such termination, no
party will have any liability of any kind to any other party.
8.8 No Third Party Beneficiaries. Except for the provisions of
Article V relating to Indemnitees and as otherwise expressly provided herein,
this Agreement is solely for the benefit of the parties hereto and their
respective successors and permitted assigns and should not be deemed to confer
upon third parties any remedy, claim, liability, reimbursement, claim of
action or other right in excess of those existing without reference to this
Agreement.
8.9 Title and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
8.10 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction will, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction will not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach
of the provisions of this Agreement and agrees that the obligations of the
parties hereunder are specifically enforceable.
8.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed effective September 10, 1997.
BIOMUNE SYSTEMS, INC.,
a Nevada corporation
By:
Its:
VOLU-SOL, INC., a wholly owned subsidiary
of Biomune Systems, Inc. and a Utah corporation
By:
Its:
LIST OF SCHEDULES AND EXHIBITS
A.List of Biomune's Qualified Plans
B.List of Biomune's Welfare Plans
VOLU-SOL, INC. 1997 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE OF PLAN; TERM
(a) ADOPTION. On August ___, 1997, the Board of Directors (the
"Board") of Volu-Sol, Inc., a Utah corporation (the "Company"), adopted a
stock option plan to be known as the 1997 Stock Option Plan (the "Plan").
(b) DEFINED TERMS. All initially capitalized terms used hereby shall
have the meaning set forth in Article V hereto.
(c) GENERAL PURPOSE. The purpose of the Grant Program is to further
the interests of the Company and its shareholders by encouraging key persons
associated with the Company (or Parent or Subsidiary Corporations) to acquire
shares of the Company's Stock, thereby acquiring a proprietary interest in its
business and an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the granting of
options to acquire the Company's Stock ("Options"), the direct granting of the
Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
(d) CHARACTER OF OPTIONS. Options granted under this Plan to
employees of the Company (or Parent or Subsidiary Corporations) that are
intended to qualify as an "incentive stock option" as defined in Code section
422 ("Incentive Stock Option") will be specified in the applicable stock
option agreement. All other Options granted under this Plan will be
nonqualified options.
(e) RULE 16b-3 PLAN. The Company expects to be subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and therefore the Plan is intended to comply with all applicable
conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated
under the 1934 Act. In addition, the Board may amend the Plan from time to
time as it deems necessary in order to meet the requirements of any amendments
to Rule 16b-3 without the consent of the shareholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years commencing on
the date of adoption of the original Plan by the Board as specified in Section
1.1(a) hereof. No Option or Award shall be granted under the Plan unless
granted within 10 years of the adoption of the Plan by the Board, but Options
or Awards outstanding on that date shall not be terminated or otherwise
affected by virtue of the Plan's expiration.
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The shares of
stock subject to the provisions of the Plan and issuable upon the grant of
Stock Awards or upon the exercise of SARs or Options granted under the Plan
are shares of the Company's common stock, $0.0001 par value per share (the
"Stock"), which may be either unissued or treasury shares. The Company may
not issue more than 5,000,000 shares of Stock pursuant to the Plan, unless the
Plan is amended as provided in Section 1.3 or the maximum number of shares
subject to the Plan is adjusted as provided in Section 3.1.
(b) CALCULATION OF AVAILABLE SHARES. The number of shares of Stock
available under the Plan shall be reduced: (i) by any shares of Stock issued
(including any shares of Stock withheld for tax withholding requirements) upon
exercise of an Option and (ii) by any shares of Stock issued (including any
shares of Stock withheld for tax withholding requirements) upon the grant of a
Stock Award or the exercise of a SAR.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR expires
or terminates for any reason prior to its exercise in full and before the term
of the Plan expires, the shares of Stock subject to, but not issued under,
such Option or SAR shall, without further action or by or on behalf of the
Company, again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY SHAREHOLDERS. The Board may submit awards under the
Plan to the shareholders of the Company for their approval at a regular or
special meeting to be held within 12 months after the grant of such awards
under the Plan by the Board. Shareholder approval shall be evidenced by the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present in person or by proxy and voting at the meeting. Grants
under the Plan may also be approved by a majority of the members of the Board
(or by a majority of the disinterested members of the Board, if grants are
being made to members of the Board). The date such shareholder or Board
approval of such awards has been obtained shall be referred to herein as the
"Effective Date" of such awards.
(b) COMMENCEMENT OF PROGRAMS. The Grant Program is effective
immediately, but if any award under the Plan is not approved by the
shareholders or the Board, as described under paragraph 1.3(a), above, within
12 months after its adoption by the Board, such Options and Awards made under
the Grant Program will automatically terminate and be forfeited to the same
extent and with the same effect as though the Plan had never been adopted or
such grants had not been made.
(c) AMENDMENTS TO PLAN. The Board may, without action on the part of
the Company's shareholders, make such amendments to, changes in and additions
to the Plan as it may, from time to time, deem necessary or appropriate and in
the best interests of the Company; provided, the Board may not, without the
consent of the applicable Optionholder, take any action which disqualifies any
Option previously granted under the Plan for treatment as an Incentive Stock
Option or which adversely affects or impairs the rights of the Optionholder of
any Option outstanding under the Plan, and further provided that, except as
provided in Article III hereof, the Board may not, without the approval of
the Company's shareholders, (i) increase the aggregate number of shares of
Stock subject to the Plan, (ii) reduce the exercise price at which Options may
be granted or the exercise price at which any outstanding Option may be
exercised, (iii) extend the term of the Plan, (iv) change the class of persons
eligible to receive Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Options or Awards may be granted under this Plan to purchase
shares of Stock in excess of the number of shares then available for issuance
under the Plan if (A) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such Option or Award and within one year thereafter such amendment is
approved by the Company's shareholders and (B) each such Option or Award
granted does not become exercisable or vested, in whole or in part, at any
time prior to the obtaining of such shareholder approval.
ARTICLE II
GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Options and Awards may be granted
only to persons ("Eligible Persons") who at the time of grant are (i) key
personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary Corporations;
provided that (1) Incentive Stock Options may only be granted to key personnel
of the Company (and its Parent or Subsidiary Corporation) who are also
employees of the Company (or its Parent or Subsidiary Corporation) and (2) the
maximum number of shares of stock with respect to which Options or SARs may be
granted to any employee during the term of the Plan shall not exceed 50
percent of the shares of stock covered by the Plan. A Plan Administrator
shall have full authority to determine which Eligible Persons in its
administered group are to receive Option grants under the Plan, the number of
shares to be covered by each such grant, whether or not the granted Option is
to be an Incentive Stock Option, the time or times at which each such Option
is to become exercisable, and the maximum term for which the Option is to be
outstanding. A Plan Administrator shall also have full authority to determine
which Eligible Persons in such group are to receive Awards under the Grant
Program and the conditions relating to such Award.
(b) GENERAL ADMINISTRATION. The Eligible Persons under the Grant
Program shall be divided into two groups and there shall be a separate
administrator for each group. One group will be comprised of Eligible Persons
that are Affiliates. For purposes of this Plan, the term "Affiliates" shall
mean all "officers" (as that term is defined in Rule 16a-1(f) promulgated
under the 1934 Act) and directors of the Company and all persons who own ten
percent or more of the Company's issued and outstanding equity securities.
Initially, the power to administer the Grant Program with respect to Eligible
Persons that are Affiliates shall be vested with the Board. At any time,
however, the Board may vest the power to administer the Grant Program with
respect to Persons that are Affiliates exclusively with a committee (the
"Senior Committee") comprised of two or more Non-Employee Directors which are
appointed by the Board. The Senior Committee, at its sole discretion, may
require approval of the Board for specific grants of Options or Awards under
the Grant Program. The administration of all Eligible Persons that are not
Affiliates ("Non-Affiliates") shall be vested exclusively with the Board. The
Board, however, may at any time appoint a committee (the "Employee Committee")
of two or more persons who are members of the Board and delegate to such
Employee Committee the power to administer the Grant Program with respect to
the Non-Affiliates. In addition, the Board may establish an additional
committee or committees of persons who are members of the Board and delegate
to such other committee or committees the power to administer all or a portion
of the Grant program with respect to all or a portion of the Eligible Persons.
Members of the Senior Committee, Employee Committee or any other committee
allowed hereunder shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any time. The Board
may at any time terminate all or a portion of the functions of the Senior
Committee, the Employee Committee, or any other committee allowed hereunder
and reassume all or a portion of powers and authority previously delegated to
such committee. The Board in its discretion may also require the members of
the Senior Committee, the Employee Committee or any other committee allowed
hereunder to be "outside directors" as that term is defined in any applicable
regulations promulgated under Code section 162(m).
