SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark one)
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended September 30, 1996, or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_______________ to ______________.
Commission File No. 0-11472
--------------------
BIOMUNE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
-----------------------
Nevada 87-0380088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2401 South Foothill Drive 84109-1405
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
(801) 466-3441
(Registrant's telephone number,
including area code)
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.0001 par value per share)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of
the registrant is $43,743,654 calculated using a closing/last trade price of
$2.25 on November 12, 1996. For purposes of this calculation, the registrant has
only included the number of shares held by its officers and directors directly
as of November 12, 1996 (and not counting shares beneficially held on that date)
in determining the shares held by non-affiliates. As of September 30, 1996,
including accrued but unpaid dividends through that date, 19,887,034 shares of
Common Stock, 135,589 shares of Series A 10% Cumulative Convertible Preferred
Stock, 11,058 shares of Series B 10% Cumulative Convertible Non-Voting Preferred
Stock and 5,000 shares of Series C 8% Cumulative Convertible Non-Voting
Preferred Stock were reflected as issued and outstanding.
Exhibit Index is on page 49
Page 1 of 406
BIOMUNE SYSTEMS, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
Page
Item 1. Business.......................................................... 1
Item 2. Properties.........................................................18
Item 3. Legal Proceedings..................................................18
Item 4. Submission of Matters to a Vote of Security Holders................19
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..............................................20
Item 6. Selected Financial Data............................................24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................25
Item 8. Financial Statements and Supplementary Data........................30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................31
Part III
Item 10. Directors and Executive Officers of the Registrant.................32
Item 11. Executive Compensation.............................................36
Item 12. Security Ownership of Certain Beneficial Owners and Management.....43
Item 13. Certain Relationships and Related Transactions.....................44
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.........................................................49
PART I
ITEM 1. BUSINESS
GENERAL
Biomune Systems, Inc. ("Biomune") is a development stage biopharmaceutical
and nutraceutical company that, along with its wholly owned subsidiary, Optim
Nutrition, Inc. ("Optim"), is engaged primarily in the business of research,
development, production and marketing of biologic pharmaceutical products and
nutraceutical food supplements derived from Biomune's patented technology (the
"Technology"), which produces immune enhancing protein and replicates the
nutritional aspects of colostrum. Colostrum is the primary substance by which
most mammals develop passive immunity. Biomune, along with its two wholly owned
subsidiaries are sometimes, collectively, referred to herein as the "Company."
Nutraceutical products are food supplements that are derived from a food base
and marketed as a beneficial source of nutrients to promote good health. The
Company believes that the Technology may be utilized to develop products to
treat various gastrointestinal and infectious diseases in humans and that
products derived from the Technology may help increase the body's immune
response. The Company also believes that certain products derived from the
Technology may provide nutritional supplementation for certain individuals who
are nutritionally deprived or immune stressed or compromised.
The Company has filed Investigational New Drug Applications ("IND") with
the United States Food and Drug Administration (the "FDA"), the United States
government agency that regulates drugs for humans, on two biological
pharmaceutical drug candidates developed from the Technology: BWPT-301(TM)
(formerly known as Immuno-C), which the Company believes may prevent and/or
treat cryptosporidiosis, a gastrointestinal disease caused by the
cryptosporidium parvum (C. parvum) microorganism, which causes acute and severe
diarrhea in humans; and BWPT- 302(TM), which the Company believes may be used
in the treatment of infection by the life-threatening bacteria, Escherichia
coli, strain 0157:H7 ("E. coli, strain 0157:H7"), a disease that causes severe
bloody diarrhea, and in children, a hemolytic uremic syndrome associated with
a high risk of permanent kidney damage. The Company is currently conducting
Phase II clinical trials on its BWPT-301(TM) drug candidate and plans to
commence Phase II clinical trials on its BWPT-302(TM) drug candidate. See
"-- Biologic Pharmaceutical Activities."
Based upon data obtained from clinical trials and other studies involving
protein concentrate (the "Base Product") and BWPT-301(TM), which suggest
potential health-related nutritional benefits from the use of nutraceutical
products developed utilizing the Technology, the Company, through Optim,
developed and is now commercially marketing a nutraceutical product based on the
Technology. Optimune(TM) is marketed to immune-compromised individuals who need
nutritional supplementation for any number of reasons. The preliminary test
marketing launch (the "pre-launch") on Optimune(TM) commenced on June 17, 1996.
Commercial Marketing of Optimune(TM) commenced on July 8, 1996. See "--
Nutraceutical Activities" and "-- Market Potential for the Company's Products --
Optimune(TM) and other Nutraceuticals."
Through Biomune's other wholly owned subsidiary, Volu-Sol, Inc.
("Volu-Sol"), the Company is also engaged in the manufacture and distribution of
medical diagnostic stains.
In addition, the Company owns the rights to certain medical waste
technologies consisting of (i) a device for the sterilization and
decontamination of medical devices and wastes, (ii) a bioremediation process to
detoxify and degrade hazardous substances and (iii) a device and process for the
safe treatment of used medical stains. In May 1996, the Company granted a
license to a third party, Biomed Patent Development, L.L.C., to use the
technology related to the medical sterilization and decontamination device in
return for certain royalties. See "-- License of Medical Device Sterilization
Technology".
The Company has generated no revenues from the sale of any biological drugs
or biological drug candidate, although Optim has generated a small amount of
revenues to date from the sale of its first nutraceutical product, Optimune(TM),
since the market launch of that product on July 8, 1996. Although the Company
has received and continues to receive revenues from the sale of Volu-Sol's
medical diagnostic stains, Volu-Sol's business has been operating at a net loss
since it was acquired by the Company in December 1991. There can be no assurance
that the Company will ever generate revenues from sales of biological
drugs/pharmaceutical products, or if the Company were to generate revenues from
any such products or product candidates, that such revenues would be at
commercially viable levels, that such revenues would result in gross or net
profits or positive operating margins, or that such revenues would result in a
positive cash flow.
BIOMUNE'S PROTEIN TECHNOLOGY
The Technology is a licensed, patented process of filtering specific
proteins from bovine whey, a by-product of cheese production, to produce the
Base Product, from which various drugs and product candidates are formulated.
The Technology was developed based on numerous pre-clinical studies that
indicate colostrum, a substance every mother mammal imparts to its newly-born
infant, provides a mechanism for the infant to receive passive immunity. In
analyzing colostrum, scientists have discovered that it contains thousands of
immune enhancing proteins known as immunoglobulins (or antibodies). The Company
believes that when antibodies from whey are concentrated, the beneficial effects
of those antibodies duplicate the effects of colostrum. Disease fighting
antibodies can be found not only in colostrum, but also in cows' milk, and can
be extracted from ordinary whey. Biomune's patented Technology utilizes a
filtration process that produces high concentrations of antibodies, as well as
protein and molecules that may be beneficial in the treatment of infectious
diseases in humans. The Company has the exclusive right and license (through a
License Agreement dated May 21, 1991, which was subsequently amended as of
December 15, 1995, with Protein Technology, Inc.) to utilize the Technology
solely for human applications in the United States and Canada and each of their
territories and possessions.
The Technology differs significantly from other existing technologies, such
as hyper-immunization and colostrum-based or colostrum-like technologies.
Hyper-immunization involves the injection or other exposure of a cow to a
particular disease and the extraction from the cow's milk or colostrum of
antibodies that are produced by the cow. The Company believes that utilization
of the Technology's process of filtering and concentrating bovine whey
represents a new and possibly more effective and possibly more economical
approach in the development of pharmaceuticals for the treatment and/or
prevention of certain diseases in humans and in the development of nutraceutical
products for the promotion of good health in humans. The Company's approach
utilizes readily available whole milk from cows that have not been
hyper-immunized and also achieves the goal of higher antibody titers by
filtration and concentration rather than by hyper-immunization. The Company
believes hyper-immunization precludes the use of the cows' milk or colostrum for
anything other than the intended purpose. The Company seeks to utilize whole
milk rather than colostrum because whole milk is available from each cow daily
throughout the year, whereas colostrum is generally available for only several
days per year from each cow.
Based on the results of Phase I and Phase II clinical trials that were
conducted using the Company's BWPT- 301(TM) pharmaceutical product candidate,
the Company believes that products developed based on the Technology may be
successful in improving and promoting gastrointestinal health, especially in (i)
people who are HIV positive or have AIDS, (ii) immune-compromised patients such
as those undergoing high-dose antibiotic or chemotherapy treatment and (iii)
post-surgical and chronic care patients.
The Company is currently focusing on the prevention and/or treatment of
cryptosporidiosis and E. coli, strain 0157:H7, with its biologic pharmaceutical
drug candidates BWPT-301(TM) (formerly known as Immuno-C) and BWPT-302(TM),
respectively. In addition, the Company believes that pharmaceutical products
developed through the utilization of the Technology may be useful in the
prevention and/or treatment of other diseases, although the Company has not
prepared or filed an IND with the FDA with respect to any such potential
pharmaceutical drug candidates. Some of the other diseases or microbial
infections that the Company believes may be preventable and/or treatable include
certain infectious bacteria known to be enteric pathogens (including, for
example, Helicobacter pylori ("H. pylori"), Clostridium difficile ("C.
difficile"), Campylobacter jejuni ("C. jejuni"), Yersinia enterocolitica ("Y.
enterocolitica") and Staphylococcus acreus ("Staph. aureus)) and certain
non-infectious immunologically-based syndromes, diseases and other conditions
(including, for example, certain cancers, such as prostate cancer, arthritis,
irritable bowel syndrome, traveler's diarrhea and acne).
In addition, based upon data obtained from clinical trials and other
studies involving the Base Product and BWPT-301(TM), the Company believes that,
through Optim, the Technology may be used to develop several nutraceutical
products for the promotion of good health in humans. Optim has developed one
nutraceutical product, Optimune(TM), which is a nutritional dietary supplement
marketed to people who are HIV positive or have AIDS. The marketing pre-launch
of Optimune(TM) was commenced on June 17, 1996 and commercial marketing began on
July 8, 1996. See "-- General" and "-- Nutraceutical Activities."
BIOLOGIC PHARMACEUTICAL ACTIVITIES
Clinical Trials
BWPT-301(TM). The Company completed Phase I clinical trials on BWPT-301(TM)
(formerly known as Immuno- C) in October 1994 resulting in the establishment of
its safety profile in healthy humans within certain dose range parameters.
A pediatrics protocol was submitted to the FDA in October 1995 for the
treatment of six pediatrics patients with advanced AIDS and chronic
cryptosporidiosis. No patients have yet been enrolled in this study.
The FDA approved the Company's Emergency IND No. 6679 in June 1996 for the
treatment of one pediatric patient with advanced AIDS and cryptosporidiosis. The
patient was treated according to the Company's pediatrics protocol, which allows
for 90 days of dosing with the Base Product at a maximum dose of 3.0 g/kg/day.
the patient is under the care of Dr. Margarita Silio, who is affiliated with Dr.
Russell Van Dyke, head of the pediatric AIDS section at Tulane University and
Louisiana State University. The patient, a 12 year old girl with advanced AIDS,
had cryptosporidiosis for several months before beginning the study and was
experiencing diarrhea in excess of 1,000 g/day at the commencement of the study.
The patient had a CD4 cell count of 1/uL on June 10, 1996 and weighed only 51.7
lbs. No pathogens other than cryptosporidium parvum ("C. parvum") were
identified in the patient's stools. After 65 days of treatment at a dose of 2
g/kg/day, the study investigator reported that the girl's weight had increased
18%, to 59.6 lbs, with marked clinical improvement. By the end of the study, the
girl's diarrhea had improved dramatically; stool frequency had decreased and
stool consistency was more formed. The study was completed in September 1996.
On March 20, 1996, the Company announced the results from an open-label,
dose escalating Phase II study of the tolerance, safety and efficacy of
BWPT-301(TM) in the treatment of cryptosporidiosis in individuals with AIDS.
That study was conducted with six adult AIDS patients over a 10-day period at
St. Luke's-Roosevelt Hospital Center in New York City, New York by Dr. Donald P.
Kotler. The resulting data will be utilized to design and conduct additional
Phase II dose-ranging studies on BWPT-301(TM).
BWPT-302(TM). The Company filed an IND with the FDA on December 15, 1995 in
connection with the development of its second pharmaceutical product candidate,
BWPT-302(TM). The Company has now concluded its adult Phase I clinical trials on
BWPT-302(TM) and, after the analysis of the data from those trials, is planning
to commence a Phase I/II clinical trial to continue gathering data on
BWPT-302(TM).
The Company filed this second IND focusing on certain strains of
Escherichia coli because of the amount of existing animal data supporting the
efficacy of products developed utilizing the Technology for the treatment of
Escherichia coli. A product similar to BWPT-302(TM) was developed, utilizing the
same technology, for animal applications, which product received approval from
the United States Department of Agriculture with a specific claim for the
treatment of a certain strain of Escherichia coli. The Company has no rights
with respect to that animal product. There is presently no effective drug to
treat certain strains of Escherichia coli (and particularly E. coli, strain
0157:H7) in humans. The Company believes there may be as many as 20,000 cases of
E. coli, strain 0157:H7, in humans in the United States each year, resulting in
approximately 250 deaths. This bacterial strain, which is acquired from
undercooked hamburger meat or from other sources, can cause severe bloody
diarrhea, and in children, a hemolytic uremic syndrome associated with a high
risk of permanent kidney damage. This IND has recently been expanded to include
strains of Escherichia coli that are entero adherent Escherichia coli (EAEC),
which the Company believes may substantially increase the market potential for a
drug that proves to be effective.
The Company has completed the administration of BWPT-302(TM) to healthy
individuals in Phase I dose tolerance trials. Through those dose tolerance
trials, the Company gained a general understanding of how well various doses of
BWPT-302(TM) are tolerated and additional follow up trials are planned. Data
compilation and analysis of those trials is ongoing.
Other Pharmaceutical Applications
The Company intends to continue its research and pre-clinical development
efforts in order to assess the feasibility of filing additional INDs, followed
by clinical trials, in respect of potential drug candidates to be developed,
utilizing the Technology, for the treatment of certain infectious bacteria
(including, for example, H. pylori, C. difficile, C. jejuni, Y. enterocolitica
and Staph. aureus) and certain non-infectious immunologically-based syndromes,
diseases and conditions (including, for example, certain cancers, such as
prostate cancer, arthritis, irritable bowel syndrome and acne).
Pre-Clinical Studies
On November 1, 1994, the Company reported the results of animal studies
conducted by Dr. Joseph A. Smith, Jr. and Dr. Mitchell S. Steiner at Vanderbilt
University showing the efficacy of drug candidates derived from the Technology
in reducing the growth rate of prostate cancer tumors by 11%. These animal
studies were sponsored by the Company. Based on data from a separate study done
at Vanderbilt University, which study discovered an over-production of an immune
suppressing agent in the presence of prostate cancer cells, the Vanderbilt
University researchers selected the Technology to test the theory that an
immuno-modulating agent (such as the Base Product) may counteract the
immuno-suppression caused by cancer cells and thus act to control, reduce and/or
eliminate the tumor. In addition, research on cancer is being conducted by
Joseph A. Smith, Jr., M.D. at the Vanderbilt University Medical Center. Dr.
Smith is studying the possible effects of the Base Products against renal
carcinoma cell tumors extracted from humans and inducted into mice. This study
is currently ongoing but no study data or results have yet been released to the
Company.
On May 15, 1995, the Company reported the results of an in vivo study on
rats conducted by Dr. Mitchell Steiner at Vanderbilt University. This follow up
study confirmed the data derived from the earlier study conducted at Vanderbilt
University and demonstrated that, when administered prophylactically to rats who
had been injected with prostate cancer tumor cells, there was a retardant effect
on the growth on the prostate tumor cells.
Dr. Frederick Clayton at the Regional Veterans Administration Hospital in
Salt Lake City, Utah has been conducting indirect immuno-fluorescence testing of
the Base Product on various pathogenic enteric microorganisms. Preliminary
results from that research indicate a possible immuno-reaction against several
gastrointestinal tract pathogenic bacteria. This research is continuing and the
Company expects further results sometime in late-1996 or early-1997.
Dr. Samuel Cohen at Associated Regional University Pathologists in Salt
Lake City, Utah is conducting studies on the effect of the Technology on
Propionibacterium acnes (P. acnes), a bacterium associated with acne vulgaris, a
common skin disorder of major significance to adolescents.
NUTRACEUTICAL ACTIVITIES
Based upon the results of and the information obtained from clinical trials
and other studies involving the Base Product and BWPT-301(TM), which trials and
studies suggest potential health-related benefits from the use of nutraceutical
products derived from the Technology, the Company, during fiscal 1995, undertook
an analysis of the nutraceutical market. Nutraceutical products are food-based
nutritional supplements marketed as a beneficial source of nutrients to promote
good health in humans. On October 31, 1995, the Company incorporated Optim
Nutrition, Inc. as a wholly-owed subsidiary for the purpose of developing and
marketing nutraceutical products.