(c) PLAN ADMINISTRATORS. The Board, the Employee Committee, Senior
Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to
its administered group, to select which Eligible Persons shall participate in
the Grant Program, to grant Options or Awards under the Grant Program, to
establish such rules and regulations as they may deem appropriate with respect
to the proper administration of the Grant Program and to make such
determinations under, and issue such interpretations of, the Grant Program and
any outstanding Option or Award as they may deem necessary or advisable.
Unless otherwise required by law or specified by the Board with respect to any
committee, decisions among the members of a Plan Administrator shall be by
majority vote. Decisions of a Plan Administrator shall be final and binding
on all parties who have an interest in the Grant Program or any outstanding
Option or Award. Except to the extent the context requires, the use of the
term "Board" also includes any Plan Administrator subsequently appointed by
the Board.
(d) GUIDELINES FOR PARTICIPATION. In designating and selecting
Eligible Persons for participation in the Grant Program, the Board shall
consult with and give consideration to the recommendations and criticisms
submitted by appropriate managerial and executive officers of the Company.
The Board also shall take into account the duties and responsibilities of the
Eligible Persons, their past, present and potential contributions to the
success of the Company and such other factors as the Board shall deem relevant
in connection with accomplishing the purpose of the Plan.
2.2 TERMS AND CONDITIONS OF OPTIONS
(a) ALLOTMENT OF SHARES. The Board shall determine the number of
shares of Stock to be optioned from time to time and the number of shares to
be optioned to any Eligible Person (the "Optioned Shares"). The grant of an
Option to a person shall neither entitle such person to, nor disqualify such
person from, participation in any other grant of Options or Stock Awards under
this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Option, the Board shall
specify the option price per share. If the Option is intended to qualify as
an Incentive Stock Option under the Code, the option price per share may not
be less than 100 percent of the fair market value per share of the stock on
the date the Option is granted (110 percent if the Option is granted to a
shareholder who at the time the Option is granted owns or is deemed to own
stock possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company or of any Parent or Subsidiary
Corporation). The determination of the fair market value of the Stock shall
be made in accordance with the valuation provisions of Section 3.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Options granted under the
Plan shall be evidenced by option agreements in such form and content as the
Board from time to time approves, which agreements shall substantially comply
with and be subject to the terms of the Plan, including the terms and
conditions of this Section 2.2. As determined by the Board, each option
agreement shall state (i) the total number of shares to which it pertains,
(ii) the exercise price for the shares covered by the Option, (iii) the time
at which the Options vest and become exercisable and (iv) the Option's
scheduled expiration date. The option agreements may contain such other
provisions or conditions as the Board deems necessary or appropriate to
effectuate the sense and purpose of the Plan, including covenants by the
Optionholder not to compete and remedies for the Company in the event of the
breach of any such covenant.
(d) OPTION PERIOD. No Option granted under the Plan that is intended
to be an Incentive Stock Option shall be exercisable for a period in excess of
10 years from the date of its grant (five years if the Option is granted to a
shareholder who at the time the Option is granted owns or is deemed to own
stock possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company or of any Parent or any Subsidiary
Corporation), subject to earlier termination in the event of termination of
employment, retirement or death of the Optionholder. An Option may be
exercised in full or in part at any time or from time to time during the term
of the Option or provide for its exercise in stated installments at stated
times during the Option's term.
(e) VESTING; LIMITATIONS. The time at which Options may be exercised
with respect to an Optionholder shall be in the discretion of that
Optionholder's Board. Notwithstanding the foregoing, to the extent an Option
is intended to qualify as an Incentive Stock Option, the aggregate fair market
value (determined as of the respective date or dates of grant) of the Stock
for which one or more Options granted to any person under this Plan (or any
other option plan of the Company or its Parent or Subsidiary Corporations) may
for the first time become exercisable as Incentive Stock Options during any
one calendar year shall not exceed the sum of $100,000 (referred to herein as
the "$100,000 Limitation"). To the extent that any person holds two or more
Options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability as an Incentive Stock Option
shall be applied on the basis of the order in which such Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only for
whole shares; no fractional shares will be issuable upon exercise of any
Option granted under the Plan.
(g) METHOD OF EXERCISE. To exercise an Option, an Optionholder (or
in the case of an exercise after an Optionholder's death, such Optionholder's
executor, administrator, heir or legatee, as the case may be) must take the
following action:
(i) execute and deliver to the Company a written notice of exercise
signed in writing by the person exercising the Option specifying the number of
shares of Stock with respect to which the Option is being exercised;
(ii) pay the aggregate Option Price in one of the alternate forms as
set forth in Section 2.2(h) below; and
(iii) furnish appropriate documentation that the person or persons
exercising the Option (if other than the Optionholder) has the right to
exercise such Option.
As soon as practical after the Exercise Date, the Company will mail or deliver
to or on behalf of the Optionholder (or any other person or persons exercising
this Option under the Plan) a certificate or certificates representing the
Stock acquired upon exercise of the Option.
(h) PAYMENT PRICE. The aggregate Option Price shall be payable in
one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the Company's
order; or
(ii) Full payment in other shares of previously owned stock of the
Company, surrender of which does not trigger tax consequences to the Company,
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 3.5 hereof); or
(iii) Full payment through a sale and remittance procedure pursuant
to which the Optionholder (A) shall provide irrevocable written instructions
to a designated brokerage firm to effect the immediate sale of the Optioned
Shares to be purchased and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the Optioned Shares to be purchased and (B) shall
concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such
brokerage firm in order to complete the sale transaction.
(i) RELOAD OPTIONS. Concurrently with the award of Options, the
Board may authorize the grant of reload Options. Reload Options shall equal
(i) the number of shares of previously owned stock used to exercise the
underlying Options and (ii) the number of shares withheld or the number of
shares of previously owned stock used to satisfy tax withholding requirements
incident to the exercise of the underlying Options. The grant of such reload
Options shall become effective upon the exercise of the underlying Options by
the surrender of shares of stock held for such period of time so as not to
trigger tax consequences to the Company. The exercise price of the reload
Options shall be the fair market value on the date of grant of the reload
Options and such Options shall have a term equal to the remaining term of the
underlying Options. No reload Options shall be granted when the exercise of
the underlying Options occurs following termination of the Optionholder's
employment. To the extent not inconsistent herewith, the other provisions of
the Plan set forth herein shall be applicable to reload Options.
(j) RIGHTS OF A SHAREHOLDER. An Optionholder shall not have any of
the rights of a shareholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
(k) REPURCHASE RIGHT. The Board may, in its sole discretion, set
forth other terms and conditions upon which the Company (or its assigns) shall
have the right to repurchase shares of Stock acquired by an Optionholder
pursuant to an Option. Any repurchase right of the Company shall be
exercisable by the Company (or its assignees) upon such terms and conditions
as the Board may specify in the Stock Repurchase Agreement evidencing such
right. The Board may also in its discretion establish as a term and condition
of one or more Options granted under the Plan that the Company shall have a
right of first refusal with respect to any proposed sale or other disposition
by the Optionholder of any shares of Stock issued upon the exercise of such
Options. Any such right of first refusal shall be exercisable by the Company
(or its assigns) in accordance with the terms and conditions set forth in the
Stock Repurchase Agreement. The terms of the Stock Repurchase Agreement shall
provide for a reasonable Notice period not to exceed two business days for the
exercise of such repurchase or right of first refusal by the Company.
(l) TERMINATION OF INCENTIVE STOCK OPTIONS.
(i) TERMINATION OF SERVICE. If any Optionholder ceases to be in
Service to the Company for a reason other than permanent disability or death
and the Option held by such Optionholder is an Incentive Stock Option, then
such Optionholder must, within 90 days after the date of termination of such
Service, but in no event after the Option's stated expiration date, exercise
some or all of the Options that the Optionholder was entitled to exercise on
the date the Optionholder's Service terminated; provided, that if the
Optionholder is discharged for Cause or commits acts detrimental to the
Company's interests after the Service of the Optionholder has been terminated,
then the Option will thereafter be void for all purposes. "Cause" shall mean
a termination of Service based upon a finding by the applicable Board that the
Optionholder: (i) has committed a felony involving dishonesty, fraud, theft or
embezzlement; (ii) after written notice from the Company has repeatedly failed
or refused, in a material respect, to follow reasonable policies or directives
established by the Company; (iii) after written notice from the Company, has
willfully and persistently failed to attend to material duties or obligations;
(iv) has performed an act or failed to act, which, if he were prosecuted and
convicted, would constitute a theft of money or property of the Company; or
(v) has misrepresented or concealed a material fact for purposes of securing
employment with the Company. If any Optionholder ceases to be in Service to
the Company by reason of permanent disability within the meaning of section
22(e)(3) of the Code (as determined by the applicable Board), the Optionholder
will have 12 months after the date of termination of Service, but in no event
after the stated expiration date of the Optionholder's Options, to exercise
Options that the Optionholder was entitled to exercise on the date the
Optionholder's Service terminated as a result of the disability.