FDA approval is not required to commence the marketing and sale of
nutraceutical products. However, in order to make broad and non-specific claims
regarding the benefits of using a particular nutraceutical product, studies must
be conducted to substantiate those claims. In addition, the Company's
nutraceutical products must be appropriately labeled in accordance with the
Dietary Supplement Health and Education Act of 1994 (the "Dietary Supplement
Act"). At any time subsequent to a company's commencement of marketing of a
nutraceutical product, both the FDA and the United States Federal Trade
Commission (the "FTC") have the right to review the accuracy of the product
claims being made. A company marketing nutraceutical products cannot make claims
such as the ability of a product to cure a particular disease or illness.
Rather, claims must be broadly made and may not be made with respect to
diagnosis, treatment, cure, mitigation or prevention of a specific disease or
illness.
Optim recently completed a nutritional study that was monitored by
Clinimetric Research Associates, a contract research organization
("Clinimetric"). This study was conducted at two sites: St. Francis Memorial
Hospital in San Francisco, California and the East Bay AIDS Clinic in Berkeley,
California. Participant recruitment was completed in mid-May 1996 and patients
were monitored through the end of June 1996. Preliminary data from that study
have been provided to the Company, although no analysis of such data has been
completed by either the Company or Clinimetric and no analysis of those data is
expected to be completed until approximately February 1997. However, based upon
certain preliminary data from that study, the Company is cautiously optimistic
about its first nutraceutical product, Optimune(TM). Those preliminary data
prompted the Company to continue the implementation of the product launch of
Optimune(TM). Optim commenced the pre-launch on Optimune(TM) on June 17, 1996.
Several AIDS treatment sites were identified in different regions of the United
States to participate in the marketing pre-launch of Optimune(TM). Optim
anticipates the pre-launch will run for approximately two months for each
participant and is designed to provide, at no cost, a two month supply of
Optimune(TM). The aggregate cost of the nutritional study and the cost to launch
Optimune(TM) in a full marketing campaign is estimated to be approximately $2.5
million. The Company commenced the commercial distribution of Optimune(TM) on
July 8, 1996.
Dr. Donald P. Kotler at St. Lukes-Roosevelt Hospital Center in New York
City, New York has begun a year long metabolic study. Other study sites that
began less rigorous studies are located in California, Florida, New York and
Oklahoma. These nutritional studies are designed to yield anecdotal and
corroborating data of the previous studies and provide new data that may
encourage the Company to introduce potential customers for Optimune(TM) to
Optim.
LICENSES AND PATENTS RELATING TO THE TECHNOLOGY
Pursuant to a License Agreement dated May 21, 1991, and subsequently
amended as of December 15, 1995 (as amended, the "License"), Protein Technology,
Inc. ("PTI") granted the Company the exclusive right and license to utilize the
Technology in connection with the marketing and sale of pharmaceutical and
nutraceutical products, solely for human applications, in the United States and
Canada and each of their territories and possessions. By First Amendment to
Amended License Agreement entered into effective as of September 13, 1996, the
Company and PTI amended the License to expand the territories in which the
Company is licensed to market and sell products utilizing the Technology to
include the following countries and areas and their respective territories and
possessions: (i) the United States of America; (ii) Canada; (iii) Kenya; (iv)
the Ivory Coast; (v) Zimbabwe; (vi) Ghena; (vii) Zambia; and (viii) Nigeria. The
License includes the rights to human applications of the Technology contained
under four United States patents, each of which relates to methodologies to
produce large proteins (immunoglobulins) on a mass production basis. PTI has not
represented or warranted the quality or coverage of any of those patents, and
therefore the Company does not and cannot provide any assurance regarding PTI's
rights therein. The License expires in May 1999, unless the Company, prior to
such date, has generated annual gross revenues from the sale of products
developed utilizing the Technology of not less than $2 million, in which event
the License will be automatically extended until the expiration date of the
latest patent to expire covered by the License (including any extensions to such
patent registrations). Based on the patents currently licensed thereunder, the
License, if so extended, would expire on March 28, 2006.
The License further provides that PTI may terminate the License upon the
Company's failure to observe or perform any of the covenants, terms, conditions
or provisions contained therein or in the event of a breach of any
representation or warranty made by the Company that is not cured within 30 days
after receipt of written notice thereof from PTI. The License may also be
terminated by PTI if the Company commences or has commenced against it any
proceeding under applicable bankruptcy law, makes a general assignment for the
benefit of its creditors, has a trustee or receiver appointed, suffers the
attachment, execution or judicial seizure of substantially all of its assets, or
becomes insolvent or liquidates or dissolves.
The License also provides that promptly following the issuance of
authorization or approval by the FDA for sales of any pharmaceutical products
covered by the License, the Company and PTI will negotiate in good faith for the
grant of licensing rights for pharmaceutical products in other parts of the
world. In addition, upon achieving sales of $1 million during any 12 month
period with respect to nutraceutical products covered by the License, the
Company and PTI will negotiate in good faith for the grant of licensing rights
in other parts of the world.
The Company is required to pay PTI royalties in the amount of 5% of gross
receipts from the sale of all products covered by the License with respect to
the first $3.5 million of sales during each annual period and 7% of gross
receipts with respect to all sales in excess of $3.5 million during such annual
period. In addition, in the event the License is extended past May 1999, the
Company is required to pay PTI annual advances to be applied against royalties
in the amount of $100,000 for the first year of such extension, and increasing
by $10,000 each year thereafter.
In December 1995, a patent application was filed on behalf of certain
individuals relating to a method for enhancing the immune system using the
Technology and the Base Product. That patent application relates to an increase
in CD4 cell count in immune-compromised individuals. The patent application and
the invention covered thereby have been assigned to the Company. The title of
this patent application is "A Method for Enhancing the Immune System using
Immunologically-Active Bovine Whey Protein Concentrate." The authors on that
patent are Frank A. Eldredge, Ph.D., the Company's Executive Vice President --
New Product Development, David O. Lucas, Ph.D., a member of the Company's
Scientific Advisory Board, and Craig D. Moffat, M.D., a consultant to the
Company. Under the terms of the License, the improvements to the Technology that
are the subject of this patent application will be owned by PTI.
MANUFACTURING AND BASE PRODUCT SUPPLY ARRANGEMENT
Optim is ordering all of its requirements for the Base Product for
Optimune(TM), and the Company will order all of its requirement for the Base
Product for BWPT-301(TM) and BWPT-302(TM), from PTI, which, in turn, places
orders with a distributor in New Zealand. This distributor contracts with a
single manufacturer to manufacture all of such requirements at its New Zealand
facilities.
The Base Product to be used by the Company in connection with the Phase III
clinical trials of the Company's drug candidates must be manufactured in
accordance with current FDA-established Good Manufacturing Practices ("GMP").
The FDA's GMP standards establish stringent practices and procedures that must
be adhered to by a manufacturer in order to ensure the consistency of the
product and minimize the possibility of product contamination or adulteration.
The Base Product utilized during Phase III clinical trials must be produced at a
manufacturing facility that meets the FDA's then-current GMP standards.
The BWPT-301(TM) that was utilized during the initial Phase II clinical
trials and that will be utilized during the Company's expanded Phase II and
Phase III clinical trials was and will be manufactured in New Zealand. On
October 25, 1994, the Company retained the consulting firm of Kemper-Masterson,
Inc. of Bethesda, Maryland to consult with and advise the Company regarding
those manufacturing facilities and their conformance to then-current FDA GMP
requirements. In November 1994, Kemper-Masterson, Inc. inspected the New Zealand
manufacturing facilities and reported to the Company that those manufacturing
facilities at that time were substantially in compliance with current GMP
standards. The Company has conducted a follow up inspection of the New Zealand
manufacturing facilities based upon the Kemper-Masterson, Inc. inspection and
believes that those facilities will be in full compliance with current GMP
standards on or prior to the intended date for the commencement of marketing and
distribution of the Company's first biologic pharmaceutical drug candidate. The
Company believes the manufacturing facilities to be used for the production of
the Base Product, BWPT-301(TM) and BWPT-302(TM) will be at FDA GMP certifiable
levels prior to commencement of marketing of any biologic pharmaceutical
products. The Company intends to file or have the manufacturer in New Zealand
file, as may be appropriate, an Establishment License Application ("ELA"). The
establishment license may be granted without inspection, but the facility is
subject to inspection by the FDA at least once every two years.
MARKET POTENTIAL FOR THE COMPANY'S PRODUCTS
Optimune(TM) and Other Nutraceuticals
On July 8, 1996, Optim commenced commercial marketing of Optimune(TM) as a
nutritional dietary supplement to people who are HIV positive or have AIDS and
who are suffering from weight loss. Optim believes that in the United States
there are approximately 275,000 individuals with AIDS, many of whom suffer from
severe chronic weight loss. Furthermore, Optim believes that there are numerous
individuals with AIDS who experience some level of weight loss, but who have not
yet been diagnosed with severe chronic weight loss. In addition, Optim believes
that, in the United States, there are approximately one million individuals who
are HIV positive, but not yet diagnosed with AIDS, many of whom are believed to
be concerned about weight maintenance and weight loss. The Company estimates
that a small percentage of the users and potential users of Optimune(TM) may be
eligible for third-party reimbursement.
Optim may in the future also market Optimune(TM) or a similar nutraceutical
product as a nutritional dietary supplement for people experiencing weight loss
as a result of intensive antibiotic or chemotherapy treatment, as well as to
elderly persons experiencing weight loss problems. Optim believes that the
market for Optimune(TM) or a similar nutraceutical product for these patient
populations currently consists of approximately five million individuals in the
United States alone.
Each of these markets represents a significant opportunity for the
marketing and distribution of Optimune(TM) and/or similar nutraceutical
products. However, other than with respect to the AIDS and HIV market, where
marketing has already commenced, there can be no assurance that Optim will
commence commercial marketing of Optimune(TM) or any other nutritional or
nutraceutical product to the above-described markets or to any other market, nor
can there be any assurance that if commercial marketing is commenced, such
effort would be successful.
BWPT-301(TM)
Cryptosporidiosis is caused by the water-borne parasite C. parvum, which
has been reported to have been detected in approximately 85% of United States
surface water. In 1993, for example, the water supply for the City of Milwaukee,
Wisconsin was contaminated by C. parvum, debilitating 25% of the city's
population and accounting for approximately 100 deaths. The immune-compromised,
the very young and the elderly are particularly susceptible to this parasite. On
May 1, 1996, the United States Environmental Protection Agency (the "EPA")
ordered the nation's 353 largest municipal water suppliers to begin testing for
C. parvum. During 1995, approximately 500,000 individuals in the United States
were diagnosed with cryptosporidiosis. The Company believes that there are
numerous additional undiagnosed and misdiagnosed cases of cryptosporidiosis
that, if properly diagnosed, would increase this market opportunity.
BWPT-302(TM)
E. coli, strain 0157:H7, infection causes severe bloody diarrhea, and in
children, a hemolytic uremic syndrome associated with a high risk of permanent
kidney damage. E. coli, strain 0157:H7, has been found to be the cause of severe
illness and death in certain cases of ingestion of tainted hamburger meat. While
the Company believes that this market only involves approximately 20,000 cases
per year in the United States, resulting in approximately 250 deaths, because of
the severity of this condition, the Company believes that an important market
opportunity exists.
Other Gastrointestinal Microorganisms and Syndromes
While the Company is currently focusing its efforts and resources on its
two pharmaceutical drug candidates (BWPT-301(TM) and BWPT-302(TM)) and its
nutraceutical product (Optimune(TM)), in the future it may begin research and
development utilizing the Technology for other possible disease indications,
including, but not limited to, H. pylori, prostate cancer, C. jejuni, irritable
bowel syndrome, arthritis, traveler's diarrhea, acne and certain immunological
disorders and infections by microorganisms.
MARKETING AND DISTRIBUTION ARRANGEMENTS
Optim began marketing Optimune(TM) on a non-prescription or "doctor
recommended" basis. Optimune(TM) is being marketed and distributed directly by
Optim primarily to people who are HIV positive or have AIDS. The Company began
its marketing pre-launch, which consists of a direct mail effort, a free
sampling program, marketing efforts directed toward AIDS support groups and
other efforts. There can be no assurance that the Company or Optim will ever be
able to market and distribute Optimune(TM) profitably or that the Company or
Optim will be successful in establishing any distribution relationships.
Optim commenced the marketing pre-launch of Optimune(TM) on June 17, 1996.
Several AIDS treatment study sites have been identified in different regions of
the United States to participate in the marketing pre-launch of Optimune(TM).
Optim anticipates that the pre-launch will run for approximately two months for
each participant and is designed to provide a two month supply of Optimune(TM)
at no cost.
The Company has not yet formulated any plans with respect to the marketing
and distribution of its biological pharmaceutical drug candidates, BWPT-301(TM)
and BWPT-302(TM). The Company anticipates that it may be necessary to establish
a third-party alliance for such purposes.
The License (as amended by the First Amendment to Amended License Agreement
entered into effective as of September 13, 1996) with PTI grants the Company the
exclusive right and license to utilize the Technology in connection with the
marketing and sale of pharmaceutical and nutraceutical products, solely for
human applications, in the following countries and areas and their respective
territories and possessions: (i) the United States of America; (ii) Canada;
(iii) Kenya; (iv) the Ivory Coast; (v) Zimbabwe; (vi) Ghena; (vii) Zambia; and
(viii) Nigeria. The License provides that PTI shall, directly or through a duly
authorized third-party manufacturer, be the exclusive supplier of all Base
Product for all products marketed and sold by the Company that utilize the
Technology. The License also provides that PTI will sell to the Company, and the
Company will purchase from PTI, all of the Company's requirements of Base
Product for use in the products marketed and sold by the Company that embody the
Technology. By its terms, the License allows the Company to market and sell
products embodying the Technology solely within the following countries and
areas: (i) the United States of America; (ii) Canada; (iii) Kenya; (iv) the
Ivory Coast; (v) Zimbabwe; (vi) Ghena; (vii) Zambia; and (viii) Nigeria, and
also allows the Company to sell or otherwise market such products to purchasers
for use or resale solely within those countries and areas. In addition, the
License further provides that promptly following the issuance of authorization
or approval by the FDA for sales of any products using the Technology for
pharmaceutical purposes, PTI and the Company will negotiate in good faith
possible product registrations and licensing compensation arrangements for other
parts of the world. Additionally, the License provides that promptly following
the achievement of $1 million in gross receipts in a period not to exceed 12
months from products using the Technology that do not require marketing approval
from the FDA (i.e., nutraceutical products), PTI and the Company will discuss
possible product registrations and licensing arrangements for other parts of the
world where neither PTI nor any of its affiliates has any existing similar
business in operation or any plans for the expansion of a similar business in
that part of the world.
COMPETITION
At present, there are several companies, such as ImmuCell Corporation and
GalaGen, Inc., that are involved in the research and development of drugs
derived from colostrum and hyper-immunized cows, which companies are or could
become competitors of the Company. In addition, the Company also faces potential
competition from numerous pharmaceutical and other biopharmaceutical companies
that are currently developing products, utilizing unrelated technologies, for
the treatment and/or prevention of many of the diseases, infections and
syndromes identified by the Company for application of its product candidates.
Competition in the pharmaceutical and medical and diagnostic technology
industries is extremely intense. The Company competes with many other companies
that have substantially greater capital resources, research and development
capabilities, manufacturing and marketing resources, and experience than does
the Company. The Company is not aware of any competitor or potential competitor
that has developed and successfully commercialized any pharmaceutical that
effectively treats cryptosporidiosis in humans. Although certain drugs have been
found to be effective against some strains of the Escherichia coli bacteria, the
Company is not aware of any drugs that have proven effective against the strain
of Escherichia coli that the Company has identified for treatment with its BWPT-
302(TM) drug candidate (i.e., E. coli, strain 0157:H7). Several potential
competitors are currently researching and developing colostrum-based or
colostrum-like and hyper-immunization drugs for the treatment of
cryptosporidiosis and other diseases in humans. Some of these competitors are
currently seeking FDA approval for their respective drugs. If a competitor were
successful in developing a competing product and in receiving FDA approval to
market prior to the Company receiving such FDA approval on BWPT-301(TM),
BWPT-302(TM) and/or any other drug candidate developed by the Company, the
value, viability and marketability of BWPT-301(TM), BWPT-302(TM) and/or any such
other drug candidate could be materially adversely affected and the Company's
business prospects severely negatively impacted.
In addition, competition among the producers of nutraceutical products is
extremely intense. Two nutraceutical products are produced and distributed by
the Ross Products Division of Abbott Laboratories--Ensure(R) and Advera(R). The
Company believes that Ensure(R) is currently marketed to the elderly and others
as a nutritional supplement or meal replacement, while Advera(R) is being
marketed to individuals who are HIV positive or have AIDS as a nutritional
supplement or meal replacement and as a way to manage their weight. The Company
believes that the Ross Products Division of Abbott Laboratories currently
controls approximately 70% of the nutritional supplement and meal replacement
markets. While Optim intends only to market Optimune(TM) as a dietary supplement
(and not as a meal replacement), because Advera(R) is being marketed to people
who are HIV positive or have AIDS, there is a possibility that Optimune(TM) may
compete with Advera(R).