(ii) DEATH OF OPTIONHOLDER. If an Optionholder dies while in the
Company's Service, any Options that are Incentive Stock Options that the
Optionholder was entitled to exercise on the date of death will be exercisable
within three months after such date or until the stated expiration date of the
Optionholder's Option, whichever occurs first, by the person or persons
("successors") to whom the Optionholder's rights pass under a will or by the
laws of descent and distribution. As soon as practicable after receipt by the
Company of such notice and of payment in full of the Option Price, a
certificate or certificates representing the Optioned Shares shall be
registered in the name or names specified by the successors in the written
notice of exercise and shall be delivered to the successors.
(m) TERMINATION OF NON-QUALIFIED OPTIONS. Options that are not
Incentive Stock Options and that are outstanding at the time an Optionholder
ceases to be in Service to the Company shall remain exercisable (i) for a
period of one year after termination resulting from death or permanent
disability within the meaning of Section 22(e)(3) of the Code (as determined
by the Board); (ii) for no period should the Optionholder be discharged for
Cause; (iii) for 90 days after termination for any other reason; or (iv) for a
longer period if determined by the Board; provided however, that no Option
shall be exercisable after the Option's stated expiration date.
(n) OTHER PLAN PROVISIONS STILL APPLICABLE. If an Option is
exercised upon the termination of Service or death of an Optionholder under
this Section 2.2, the other provisions of the Plan will continue to apply to suc
h exercise, including the requirement that the Optionholder or its successor
may be required to enter into a Stock Repurchase Agreement.
(o) DEFINITION OF "SERVICE". For purposes of this Plan, unless it is
evidenced otherwise in the option agreement with the Optionholder, the
Optionholder is deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or
to any Parent or Subsidiary Corporation) in the capacity of an employee,
director, or an independent consultant or advisor. In the discretion of the
applicable Board, an Optionholder will be considered to be rendering
continuous services to the Company even if the type of services change, e.g.,
from employee to independent consultant. The Optionholder will be considered
to be an employee for so long as such individual remains in the employ of the
Company or one or more of its Parent or Subsidiary Corporations.
2.3 TERMS AND CONDITIONS OF STOCK AWARDS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to receive
Stock Awards. The Board of each administered group shall determine the number
of shares of Stock to be awarded from time to time to any Eligible Person in
such group. Except as provided otherwise in this Plan, the grant of a Stock
Award to a person (a "Grantee") shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted in
recognition of an Eligible Person's services to the Company. The grantee of
any such Stock Award shall not be required to pay any consideration to the
Company upon receipt of such Stock Award, except as may be required to satisfy
any applicable Utah corporate law, employment tax and/or income tax
withholding requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to such
terms, conditions, restrictions, or limitations as the applicable Board deems
appropriate, including, by way of illustration but not by way of limitation,
restrictions on transferability, requirements of continued employment,
individual performance or the financial performance of the Company, or payment
by the recipient of any applicable employment or withholding taxes. Such
Board may ease or accelerate the termination of the restrictions applicable to
any Stock Award under the circumstances as it deems appropriate.
(d) AWARD AGREEMENTS. The Board may require as a condition to a
Stock Award that the recipient of such Stock Award enter into an award
agreement in such form and content as that Board from time to time approves.
2.4 TERMS AND CONDITIONS OF SARS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to receive
SARs. The Board of each administered group shall determine the SARs to be
awarded from time to time to any Eligible Person in such group. The grant of
a SAR to a person shall neither entitle such person to, nor disqualify such
person from participation in, any other grant of options or awards by the
Company, whether under this Plan or under any other stock option or award plan
of the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the grant of
any Option to purchase one or more shares of Stock, the Board may award to the
Optionholder with respect to each share of Stock, underlying the Option, a
related SAR permitting the Optionholder to be paid any appreciation on that
Stock in lieu of exercising the Option. In addition, the Board may award to
any Eligible Person a SAR permitting the Eligible Person to be paid the
appreciation on a designated number of shares of the Stock, whether or not
such Shares are actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such terms,
conditions, restrictions or limitations as the applicable Board deems
appropriate, including, by way of illustration but not by way of limitation,
restrictions on transferability, requirements of continued employment,
individual performance, financial performance of the Company, or payment by
the recipient of any applicable employment or withholding taxes. Such Board
may modify or accelerate the termination of the restrictions applicable to any
SAR under the circumstances as it deems appropriate.
(d) SAR AGREEMENTS. The Board may require as a condition to the
grant of a SAR that the recipient of such SAR enter into a SAR agreement in
such form and content as that Board from time to time approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR may
exercise such SAR subject to the conditions specified in the SAR agreement by
the Board.
(f) AMOUNT OF PAYMENT. The amount of payment to which the grantee of
a SAR shall be entitled upon the exercise of each SAR shall be equal to the
amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified
shares of Stock on the date the Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or Stock, as
determined in the discretion of the applicable Board and set forth in the SAR
agreement. If the payment is in Stock, the number of shares to be paid to the
participant shall be determined by dividing the amount of the payment
determined pursuant to Section 2.4(f) by the fair market value of a share of
Stock on the exercise date of such SAR. As soon as practical after exercise,
the Company shall deliver to the SAR grantee a certificate or certificates for
such shares of Stock.
(h) TERMINATION OF EMPLOYMENT; DEATH. Sections 2.2(k) and (l),
applicable to Options, shall apply equally to SARs.
2.5 OTHER CASH AWARDS
(a) IN GENERAL. The Board of each administered group shall have the
discretion to make other awards of cash to Eligible Persons in such group
("Cash Awards"). Such Cash Awards may relate to existing Options or to the
appreciation in the value of the Stock or other Company securities.
(b) CONDITIONS TO AWARD. All Cash Awards shall be subject to such
terms, conditions, restrictions or limitations as the applicable Board deems
appropriate, and such Board may require as a condition to such Cash Award that
the recipient of such Cash Award enter into an award agreement in such form
and content as the Board from time to time approves.
ARTICLE III
MISCELLANEOUS
3.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock subject
to the Plan, the number of shares of Stock covered by outstanding Options and
Awards, and the price per share stated in all outstanding Options and Awards
shall be proportionately adjusted for any increase or decrease in the number
of outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.
3.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 3.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
3.3 CORPORATE TRANSACTION. In the event of shareholder approval of a
Corporate Transaction, the Board shall have the discretion and authority,
exercisable at any time, to provide for the automatic acceleration of one or
more of the outstanding Options or Awards granted by it under the Plan. Upon
the consummation of the Corporate Transaction, all Options shall, to the
extent not previously exercised, terminate and cease to be outstanding.
3.4 CHANGE IN CONTROL.
(a) GRANT PROGRAM. In the event of a Change in Control, the Board
shall have the discretion and authority, exercisable at any time, whether
before or after the Change in Control, to provide for the automatic
acceleration of one or more outstanding Options or Awards granted by it under
the Plan. Any Options or Awards accelerated upon a Change in Control will
remain fully exercisable until the expiration or sooner termination of the
Option term.
(b) INCENTIVE STOCK OPTION LIMITS. The exercisability of any Options
which are intended to qualify as Incentive Stock Options and which are
accelerated by the Board in connection with a pending Corporation Transaction
or Change in Control shall, except as otherwise provided in the discretion of
the Board and the Optionholder, remain subject to the $100,000 Limitation and
vest as quickly as possible without violating the $100,000 Limitation.
3.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with
the following provisions:
(a) If the Stock is not at the time listed or admitted to trading on
any stock exchange but is traded in the over-the-counter market, the fair
market value shall be the mean between the highest bid and lowest asked prices
(or, if such information is available, the closing selling price) per share of
Stock on the date in question in the over-the-counter market, as such prices
are reported by the National Association of Securities Dealers through its
Nasdaq system or any successor system. If there are no reported bid and asked
prices (or closing selling price) for the Stock on the date in question, then
the mean between the highest bid price and lowest asked price (or the closing
selling price) on the last preceding date for which such quotations exist
shall be determinative of fair market value.
(b) If the Stock is at the time listed or admitted to trading on any
stock exchange, then the fair market value shall be the closing selling price
per share of Stock on the date in question on the stock exchange determined by
the Board to be the primary market for the Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there is no
reported sale of Stock on such exchange on the date in question, then the fair
market value shall be the closing selling price on the exchange on the last
preceding date for which such quotation exists.
(c) If the Stock at the time is neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value shall be determined by the Board after taking into
account such factors as the Board shall deem appropriate, including one or
more independent professional appraisals.
3.6 USE OF PROCEEDS. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any,
shall be used for general corporate purposes.
3.7 CANCELLATION OF OPTIONS. The Board shall have the authority to
effect, at any time and from time to time, with the consent of the affected
Optionholders, the cancellation of any or all outstanding Options granted
under the Plan by that Board and to grant in substitution therefore new
Options under the Plan covering the same or different numbers of shares of
Stock as long as such new Options have an exercise price per share of Stock no
less than the minimum exercise price as set forth in Section 2.2(b) hereof on
the new grant date.
3.8 REGULATORY APPROVALS. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise
of any such Option or Award shall be subject to the procurement by the Company
of all approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the Options or Awards granted under it and the
Stock issued pursuant to it.
3.9 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have, the members of the Board shall be indemnified and held
harmless by the Company, to the extent permitted under applicable law, for,
from and against all costs and expenses reasonably incurred by them in
connection with any action, legal proceeding to which any member thereof may
be a party by reason of any action taken, failure to act under or in
connection with the Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of
a judgment of any such action, suit or proceeding, except a judgment based
upon a finding of bad faith.
3.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by
applicable law, any such other option, warrants or awards may be issued by the
Company other than pursuant to this Plan without shareholder approval.
3.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
3.12 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. No Option or Award
granted under the Plan or any of the rights and privileges conferred thereby
shall be assignable or transferable by an Optionholder or grantee other than
by will or the laws of descent and distribution, and such Option or Award
shall be exercisable during the Optionholder's or grantee's lifetime only by
the Optionholder or grantee. Notwithstanding the foregoing, any Options or
Awards granted pursuant to the Grant Program may be assigned, encumbered or
otherwise transferred by the Optionholder or grantee if specifically allowed
by the Board upon the grant of such Option or Award and subject to compliance
with policies and guidelines established by the Board. The provisions of the
Plan shall inure to the benefit of, and be binding upon, the Company and its
successors or assigns, and the Optionholders, the legal representatives of
their respective estates, their respective heirs or legatees and their
permitted assignees.
3.13 SECURITIES RESTRICTIONS
(a) LEGEND ON CERTIFICATES. All certificates representing shares of
Stock issued under the Plan shall be endorsed with a legend reading as
follows:
The shares of Common Stock evidenced by this certificate have been issued to
the registered owner in reliance upon written representations that these
shares have been purchased solely for investment. These shares may not be
sold, transferred or assigned unless in the opinion of the Company and its
legal counsel such sale, transfer or assignment will not be in violation of
the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and Awards are
and shall be made available only to a limited number of present and future key
executives, directors and employees who have knowledge of the Company's
financial condition, management and its affairs. The Plan is not intended to
provide additional capital for the Company, but to encourage ownership of
Stock among the Company's key personnel. By the act of accepting an Option or
Award, each grantee agrees (i) that, any shares of Stock acquired will be
solely for investment not with any intention to resell or redistribute those
shares (except as delivery of such Stock is permitted as payment upon option
exercise or for tax withholding requirements) and (ii) such intention will be
confirmed by an appropriate certificate at the time the Stock is acquired if
requested by the Company. The neglect or failure to execute such a
certificate, however, shall not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement covering the
shares of Stock issuable under the Plan is filed under the Securities Exchange
Act of 1933, as amended, and is declared effective by the Securities Exchange
Commission, the provisions of Sections 3.13(a) and (b) shall terminate during
the period of time that such Registration Statement, as periodically amended,
remains effective.
3.14 TAX WITHHOLDING.
(a) GENERAL. The Company's obligation to deliver Stock under the
Plan shall be subject to the satisfaction of all applicable federal, state and
local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its discretion
and in accordance with the provisions of this Section 3.14(b) and such
supplemental rules as it may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all Optionholders or
Grantees with the right to use shares of Stock in satisfaction of all or part
of the federal, state and local income tax liabilities incurred by such
Optionholders or Grantees in connection with the receipt of Stock ("Taxes").
Such right may be provided to any such Optionholder or Grantee in either or
both of the following formats:
(i) STOCK WITHHOLDING. An Optionholder or Grantee may be provided
with the election, which may be subject to approval by the Board, to have the
Company withhold, from the Stock otherwise issuable, a portion of those shares
of Stock with an aggregate fair market value equal to the percentage of the
applicable Taxes (not to exceed 100 percent) designated by the Optionholder or
Grantee.
(ii) STOCK DELIVERY. The Board may, in its discretion, provide the
Optionholder or Grantee with the election to deliver to the Company, at the
time the Option is exercised or Stock is awarded, one or more shares of Stock
previously acquired by such individual (other than pursuant to the transaction
triggering the Taxes) with an aggregate fair market value equal to the
percentage of the taxes incurred in connection with such Option exercise or
Stock Award (not to exceed 100 percent) designated by the Optionholder or
Grantee.
3.15 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Utah.
ARTICLE IV
DEFINITIONS
The following capitalized terms used in this Plan shall have the meaning
described below:
"AFFILIATES" shall mean all "officers" (as that term is defined in Rule
16a-1(f) promulgated under the 1934 Act) and directors of the Company and all
persons who own ten percent or more of the Company's issued and outstanding
Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual shareholder
meeting.
"AWARD" shall mean a Stock Award, SAR or Cash Award under the Grant Program.
"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under Section
2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions or
situations:
(i) A sale, transfer, or other disposition by the Company through a
single transaction or a series of transactions of securities of the Company
representing 30 percent or more of the combined voting power of the Company's
then outstanding securities to any "Unrelated Person" or "Unrelated Persons"
acting in concert with one another. For purposes of this Section, the term
"Person" shall mean and include any individual, partnership, joint venture,
association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act). For purposes of this
Section, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company.
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a single
transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then
outstanding securities. For purposes of this Section, the term "Beneficial
Owner" shall have the same meaning as given to that term in Rule 13d-3
promulgated under the Act, provided that any pledgee of voting securities is
not deemed to be the Beneficial Owner thereof prior to its acquisition of
voting rights with respect to such securities.
(iv) Any consolidation or merger of the Company with or into an
Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the
surviving corporation representing at least 50 percent of the combined voting
power of the surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the beginning
of such period, constituted the Board of Directors of the Company cease, for
any reason, to constitute at least a majority thereof, unless the election or
nomination for election of each new director was approved by the vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of such period.
(vi) A change in control of the Company of a nature that would be
required to be reported in response to item 6(e) of Schedule 14A of Regulation
14A promulgated under the 1934 Act, or any successor regulation of similar
import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the
General Bankruptcy Code or any successor or other statute of similar import
shall not be deemed to be a Change of Control for purposes of this Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean Volu-Sol, Inc., a Utah corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in which the
Company is not the surviving entity, except for a transaction the principal
purposes of which is to change the state in which the Company is incorporated;
(b) the sale, transfer of or other disposition of all or substantially all of
the assets of the Company and complete liquidation or dissolution of the
Company, or (c) any reverse merger in which the Company is the surviving
entity but in which the securities possessing more than 50 percent of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by the
shareholders as required by Section 1.3(a) hereof.
"ELIGIBLE PERSONS" shall mean, with respect to the Grant Program, those
persons who, at the time that the Option or Award is granted, are (i) key
personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary
Corporations.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board to
administer the Plan with respect to the Non-Affiliates and comprised of one or
more persons who are members of the Board.
"EXERCISE DATE" shall be the date on which written notice of the exercise of
an Option is delivered to the Company in accordance with the requirements of
the Plan.
"GRANTEE" shall mean an Eligible Person or Eligible Director that has received
an Award.
"GRANT PROGRAM" shall mean the program described in Article II of this
Agreement pursuant to which certain Eligible Persons are granted Options or
Awards in the discretion of the Board.
"INCENTIVE STOCK OPTION" shall mean an Option that is intended to qualify as
an "incentive stock option" under Code section 422.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the definition
of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated under the
1934 Act.
"$100,000 LIMITATION" shall mean the limitation in which the aggregate fair
market value (determined as of the respective date or dates of grant) of the
Stock for which one or more Options granted to any person under this Plan (or
any other option plan of the Company or any Parent or Subsidiary Corporation)
may for the first time be exercisable as Incentive Stock Options during any
one calendar year shall not exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person to whom Options have been
granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from time to
time to any Eligible Person.
"OPTION PRICE" shall mean the option price per share as specified by the Board
or by the terms of the Plan.
"OPTIONS" shall mean options granted under the Plan to acquire Stock.
"PARENT CORPORATION" shall mean any corporation in the unbroken chain of
corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for Volu-Sol, Inc.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior Committee, or
any other committee, whichever is applicable, with respect to the
administration of the Grant Program as it relates to Affiliates and (b) either
the Board, the Employee Committee, or any other committee, whichever is
applicable, with respect to the administration of the Grant Program as it
relates to Non-Affiliates.