GOVERNMENT REGULATION
All of the biopharmaceutical products and technologies owned by or licensed
to the Company are heavily regulated by the FDA, the EPA and/or other regulatory
authorities pursuant to applicable federal, state and/or local laws, rules and
regulations. While the Company's nutraceutical products will probably not be
subject to premarket approval by the FDA, they will be regulated on a
post-marketing basis by the FDA and be regulated by the FTC and other regulatory
authorities pursuant to applicable federal, state and/or local laws, rules and
regulations. The Company is in the process of seeking FDA approval for
BWPT-301(TM) and BWPT-302(TM). In addition, after the marketing launch,
Optimune(TM) or any other nutraceutical products labeling and promotional
materials may be reviewed by the FTC and the FDA. The medical diagnostic stains
produced by Volu-Sol are subject to the rules and regulations adopted by the
Occupational Safety and Health Administration. Moreover, Volu-Sol's
manufacturing process is regulated by the EPA and the FDA and is subject to
various federal, state and local environmental and health and safety laws, rules
and regulations. The Company has incurred and will continue to incur substantial
costs in complying with applicable laws, rules and regulations to which it and
its operations and products and product candidates are subject. The Company
believes that it is currently in compliance in all material respects with all
applicable laws, rules and regulations governing its operations and products and
product candidates.
In addition, the Company is subject to the Dietary Supplement Act with
respect to its nutraceutical products. The Dietary Supplement Act governs the
labeling of and certain other matters related to dietary supplements. While the
FDA has adopted regulations that could apply to such supplements, the FDA has
decided to date not to enforce certain of those regulations. The FDA has
proposed new regulations applicable to nutraceutical products that will
supersede the existing regulations, which are anticipated to be adopted in
early-1997. The Dietary Supplement Act does, and the proposed regulations (which
proposed regulations are recommended to be followed by the FDA) if adopted will,
dictate the labeling requirements for dietary supplements (such as
Optimune(TM)). The Company believes it is currently in compliance with the
Dietary Supplement Act and the proposed regulations recommended to be followed
by the FDA.
LICENSE OF MEDICAL DEVICE STERILIZATION TECHNOLOGY
The Company owns a 90% interest in a certain technology relating to the
sterilization and decontamination of medical devices and waste (the
"Sterilization Technology"). Pursuant to a License Agreement dated as of May 6,
1996 (the "Sterilization License"), the Company granted a 15 year license to
Biomed Patent Development L.L.C. ("Biomed"), the owner of the remaining 10%
interest in the Sterilization Technology, for the exclusive use of the
Sterilization Technology in connection with the manufacture and distribution of
medical devices based on the Sterilization Technology and the provision of
services relating thereto.
Under the Sterilization License, the Company will receive royalties for the
first year of the Sterilization License (which royalties are due by November 2,
1996) equal to the greater of (i) 7.5% of gross sales or (ii) $45,000. In
addition, the Company is entitled to receive royalties for all subsequent years
equal to the greater of (i) 0.9% of gross sales or (ii) $90,000.
The Company has represented and warranted to Biomed that the Company is the
owner of a 90% interest in the Sterilization Technology and that the
Sterilization Technology, to the best of the Company's knowledge, does not
infringe any patent rights, copyrights, trade secret rights or other proprietary
rights of others. Notwithstanding the foregoing, Biomed has entered into a
license with a third party in settlement of an alleged infringement claim by
such third party relating to the Sterilization Technology and Biomed has
indemnified the Company against any damages resulting from claims of such third
party. In addition, the Company's liability under the Sterilization License has
been limited to the aggregate royalties payable to the Company under the
Sterilization License.
EMPLOYEES
As of September 30, 1996, the Company employed 21 full-time employees and
two part-time employees, as follows: Biomune -- eight full-time employees and
one part-time employee; Optim -- eight full-time employees and Volu-Sol -- five
full-time employees and one part-time employee. The Company is dependent upon
the efforts and abilities of certain of its senior management personnel and
scientific staff, and, particularly David G. Derrick, the Company's Chief
Executive Officer and Chairman of the Board, Milton G. Adair, the Company's
President, Frank A. Eldredge, Ph.D., the Company's Executive Vice President --
New Product Development, and David O. Lucas, Ph.D., one of the members of the
Company's Scientific Advisory Board. The loss of any of those individuals could
have a material adverse effect on the Company and its operations and prospects.
The Company contracts with certain third parties for all of its legal
requirements and for a significant portion of its research and development
requirements, and intends to continue to do so in the future. None of the
Company's employees are subject to a collective bargaining agreement.
While certain of the Company's employees have experience in the medical
products and biotechnology fields, and all of the members of the Company's
Scientific Advisory Board are experienced physicians with varying areas of
expertise, such experience may not necessarily be indicative of the Company's
ability to achieve profitable operations.
CERTAIN BUSINESS CONSIDERATIONS AND RISK FACTORS
There are certain significant risks facing the Company, many of which are
substantial in nature. Shareholders and prospective shareholders in the Company
should consider carefully the following risk factors, in addition to other
information contained herein.
Development Stage; Technological Uncertainty. The Company is a development
stage company. Except for the activities of its subsidiary Volu-Sol, the Company
has not produced or marketed any products (other than the marketing launch of
the Company's first nutraceutical product Optimune(TM), which marketing launch
commenced on July 8, 1996) and, accordingly, has not generated any revenues from
any of its pharmaceutical drug candidates and has not begun to generate any
revenues to date from the commercialization of Optimune(TM). To date, the
Company's resources have been dedicated to the research and development of
pharmaceutical drug and nutraceutical product candidates utilizing the
Technology and pre-clinical studies and clinical trials on those drug candidates
and studies on the Company's only nutraceutical product, Optimune(TM). The
Company has developed only two pharmaceutical drug candidates and one
nutraceutical product to date. The commercialization of the Company's
pharmaceutical drug candidates will require significant additional investment,
research and development, pre-clinical and clinical testing, and regulatory
approvals, while continued commercialization of the Company's first
nutraceutical product will require significant additional investment, research
and development, and nutritional studies. There can be no assurance that the
Company will be able to develop, produce at a reasonable cost, or market
successfully, any of its product candidates. Further, those product candidates
may prove to have undesirable or unintended side effects that may prevent and/or
limit their commercial use and salability. All of the Company's pharmaceutical
drug candidates, including BWPT-301(TM) and BWPT-302(TM), will require
regulatory approval before they can be commercialized and will be subject to
regulatory oversight upon commencement of commercial use. There can be no
assurance that any products that ultimately are developed by the Company will
generate substantial revenues or that the Company will ever be profitable.
History of Operating Losses; Uncertainty of Future Profitability. The
Company has incurred significant operating losses since its inception. As of
September 30, 1996, the Company had an accumulated deficit of $23,372,299. The
Company expects to continue to incur significant operating losses over the next
several years, primarily due to the continued market launch of Optimune(TM) and
related marketing expenditures, expansion of the Company's research and
development programs, including pre-clinical studies and clinical trials for its
existing pharmaceutical product candidates, nutritional studies for its existing
nutraceutical product, Optimune(TM), regulatory compliance requirements related
to the Company's pharmaceutical drug candidates, studies and trials for other
products that the Company or its subsidiaries may develop, and the
implementation of programs to market those products that are ultimately approved
for distribution, if any. The Company's ability to achieve profitability depends
upon its ability to successfully launch Optimune(TM) and discover and develop
new products, obtain any necessary regulatory approvals of its proposed
products, and enter into agreements for product development, manufacturing and
commercialization. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations from the sale of its proposed
products.
Need for Additional Funds; Issuance of Securities; Future Dilution. The
Company expects to continue to incur significant operating losses over the next
12 months, primarily due to the market launch of Optimune(TM) and related
marketing expenditures, expansion of its research and development programs,
including pre-clinical studies and clinical trials for its existing
pharmaceutical drug candidates, nutritional studies for its existing
nutraceutical product, Optimune(TM), regulatory compliance requirements relating
to its pharmaceutical drug candidates, studies and trials for other products
that the Company or its subsidiaries may develop, and the implementation of
programs to market those products that are ultimately approved for distribution,
if any. Other factors such as extended pre- clinical and clinical trials,
difficulty in obtaining regulatory approvals, competition and unforeseen market
developments, unforeseen or unexpected difficulties in securing Base Product
used in the production of the Company's products from its sole supplier in New
Zealand, changes in existing research relationships, the Company's ability to
maintain and establish additional collaborative arrangements and unexpected
expenditures relating to the Company's operations could result in the Company's
need for additional funds sooner than anticipated.
Notwithstanding revenues that may be produced through sales of Optimune(TM)
or other nutraceutical products that may be developed by the Company, the
Company anticipates that additional funds will be required to continue the
necessary levels of research and development to meet the Company's long-term
goals. The Company intends to seek such additional funding through additional
public or private financings. There can be no assurance, however, that
additional financing will be available, or, if available, that it will be
available on acceptable terms or in required amounts. If additional funds are
raised by issuing additional shares of the Company's Common Stock, further
dilution of the equity ownership of the Company's existing holders of Common
Stock may result. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its drug candidates
and/or product development programs, and/or obtain funds through arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain of its product candidates and/or technologies or products that
the Company would not otherwise relinquish.
Dependence on Licensed Technology. The Company is dependent upon the
License granted to it by PTI for the use of the Technology. The Company's
existing pharmaceutical drug candidates (i.e., BWPT-301(TM) and BWPT-302(TM)),
Optimune(TM) and all additional products currently under research and
development, are derived from and based upon the Technology. The License expires
in May 1999, unless the Company, prior to such date, has generated annual gross
revenues from the sale of products developed utilizing the Technology of not
less than $2 million, in which event the License will be automatically extended
until the expiration date of the latest patent to expire covered by the License
(including any extensions to such patent registrations). Based on the patents
currently licensed thereunder, the License, if so extended, would expire on
March 28, 2006. If the License is terminated for any reason, the Company would
lose all rights to the Technology, which would have a material adverse effect on
the Company's operations and could possibly result in the termination of the
Company's business.
Government Regulation; No Assurance of Product Approval; Extensive Clinical
Testing Required. All pharmaceutical products that may be developed by the
Company will be subject to stringent government regulations, including, without
limitation, those administered by the FDA and state and local counterparts.
Similar regulatory frameworks exist in other countries, including Canada, where
the Company is also licensed to distribute its products pursuant to the License.
The Company is planning to market its pharmaceutical drugs in foreign markets if
it becomes licensed to distribute its products outside of the United States and
Canada and their territories and possessions, and has already begun to market
Optimune(TM), the Company's first nutraceutical product, in certain foreign
markets. To date, the Company has completed extensive clinical trials on
BWPT-301(TM) pursuant to the submission with the FDA of an IND and has had
substantial contact with the FDA concerning such product candidate. The Company
has also commenced clinical trials on BWPT-302(TM) pursuant to a second IND,
although communications with the FDA concerning such product candidate are at a
very early stage. Prior to marketing either of such drug candidates or any other
pharmaceutical drug candidate that the Company may develop, such drug candidates
must undergo extensive clinical trials and an extensive regulatory approval
process. Any denials or delays in obtaining the requisite approvals would likely
have a material adverse effect on the Company.
The pharmaceutical regulatory process includes extensive pre-clinical
safety, pharmacology and toxicological testing. Pre-clinical data is required
for the filing of an IND with the FDA to conduct clinical testing to establish
safety, efficacy, purity and potency of any investigational biological product.
With respect to each biologic pharmaceutical product candidate, the developer
must initially conduct a limited Phase I (safety) study, then more extensive
Phase II studies, followed by a Phase III study. This testing can take several
years and require the expenditure of substantial capital and other resources.
There can be no assurance that this testing will be completed on a timely basis
or at all. Delays or denials of marketing approval are encountered regularly.
These delays may be encountered both domestically and abroad. Prior to a company
commencing marketing of a pharmaceutical product, it must file a Product License
Application ("PLA") and an Establishment License Application ("ELA") with the
FDA and be issued the appropriate product license and establishment license. A
PLA relates to the product itself, while an ELA relates to the manufacturing
facilities to be used to manufacture the product. Both a PLA and an ELA are
required before product marketing can begin. There can be no assurance that even
after clinical testing, regulatory approval of a PLA or an ELA will ever be
obtained. If obtained, PLA and ELA regulatory approval may entail limitations on
the indicated uses for which any product may be marketed. Following regulatory
approval, if any, a product and its manufacturer are subject to continuing
regulatory oversight and review. Later discovery of problems with a product or
its manufacturer may result in restrictions on such product or its manufacturer.
These restrictions may include withdrawal of the marketing approval for the
product. Violation of FDA requirements in general can lead to recall or seizure
of products, injunction against production, distribution, sales and marketing,
and criminal prosecution, among other sanctions.
The cost to the Company of conducting extensive human clinical trials for
any potential biopharmaceutical product can vary dramatically based on a number
of factors, including, but not limited to, the order and timing of clinical
indications pursued, the size of the patient population, the number of
participating institutions and the number and type of end points subject to data
collection. Because of the intense competition in the market in which the
Company operates, the Company may have difficulty obtaining sufficient
populations or clinician support to conduct its clinical trials as planned and
may have to expend substantial additional funds to obtain access to such
resources, or delay or modify its plans significantly. There can be no assurance
that the Company will have sufficient resources to complete the required
clinical testing and regulatory review and approval process or that the Company
could survive the inability to obtain, or delays in obtaining, such approvals.
Moreover, there can be no assurance that clinical testing of the Company's
product candidates will provide sufficient evidence of safety and efficacy in
humans, that regulatory approvals will be granted for any product candidate, or
that it will be economically feasible to commercialize any product candidate for
which regulatory approval is ultimately granted.
In addition, the Company is also subject to the Dietary Supplement Act with
respect to its nutraceutical products. The Dietary Supplement Act governs the
labeling of and certain other matters related to dietary supplements. While the
FDA has adopted regulations that could apply to such supplements, the FDA has
decided to date not to enforce certain of those regulations. The FDA has
proposed new regulations applicable to nutraceutical products that are
anticipated to be adopted in early-1997. While the Company believes it is
currently in compliance with the Dietary Supplement Act and the FDA's proposed
regulations, there can be no assurance that the proposed regulations will be
adopted in the form proposed, that additional legislation will not be adopted in
the future to regulate nutraceutical products, or that the Company will be able
to comply with any such future laws or regulations.
Uncertainty Regarding Patents and Proprietary Rights. The pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection for new technologies, products and processes. The success of the
Company will depend in large part on its ability or on the ability of its
current licensor under the License, PTI, to defend existing or future patents,
and on their ability, and on the ability of the Company's potential future
licensors, to maintain trade secrets and operate without infringing upon the
proprietary rights of others, both in the United States and in foreign
countries. Patent protection is highly uncertain and involves complex legal and
factual questions and issues. The Company relies on four patents issued to PTI
on the Technology and a patent applied for by the Company relating to the
enhancement of the Technology, and may also rely on additional United States
patents and pending United States and foreign patent applications relating to
various aspects of its present product candidates and future product candidates
and processes that may be issued in the future. The patent application and
issuance process can be expected to take several years and could entail
considerable expense to the Company, as it may be responsible for such costs
under the terms of any technology agreements. There can be no assurance that
patents will issue as a result of any applications or that the existing patents
and any patents resulting from such applications, will be sufficiently broad to
afford protection against competitors with similar or competing technology. In
addition, there can be no assurance that such patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The commercial success of the Company
will also depend upon avoiding infringement of any patents issued to
competitors. A United States patent application is maintained under conditions
of confidentiality while the application is pending, so the Company cannot
determine the inventions being claimed in pending patent applications filed by
third parties, if any. Litigation may be necessary to defend or enforce the
Company's patent and license rights or to determine the scope and validity of
others' proprietary rights. Defense and enforcement of patent claims can be
expensive and time consuming, even in those instances in which the outcome is
favorable, and could result in the diversion of substantial resources and
management time and attention from the Company's other activities. An adverse
outcome could subject the Company to significant liability to third parties,
require the Company to obtain licenses from third parties, require the Company
to alter its products or processes, or cease altogether any related research and
development activities or product sales, any of which may have a material
adverse effect on the Company's business, results of operations and financial
condition.
With respect to the patents and other proprietary technology licensed by
the Company from PTI, PTI has not provided any representations or warranties to
the Company relating to non-infringement of third party proprietary rights and
has not indemnified the Company against any damages or expenses arising out of
any such claims of infringement. To the extent that the Technology or any
portion thereof is found to infringe the proprietary rights of any other person
or entity, the Company could be liable for the payment of substantial damages
without the likelihood of any contribution by PTI. Such event could have a
material adverse effect on the Company's operations.
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. Although the
Company has entered into confidentiality agreements with its employees and
consultants, no assurance can be given that others will not gain access to those
trade secrets, that such agreements will be honored, or that the Company will be
able to effectively protect its rights to its trade secrets. Moreover, no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets.
Technological Changes. The Company currently is engaged in the fields of
nutraceuticals, pharmaceuticals and diagnostics, all of which are characterized
by extensive research efforts and rapid technological progress and change. New
process developments are expected to continue at a rapid pace in both industry
and academia. The Company's future success will depend on its ability to develop
and commercialize its existing pharmaceutical drug and nutraceutical product
candidates and to develop new products. There can be no assurance that the
Company will successfully complete the development of any of its existing
product candidates or that any of its future products will be commercially
viable or achieve market acceptance or success. In addition, there can be no
assurance that research and development and discoveries by others will not
render some or all of the Company's programs or potential pharmaceutical drug
and nutraceutical product candidates uncompetitive or obsolete.
Dependence on Third-Party Manufacturer; Limited Source of Supply. The
Company is dependent on a single third-party manufacturer to manufacture the
Base Product used in the production of its product candidates and anticipates
the use of third-party manufacturers for the manufacture of the Base Product in
connection with the production of all products it may develop, if any, for the
foreseeable future. Pursuant to the License with PTI, the Company has agreed to
purchase all of its requirements for the Base Product from one supplier, PTI,
which, in turn, places orders for such required Base Product with a distributor
in New Zealand, which distributor contracts with a single manufacturer to
manufacture all of such requirements at its New Zealand facilities. Although the
License permits the Company to utilize alternate sources of supply during any
period in which PTI is unable to satisfy all of the Company's requirements for
the Base Product, in the event PTI or the sole manufacturer of the Base Product
fail to supply any or all of the Company's requirements for the Base Product,
there can be no assurance that alternate sources of supply will be available to
the Company at a reasonable cost or at all, and, if available at a reasonable
cost, whether the Company will be able to secure such alternate sources in a
timely manner. If such alternate sources of supply are not available on a timely
basis or on reasonable economic terms, the Company's results of operations could
be severely adversely affected.
In addition, the manufacturing facilities in which the Company's
pharmaceutical products are manufactured must conform to current FDA established
Good Manufacturing Practices ("GMP"). Although the New Zealand manufacturing
facilities have received a rating from the United States Department of
Agriculture with respect to the manufacture of the Base Product for animal
applications, those facilities have not, as of the date hereof, received FDA
approval necessary for pharmaceutical human applications. The Company has
retained a consulting firm to advise it regarding compliance by those
manufacturing facilities with current GMP standards because the Company's
pharmaceutical product candidates will be manufactured at those facilities. The
Company's consultant has reported that those manufacturing facilities are
substantially in compliance with current GMP standards. The Company cannot
commence marketing and/or distribution of its pharmaceutical product candidates
until the manufacturing facilities have been properly licensed by the FDA, which
license cannot be obtained until the facilities meet then-current GMP standards.
Those standards must be met on an ongoing basis and the licensed facilities are
subject to inspection by the FDA at least once every two years. The failure of
the manufacturing facilities to meet such GMP standards in a timely manner could
result in delays in the marketing and sale of the Company's pharmaceutical
product candidates until modifications are made to comply with such standards.
In the event that the New Zealand manufacturer is unable or unwilling to make
such changes, the Company would be required to find an alternate source to
manufacture its pharmaceutical product candidates. If alternate manufacturing
sources are not available on a timely basis or on reasonable economic terms, the
Company's results of operations could be materially adversely affected. See "--
Manufacturing and Base Product Supply Arrangement."
Moreover, the Base Product for Optimune(TM) and possibly certain of the
Company's future nutraceutical products that are based on the Base Product, if
any, also will be manufactured at that same New Zealand manufacturing facility
pursuant to the License with PTI. The New Zealand manufacturing facility
currently meets all requirements for the production of the Base Product for
Optimune(TM), the Company's first nutraceutical product. While the FDA does not
currently regulate the manufacturing facilities for nutraceutical products
(other than to require that such facilities comply with its current GMP
standards), there can be no assurance that the FDA at some time in the future
will not begin regulating such manufacturing facilities. If the FDA were to
begin regulating the manufacturing facilities for nutraceuticals and if the New
Zealand manufacturing facilities did not meet those standards, the production of
the Base Product for Optimune(TM) (or any other nutraceutical product that may
be developed) will be delayed until the necessary modifications are made to
comply with those standards. If the New Zealand manufacturer were unable or
unwilling to make the necessary modifications, the Company would be required to
find an alternate source to manufacture the Base Product for Optimune(TM) (or
any other nutraceutical product that may be developed that utilizes the Base
Product).
Competition. The Company competes with a number of entities that are
currently developing pharmaceutical drugs derived from or that include
antibodies extracted from various by-products of cow's milk or colostrum,
including several companies that are developing and producing products and
product candidates to prevent and/or treat cryptosporidiosis. In addition, the
Company competes with a number of other companies that utilize other
technologies and that target the same infections, organisms or diseases in
humans. Such competitors include numerous academic and research organizations
and pharmaceutical and biotechnology companies pursuing production from the
colostrum of hyper-immunized cows and/or colostrum-based or colostrum-like drugs
(e.g., ImmuCell Corporation and GalaGen, Inc.). Hyper-immunization involves the
injection or other exposure of a cow with a particular disease or microorganism
and the extraction from the cow's milk or colostrum of the antibodies that are
produced by the cow. Many of these competitors have substantially greater
capital resources, research and development capabilities, and manufacturing and
marketing resources, capabilities and experience than does the Company. The
Company's competitors may succeed in developing products that are more effective
or less costly than any products that may be developed by the Company, or that
gain regulatory approval prior to any of the Company's products.
The Ross Products Division of Abbott Laboratories, which the Company
believes currently dominates the United States market in sales of nutritional
supplements and meal replacements, is now marketing two products
commercially--Ensure(R) and Advera(R). Ensure(R) is being marketed to the
elderly and others as a nutritional supplement or meal replacement, while
Advera(R) is being marketed to people who are HIV positive or have AIDS as a
nutritional supplement or meal replacement and as a way to manage their weight
loss. Both of those products can be used as either a nutritional supplement or
as a meal replacement, depending upon the ability of the person to eat and
digest solid foods. Advera(R) is currently being advertised primarily for its
weight loss characteristics, and thus is being targeted to the same market at
which Optimune(TM) is being targeted, although Optim intends only to market
Optimune(TM) as a nutritional supplement (and not as a meal replacement).
Accordingly, Optimune(TM) may compete with Advera(R).
In addition, other companies have competitive pharmaceutical drugs that are
in more advanced stages of clinical testing than are the Company's product
candidates. The Company also expects that the number of market entrants, and
thus its competitors and potential competitors, will increase as more
colostrum-based products receive commercial marketing approvals from the FDA or
analogous foreign regulatory agencies. Any of these entrants may be more
successful than the Company in manufacturing, marketing and distributing their
products. There can be no assurance that the Company will be able to compete
successfully in any market.
Uncertainty of Pharmaceutical Pricing and Reimbursement; Health Care
Reform. The future revenues and profitability of and availability of capital for
biotechnology and biopharmaceutical companies may be affected by the continuing
efforts of governmental and third-party payors to contain or reduce the cost of
health care through various means. For example, in certain foreign markets, the
profitability of prescription pharmaceuticals is subject to governmental
regulation and control. There have been, and there may continue to be, a number
of federal and state proposals to implement similar governmental regulation and
controls in the United States. It is uncertain what form any health care
legislation may take or what actions federal, state and private payors may take,
if any, in response to the proposed reforms. The Company cannot predict whether
any reforms will ever be implemented, or the effect, if any, of any implemented
reform on the Company's business. Moreover, there can be no assurance that any
implemented reform will not have a material adverse effect on the Company's
results of operations or future performance. The Company's long-term ability to
market any of its product candidates successfully may depend in part on the
extent to which reimbursement for the cost of such products and related
treatments will be available from public and private health insurers and other
organizations. Third-party payors are increasingly challenging the cost of
medical products and services. The reimbursement status of newly-approved health
care products is highly uncertain and, accordingly, there can be no assurance
that third-party coverage will enable the Company to maintain price levels
sufficient to realize an appropriate return on investment or to operate
profitably.
Dependance on Qualified Personnel; Potential Conflict of Interest;
Part-Time Consultants. The Company's success is dependant upon its ability to
attract and retain qualified scientific and management personnel. The loss of
the services of certain of the principal members of the Company's management and
scientific staff, and particularly David G. Derrick, the Company's Chief
Executive Officer and Chairman of the Board, Milton G. Adair, the Company's
President and a director of the Company, Frank A. Eldredge, Ph.D., the Company's
Executive Vice President -- New Product Development, and David O. Lucas, Ph.D.,
one of the members of the Company's Scientific Advisory Board, could have a
substantial adverse effect on the Company. In order to commercialize its
products and product candidates, the Company must maintain and expand its
personnel, particularly in the areas of clinical trial management and product
sales and marketing. The Company faces intense competition for such personnel
from other companies, academic institutions, government entities and other
research organizations. There can be no assurance that the Company will be
successful in attracting and hiring or retaining qualified personnel. Moreover,
managing the integration of new personnel and Company growth generally could
pose significant risks to the Company's development and progress. The Company
relies on consultants and advisors, including the members of its Scientific
Advisory Board, to assist the Company in formulating its research and
development strategy. All of the Company's consultants and advisors only devote
a portion of their time to the business of the Company and may from time to time
serve as officers, directors, consultants or advisors to other pharmaceutical or
biotechnology companies. There can be no assurance that such other companies
will not in the future have interests that conflict with those of the Company.
While the Company provides its management and key employees with incentive
compensation, including stock options and bonuses, that the Company believes are
competitive with incentive compensation provided by other companies in the
biopharmaceutical industry, none of the Company's management or key employees
other than David G. Derrick, the Company's Chief Executive Officer and Chairman,
are retained pursuant to an employment agreement and, therefore, the Company has
no assurances as to the commitment of any of such employees for any period of
time. All of the Company's employees have entered into confidentiality
agreements with the Company not to disclose any of the Company's confidential
information.
Product Liability Exposure; Insurance. Product liability risk is inherent
in the testing, manufacture, marketing and sale of the Company's products and
product candidates, and particularly the Company's pharmaceutical drugs, and
there can be no assurance that the Company will be able to avoid significant
product liability exposure. Product liability insurance for the pharmaceutical
industry, when available, is extremely expensive. The Company currently
maintains a general liability insurance policy with coverage limits of $1
million per occurrence and a product liability insurance policy with coverage
limits of $20 million per occurrence, the latter of which insurance policy is
required under the License with PTI. There can be no assurance that the Company
will be able to maintain such insurance in sufficient amounts to protect the
Company against such liabilities at a reasonable cost. In addition, the Company
is required to indemnify PTI against any product liability claims incurred by
PTI as a result of any products developed and commercialized or sold by the
Company. PTI has not made, and is not expected to make, any representations as
to the safety or efficacy of the Base Product or as to any products that may be
made or used under rights granted pursuant to the License. Any future product
liability claim against the Company and/or PTI (with respect to products
developed using the Technology) could result in the Company paying substantial
damages, which may have a material adverse effect on the business and financial
condition of the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All forward-looking statements contained herein are deemed by the Company
to be covered by and to qualify for the safe harbor protection provided by the
Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Shareholders
and prospective shareholders should understand that several factors govern
whether any forward-looking statement contained herein will be or can be
achieved. Any one of those factors could cause actual results to differ
materially from those projected herein. These forward-looking statements include
plans and objectives of management for future operations, including plans and
objectives relating to the products and the future economic performance of
Biomune and its two wholly owned subsidiaries, Optim and Volu-Sol. The forward-
looking statements and associated risks set forth herein relate to (i) market
acceptance of Optimune(TM) and the development of other nutraceutical products
by Optim; (ii) production efficiencies and increased gross margin from Volu-Sol;
(iii) the total research and development, general and administrative and other
direct costs associated with obtaining final FDA approval on BWPT-301(TM); (iv)
the dollar amount expected to be expended during fiscal years 1997 and 1998 on
the BWPT-301(TM) clinical trials; (v) the estimated date of receipt of final FDA
approval on BWPT- 301(TM); (vi) the estimated commencement date of Phase III
clinical trials and the completion of those clinical trials on BWPT-301(TM); and
(vii) the Company having sufficient cash to fund its projected operations and
budgeted research and development for fiscal year 1997. The forward-looking
statements included herein are based on current expectations that involve a
number of risks and uncertainties. The forward-looking statements included
herein are based on assumptions, among others, (a) that the efficacy of
BWPT-301(TM) will be established during the ongoing Phase II clinical trials and
the Phase III clinical trials; (b) that the Company will be able to successfully
undertake and complete clinical trials on BWPT-302(TM); (c) that the Company
will be able to successfully commercialize Optimune(TM), the Company's first
nutraceutical product, and successfully develop and commercialize other
nutraceutical products; (d) that the Company will be able to successfully
develop and commercialize the Technology; (e) that the Company will need to
conduct additional Phase II clinical trials on BWPT-301(TM) and may need to
conduct clinical trials that are different from those that have been conducted
to date or that are currently contemplated by the Company; and (f) that the
Company will be able to timely and properly quantify and analyze the data
derived from its clinical trials. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, future business decisions, and the results of the clinical
trials and the time and money required to successfully complete those trials,
all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of those assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in any of the
forward-looking statements contained herein will be realized. This is
particularly true given the dynamic nature of the process in which the Company
is involved with respect to BWPT-301(TM) and BWPT- 302(TM). Budgeting and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revision. Based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing,
capital expenditure plans or other budgets, which may in turn affect the
Company's results of operations. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of any
such statement should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
ITEM 2. PROPERTIES
Biomune's and Optim's Headquarters. As of September 30, 1996, the corporate
headquarters for Biomune and Optim were located at 540 Arapeen Drive, Suite 202,
Salt Lake City, Utah. Biomune moved to that address in June 1994 and entered
into a two year Office Lease Agreement with Evans & Sutherland Computer
Corporation effective as of June 1, 1994 regarding those corporate headquarters.
That Office Lease Agreement expired on May 31, 1996. Biomune negotiated an
extension of that Office Lease through December 31, 1996 and occupied those
premises along with Optim pursuant to such extension until October 11, 1996.
Biomune executed a three year Lease Agreement with Young Electric Sign Company
for the lease of new corporate headquarters effective as of October 1, 1996.
That Lease Agreement expires on September 30, 1999. The headquarters for Biomune
and Optim were relocated to 2401 South Foothill Drive, Salt Lake City, Utah,
effective as of October 11, 1996. The Lease Agreement with Young Electric Sign
Company involves the lease for Biomune and Optim of approximately 3,500 square
feet of office space (approximately 2,800 square feet of which is being utilized
by Biomune and the approximately 700 remaining square feet of which are being
utilized by Optim) and approximately 800 square feet of research space at a
total monthly rent for both Biomune's and Optim's space of $7,500, which rent
increase to $7,875 per month for the second year of the Lease Agreement and to
$8,268.75 per month for the third and final year. The building to which Biomune
and Optim relocated their corporate headquarters effective October 11, 1996 is
suitable for their needs for the foreseeable future and is in good condition and
repair. Biomune is utilizing approximately 80% of the approximately 2,800 square
feet of office space and approximately 100% of the approximately 800 square feet
of research space at those new corporate headquarters. The Company believes that
those facilities will accommodate Biomune's projected needs through the
expiration of the Lease Agreement on September 30, 1999.
Optim's Headquarters. Since October 11, 1996, Optim's headquarters have
been located at 2401 South Foothill Drive, Salt Lake City, Utah. Optim leases
approximately 700 square feet of office space at that address. See Item 2,
Properties, "Biomune's and Optim's Headquarters," above. In addition, Optim
leases approximately 3,800 square feet of warehouse space in West Valley City,
Utah. Optim is utilizing approximately 50% of the approximately 700 square feet
of office space and approximately 25% of the approximately 3,800 square feet of
warehouse space. The Company believes that those facilities will accommodate
Optim's operations and projected growth for the foreseeable future.
Volu-Sol's Headquarters. Volu-Sol's headquarters are located at 5095 West
2100 South, West Valley City, Utah. This location has approximately 2,500 square
feet of office space and approximately 9,000 square feet of warehouse space.
Volu-Sol is utilizing approximately 100% of the 2,500 square feet of office
space and approximately 100% of the 9,000 square feet of warehouse space at its
West Valley City, Utah headquarters. The Company entered into a five-year
Commercial and Industrial Lease for Volu-Sol's headquarters effective as of
October 16, 1995, with an option to renew for an additional five years. The
building in which Volu-Sol maintains its headquarters is in good condition and
repair and the Company believes that those facilities will accommodate
Volu-Sol's operations and projected growth for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On October 12, 1995, a Proposed Class Action Complaint for Violations of
the Federal Securities Laws was filed in the United States District Court for
the District of Utah, Central Division, by Roman Sterlin (Civil No.
2:95CV-0944G) (the "Complaint"). The Complaint names as defendants the Company,
David G. Derrick (the Company's Chief Executive Officer and Chairman of the
Board), Aaron Gold (a director of the Company), Charles J. Quantz (a director of
the Company), Jack D. Solomon (a founder of the Company and a member of the
Company's Business Advisory Board), Genesis Investment Corporation (a
shareholder of the Company) and The Institute for Social & Scientific
Development, Inc. (a shareholder of the Company). The Complaint, among other
things, alleges violations of Sections 10(b), 20(a) and 20A(a) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), Rule 10b-5 promulgated under
the 1934 Act and general misappropriation of material non-public information.
The Company was served with the Complaint on October 26, 1995. On November 27,
1995, the Company filed an Answer to the Complaint and denied the allegations
therein. On May 10, 1996, the court ordered the plaintiff to file an Amended
Complaint. The plaintiff filed his Amended Complaint on or about August 6, 1996.