"SAR" shall mean stock appreciation rights granted pursuant to Section 2.4
hereof.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Grant Program with respect to the Affiliates and comprised of
two or more Non-Employee Directors.
"SERVICE" shall have the meaning set forth in Section 2.2(n) hereof.
"STOCK" shall mean shares of the Company's common stock, $.01 par value per
share, which may be unissued or treasury shares, as the Board may from time to
time determine.
"STOCK AWARDS" shall mean Stock directly granted under the Grant Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken chain of
corporations starting with the employer corporation, where, at each link of
the chain, the corporation and the link above owns at least 50 percent of the
combined voting power of all classes of stock in the corporation below.
EXECUTED as of the ____ day of August, 1997.
VOLU-SOL, INC.
By: _______________________________
Name: _____________________________
Its: _______________________________
VOLU-SOL, INC.
1997 TRANSITION PLAN
SECTION 1. PURPOSE
The purpose of the Volu-Sol, Inc. 1997 Transition Plan (the "Plan") is to
provide for (i) the grant of Add-on Volu-Sol Options as a result of the
adjustment of the Biomune Stock Options in connection with the Distribution,
(ii) the grant of options after the Distribution to holders of options issued
under the Plan in connection with the adjustment of outstanding options
pursuant to Section 7, and (iii) the administration of the Add-on Volu-Sol
Options (and any other options granted in respect thereof in accordance with
the Plan).
SECTION 2. DEFINITIONS
"Add-on Volu-Sol Option" has the meaning set forth under the definition
of "Biomune Stock Option."
"Biomune" means Biomune Systems, Inc., a Nevada corporation.
"Biomune Adjusted Option" has the meaning set forth under the definition
of "Biomune Stock Option."
"Biomune Common Stock" means the common stock, par value $.0001, of
Biomune.
"Biomune Stock Option" means an option to purchase Biomune Common Stock,
which was granted under the Biomune Stock Option Plans, which Biomune Stock
Option, in connection with the Distribution, has been reformed in exchange for
and converted into two separately exercisable options, one to purchase Common
Stock (an "Add-on Volu-Sol Option") and one to purchase Biomune Common Stock
(a "Biomune Adjusted Option").
"Biomune Stock Option Plan" means any of the 1992, 1993, 1995 or 1996
Biomune Systems, Inc. Stock Incentive Plans, each of which is incorporated
into the Plan by reference, and all of which are referred to together as the
"Biomune Stock Option Plans."
"Board" means the Corporation's Board of Directors.
"Common Stock" means the common stock, par value $.0001, of Volu-Sol.
"Distribution" means the distribution of all the outstanding shares of
Common Stock to the shareholders of Biomune.
"Plan Administrator" has the meaning set forth in Section 3.1.
"Volu-Sol" or "Corporation" means Volu-Sol, Inc., a Utah corporation.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board, or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or
more members of, the Board. As long as the Common Stock is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Board shall consider, in selecting the Plan Administrator
and the membership of any committee acting as Plan Administrator of the Plan
with respect to any persons subject or likely to become subject to Section 16
under the Exchange Act, the provisions regarding (a) "outside directors" as
contemplated by Section 162(m) of the Internal Revenue Code of 1986, as
amended, and (b) "nonemployee directors" as contemplated by Rule 16b-3 under
the Exchange Act. The Board may delegate the responsibility for administering
the Plan with respect to designated classes of eligible participants to
different committees, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time. Except where the
context clearly requires, the use of the term "Board" herein shall include any
Plan Administrator that may be appointed by the Board.
3.2 ADMINISTRATION AND INTERPRETATION BY THE BOARD
Subject to the express provisions of the Plan, the Board shall have
exclusive authority, in its discretion, to determine all matters relating to
grants of options under the Plan, including the selection of individuals to be
granted options; the number of shares of Common Stock subject to an option;
all terms, conditions, restrictions and limitations, if any, of an option; and
the terms of any instrument that evidences the option. The Board shall also
have exclusive authority to interpret the Plan and may from time to time
adopt, and change, rules and regulations of general application for the Plan's
administration. The Board's interpretation of the Plan and its rules and
regulations, and all actions taken and determinations made by the Board
pursuant to the Plan, shall be conclusive and binding on all parties involved
or affected. The Board may delegate administrative duties to such of the
Corporation's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
There are reserved for issuance upon the exercise of options under the
Plan that number of shares of Common Stock equal to one-tenth the number of
shares of Biomune Common Stock issuable upon exercise of the Biomune Stock
Options. Such shares shall be drawn from authorized and unissued shares of
the Corporation.
SECTION 5. ELIGIBILITY
Prior to the Distribution, the Board may only grant Volu-Sol Adjusted
Options in connection with the Distribution. After the Distribution, the Board
may grant options to holders of options issued under the Plan, but only in
connection with the adjustment of options issued under the Plan pursuant to
Section 7. Any person eligible under the Plan may receive one or more grants
of options, as the Board shall from time to time determine, and such
determinations may vary as to different employees and may vary as to different
grants.
SECTION 6. GRANTS OF OPTIONS
The Board is authorized under the Plan, in its discretion, to grant
options in accordance with the terms and conditions of the Biomune Plan under
which the Biomune Stock Option corresponding to the Add-on Volu-Sol Option (or
option granted in respect thereof) was granted; provided, however, that the
exercise price per share of each Add-on Volu-Sol Option will be established by
the Board to be equal to the exercise price of the Biomune Stock Option
corresponding to the Volu-Sol Adjusted Option. The exercise price of the
related Adjusted Biomune Option also will be equal to the exercise price of
the corresponding Biomune Stock Option.
SECTION 7. ADJUSTMENTS
In the event of any changes in the outstanding stock of the Corporation
by reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, split-ups, split-offs,
spin-offs, liquidations or other similar changes in capitalization, or any
distribution to shareholders other than cash dividends, the Board shall make
such adjustments, if any, in light of the change or distribution as permitted
or required for a particular Add-on Volu-Sol Option (or any other option
granted in respect thereof in accordance with the Plan) by the Biomune Stock
Option Plan under which the corresponding Biomune Stock Option was granted.
SECTION 8. AMENDMENT AND TERMINATION OF PLAN
The Plan shall have no fixed expiration date; provided, however, that no
grants of options in respect of an Add-on Volu-Sol Option shall be made unless
such grant would have been permissible pursuant to the Biomune Stock Option
Plan under which the Biomune Stock Option corresponding to such Add-on
Volu-Sol Option was made. The Plan may be terminated, modified or amended by
the Board in such respects as it shall deem advisable; provided, however, that
shareholder approval will be required for any amendment that would require
shareholder approval under any applicable law or regulation. The amendment or
termination of the Plan shall not, without the consent of the recipient of any
option under the Plan, impair or diminish any rights or obligations under any
option theretofore granted under the Plan. If not terminated as provided
above, the Plan shall terminate on the date that the last Biomune Stock Option
with respect to which Add-on Volu-Sol Options or Adjusted Biomune Options were
granted hereunder has lapsed, been terminated or expired.
SECTION 9. EFFECTIVE DATE
The Plan shall become effective immediately prior to the Distribution.
The Board may in its discretion authorize the granting of options, the
issuance or exercise of which shall be expressly subject to the condition that
a registration statement under the Securities Act of 1933, as amended, with
respect to such shares shall have become effective.
FORM OF SUBSCRIPTION AGREEMENT:
VOLU-SOL, INC.
(a Utah corporation)
Series A 10% Convertible Non-Voting Preferred Stock
Securities Purchase Agreement
Dated: September __, 1997
Volu-Sol, Inc.
5059 West 2100 South
Salt Lake City, Utah 84111
Ladies and Gentlemen:
This will confirm our agreement in connection with the issue and sale by
Volu-Sol, Inc., a Utah corporation ("Volu-Sol" or the "Company"), in reliance
on exemptions from the registration requirements of the U.S. Securities Act of
1933, as amended (the "Securities Act"), and similar provisions of state
securities ("Blue Sky") laws and the purchase by the undersigned purchaser
(the "Purchaser") of certain shares of the Company's Series A 10% Convertible
Non-Voting Preferred Stock (the "Preferred Shares").