The Amended Complaint alleges violations of Sections 10(b), 20(a) and 20A(a) of
the 1934 Act and Rule 10b-5 promulgated thereunder, and general misappropriation
of material non-public information. The Company filed a Motion to Dismiss the
Amended Complaint on September 25, 1996. The Company believes that the
allegations in the Amended Complaint are baseless and the Company believes it
has meritorious defenses. However, at this stage of the litigation the Company
is unable, with any degree of certainty, to predict the outcome of the
litigation. The Company intends to vigorously defend against the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
The Company's Common Stock is listed on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") SmallCap Market. The Company's
Common Stock trades under the symbol "BIME" and was listed on the NASDAQ
SmallCap Market on April 6, 1994. Prior to that date, the Company's Common Stock
had been traded in the over-the-counter market. The following table is based
upon information available to the Company and sets forth the range of the high
and low bid prices for the Company's Common Stock (on a post-split basis) for
each full quarterly period within the two most recent fiscal years, based upon
quotations on the NASDAQ SmallCap Market, except as otherwise indicated:
Security Quarter Ended High Bid(1) Low Bid(1)
Common Stock, $0.0001 September 30, 1996 $2.00 $1.97
par value per share June 30, 1996 $3.00 $2.13
March 31, 1996 $2.74 $1.94
December 31, 1995 $2.56 $2.34
September 30, 1995 $3.44 $3.13
June 30, 1995 $3.00 $2.75
March 31, 1995 $3.13 $3.00
December 31, 1994 $4.03 $3.97
- --------------------
(1) The source of these high and low bid prices was the National Association of
Securities Dealers, Inc. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions. These high and low bid prices are post-split prices and
reflect the effect of the 1-for-100 reverse stock split of the Company's
Common Stock that was effective as of March 22, 1993 and the effect of the
stock split of the Company's Common Stock that was effected as a 200% stock
dividend effective as of June 14, 1994. The high and low bids prices listed
have been rounded up to the next highest two decimal places.
The market price of the Company's Common Stock is subject to significant
fluctuations in response to variations in the Company's quarterly operating
results, general trends in the market for the Company's products and product
candidates, and other factors, many of which the Company has little or no
control over. In addition, broad market fluctuations, as well as general
economic, business and political conditions, may adversely effect the market for
the Company's Common Stock, regardless of the Company's actual or projected
performance.
The approximate number of holders of record of the Company's Common Stock
as of November 12, 1996 was 1,090. This number does not represent the actual
number of beneficial owners of shares of the Company's Common Stock because
shares are frequently held in "street name" by securities dealers and others for
the benefit of individual owners who have the right to vote their shares. The
Company has not paid or declared any cash dividends on its Common Stock since
its incorporation and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. The Company currently anticipates that
all of its earnings, if any, will be retained for use in the operation and
expansion of its business. Any future determination as to cash dividends will
depend upon the earnings and financial position of the Company and such other
factors as the Board of Directors may deem appropriate.
PREFERRED STOCK
As of September 30, 1996, the Company had three series of Preferred Stock
outstanding, as follows: Series A 10% Cumulative Convertible Preferred Stock
(the "Series A Preferred"); Series B 10% Cumulative Convertible Non-Voting
Preferred Stock (the "Series B Preferred"); and Series C 8% Cumulative
Convertible Non-Voting Preferred Stock (the "Series C Preferred"). In addition,
during a portion of fiscal 1996 the Company also had outstanding shares of its
Series D 8% Cumulative Convertible Non-Voting Preferred Stock (the "Series D
Preferred"), all of which shares of Series D Preferred were converted into
shares of Common Stock during fiscal 1996 or were cancelled as of September 30,
1996 in connection with the issuance of the issued and outstanding shares of
Series C Preferred. Summaries of the Series A Preferred, the Series B Preferred
and the Series C Preferred follow:
Series A Preferred. The Designation of Rights and Preferences related to
the Series A Preferred requires that interest be paid at the rate of 10% per
annum, or $0.50 per share of Series A Preferred, prior to the payment of
dividends on any class or series of shares of the Company's equity securities
that are junior to the Series A Preferred, unless full cumulative dividends have
been paid or contemporaneously are declared and paid or set apart for payment on
the Series A Preferred. Dividends on the Series A Preferred may, however, at the
option of the Company's Board of Directors, be paid in either cash or additional
shares of Series A Preferred. Shares of Series A Preferred are convertible into
the number of shares of the Company's Common Stock equal to the aggregate value
of the Series A Preferred to be converted (determined by multiplying the number
of shares of Series A Preferred to be converted by $5.00 per share), and
dividing that value by the then-applicable Series A Conversion Price (as that
term is defined in the Series A Preferred Designation of Rights and
Preferences). The initial Series A Conversion Price was $5.00. Each share of
Series A Preferred is currently convertible into three shares of the Company's
Common Stock (after giving effect to the stock split on the Company's Common
Stock, which stock split was effected as a 200% stock dividend effective as of
June 14, 1994). Shares of Series A Preferred became redeemable at the option of
the Company on January 1, 1996 at a price of $5.00 per share, plus accrued and
unpaid dividends. Thus, for example, if a holder of 100 shares of Series A
Preferred desired to convert all 100 of such shares into shares of the Company's
Common Stock at a time when the Series A Conversion Price was $5.00 per share,
the number of shares of Common Stock that would be issued would be calculated as
follows:
100 shares Series A Preferred x $5.00 = $500.00/$5.00 = 100 shares Common Stock
===
However, the Designation of Rights and Preferences related to the Series A
Preferred provides, among other things, that in the event the Company declares a
stock dividend on the Company's Common Stock payable in additional shares of
Common Stock, the Series A Conversion Price in effect immediately prior to such
event will be appropriately adjusted. Accordingly, as a result of the stock
split effected as a 200% stock dividend effective as of June 14, 1994, the
Series A Conversion Price was increased to $15.00 per share (from $5.00 per
share, the original Series A Conversion Price), resulting in the following
Series A Preferred conversion calculation in the above example (after taking
into consideration the effect of the 200% stock dividend that was effective as
of June 14, 1994):
100 shares Series A Preferred x $15.00=$1,500.00/$5.00 = 300 shares Common Stock
===
Thus, as a result of the stock split effected as a 200% stock dividend
effective as of June 14, 1994, one share of Series A Preferred can now be
converted into three shares of the Company's Common Stock (on a post-split
basis).
Series B Preferred. The Designation of Rights and Preferences related to
the Series B Preferred requires that interest be paid at the rate of 10% per
annum, or $1.50 per share of Series B Preferred, prior to the payment of
dividends on any class or series of shares of the Company's equity securities
that are junior to the Series B Preferred unless full cumulative dividends have
been paid or contemporaneously are declared and paid or set apart for payment on
the Series B Preferred. Dividends on the Series B Preferred may, however, at the
option of the Company's Board of Directors, be paid in either cash or additional
shares of Series B Preferred. Shares of the Company's Series B Preferred are
convertible on a one-for-three basis (after taking into consideration the effect
of the stock split effected as a 200% stock dividend effective as of June 14,
1994) into shares of the Company's Common Stock. Each share of Series B
Preferred is currently convertible into three shares of the Company's Common
Stock (after giving effect to the stock split of the Company's Common Stock,
which stock split was effected as a 200% stock dividend effective as of June 14,
1994). Shares of Series B Preferred became redeemable at the option of the
Company on January 1, 1996 at a price of $5.00 per share (after taking into
consideration the effect of the 200% stock dividend), plus accrued and unpaid
dividends. Thus, for example, if a holder of 100 shares of Series B Preferred
desired to convert all 100 of such shares into shares of the Company's Common
Stock, the number of shares of Common Stock that would be issued is calculated
as follows:
100 shares Series B Preferred x 3 = 300 shares Common Stock
===
Series C Preferred. The Designation of Rights and Preferences related to
the Series C Preferred requires that dividends be paid at the rate of 8% per
annum, subject to the rights of the holders of shares of Series A Preferred,
Series B Preferred and Series D Preferred, prior to and in preference to any
declaration or payment of any dividends on the Company's Common Stock.
Accordingly, the annual dividend per outstanding share of Series C Preferred is
$80.00. Dividends on the Series C Preferred may, however, at the option of the
Company's Board of Directors, be paid in either cash or additional shares of
Series C Preferred. Subject to certain conversion limitations on the Series C
Preferred as set forth in the Series C Preferred Designation of Rights and
Preferences, each share of Series C Preferred may be converted into the number
of shares of Common Stock determined by dividing $1,000 plus any accrued and
unpaid regular or special dividends on the Series C Preferred by an amount equal
to the Market Price (as that term is defined below) less 25%; provided, however,
that the discount from the Market Price shall be 20% for all shares of Series C
Preferred converted prior to January 1, 1997. "Market Price" shall mean the
average closing bid price of the Company's Common Stock for the three NASDAQ
trading days immediately preceding the Conversion Date (as that term is defined
in the Series C Preferred Designation of Rights and Preferences), as reported by
the NASDAQ or such other inter-dealer system as may list the Company's Common
Stock. In addition to the conversion restrictions on the Series C Preferred set
forth in the Series C Preferred Designation of Rights and Preferences, the
Company has contractually agreed with the purchasers of the Series C Preferred
to certain additional conversion restrictions. Thus, for example, if a holder of
100 shares of Series C Preferred desired to convert all 100 of such shares into
shares of the Company's Common Stock (disregarding for purposes of this example
the contractually agreed upon conversion restrictions) and at a time when no
regular or special dividends on the Series C Preferred are accrued and when the
discount from the Market Price is 20% and the Market Price of the Common Stock
is $4.00 per share, the number of shares of Common Stock that would be issued is
calculated as follows:
100 shares Series C Preferred x [($1,000 + $-0-)/($4.00 x 80%)] =
31,250 shares Common Stock
======
Series D Preferred. While all of the issued and outstanding shares of
Series D Preferred were either converted into shares of the Company's Common
Stock or cancelled in connection with the issuance of the Series C Preferred on
September 30, 1996, a discussion of the Series D Preferred follows because all
of such shares of Series D Preferred were issued and converted or cancelled
during fiscal 1996. On December 29, 1995, the Company entered into a
Subscription Agreement for the sale of a total of 5,200 shares of its Series D
Preferred for $5.2 million (or $1,000 per share). Pursuant to the terms of the
Offshore Securities Subscription Agreement related to such sale of shares of
Series D Preferred, the Company received a total of $3 million (less certain
costs and expenses of the offering, including 200 shares of Series D Preferred)
on January 3, 1996, with the $2 million balance being subject to a
Non-Negotiable Promissory Note dated December 17, 1995 (the "Note") payable to
the Company. The Note, by its terms, was due and payable to the Company on March
31, 1996 without interest; provided, however, that the Note provided that the
Company had the right, prior to payment, upon not less than 45 days prior
written notice, to cancel the Note, in whole or in part. On March 15, 1996, the
Company and the maker of the Note agreed to extend the due date of the Note to
April 30, 1996 and to revise the Company's right of cancellation thereunder.
Subsequently, by letter agreement dated April 14, 1996, the Company and the
maker of the Note agreed to extend the due date of the Note to September 30,
1996. By Funding Termination Agreement dated effective as of September 30, 1996,
the Company and the maker of the Note agreed to terminate the Note. The Series D
Preferred bore an 8% cumulative dividend payable annually in cash or in
additional shares of Series D Preferred, at the election of the Company's Board
of Directors, and each share of Series D Preferred was convertible into shares
of the Company's Common Stock commencing 40 days after the date of the Series D
Preferred Designation of Rights and Preferences by dividing $1,000 by an amount
equal to the Market Price (as that term is defined in the Series D Preferred
Designation of Rights and Preferences) per share of the Company's Common Stock
less 25%; provided, however, that shares of Series D Preferred converted within
90 days of the closing date were convertible by dividing $1,000 by an amount
equal to the lesser of (a) the bid price for the Company's Common Stock on the
closing date or (b) the Market Price of the Company's Common Stock less 20%, but
in neither event could such denominator be less than $1.60. On or about March
10, 1996, the subscriber of the Series D Preferred was granted warrants to
purchase a total of 1,295,657 restricted shares of the Company's Common Stock
(the "Series D Warrant"), which Series D Warrant was exercisable for two years
from the date of grant. The exercise price of the Series D Warrant initially was
$2.38, the closing bid price of the Common Stock on December 28, 1995, the day
prior to the closing date of the Series D Preferred offering. In connection with
the sale of the Series D Preferred, the Company paid commissions totaling
$645,000, which commissions were paid as follows: (a) $235,000 in cash paid
during November 1995; (b) 200 shares of the Company's Series D Preferred (valued
at $1,000 per share) issued during December 1995; and (c) $210,000 in cash paid
subsequent to December 31, 1995. In connection with the Series C Preferred
offering, the Series D Warrant was amended to increase the number of shares of
the Company's Common Stock thereunder to 1,470,588 at an exercise price of
$2.125 per share; provided, however, that the holder of the Series D Warrant
grant the Company an option to purchase the unexercised portion of the Series D
Warrant (or any portion thereof, at the Company's sole election) at a price of
$2.875 per share for a period of 12 months from September 30, 1996.
RECENT SALES OF UNREGISTERED EQUITY SECURITIES
On September 30, 1996, the Company entered into an Investor Questionnaire
and Subscription Agreement for the sale of a total of 5,000 shares of its Series
C Preferred for $5 million in cash (or $1,000 per share). Pursuant to the terms
of the Series C Preferred Investor Questionnaire and Subscription Agreement, the
Company received a total of $1.5 million in cash (less certain costs and
expenses of the offering) as of September 30, 1996, and the $3.5 million balance
was recorded as a subscription receivable as of September 30, 1996. The $3.5
million balance was received by the Company in cash subsequent to September 30,
1996. The Series C Preferred bears an 8% cumulative dividend payable annually
either in cash or in additional shares of Series C Preferred, at the election of
the Company's Board of Directors. In connection with the sale of the Series C
Preferred, the Company paid a finder's fee of $500,000, or 10% of the gross
offering amount from the subscription of the Series C Preferred, and certain
costs and expenses related to the offering, including, but not limited to, legal
fees, accounting fees and escrow fees. No underwriter or placement agent was
utilized in connection with the offer and sale of the Series C Preferred, which
securities were offered and sold solely to "accredited investors," as that term
is defined in Rule 501(a) promulgated under the Securities Act of 1933, as
amended (the "1933 Act"). Subject to certain conversion limitations on the
Series C Preferred as set forth in the Series C Preferred Designation of Rights
and Preferences, each share of Series C Preferred may be converted into the
number of shares of Common Stock determined by dividing $1,000 plus any accrued
and unpaid regular or special dividends on the Series C Preferred by an amount
equal to the Market Price less 25%; provided, however, that the discount from
the Market Price shall be 20% for all shares of Series C Preferred converted
prior to January 1, 1997. See also, "Market for Registrant's Common Equity and
Related Stockholder Matters," subheading "Preferred Stock--Series C Preferred,"
above, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subheading "Liquidity and Capital Resources--Series C
Preferred," below. The Series C Preferred offering was made in reliance on
Regulation D and Regulation S promulgated under the 1933 Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below has been derived from
the Company's audited financial statements. This selected financial information
should be read in conjunction with Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations", below.
<TABLE>
As of and for the Fiscal Years Ended September 30,
<CAPTION>
Consolidated Statement of
Operations Data: 1996 1995 1994 1993 1992
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 436,691 $ 458,981 $ 365,189 $ 357,578 $ ---
Net Loss (6,422,620) (3,622,973) (4,298,373) (4,164,316) (879,751)
Net Loss per
Common Share (0.35)* (0.22) (0.35) (0.41) (0.10)
Consolidated Balance Sheet Data:
Total Assets 9,272,002 6,718,420 9,617,345 4,638,051 3,686,573
Long-term Debt --- --- --- 950,740 1,525,560
Shareholders' Equity 8,646,525 6,329,175 9,404,636 1,384,701 1,289,304
Cash Dividends per
Common Share --- --- --- --- ---
- -----------------------------
* Based on weighted average outstanding common shares of 18,799,194.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto appearing elsewhere in
this Annual Report on Form 10-K. See Item 8, "Financial Statements and
Supplementary Data", below.
GENERAL
The Company believes that in the future its results of operations could be
impacted by factors such as the results of the Company's research and
development efforts and the clinical trials on BWPT-301(TM), BWPT-302(TM) and
any other future pharmaceutical drugs based on or derived from the Technology,
as well as market acceptance of the Company's nutraceutical products (and
particularly Optimune(TM), the Company's first nutraceutical product) and
pharmaceutical drugs, increased competitive pressures, changes in raw material
sources and costs, and adverse changes in general economic conditions in any of
the countries in which the Company conducts or is able to conduct business under
the License with PTI. The Company's ability to develop and market nutraceutical
products and pharmaceutical drugs will have a significant and direct impact on
the Company's results of operations. The Company believes that the majority of
its anticipated future revenues will come from new nutraceutical products and
pharmaceutical drugs. The Company cannot determine the ultimate effect that new
nutraceutical products and pharmaceutical drugs will have on revenues, earnings
or the price of the Company's Common Stock.
Due to factors noted above and elsewhere in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Company's future
earnings and stock price may be subject to significant volatility, particularly
on a quarterly basis. Past financial performance should not be considered a
reliable indicator of future performance and shareholders should not use
historical trends to anticipate results or trends in future periods. Any
shortfall in revenues, earnings or greater than projected losses from the levels
anticipated by securities analysts could have an immediate and significant
effect on the trading price of the Company's Common Stock in any given period.
Additionally, the Company may not learn of such shortfalls or increased losses
until late in a fiscal quarter, which could result in an even more immediate and
adverse effect on the trading price of the Company's Common Stock.
The Company's primary focus and efforts have been on commercializing
Optimune(TM) and on seeking approval from the FDA on BWPT-301(TM) for the
treatment of cryptosporidiosis in people with AIDS and on BWPT-302(TM) for the
treatment of E. coli, strain 0157:H7, in humans. For the fiscal year ended
September 30, 1996, $434,690 of the Company's revenues were generated by
Volu-Sol, while $2,001 of the Company's revenues were generated by Optim from
the sale of Optimune(TM).
The Company also anticipates that it will incur significant losses during
fiscal 1997 as a direct result of: (a) the on-going Phase II clinical trials and
the Phase III clinical trials on BWPT-301(TM) anticipated to begin in 1997; (b)
the Phase I clinical trials on BWPT-302(TM) that the Company began during fiscal
1996; (c) the studies associated with Optim; and (d) the cost of the efforts to
further improve Volu-Sol's results of operations.
The Company is currently focusing its resources and efforts on (a) the
commercialization of Optimune(TM); (b) BWPT-301(TM) for the treatment of
cryptosporidiosis in humans; (c) BWPT-302(TM) for the treatment of E. coli,
strain 0157:H7, in humans; (d) the improvement of Volu-Sol's results of
operations; and (e) the development of one or more additional nutraceutical
products based on the Technology.
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
During the fiscal year ended September 30, 1996, the Company generated
revenues totaling $436,691, of which $434,690 was derived from Volu-Sol, the
Company's medical diagnostic stain subsidiary, and $2,001 of which was derived
from Optim Nutrition, the Company's nutraceutical product subsidiary from the
sale of Optimune(TM). Those two subsidiaries are wholly owned by the Company and
comprise the Company's only revenue-generating operations. The total 1996
revenues compare to $458,981 in revenues generated by Volu-Sol for the fiscal
year ended September 30, 1995.
Management, consulting and research fees increased from $2,467,305 in
fiscal 1995 to $4,077,887 in fiscal 1996. This increase was due to the Company
using outside consultants for filing the IND on BWPT-302(TM) and for the
Company's fund raising activities. The Company anticipates that it will incur
increased management, consulting and research fees in the foreseeable future,
especially as (a) the Phase II clinical trials on BWPT-301(TM) continue and
Phase III clinical trials on BWPT-301(TM) commence (assuming efficacy is
established during the Phase II clinical trials), (b) the Phase I clinical
trials on BWPT-302(TM) are concluded and the Phase II clinical trials on
BWPT-302(TM) commence (assuming satisfactory results of the Phase I trials are
obtained upon the completion of the analysis of the data from those trials), and
(c) as additional nutraceutical studies are commenced and completed. The Company
believes these increased management, consulting and research fees will have the
effect of increasing the Company's accumulated deficit through the time the
Company successfully produces and commercializes a product based on the
Technology or sells technology to a third party.
General and administrative expenses increased from $1,717,658 during fiscal
1995 to $2,626,598 during fiscal 1996. The increase in general and
administrative expenses was primarily a result of increased activity in
connection with: (1) the development and commercialization of Optimune(TM), the
Company's first nutraceutical product, and the addition of sales, marketing and
support personnel for Optim, (2) increased activity in preparing and filing the
Company's IND on BWPT-302(TM) for submission to the FDA for E. coli, strain
0157:H7, and to report to the FDA on the results of the Phase I clinical trials
on BWPT-301(TM) and the preliminary results of the initial Phase II clinical
trials on BWPT-302(TM) and (3) the addition of physical space for Optim. The
Company expects that general and administrative expenses will increase in fiscal
1997 as compared to fiscal 1996, as the Phase II clinical trials on BWPT-301(TM)
progress and additional nutraceutical studies commence. This increase in general
and administrative expenses will have the effect of increasing the Company's net
operating loss for fiscal 1997 as compared to the net operating loss for fiscal
1996.
Interest income decreased from $472,382 for fiscal 1995 to $271,690 for
fiscal 1996. This decrease was primarily attributable to the use of cash for
management, consulting and research, as well as general and administrative
expenses. The Company incurred no interest expense in either fiscal 1996 or
fiscal 1995.
The Company incurred a net loss of $(6,513,899) (after accounting for the
payment of stock dividends on the outstanding shares of Series A Preferred and
Series B Preferred in fiscal 1996, as compared to a net loss of $(3,740,444) in
fiscal 1995. This increase in net loss is attributable to an increase in
management, consulting and research fees and general and administrative
expenses, offset in part by a decrease in stock dividends paid on the Series A
Preferred and the Series B Preferred because of the conversion of shares of
Series A Preferred and Series B Preferred into shares of the Company's Common
Stock during fiscal 1996. The net loss per share of Common Stock increased from
$(0.22) for fiscal 1995 to $(0.35) for fiscal 1996. The net loss per common
share would have increased even more except for the fact that the weighted
average number of shares of the Company's Common Stock outstanding increased as
a result of conversions of shares of Series A Preferred, Series B Preferred and
Series D Preferred into shares of Common Stock. Preferred Stock dividends
decreased from $117,471 in 1995 to $91,199 in 1996 also due to these conversions
of shares of Preferred Stock into shares of Common Stock. The Company expects to
incur a net loss for fiscal 1997.
The Company has incurred significant net operating losses, which totaled
$23,372,299 through September 30, 1996 (not considering the impact of Preferred
Stock dividends). Certain of the net operating loss carry forward ("NOLs")
related thereto are limited by an ownership change (as that term is defined in
Section 382 of the Internal Revenue Code of 1986, as amended) that may have
occurred as of December 10, 1991. See Note 10 to the consolidated financial
statements for a detailed discussion of the Company's NOLs.
Fiscal 1995 Compared to Fiscal 1994
During the fiscal year ended September 30, 1995, the Company generated
$458,981 of revenues from Volu- Sol, the Company's medical diagnostic stain
subsidiary, and the only revenue-generating operation of the Company at that
time, compared to $365,189 of revenues generated by Volu-Sol (then operated as
the Volu-Sol Medical Division) for the fiscal year ended September 30, 1994.
Management, consulting and research fees decreased from $3,427,437 in
fiscal 1994 to $2,467,305 in fiscal 1995. This decrease was due to the Company
relying more on the effort of employees and less on outside consultants. During
most of fiscal 1995 and as of September 30, 1995, Biomune had six full-time
employees and one independent contractor. Volu-Sol had six full-time employees
and six part-time employees during most of fiscal 1995.
General and administrative expenses increased from $1,163,128 for fiscal
1994 to $1,717,658 for fiscal 1995. The increase in general and administrative
expenses was primarily a result of increased activity in preparing the Company's
IND on BWPT-302(TM) for submission to the FDA for E. coli, strain 0157:H7, and
to report to the FDA the results of the Phase I clinical trials on BWPT-301(TM)
and the preliminary results of the initial Phase II clinical trials on
BWPT-302(TM).
Interest income increased from $192,759 for fiscal 1994 to $472,382 for
fiscal 1995. This increase was primarily attributable to the investment of the
proceeds from the sale by the Company of its Series A Preferred and Series B
Preferred. Interest expense decreased from $15,635 for fiscal 1994 to $-0- for
fiscal 1995 because the Company repaid all of its outstanding debt out of the
proceeds of the sale of shares of its Series A Preferred and Series B Preferred.
The Company incurred a net loss of $(3,740,444) (after accounting for the
payment of stock dividends on the outstanding shares of Series A Preferred and
Series B Preferred) for fiscal 1995, as compared to a net loss of $(4,746,718)
for fiscal 1994. This decrease in net loss was attributable to a decrease in
management, consulting and research fees, as well as a decrease in stock
dividends paid on the Series A Preferred and the Series B Preferred because of
the conversion of certain shares of Series A Preferred and Series B Preferred
into shares of the Company's Common Stock during fiscal 1995. The net loss per
share of Common Stock decreased from $(0.35) for fiscal 1994 to $(0.22) for
fiscal 1995. The decrease in net loss per share of Common Stock was attributable
to the decrease in net loss applicable to common shares, as well as an increase
in the weighted average number of shares of the Company's Common Stock
outstanding, resulting primarily from conversions of shares of Series A
Preferred and Series B Preferred into shares of Common Stock. In addition, a
portion of the decrease in net loss per common share was attributable a
reduction in Preferred Stock dividends from $448,345 in 1994 to $117,471 in
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently unable to finance its operations from its cash
flows from operating activities. Substantial funds and time will be required to
commercialize Optimune(TM), the Company's first nutraceutical product, to
complete Phase II and Phase III clinical trials on BWPT-301(TM) (assuming
efficacy is established during the Phase II clinical trials), to complete the
necessary clinical trials on BWPT-302(TM), to obtain regulatory approval for and
commercialize products utilizing the Technology, to achieve profitability in
Volu-Sol's operations, and to develop and commercialize additional nutraceutical
products based on the Technology. Because revenue-generating operating
activities are not in place at significant levels and because the Company will
require significant capital to accomplish the objectives set forth above,
additional equity and/or debt funding will most likely be required, although
such funding may not be available or may not be available on favorable terms.
As of September 30, 1996, the Company had a cash and cash equivalents
balance of $4,192,868 and working capital of $7,713,917, as compared to a cash
balance of $5,206,112 and working capital of $5,378,398 as of September 30,
1995.
Series A Preferred and Series B Preferred. The Series A Preferred bears a
10% cumulative dividend payable annually in cash or in additional shares of
Series A Preferred, at the election of the Company's Board of Directors, The
Series B Preferred bears a 10% cumulative dividend payable annually in cash or
in additional shares of Series B Preferred, at the election of the Company's
Board of Directors. As of September 30, 1996, the Company had recorded dividends
on the Series A Preferred and the Series B Preferred totaling an aggregate
dollar value of $91,199, which dividends the Company intends to pay in
additional shares of Series A Preferred or Series B Preferred, as appropriate.
Series D Preferred. On December 29, 1995, the Company entered into a
Subscription Agreement for the sale of a total of 5,200 shares of its Series D
Preferred for $5.2 million (or $1,000 per share). Pursuant to the terms of the
Offshore Securities Subscription Agreement related to such sale of shares of
Series D Preferred, the Company received a total of $3 million (less certain
costs and expenses of the offering, including 200 shares of Series D Preferred)
on January 3, 1996, with the $2 million balance being subject to a
Non-Negotiable Promissory Note dated December 17, 1995 (the "Note") payable to
the Company. The Note, by its terms, was due and payable to the Company on March
31, 1996 without interest; provided, however, that the Note provided that the
Company had the right, prior to payment, upon not less than 45 days prior
written notice, to cancel the Note, in whole or in part. On March 15, 1996, the
Company and the maker of the Note agreed to extend the due date of the Note to
April 30, 1996 and to revise the Company's right of cancellation thereunder.
Subsequently, by letter agreement dated April 14, 1996, the Company and the
maker of the Note agreed to extend the due date of the Note to September 30,
1996. By Funding Termination Agreement dated effective as of September 30, 1996,
the Company and the maker of the Note agreed to terminate the Note and the sale
of the 2,000 shares of Series D Preferred. Accordingly, as a result of the
offering of shares of the Company's Series D Preferred, the Company received
during fiscal 1996 a total of $3 million (less certain costs and expenses of the
offering totaling $645,000).
Series C Preferred. On September 30, 1996, the Company entered into an
Investor Questionnaire and Subscription Agreement for the sale of a total of
5,000 shares of its Series C Preferred for $5 million in cash (or $1,000 per
share). Pursuant to the terms of the Series C Preferred Investor Questionnaire
and Subscription Agreement, the Company received a total of $1.5 million in cash
(less certain costs and expenses of the offering) as of September 30, 1996, and
the $3.5 million balance was recorded as a subscription receivable as of
September 30, 1996. The $3.5 million balance was received by the Company in cash
subsequent to September 30, 1996. The Series C Preferred bears an 8% cumulative
dividend payable annually either in cash or additional shares of Series D
Preferred at the election of the Company's Board of Directors. In connection
with the sale of the Series C Preferred, the Company paid a finder's fee of
$500,000, or 10% of the gross offering amount, from the subscription of the
Series C Preferred, and certain costs and expenses related to the offering,
including, but not limited to, legal fees, accounting fees and escrow fees. In
addition to the regular dividend on the Series C Preferred set forth above, the
Company has contractually agreed with the purchaser of the Series C Preferred
that one or more special dividend in the amount of 1-1/2% of the share purchase
price for each share of Series C Preferred, or $15.00 per share, will be paid in
cash every two weeks if the shares of the Company's Common Stock underlying the
Series C Preferred have not been registered with the United States Securities
and Exchange Commission (the "SEC"), on an effective registration statement by
January 24, 1997. The special dividend, which will equal $75,000 every two
weeks, or $150,000 per month (assuming all 5,000 shares of Series C Preferred
are outstanding at that time), must be paid in cash on the 1st and 15th day of
each month that the shares of Common Stock underlying the Series C Preferred
have not been registered with the SEC, commencing with January 24, 1997.
During fiscal 1996, the Company's operating activities used $4,344,857 of
cash, which had previously been provided by the issuance of shares of Series A
Preferred, Series B Preferred and Series D Preferred. During fiscal 1995, the
Company's operating activities used $2,443,314 of cash, also principally
provided by the raising of capital from the issuance of shares of Series A
Preferred and Series B Preferred.
The Company currently estimates that the total research and development,
general and administrative, and other direct costs associated with reaching the
stage of obtaining final FDA approval on BWPT-301(TM) in treating
cryptosporidiosis in people with AIDS will, in the aggregate, approximate $16 -
$18 million, some of which has been and will be paid in cash and some of which
has been and likely will be paid in shares of the Company's Common Stock. The
Company cannot currently predict, however, how much of the approximately $16 -
$18 million will be paid in cash and how much will be paid in shares of Common
Stock. As of September 30, 1996, approximately $12.7 million had been spent. An
estimated $1.5 million will be expended during fiscal 1997 and fiscal 1998 as
the Phase II clinical trials on BWPT-301(TM) continue and the Phase III clinical
trials on BWPT-301(TM) are undertaken. Final FDA approval on BWPT-301(TM) is
currently estimated to be received possibly as early as 1998. Phase II clinical
trials on BWPT-301(TM) commenced in November 1994 and are currently expected to
be completed during 1997 (assuming approximate institutional review board
approvals can be timely obtained and patient recruitment can be accomplished on
a timely basis). Assuming efficacy of BWPT-301(TM) is established during the
Phase II clinical trials, the Company currently anticipates commencing Phase III
clinical trials on BWPT-301(TM) sometime in 1997 and currently expects that it
may be able to complete those trials as early as 1998.
The Company currently estimates that the total research and development,
general and administrative, and other direct costs associated with reaching the
stage of obtaining final FDA approval on BWPT-302(TM) in treating E. coli,
strain 0157:H7, will, in the aggregate, approximate $8 - $10 million, some of
which has been and will be paid in cash and some of which has been and likely
will be paid in shares of the Company's Common Stock. The Company cannot
currently predict, however, how much of the approximately $8 - $10 million will
be paid in cash and how much will be paid in shares of Common Stock. As of
September 30, 1996, approximately $450,000 had been spent. An estimated $1
million will be expended during fiscal 1997 and fiscal 1998 as the Phase I
clinical trials on BWPT- 302(TM) continue and the Phase II clinical trials on
BWPT-302(TM) are undertaken. Final FDA approval on BWPT-302(TM) is currently
estimated to be received possibly as early as 1999. Phase I clinical trials on
BWPT-302(TM) commenced on March 21, 1996.
As of September 30, 1996, the Company has spent approximately $530,000
related to developing and marketing Optimune(TM), the Company's first
nutraceutical product. During fiscal 1997, the Company anticipates incurring
direct costs of approximately $2 - $4 million in conducting additional
nutritional studies and in marketing Optimune(TM).
The Company anticipates a need to continue raising funds to finance the
continued commercialization of Optimune(TM), the Company's first nutraceutical
product, and the commercialization of products utilizing the Technology,
including BWPT-301(TM), BWPT-302(TM) and any additional nutraceutical products
that the Company may develop and attempt to commercialize or bring to market.
The Company has no credit facility with any lending institution. However,
the Company has in the past, from time to time, borrowed money from certain
shareholders but has no formal financing arrangement, agreement or understanding
with any of its shareholders or any other related or unrelated party to do so in
the future.
The Company is continuing to focus on building the sales and profitability
of Volu-Sol. However, the Company may need to continue to fund losses incurred
by Volu-Sol if profitability is not achieved.