1. Purchase of Securities. Subject to the terms and conditions of
this Agreement, the Purchaser hereby agrees to acquire, and the Company agrees
to sell to the Purchaser, that number of shares of Preferred Shares indicated
on the signature page, below as follows:
1.1 Preferred Shares. The Purchaser shall purchase and the Company
shall sell to the Purchaser its Preferred Shares convertible into shares of
the Company's Common Stock, par value $.0001 per share, in accordance with the
terms of the Designation of Rights and Preferences of the Preferred Shares and
this Agreement, at a conversion price per share which shall be the lesser of
(i) 80% of the average closing bid price of the Common Stock for the three (3)
business days immediately preceding the date of the Conversion Notice; or (ii)
$1.25 per share. The rights of the Purchaser in connection with the Preferred
Shares shall be as set forth in the written Designation attached to this
Agreement as Exhibit "A" and by this reference made a part hereof. The
consideration for the issuance of the Preferred Shares shall be $200 per share
(the "Purchase Price"). The total offering is for 12,000 shares or up to
$2,400,000 in the aggregate in minimum purchases of $25,000. The Purchaser
shall pay the Purchase Price by wire transfer to the account of Durham, Evans,
Jones & Pinegar, P.C. ("DEJP") as provided on Addendum 1 attached hereto.
Biomune has agreed that if the Registration Statement on Form 10 to be filed
by the Company is not declared effective by the Securities & Exchange
Commission within 180 days of its filing, the Preferred Shares held on such
date by Purchaser will be converted to shares of Biomune Common Stock at the
market price of such shares on the date of such conversion less 20% at the
written request of the Purchaser.
Wire instructions are as follows:
Bank: Key Bank of Utah
Account Name: Durham, Evans, Jones & Pinegar, P.C. Trust Account
ABA No.: 124000737
Account No.: 4450-1000-1292
1.2 Registration Rights. The Common Stock into which the Preferred
Shares are convertible shall be subject to certain registration rights, as
provided in that certain Registration Rights Agreement attached hereto as
Exhibit "B" and by this reference made a part hereof.
2. Delivery of Securities. Not later than five (5) business days
after receipt of the Purchase Price, DEJP shall deliver to Purchaser one or
more certificates representing the Preferred Shares issued in the name of the
Purchaser. Each certificate representing the Preferred Shares shall be issued
with the restrictive legend described in Section 11 hereof. Should the
Purchase Price not be received by the Company prior to September 30, 1997,
this Agreement shall be terminated, unless extended by mutual written
agreement of the parties.
3. Closing. Payment of the Purchase Price to DEJP as described in
Section 1, above, and delivery of the Preferred Shares as described in Section
2, above, shall be deemed to be the completion of the transactions contemplated
by this Agreement ("Closing"). Closing shall occur on or before 3:00 p.m.
(Mountain Time) on September 30, 1997, or such later date as the parties may
hereafter agree in writing (the "Closing Date").
4. Use and Disposition of Proceeds. The Company intends to use the
gross proceeds from the sale of the Securities as follows: (i) repayment of
debt, including amounts owing to Biomune Systems, Inc., the parent of Volu-Sol
("Biomune"); (ii) payment of expenses associated with the spin-off of Volu-Sol
from Biomune; (iii) manufacturing expenses; (iv) for working capital; (v) to
purchase equipment; and (vi) for the payment of expenses associated with this
offering. The Purchaser acknowledges and agrees that the Company shall have
immediate access to the funds representing the Purchase Price, according to
the discretion of management of the Company following the Closing and delivery
of the Securities to the Purchaser. The foregoing uses are the present
intentions of the Company, but the actual use of the proceeds will be
determined by the Company according to circumstances and immediate needs and
the Company reserves the right to apply the proceeds in its sole and absolute
discretion.
5. Representations and Warranties of the Purchaser. To induce the
Company's acceptance of this Agreement, the Purchaser hereby certifies,
represents and warrants to the Company and its agents and attorneys as
follows:
5.1 Accredited Status. The undersigned has completed and returned to
the Company, an investor's questionnaire. The undersigned is an accredited
investor within the meaning of Section 501 of Regulation D under the
Securities Act. THE UNDERSIGNED MUST INITIAL ALL PARAGRAPHS WHICH ACCURATELY
DESCRIBE THE BASIS ON WHICH THE UNDERSIGNED IS AN ACCREDITED INVESTOR.
Specifically, the undersigned is:
(1) A director or executive officer of the Company.
(Initial)
(2) A natural person whose net worth (i.e. the excess of his/her
total assets over his/her total liabilities, including the value of his/her
personal residence), individually or jointly with his/her spouse, as of the
date hereof, exceeds $1,000,000.
(Initial)
(3) A natural person who had an individual income in excess of
$200,000 in both 1995 and 1996, or whose joint income with that person's
spouse was in excess of $300,000 in both 1995 and 1996, and who reasonably
expects to reach the same income level in 1997.
(Initial)
(4) A corporation or partnership, not formed for the specific purpose
of acquiring the Securities offered, with total assets in excess of
$5,000,000.
(Initial)
(5) Any entity in which all of the equity owners are accredited
investors.
(Initial)
(6) None of the above.
(Initial)
5.2 Liquidity. The Purchaser presently has sufficient liquid assets
to pay the Purchase Price. The Purchaser's overall commitment to investments
that are not readily marketable is not disproportionate to the Purchaser's
total assets, and the Purchaser's investment in the Company will not cause
such overall commitment to become excessive. The Purchaser has adequate means
of providing for its current needs and contingencies and has no need for
liquidity in its investment in the Company or for a source of income from the
Company. The Purchaser is capable of bearing the economic risk and the burden
of the investment contemplated by this Agreement, including, but not limited
to, the possibility of the complete loss of the value of the Preferred Shares
and the limited transferability of the Securities, which may make the
liquidation of the Preferred Shares or any shares of Common Stock acquired
upon conversion or exercise of the Preferred Shares impossible in the near
future.
5.3 Organization, Standing, Authorization. The Purchaser is duly
organized, validly existing, and in good standing under the laws of
________________ and has the requisite power and authority to enter into this
Agreement, acquire the Securities and execute and deliver any documents or
instruments in connection with this Agreement. The execution and delivery of
this Agreement, the Registration Rights Agreement, and all other documents and
instruments executed by the Purchaser in connection with any of the
transactions contemplated by this Agreement (collectively sometimes referred
to hereafter as the "Transaction Documents") have been duly authorized by all
required action of the Purchaser's members, managers, officers and/or
directors. The person executing, on the Purchaser's behalf, this Agreement
and any other Transaction Document has been duly authorized to do so.
5.4 Absence of Conflicts. The Purchaser represents and warrants that
the execution and delivery of this Agreement and any other Transaction
Document, and the consummation of the transactions contemplated thereby, and
compliance with the requirements thereof, will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Purchaser, or the provision of any indenture, instrument or agreement to which
the Purchaser is a party or is subject, or by which the Purchaser or any of
its properties are bound, or conflict with or constitute a material default
thereunder, or result in the creation or imposition of any lien pursuant to
the terms of any such indenture, instrument or agreement, or constitute a
breach of any fiduciary duty owed by the Purchaser to any third party, or
require the approval of any third-party pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which the Purchaser
is subject or to which any of its properties, operations or management may be
subject.
5.5 Sole Party in Interest. The Purchaser represents that it is the
sole and true party in interest, and no other person or entity has or will
have upon the issuance of the Preferred Shares any beneficial ownership
interest in the Preferred Shares or any portion of the Preferred Shares,
whether direct or indirect, other than the equity holders or beneficiaries of
the Purchaser.
5.6 Investment Intent. The Preferred Shares (and the underlying
shares of Common Stock) are being acquired solely for the Purchaser's own
account for investment purposes only and are not being purchased with a view
to or for the resale, distribution, subdivision or fractionalization thereof.
The Purchaser understands and agrees that the Purchaser must bear the economic
risk of its investment in the Preferred Shares. The Preferred Shares have not
been registered under the Securities Act or under any Blue Sky laws. Except
as provided in that certain Registration Rights Agreement of even date
herewith, the Company has no obligation to register the Preferred Shares or
shares of the underlying Common Stock.
5.7 Knowledge and Experience. The Purchaser is experienced in
evaluating and making speculative investments, and has the capacity to protect
the Purchaser's interests in connection with the acquisition of the Preferred
Shares. The Purchaser has such knowledge and experience in financial and
business matters in general, and investments in development stage companies in
particular, that the Purchaser is capable, on the Purchaser's behalf, of
evaluating the merits and risks of the Purchaser's investment in the Company.
The Purchaser has been informed that an investment in the Company is
speculative and has concluded that the Purchaser's proposed investment is
appropriate in light of its overall investment objectives and financial
situation.
5.8 Investment Advisors. No party has received or will receive any
compensation or other remuneration for advising the Purchaser with respect to
this investment, and the Purchaser represents that no investment advisor or
purchaser representative has been consulted or retained in connection with the
Purchaser's decision to invest in the Company. Except for the transaction
contemplated by this Agreement, as of the date of execution of this Agreement,
the Purchaser has no relationship whatsoever with the Company, and has had no
relationship with the Company at any time in the past.