The Company currently estimates that it has sufficient cash to fund its
projected operations and budgeted research and development efforts for fiscal
1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Schedules
Financial Statements:
Report of Independent Public Accountants...................................F- 1
Consolidated Balance Sheets as of September 30, 1996 and 1995 .............F- 2
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994 and for the Period
from Inception to September 30, 1996.....................................F- 4
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1996, 1995 and 1994 and for the Period from
Inception to September 30, 1996..........................................F- 5
Consolidated Statements of Cash Flows for the Years Ended September 30,
1996, 1995 and 1994 and for the Period from Inception to
September 30, 1996.......................................................F- 8
Notes to Consolidated Financial Statements................................F- 10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Biomune Systems, Inc.:
We have audited the accompanying consolidated balance sheets of BIOMUNE SYSTEMS,
INC. (a Nevada corporation in the development stage) and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1996 and for the period from inception (December
31, 1981) to 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Biomune
Systems, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996 and for the period from inception (December
31, 1981) to September 30, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
November 5, 1996
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
-------------------------
1996 1995
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $4,192,868 $5,206,112
Accounts receivable, net of allowance
for doubtful accounts
of $13,200 in 1996 and $10,400 in 1995 74,784 98,402
Inventories 556,742 100,324
Preferred stock subscription receivable 3,500,000 -
Amounts due from related parties 15,000 362,805
---------- ----------
Total current assets 8,339,394 5,767,643
---------- ----------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 222,133 219,356
Leasehold improvements 324,781 85,207
---------- ----------
546,914 304,563
Accumulated depreciation and amortization (112,709) (198,800)
---------- ----------
Net property and equipment 434,205 105,763
---------- ----------
OTHER ASSETS:
Technology and patents, net 480,809 842,224
Other 17,594 2,790
---------- ----------
Total other assets 498,403 845,014
---------- ----------
$9,272,002 $6,718,420
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30,
-------------------------
1996 1995
---------- ----------
CURRENT LIABILITIES:
Accounts payable $ 351,565 $ 235,155
Preferred stock dividends payable 91,199 117,471
Unearned revenue 84,000 -
Accrued payroll and payroll taxes 60,451 36,619
Other accrued liabilities 38,262 -
---------- -----------
Total current liabilities 625,477 389,245
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 11 and 12)
SHAREHOLDERS' EQUITY:
Preferred stock, $.0001 par value;
50,000,000 shares authorized-
Series A, 10% Cumulative, Convertible;
135,589 and 213,833 shares outstanding,
respectively 652,199 994,049
Series B, 10% Cumulative, Convertible
Non-Voting; 11,058 and 10,058 shares
outstanding, respectively 163,837 148,837
Series C, 8% Cumulative, Convertible
Non-Voting; 5,000 shares outstanding
in 1996 4,171,500 -
Common stock, $.0001 par value; 500,000,000
shares authorized, 19,877,034 and
17,439,189 shares outstanding, respectively 1,988 1,744
Additional paid-in capital 26,392,477 22,707,916
Deficit accumulated during the development stage (23,372,299) (16,858,480)
Deferred consulting expense (246,450) (674,891)
Outstanding warrants 883,273 10,000
----------- ------------
Total shareholders' equity 8,646,525 6,329,175
----------- ------------
$ 9,272,002 $ 6,718,420
=========== ============
The accompanying notes to consolidated financial
statements are an integral part of these
consolidated balance sheets.
<TABLE>
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
Inception to
<CAPTION>
Year Ended September 30, September 30,
1996 1995 1994 1996 (Note 1)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES $ 436,691 $ 458,981 $ 365,189 $ 2,224,191
------------ ------------ ------------ -------------
OPERATING EXPENSES:
Cost of revenues 357,471 369,373 250,121 1,439,713
Management, consulting and research fees
2,467,305 3,427,437 14,645,045
Other general and administrative 2,626,598 1,717,658 1,163,128 9,310,147
Total operating expenses 7,061,956 4,554,336 4,840,686 25,394,905
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (6,625,265) (4,095,355) (4,475,497) (23,170,714)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 271,690 472,382 192,759 1,369,256
Interest expense - - (15,635) (859,283)
Other expense, net (69,045) - - (54,543)
------------ ------------ ------------ ------------
Total other income, net 202,645 472,382 177,124 455,430
------------ ------------ ------------ ------------
NET LOSS (6,422,620) (3,622,973) (4,298,373) (22,715,284)
PREFERRED STOCK DIVIDENDS (91,199) (117,471) (448,345) (657,015)
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO
COMMON SHARES $ (6,513,819) $ (3,740,444) $ (4,746,718) $(23,372,299)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (.35) $ (.22) $ (.35)
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 18,799,194 17,114,407 13,630,334
============ ============ ============
The accompanying notes to consolidated financial
statements are an integral part of these
consolidated statements.
</TABLE>
Page 1 of 3
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
---------------- ---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash
on February 9, 1982 -- $ -- -- $ -- -- $ -- -- $ --
Issuance of common stock for
services and expense reimbursement
on February 9, 1982 -- -- -- -- -- -- -- --
Contributed capital for expense
reimbursements from October 1,
1982 to December 31, 1982 -- -- -- -- -- -- -- --
Sale of common stock on March 31, 1983 -- -- -- -- -- -- --
Sale of common stock and warrants
in initial public offering
on September 2, 1983 -- -- -- -- -- -- -- --
Common stock issued during fiscal
year 1984 -- -- -- -- -- -- -- --
Common stock issued during fiscal
year 1985 -- -- -- -- -- -- -- --
Common stock issued during fiscal
year 1986 -- -- -- -- -- -- -- --
Common stock issued during fiscal
year 1987 -- -- -- -- -- -- -- --
Issuance of common stock during
fiscal year 1988:
Acquisition of technology -- -- -- -- -- -- --
Services -- -- -- -- -- -- -- --
Issuance of common stock during
fiscal year 1989:
Acquisition of technology and patents -- -- -- -- -- -- -- --
Services -- -- -- -- -- -- -- --
Conversion of debt -- -- -- -- -- -- -- --
Expiration of stock warrants -- -- -- -- -- -- -- --
Issuance of common stock during
fiscal year 1990:
Acquisition of patents -- -- -- -- -- -- -- --
Cash -- -- -- -- -- -- -- --
Services and bonuses -- -- -- -- -- -- -- --
Issuance of common stock during
fiscal year 1991:
Conversion of debt -- -- -- -- -- -- -- --
Cash -- -- -- -- -- -- -- --
Services and bonuses -- -- -- -- -- -- -- --
--------- -------- ---------- -------- -------- -------- -------- --------
Subtotals for Page 1 -- $ -- -- $ -- -- $ -- -- $ --
--------- -------- ---------- -------- -------- -------- -------- --------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<CAPTION>
Deficit
Accumulated Receivable
Common Stock Additional During the Deferred Related to
--------------- Paid-in Outstanding Development Consulting Sale of
Shares Amount Capital Warrants Stage Expense Stock Total
------ ------ ------- -------- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash
on February 9, 1982 289,425 $ 29 $ 45,726 $ -- $ -- $ -- $ -- $ 45,755
Issuance of common stock for
services and expense reimbursement
on February 9, 1982 1,360,575 136 303,033 -- -- -- -- 303,169
Contributed capital for expense
reimbursements from October 1,
1982 to December 31, 1982 -- -- 42,889 -- -- -- -- 42,889
Sale of common stock on March 31, 1983 75,000 8 242 -- -- -- -- 250
Sale of common stock and warrants
in initial public offering
on September 2, 1983 600,000 60 1,599,118 -- -- 200 -- 1,599,378
Common stock issued during fiscal
year 1984 4,896 1 12,197 -- -- -- -- 12,198
Common stock issued during fiscal
year 1985 4,569 -- 314 -- -- -- -- 314
Common stock issued during fiscal
year 1986 196,851 20 185,645 -- -- -- -- 185,665
Common stock issued during fiscal
year 1987 31,065 3 42,342 -- -- -- -- 42,345
Issuance of common stock during
fiscal year 1988:
Acquisition of technology 13,251 1 13,251 -- -- -- -- 13,252
Services 11,571 1 13,674 -- -- -- -- 13,675
Issuance of common stock during
fiscal year 1989:
Acquisition of technology and patents 289,221 29 145,441 -- -- -- -- 145,470
Services 83,142 8 88,425 -- -- -- -- 88,433
Conversion of debt 30,000 3 49,997 -- -- -- -- 50,000
Expiration of stock warrants -- -- 200 -- -- (200) -- --
Issuance of common stock during
fiscal year 1990:
Acquisition of patents 150,000 15 6,235 -- -- -- -- 6,250
Cash 9,000 1 5,999 -- -- -- -- 6,000
Services and bonuses 1,800 -- 1,650 -- -- -- -- 1,650
Issuance of common stock during
fiscal year 1991:
Conversion of debt 2,243,694 224 747,674 -- -- -- -- 747,898
Cash 75,000 8 44,992 -- -- -- -- 45,000
Services and bonuses 60,750 6 35,494 -- -- -- -- 35,500
--------- -------- ---------- ---- ---- ---- ---- ----------
Subtotals for Page 1 5,529,810 $ 553 $3,384,538 $ -- $ -- $ -- $ -- $3,385,091
--------- -------- ---------- ---- ---- ---- ---- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
<PAGE>
Page 2 of 3
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
---------------- ---------------- --------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotals from Page 1 -- $ -- -- $ -- - $ -- - $ --
Issuance of common stock during
fiscal year 1992:
Conversion of amounts due related
parties -- -- -- -- - -- - --
Conversion of long-term debt -- -- -- -- - -- - --
Conversion of accounts payable -- -- -- -- - -- - --
Acquisition of assets from major
shareholder -- -- -- -- - -- - --
Cash -- -- -- -- - -- - --
Services and bonuses -- -- -- -- - -- - --
Sale of Series A Preferred Stock,
net of offering costs, during
fiscal year 1993 323,000 1,453,500 -- -- - -- - --
Issuance of common stock during
fiscal year 1993:
Cash -- -- -- -- - -- - --
Services and bonuses -- -- -- -- - -- - --
Future consulting services -- -- -- -- -- - --
Conversion of amounts due
related parties -- -- -- -- - -- - --
Grants of stock warrants resulting
in consulting and interest expense
during fiscal year 1993 -- -- -- -- - -- - --
Increase in note receivable related
to sale of stock during
fiscal year 1993 -- -- -- -- - -- - --
Deficit accumulated from inception to
September 30, 1993 -- -- -- -- - -- - --
------- ----------- ------ ------------ ---- -------- ----- ------
Balance at September 30, 1993 323,000 1,453,500 -- -- - -- - --
Sale of Series A Preferred Stock,
net of offering costs 677,000 3,046,500 -- -- - -- - --
Sale of Series B Preferred Stock,
net of offering costs -- -- 366,600 4,950,000 - -- - --
Issuance of common stock:
Cash -- -- -- -- - -- - --
Conversion of Series A Preferred Stock (668,000) (3,006,000) -- -- - -- - --
Conversion of Series B Preferred Stock -- -- (356,600) (4,814,975) - -- - --
Services (current and future) -- -- -- -- - -- - --
Conversion of accounts payable -- -- -- -- - -- - --
Conversion of related party debt -- -- -- -- - -- - --
Sale of assets -- -- -- -- - -- - --
Amortization of deferred expense -- -- -- -- - -- - --
Preferred stock dividends 63,600 318,001 8,690 130,344 - -- - --
Net loss -- -- -- -- - -- - --
------- ----------- ------ ------------ ---- -------- ----- ------
Balance at September 30, 1994 395,600 $ 1,812,001 18,690 $ 265,369 - $ -- - $ --
------- ----------- ------ ------------ ---- -------- ----- ------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<CAPTION>
Common Stock Additional
--------------------- Paid-in Outstanding
Shares Amount Capital Warrants
------ ------ ---------- -----------
<S> <C> <C> <C> <C>
Subtotals from Page 1 5,529,810 $ 553 $ 3,384,538 $ --
Issuance of common stock during
fiscal year 1992:
Conversion of amounts due related
parties 349,434 35 119,294 --
Conversion of long-term debt 300,000 30 499,970 --
Conversion of accounts payable 36,000 4 18,996 --
Acquisition of assets from major
shareholder 3,000,000 300 1,945,239 --
Cash 225,252 22 203,904 --
Services and bonuses 163,470 16 275,975 --
Sale of Series A Preferred Stock,
net of offering costs, during
fiscal year 1993 -- -- -- --
Issuance of common stock during
fiscal year 1993:
Cash 150,000 15 124,985 --
Services and bonuses 1,457,952 146 3,010,459 --
Future consulting services 174,000 18 347,982 --
Conversion of amounts due
related parties 982,575 98 477,427 --
Grants of stock warrants resulting
in consulting and interest expense
during fiscal year 1993 -- -- 800,000 --
Increase in note receivable related
to sale of stock during
fiscal year 1993 -- -- -- --
Deficit accumulated from inception to
September 30, 1993 -- -- -- --
---------- ------------ ------------ ----------
Balance at September 30, 1993 12,368,493 1,237 11,208,769 --
Sale of Series A Preferred Stock,
net of offering costs -- -- -- --
Sale of Series B Preferred Stock,
net of offering costs -- -- -- --
Issuance of common stock:
Cash 412,994 42 454,550 --
Conversion of Series A Preferred Stock 2,004,000 200 3,005,800 --
Conversion of Series B Preferred Stock 1,069,800 107 4,814,868 --
Services (current and future) 348,000 35 1,949,966 --
Conversion of accounts payable 12,483 1 49,930 --
Conversion of related party debt 359,784 36 359,748 --
Sale of assets -- -- (1,021,987) --
Amortization of deferred expense -- -- -- --
Preferred stock dividends -- -- -- --
Net loss -- -- -- --
---------- ------------ ------------ ----------
Balance at September 30, 1994 16,575,554 $ 1,658 $ 20,821,644 $ --
---------- ------------ ------------ ----------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<CAPTION>
Deficit
Accumulated Receivable
During the Deferred Related to
Development Consulting Sale of
Stage Expense Stock Total
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Subtotals from Page 1 $ -- $ -- $ -- $ 3,385,091
Issuance of common stock during
fiscal year 1992:
Conversion of amounts due related
parties -- -- -- 119,329
Conversion of long-term debt -- -- -- 500,000
Conversion of accounts payable -- -- -- 19,000
Acquisition of assets from major
shareholder -- -- (952,570) 992,969
Cash -- -- -- 203,926
Services and bonuses -- -- -- 275,991
Sale of Series A Preferred Stock,
net of offering costs, during
fiscal year 1993 -- -- -- 1,453,500
Issuance of common stock during
fiscal year 1993:
Cash -- -- -- 125,000
Services and bonuses -- -- -- 3,010,605
Future consulting services -- (348,000) -- --
Conversion of amounts due
related parties -- -- -- 477,525
Grants of stock warrants resulting
in consulting and interest expense
during fiscal year 1993 -- (537,500) -- 262,500
Increase in note receivable related
to sale of stock during
fiscal year 1993 -- -- (69,417) (69,417)
Deficit accumulated from inception to
September 30, 1993 (8,371,318) -- -- (8,371,318)
------------ ------------ ------------ ------------
Balance at September 30, 1993 (8,371,318) (885,500) (1,021,987) 2,384,701
Sale of Series A Preferred Stock,
net of offering costs -- -- -- 3,046,500
Sale of Series B Preferred Stock,
net of offering costs -- -- -- 4,950,000
Issuance of common stock:
Cash -- -- -- 454,592
Conversion of Series A Preferred Stock -- -- -- --
Conversion of Series B Preferred Stock -- -- -- --
Services (current and future) -- (378,000) -- 1,572,001
Conversion of accounts payable -- -- -- 49,931
Conversion of related party debt -- -- -- 359,784
Sale of assets -- -- 1,021,987 --
Amortization of deferred expense -- 885,500 -- 885,500
Preferred stock dividends (448,345) -- -- --
Net loss (4,298,373) -- -- (4,298,373)
------------ ------------ ------------ ------------
Balance at September 30, 1994 $(13,118,036) $ (378,000) $ -- $ 9,404,636
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
<PAGE>
Page 3 of 3
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
-------------------- --------------------- ----------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 395,600 $ 1,812,001 18,690 $ 265,369 -- $ --
Issuance of common stock:
Cash -- -- -- -- -- --
Conversion of Series A Preferred Stock (181,767) (817,952) -- -- -- --
Conversion of Series B Preferred Stock -- -- (8,632) (116,532) -- --
Services -- -- -- -- -- --
Settlement of shares -- -- -- -- -- --
Issuance of warrants and options:
Cash -- -- -- -- -- --
Services -- -- -- -- -- --
Amortization of deferred expense -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- ------------ ------ ------------ ----- ------------
Balance at September 30, 1995 213,833 994,049 10,058 148,837 -- --
Sale of Series D Preferred Stock, net
of offering costs -- -- -- -- -- --
Sale of Series C Preferred Stock, net
of offering costs -- -- -- -- 5,000 4,171,500
Issuance of common stock:
Cash -- -- -- -- -- --
Conversion of Series A Preferred Stock (98,738) (444,321) -- -- -- --
Conversion of Series D Preferred Stock -- -- -- -- -- --
Services -- -- -- -- -- --
Issuance of warrants and options for
services -- -- -- -- -- --
Amortization of deferred consulting
expense -- -- -- -- -- --
Cancellation of Series D Preferred
Stock subscription -- -- -- -- -- --
Preferred stock dividends 20,494 102,471 1,000 15,000 -- --
Net loss -- -- -- -- -- --
------- ------------ ------ ------------ ----- ------------
Balance at September 30, 1996 135,589 $ 652,199 11,058 $ 163,837 5,000 $ 4,171,500
======= ============ ====== ============ ===== ============
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<CAPTION>
Series D
Preferred Stock Common Stock Additional
---------------- --------------------- Paid-in Outstanding
Shares Amount Shares Amount Capital Warrants
------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 -- $ -- 16,575,554 $ 1,658 $ 20,821,644 $ --
Issuance of common stock:
Cash -- -- 30,000 3 67,497 --
Conversion of Series A Preferred Stock -- -- 545,301 54 817,898 --
Conversion of Series B Preferred Stock -- -- 25,896 3 116,529 --
Services -- -- 441,438 44 929,330 --
Settlement of shares -- -- (179,000) (18) (419,982) --
Issuance of warrants and options:
Cash -- -- -- -- -- 10,000
Services -- -- -- -- 375,000 --
Amortization of deferred expense -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
-------- ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1995 -- -- 17,439,189 1,744 22,707,916 10,000
Sale of Series D Preferred Stock, net 5,200 4,010,227 -- -- -- 544,773
of offering costs
Sale of Series C Preferred Stock, net
of offering costs -- -- -- -- -- 328,500
Issuance of common stock:
Cash -- -- 40,000 4 32,496 --