5.9 Disclosure, Access to Information. The Purchaser confirms that
it has received and thoroughly read and is familiar with and understands this
Agreement, and that all documents, records, books and other information
pertaining to the Purchaser's investment in the Company requested by the
Purchaser have been made available for inspection and copying and that there
are no additional materials or documents that have been requested by the
Purchaser that have not been made available by the Company. The Purchaser
further acknowledges that any decision not to ask questions of the Company's
representatives was a conscious decision on the Purchaser's part and reflects
the Purchaser's belief that no additional information is necessary in order to
make an informed decision about investing in the Company. The Purchaser
further acknowledges that it understands that Biomune is subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act") and the Purchaser has reviewed or received copies of
any such reports that have been requested by it. Without limiting the
generality of the foregoing, the Purchaser acknowledges that it has received
and has reviewed copies of the following documents and materials, all of which
are incorporated herein by reference:
(1)Articles of Incorporation of the Company, as amended;
(2)By-laws of the Company;
(3)Annual Report of Biomune on Form 10-K for the fiscal year
ended September 30, 1996;
(4)Quarterly Reports of Biomune on Form 10-Q for the quarters
ended December 31, 1996, March 31, 1997 and June 30,
1997; and
(5)Memorandum, dated September 24, 1997 (the "Memorandum").
The statements contained in the above-described Reports that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act, including statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future. Forward-looking
statements include, without limitation: statements regarding the anticipated
domestic and international growth of the automatic voice recognition industry,
statements regarding the anticipated growth of the Company, including services
which it hopes to provide or products it hopes to market in the future,
statements regarding future spending to achieve the Company's anticipated
growth, statements concerning future revenues and profits, and statements
regarding future marketing, sales and distribution, plans and objectives. All
forward-looking statements included in this document and the above-described
Reports are based on information available to the Company on the date(s)
thereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those contained in such forward-looking
statements.
Purchaser also acknowledges that following the spin-off of Volu-Sol from
Biomune, as discussed below, Volu-Sol will become subject to the reporting
requirements of the Exchange Act. At present, however, Volu-Sol does not file
any reports separately or independently of Biomune.
5.10 Exclusive Reliance on this Agreement. In making the decision to
purchase the Securities, the Purchaser has relied exclusively upon information
included in this Agreement or incorporated herein by reference pursuant to
Section 5.9, and not on any other representations, promises or information,
whether written or verbal, by any person.
5.11 Accuracy of Unincorporated Documents and Other Unincorporated
Materials. To the extent the Purchaser has received documents or other
materials, other than as expressly incorporated herein by reference pursuant
to Section 5.9, the Purchaser acknowledges the following with respect to such
documents and materials:
(1) Such documents and materials and any projections contained
therein may be incomplete, may contain errors or misstatements, and do not
purport to adequately describe the transactions contemplated by this Agreement
or the status of the development of the Company's business and business
opportunities. The Purchaser agrees that such documents and materials cannot
be relied upon in making a decision as to whether to purchase the Securities
and acknowledges that there can be no assurance that any of the projections
contained therein will be accomplished by the Company; and
(2) The Purchaser has been advised and fully understands that any
summaries, projections, forecasts or estimates included in such documents and
materials, including those relating to product development schedules and
projections, possible revenues, income, profitability of the Company or an
investment therein inherently involve uncertainties and may be affected by
circumstances in the future which cannot be reasonably predicted and are
beyond the control of the Company. Further, the projections, forecasts and
estimates are speculative and may be optimistic, and there can be no assurance
that any of the projections, forecasts or estimates will be reached, or that
the Company will realize any income or profits or that any dividends or
distributions of profits will be paid on the Company's securities. The use of
the words "believes," "estimates," "anticipates" and similar expressions are
intended to identify forward-looking statements, all of which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. The Purchaser should not place undue
reliance on such forward-looking statements, which speak only as of the
date(s) made. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
5.12 Advice of Counsel. The Purchaser understands the terms and
conditions of this Agreement, has investigated all matters concerning the
Company to the Purchaser's satisfaction, has consulted with such of the
Purchaser's own legal counsel or other advisors as the Purchaser deems
necessary, and is not relying, and has not relied on the Company for an
explanation of the terms or conditions of this Agreement or any document or
instrument related to the transactions contemplated thereby. The Purchaser
further acknowledges, understands and agrees that, in arranging for the
preparation of this Agreement and all other documents and materials related
thereto, the Company has not attempted to procure, and has not procured, legal
representation for the Purchaser.
5.13 Accuracy of Representations and Information. All
representations made by the Purchaser in this Agreement and all documents and
instruments related to this Agreement, and all information provided by the
Purchaser to the Company concerning the Purchaser and its financial position
is correct and complete in all material respects as of the date hereof. If
there is any material change in such information before the actual issuance of
the Securities, the Purchaser immediately will provide such information to the
Company.
5.14 No Representations. None of the following have ever been
represented, guaranteed, or warranted to the Purchaser by the Company or any
of its employees, agents, representatives or affiliates, or any broker or any
other person, expressly or by implication:
(1) The percentage of profit or amount of or type of consideration,
profit or loss (including tax write-offs or other tax benefits) to be
realized, if any, as a result of an investment in the Securities; or
(2) The past performance or experience on the part of the Company or
any affiliate or their associates, agents or employees, or of any other person
as being indicative of future results of an investment in the Securities.
6. Conditions to Obligations of the Purchaser. The obligation of the
Purchaser to purchase the Securities is subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
6.1 Representations and Warranties. The representations and
warranties of the Company shall be true and correct in all material respects
on the Closing Date.
6.2 Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company on or prior
to the Closing Date shall have been performed or complied with in all material
respects.
6.3 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in form and
substance to the Purchaser and its counsel.
7. Conditions to Obligations of the Company. The Company's
obligation to sell the Securities is subject to the fulfillment on or prior to
the Closing Date of each of the following conditions:
7.1 Representations and Warranties. The representations and
warranties made by the Purchaser shall be true and correct in all material
respects on the Closing Date.
7.2 Legal Issuance. At the time of the Closing, the issuance and
purchase of the Securities shall be legally permitted by all laws and
regulations to which the Purchaser and the Company are subject.
7.3 Payment. The Company shall have concurrently received full
payment of the Total Purchase Price.
8. Certain Risk Factors. The Company is a start-up entity and
investment in the Company carries with it significant risks, including the
possible loss of one's entire investment. For a brief description of the
Company and its business activity to date, see the accompanying Memorandum.
The risk factors contained in the Memorandum should be considered carefully in
evaluating the Company and its business before purchasing the Preferred Shares
offered hereby.
9. Company Reliance on Purchaser's Representations. The Purchaser
understands that the Company is relying on the truth and accuracy of the
representations and warranties made herein by the Purchaser in offering the
Preferred Shares for sale and in relying upon applicable exemptions available
under the Securities Act and applicable state securities laws.
10. Manner of Sale. At no time was the Purchaser presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
11. Restricted Shares. The Purchaser understands and acknowledges
that the Preferred Shares have not been registered under the Securities Act
and that they will be issued in reliance upon exemptions from the registration
requirements of the Securities Act, and thus cannot be resold unless they are
registered under the Securities Act or unless an exemption from registration
is available for such resale. With regard to the restrictions on resales of
the Preferred Shares (and any shares of Common Stock issued upon conversion of
the Preferred Shares), the Purchaser is aware (a) that the Company will issue
stop transfer orders to its stock transfer agent in the event of attempts to
improperly transfer any such securities; and (b) that a restrictive legend
will be placed on certificates representing the Preferred Shares (and the
shares of Common Stock issued upon conversion thereof), which legend will read
substantially as follows:
THESE SECURITIES ARE NOT REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATIONS PROMULGATED UNDER
THE ACT, INCLUDING EXEMPTIONS UNDER SECTIONS 3(b) AND 4(2) OF THE ACT AND THE
PROVISIONS OF REGULATION D UNDER SUCH ACT, AND SIMILAR EXEMPTIONS UNDER SATE
LAW. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY REGULATORY
AGENCY AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
12. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
12.1 Organization, Standing, Etc. The Company has been duly
organized and is validly existing and in good standing under the laws of the
State of Utah, and with corporate power and authority under such laws to enter
into and perform this Agreement and to execute and perform under the
documents, instruments and agreements related to this Agreement. The Company
is duly qualified to do business as a foreign corporation in each jurisdiction
in which such qualification is required, whether by reason of the ownership or
leasing of real property or the conduct of business, except where the failure
to so qualify or be in good standing would not have a material adverse effect
on the Company and its subsidiaries, considered as one enterprise.
12.2 Authorization. The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have been duly
authorized by all required action of the Company, including any necessary
approval by its Board of Directors or shareholders, and each of the
Transaction Documents and all instruments and agreements to be delivered in
connection therewith constitute its legal, valid and binding obligation,
enforceable against the Company in accordance with their respective terms,
subject to laws of general application relating to the rights of creditors
generally.
12.3 Absence of Conflicts. Neither the execution and delivery of the
Transaction Documents or any other agreement or instrument to be delivered to
the Purchaser in connection therewith, nor the consummation of the
transactions contemplated thereby, by the Company, shall (i) conflict with or
result in a breach of or constitute a violation or default under (A) any
provision of the Articles of Incorporation, as amended, or Bylaws of the
Company, or (B) the provision of any indenture, instrument or agreement to
which the Company is a party or by which it or any of its properties is bound,
or (C) any order, writ, judgment, award, injunction, decree, law, statute,
rule or regulation, license or permit applicable to the Company; (ii) result
in the creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any fiduciary
duty owned by the Company to any third party, or (iii) require the approval of
any third party pursuant to any materials contract, agreement, instrument,
relationship or legal obligation to which the Company is subject or to which
it or any of its properties, operations or management may be subject.
12.4 Capitalization. The capitalization of the Company is as
described in the Memorandum. All of the outstanding shares of Common Stock
are, and the Preferred Shares will be, when paid for and issued, duly
authorized, validly issued, fully paid and non-assessable free of any
preemptive rights.
12.5 Financial Statements. A copy of the financial statements of the
Company has been delivered to the Purchase. The financial statements reports
present fairly the financial position of the Company at such dates and the
consolidated results of operations and cash flows for the periods then ended,
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods covered by such statements.
12.6 Litigation, Etc. Except as disclosed in the Memorandum, there
are no material suits, actions or legal, administrative, arbitration or other
proceedings or governmental investigations or other controversies pending, or
to the knowledge of the Company threatened, or as to which the Company has
received any notice, claim or assertion, which involve a potential cost or
liability to the Company which would singly or in the aggregate, materially or
adversely affect the financial condition, results of operations, business or
prospects of the Company. The Company is not in default with respect to any
order, writ, injunction or decree of any court or before any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign affecting or relating to it which is
material to the financial condition, results of operations or business of the
Company.
12.7 Unincorporated Documents or Materials. With respect to any
document or other materials received by the Purchaser from the Company or its
representatives which are incorporated herein by reference pursuant to Section
5.9 hereof, (i) the Company has no reason to believe any of such documents and
materials or any projections contained therein contain errors or misstatements
or do not adequately describe the transactions contemplated by this Agreement
or the status of the development of the Company, its products or business, and
(ii) such documents, materials and projections were prepared by the Company
and its management in good faith.
12.8 Nature of Company. The Company is not an open ended investment
company or a unit investment trust, registered or required to be registered,
or a closed end investment company required to be registered, but not
registered, under the Investment Company Act of 1940.
13. Confidentiality. The Purchaser acknowledges and agrees that the
Company has provided it with certain information about the Company that is
proprietary and confidential in connection with this transaction (the
"Confidential Information"). The Purchaser covenants to preserve the
confidentiality of the Confidential Information and to use the Confidential
Information only for the purpose of determining to proceed with the Offering,
except that information (i) in the public domain without violation of any
confidentiality agreement, if known by the party receiving it before receipt,
or (ii) received from a third party without violation of a non-disclosure
obligation of that third party of the party delivering or disclosing
information shall not be considered Confidential Information subject to this
Section 13.
14. General Provisions.
14.1 Attorneys' Fees. In the event of a default in the performance
of this Agreement or any document or instrument executed in connection with
this Agreement, the defaulting party, in addition to all other obligations of
performance hereunder, shall pay reasonable attorneys' fees and costs incurred
by the non-defaulting party to enforce performance of this Agreement.
14.2 Choice of Law. This Agreement will be construed and enforced in
accordance with and governed by the laws of the State of Utah, except for
matters arising under the Securities Act or Exchange Act, without reference to
principles of conflicts of law. Each of the parties consents to the
jurisdiction of the federal court of the State of Utah or the state courts of
the State of Utah in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the brining of any
such proceeding in such jurisdictions. Each party hereby agrees that if
another party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such
a judgment.
14.3 Counterparts/Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which when so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument. In lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original.
14.4 Entire Agreement. This Agreement, and the Transaction Documents
(all of which are incorporated in this Agreement by reference) collectively
set forth the entire agreement between the parties as to the Offering,
supersede any and all prior or contemporaneous agreements or understandings of
the parties relating to the Offering, and may not be amended except by an
instrument in writing signed by all of the parties to this Agreement.
14.5 Expenses. The parties shall be responsible for and shall pay
their own costs and expenses, including without limitation attorneys' fees and
accountants' fees and expenses, in connection with the conduct of the due
diligence inquiry, negotiation, execution and delivery of this Agreement and
the instruments, documents and agreements executed in connection with this
Agreement, including the Transaction Documents.
14.6 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
14.7 Notices. All notices or other communications provided for under
this Agreement shall be in writing, and mailed, telecopied or delivered by
hand delivery or by overnight courier service, to the parties at their
respective addresses as indicated below or at such other address as the
parties may designate in writing:
(1) If to the Purchaser, then to the address indicated on the
signature page, below.
(2) If to the Company:
Volu-Sol, Inc.
5095 West 2100 South
Salt Lake City, Utah 84120
Attn: Michael G. Acton, Chief Executive Officer
Fax: (801) 974-9553
With a copy to:
DURHAM, EVANS, JONES & PINEGAR, P.C.
Key Bank Tower, Suite 850
50 South Main Street
Salt Lake City, Utah 84144
Attn: Kevin R. Pinegar, Esq.
Fax: (801) 538-2425
All notices and communications shall be effective as follows: When mailed,
upon three (3) business days after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the telecopied notice; when hand
delivered, upon delivery; and when sent by overnight courier, the next
business day after deposit of the notice with the overnight courier.
14.8 Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
of this Agreement shall be given effect separately from the provision or
provisions determined to be illegal or unenforceable and shall not be affected
thereby.
14.9 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Company and its successors and assigns, but
shall not be assignable by the Purchaser without the prior written consent of
the Company.
14.10 Survival of Representations, Warranties and Covenants Closing.
All warranties, representations, indemnities and agreements made in the
Transaction Documents by a party hereto shall survive the date of this
Agreement, the Closing Date, the consummation of the Offering, and the
issuance by the Company of the Securities.
<PAGE>
IN WITNESS WHEREOF, the party named below has caused this Agreement to be
executed, as of the date first above written.
PURCHASER:
[PRINT NAME]
BY: _____________________________________
NAME:___________________________________
TITLE:___________________________________
DATE: ___________________________________
ADDRESS : _______________________________
__________________________________________
__________________________________________
FAX: _____________________________________
ACCEPTED AND AGREED:
Volu-Sol, Inc., a Utah corporation
BY:
DATE:
<PAGE>
ADDENDUM 1
Payment Schedule: The Purchaser subscribes to purchase 6,000 Preferred Shares
for a total purchase price of $1,200,000 payable as follows:
$300,000 at Closing by wire transfer
$300,000 upon effective date of the Company's Form 10-SB
$300,000 within 45 days of the effective date of the Company's Form 10-SB
$300,000 within 90 days of the effective date of the Company's Form 10-SB
Upon receipt of each payment, the Company will issue 1,500 shares of Preferred
Stock to Purchaser.<PAGE>
EXHIBIT "A"
[Designation of Rights and Preferences]
<PAGE>
EXHIBIT "B"
[Form of Registration Rights Agreement]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Volu-Sol,
Inc. Financial Statements as of September 30, 1995 and 1996 and June 30, 1997
(unaudited) and for each of the three years in the period ended September 30,
1996 and the nine months ended June 30, 1996 and 1997 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 JUN-30-1997
<PERIOD-END> SEP-30-1996 JUN-30-1997
<CASH> 12,167 110,605
<SECURITIES> 0 0
<RECEIVABLES> 74,784 67,293
<ALLOWANCES> 13,000 13,000
<INVENTORY> 112,726 190,986
<CURRENT-ASSETS> 199,677 368,884
<PP&E> 418,039 419,739
<DEPRECIATION> 83,167 134,528
<TOTAL-ASSETS> 540,798 660,294
<CURRENT-LIABILITIES> 105,297 440,332
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 435,501 219,962
<TOTAL-LIABILITY-AND-EQUITY> 540,798 660,294
<SALES> 434,691 368,731
<TOTAL-REVENUES> 434,691 368,731
<CGS> 357,471 301,870
<TOTAL-COSTS> 357,471 301,870
<OTHER-EXPENSES> 1,446,651 542,524
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (32,791) 0
<INCOME-PRETAX> (1,402,222) (475,663)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,402,222) (475,663)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,402,222) (475,663)
<EPS-PRIMARY> (.66) (.23)
<EPS-DILUTED> (.66) (.23)
</TABLE>