Conversion of Series A Preferred Stock -- -- 296,214 30 444,291 --
Conversion of Series D Preferred Stock (3,200) (2,467,936) 1,884,419 188 2,467,748 --
Services -- -- 217,212 22 522,835 --
Issuance of warrants and options for
services -- -- -- -- 674,900 --
Amortization of deferred consulting
expense -- -- -- -- -- --
Cancellation of Series D Preferred
Stock subscription (2,000) (1,542,291) -- -- (457,709) --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
-------- ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1996 -- $ -- 19,877,034 $ 1,988 $ 26,392,477 $ 883,273
======== ============ ============ ============ ============ ============
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
<CAPTION>
Deficit
Accumulated Receivable
During the Deferred Related to
Development Consulting Sale of
Stage Expense Stock Total
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 $(13,118,036) $ (378,000) $ -- $ 9,404,636
Issuance of common stock:
Cash -- -- -- 67,500
Conversion of Series A Preferred Stock -- -- -- --
Conversion of Series B Preferred Stock -- -- -- --
Services (401,453) -- 527,921
Settlement of shares -- -- -- (420,000)
Issuance of warrants and options:
Cash -- -- -- 10,000
Services -- (273,438) -- 101,562
Amortization of deferred expense -- 378,000 -- 378,000
Preferred stock dividends (117,471) -- -- (117,471)
Net loss (3,622,973) -- -- (3,622,973)
------------ ------------ ------------ ------------
Balance at September 30, 1995 (16,858,480) (674,891) -- 6,329,175
Sale of Series D Preferred Stock, net -- -- (2,000,000) 2,555,000
of offering costs
Sale of Series C Preferred Stock, net
of offering costs -- -- -- 4,500,000
Issuance of common stock:
Cash -- -- -- 32,500
Conversion of Series A Preferred Stock -- -- -- --
Conversion of Series D Preferred Stock -- -- -- --
Services -- (238,783) -- 284,074
Issuance of warrants and options for
services -- (329,000) -- 345,900
Amortization of deferred consulting
expense -- 996,224 -- 996,224
Cancellation of Series D Preferred
Stock subscription -- -- 2,000,000 --
Preferred stock dividends (91,199) -- -- 26,272
Net loss (6,422,620) -- -- (6,422,620)
------------ ------------ ------------ ------------
Balance at September 30, 1996 $(23,372,299) $ (246,450) $ -- $ 8,646,525
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
<TABLE>
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
Period from
Year Ended September 30, Inception to
---------------------------------------- September 30,
1996 1995 1994 1996 (Note 1)
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,422,620) $(3,622,973) $(4,298,373) $(22,715,284)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 197,121 174,635 164,451 761,556
Loss on disposal of fixed assets 69,043 - - 69,043
Loss on write-off of investment in technology 244,839 - - 244,839
Issuance of common stock and warrants for services 629,975 629,483 1,572,001 6,285,366
Amortization of deferred consulting expense 996,224 378,000 885,500 2,272,226
Reduction in related party note receivable 125,660 - - 125,660
Interest expense recognized on grants of
stock warrants - - - 250,000
Interest income imputed on note receivable - - - (317,449)
Interest expense paid by transfer of
nonmonetary asset - - - 45,347
Interest expense imputed on note payable - - - 18,456
Issuance of long-term debt for services - - - 43,477
Changes in assets and liabilities, net of effects
of nonmonetary asset acquisitions-
Accounts receivable 23,618 (24,584) (2,661) (16,526)
Inventories (456,418) (36,940) 17,403 (415,701)
Prepaid expenses - - - 5,350
Other assets (14,805) - - (18,745)
Accounts payable 116,410 28,161 70,760 371,147
Unearned revenue 84,000 - - 84,000
Accrued payroll and payroll taxes 23,832 30,904 (64,049) 48,912
Other accrued liabilities 38,264 - - 97,684
----------- ----------- ----------- ------------
Net cash used in operating activities (4,344,857) (2,443,314) (1,654,968) (12,760,642)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of technology - - 500,000 580,000
Investment in technology - - - (150,000)
Cash acquired in nonmonetary asset acquisition - - - 7,187
Purchase of property and equipment (478,030) (45,974) (43,159) (695,724)
Proceeds from sale of equipment - - - 70,551
Net (advances to) repayments from related parties 222,143 102,679 (465,484) (140,662)
Payments received on notes receivable - - - 799,628
Issuance of notes receivable - - - (224,317)
----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities (255,887) 56,705 (8,643) 246,663
----------- ----------- ----------- ------------
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
Period from
Year Ended September 30, Inception to
---------------------------------------- September 30,
1996 1995 1994 1996 (Note 1)
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 32,500 $ 67,500 $ 454,592 $ 3,123,884
Proceeds from issuance of Series A and B
convertible preferred stock - - 10,025,000 10,500,000
Proceeds from issuance of Series C and D
convertible preferred stock and related warrants 4,500,000 - - 4,500,000
Offering costs for Series A and B preferred stock - - (1,050,000) (1,050,000)
Offering costs for Series C and D preferred stock (945,000) - - (945,000)
Proceeds from issuance of long-term debt - - - 6,075
Proceeds from issuance of warrants - 10,000 - 10,000
Increase (decrease) in amounts due to
related parties - - (232,586) 1,394,752
Principal payments on notes payable - - (93,551) (412,864)
Cash settlement for shares of common stock - (420,000) - (420,000)
----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities 3,587,500 (342,500) 9,103,455 16,706,847
----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,013,244) (2,729,109) 7,439,844 4,192,868
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,206,112 7,935,221 495,377 -
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,192,868 $ 5,206,112 $ 7,935,221 $ 4,192,868
=========== ============ =========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the fiscal years ended September 30, 1996, 1995 and 1994, the
Company paid interest of $0, $0 and $15,635, respectively.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal year 1996, 98,738 shares of Series A convertible preferred
stock with a recorded value of $444,321 were converted into 296,214 shares of
common stock. In addition, 3,200 shares of Series D convertible preferred stock
with a recorded value of $2,467,936 were converted into 1,884,419 shares of
common stock. During fiscal year 1996, the Company declared cumulative preferred
stock dividends of $91,199. The Company intends to issue 15,239 shares of Series
A convertible preferred stock and 1,000 shares of Series B convertible preferred
stock as payment of these dividends. During fiscal year 1996, the Company
exercised its option to cancel subscriptions for 2,000 shares of Series D
convertible preferred stock.
During fiscal year 1995, 181,767 shares of Series A convertible preferred
stock with a recorded value of $817,952 were converted into 545,301 shares of
common stock. In addition, 8,632 shares of Series B convertible preferred stock
with a recorded value of $116,532 were converted into 25,896 shares of common
stock. During fiscal year 1995, the Company declared cumulative preferred stock
dividends of $117,471. The Company issued 20,495 shares of Series A convertible
preferred stock and 1,000 shares of Series B convertible preferred stock as
payment of these dividends during fiscal year 1996.
During fiscal year 1994, the Company purchased certain Medical Waste
Technologies in exchange for a note receivable (see Note 5). During fiscal year
1994, the Company paid off notes payable and accrued interest totaling
$1,509,784 by transferring real estate valued at $1,150,000 to Genesis
Investment Corporation ("Genesis"), and Genesis exercised existing warrants for
359,784 shares of common stock at an exercise price of $1 per share. During
fiscal year 1994, 668,000 shares of Series A convertible preferred stock with a
recorded value of $3,006,000 were converted into 2,004,000 shares of common
stock. In addition, 356,600 shares of Series B convertible preferred stock with
a recorded value of $4,814,975 were converted into 1,069,800 shares of common
stock. On September 30, 1994, the Company issued 63,600 shares of Series A
convertible preferred stock and 8,690 shares of Series B convertible preferred
stock as payment of cumulative preferred stock dividends of $448,345.
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Biomune Systems, Inc. ("Biomune") was incorporated in Nevada on December 31,
1981. Biomune is a development stage biopharmaceutical and nutraceutical company
that, along with its wholly owned subsidiary Optim Nutrition, Inc. ("Optim"), is
engaged primarily in researching, developing, producing and marketing biologic
pharmaceutical products and nutraceutical food supplements derived from Biomune
patented technology (the "Technology"). Nutraceutical products are food
supplements that are derived from a food base and marketed as a beneficial
source of nutrients to promote good health. Biomune believes that the Technology
may be utilized to develop products to treat various gastrointestinal and
infectious diseases in humans and that products derived from the Technology may
help increase the body's immune response. Biomune also believes that certain
products derived from the Technology may provide nutritional supplementation for
certain individuals who are nutritionally deprived, including individuals with
severely compromised immune systems and patients undergoing intensive antibiotic
or chemotherapy treatment.
Another wholly owned subsidiary, Volu-Sol, Inc. ("Volu-Sol"), engages in
researching, developing, manufacturing, marketing and distributing medical
diagnostic stains and, through September 30, 1996, was the primary
revenue-generating business of the consolidated group of companies.
(2) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Biomune and its wholly owned subsidiaries, Optim and Volu-Sol (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
Development Stage Presentation
The Company is a development stage company. Except for the activities of its
subsidiary, Volu-Sol, and the marketing launch of the Company's first
nutraceutical product (Optimune(TM), which commenced in July 1996), the Company
has not produced or marketed any products, and has not generated any significant
revenues to date from the commercialization of any pharmaceutical product
candidates or from Optimune(TM). To date the Company's financial resources have
been dedicated to the research and development of pharmaceutical drug and
nutraceutical product candidates utilizing the Technology, including
pre-clinical studies and clinical trials on those product candidates and studies
on the Company's only nutraceutical product, Optimune(TM). The Company has
developed two pharmaceutical drug candidates, BWPT-301(TM) and BWPT-302(TM), and
one nutraceutical product, Optimune(TM). The Company is currently focusing on
the prevention and/or treatment of cryptosporidiosis and Escherichia Coli,
strain 0157:H7, with its biologic pharmaceutical drug candidates BWPT-301(TM)
and BWPT-302(TM), respectively. The commercialization of the Company's
pharmaceutical drug candidates will require significant additional financial
investment, research and development, pre-clinical and clinical testing and
regulatory approvals. The commercialization of the Company's nutraceutical
product will require significant additional financial investment, research and
development and nutritional studies.
The Company expects to continue to incur significant operating losses over the
next several years, primarily due to the marketing expenditures associated with
the market launch of Optimune(TM), expansion of its research and development
programs (including pre-clinical studies and clinical trials for its existing
pharmaceutical drug candidates), nutritional studies for its existing
nutraceutical product, regulatory compliance requirements related to its
pharmaceutical drug candidates, studies and trials for other drugs or products
that the Company may develop, and the implementation of programs to market any
drugs that are ultimately approved for distribution.
The Company estimates that the total research and development, general and
administrative and other direct costs associated with reaching the stage of
obtaining final FDA approval on BWPT-301(TM) will, in the aggregate, approximate
$16 - $18 million and for BWPT-302(TM) will, in the aggregate, approximate $8 -
$10 million, some of which has been and will be paid in cash and some of which
has been and likely will be paid in shares of common stock. As of September 30,
1996, approximately $12.7 million had been spent on BWPT-301(TM) and
approximately $450,000 had been spent on BWPT-302(TM). It is estimated that
approximately $1.5 - $2.5 million will be expended during fiscal 1997 and fiscal
1998 as the Phase II clinical trials continue and the Phase III clinical trials
are undertaken on BWPT-301(TM) and the Phase I clinical trials continue and the
Phase II clinical trials are undertaken on BWPT-302(TM).
As of September 30, 1996, the Company had spent approximately $530,000 related
to developing and marketing Optimune(TM). During the next twelve months the
Company anticipates incurring direct costs of approximately $2 - $4 million in
conducting additional nutritional studies and marketing Optimune(TM).
The Company is subject to special risk factors due to its development stage
status that may impact its ability to become an operating enterprise. These risk
factors include:
a) There can be no assurance that the Company will be able to develop, produce
at a reasonable cost or market successfully, any of its drug or product
candidates. Further, those drug and product candidates may prove to have
undesirable or unintended side effects that may prevent and/or limit their
commercial use.
b) Although the Company believes that it has or will have sufficient cash
available to fund its operations for the next twelve months, additional
funds may be required in the event the Company has not begun to generate
significant revenues from sales of Optimune(TM). As a result, the Company
may find it necessary to postpone or cancel some of its planned marketing
and research and development programs, which could effect future revenues
and new drug or product introductions. Other factors such as extended
pre-clinical and clinical trials, difficulty in obtaining regulatory
approvals, competition and unforeseen or unexpected difficulties in
securing product used in the production of the Company's drugs and products
from its sole supplier in New Zealand, changes in existing research
relationships, the Company's ability to maintain and establish additional
collaborative arrangements and unexpected expenditures relating to the
Company's operations, could result in the Company's need for additional
funds sooner than anticipated. The Company intends to seek such additional
funding through additional public or private financings; however, there can
be no assurance that additional funding will be available or if available,
that it will be available on acceptable terms or in required amounts.
c) The Company is dependent upon a License granted to it by Protein
Technology, Inc. (see Note 4) for the use of the Technology. If the License
is terminated for any reason, the Company would lose all rights to the
Technology, which would have a material adverse effect on the Company's
operations.
d) Prior to marketing its existing pharmaceutical drug candidates or any other
pharmaceutical drug candidates that the Company may develop, such drug
candidates must undergo extensive clinical trials and an extensive
regulatory approval process. Any denials or delays in obtaining the
requisite approvals would likely have a material adverse effect on the
Company.
e) The Company is dependent on a single third-party manufacturer to
manufacture the protein concentrate (the "Base Product") used in the
production of its drug and product candidates. In the event the sole
manufacturer of the Base Product fails to supply any or all of the
Company's requirements, there can be no assurance that alternate sources of
supply will be available to the Company at a reasonable cost or in a timely
manner. If such alternate sources are not available, the Company's results
of operations could be severely adversely affected.
f) At present, there are several companies that are involved in the research
and development of drugs derived from colostrum and hyper-immunized cows,
which companies are or could become competitors of the Company. In
addition, the Company also faces potential competition from numerous
pharmaceutical and other biopharmaceutical companies that are currently
developing products, utilizing unrelated technologies, for the treatment
and/or prevention of many of the diseases, infections and syndromes
identified by the Company for application of its product candidates.
Competition in the pharmaceutical and medical and diagnostic
technology industries is extremely intense. The Company competes with many
other companies that have substantially greater capital resources, research
and development capabilities, manufacturing and marketing resources, and
experience than does the Company. If a competitor were successful in
developing a competing product and in receiving FDA approval to market
prior to the Company receiving such FDA approval on BWPT-301(TM),
BWPT-302(TM) and/or any other drug or nutraceutical product candidate
developed by the Company, the value, viability and marketability of
BWPT-301(TM), BWPT-302(TM) and/or any such other drug candidate could be
materially adversely affected and the Company's business prospects severely
negatively impacted.
g) The Company is highly-dependent upon the efforts and abilities of certain
of its senior management personnel. The loss of any of these individuals
could have a material adverse effect on the Company, its operations and its
prospects.
Revenue Recognition
The Company records revenues related to Volu-Sol and Optim when the products are
shipped. Deferred revenues represent deposits received from customers that will
be recognized as revenues when the products are shipped to the customers.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventories consist of the following:
September 30,
----------------------
1996 1995
-------- --------
Instruments, biological stains and reagents $ 50,181 $ 41,915
Nutraceutical finished goods 168,644 -
Raw materials, packaging and supplies 337,917 58,409
-------- --------
$556,742 $100,324
======== ========
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives of two to ten years.
Major renewals and betterments are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When an asset is retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the determination of net
income or loss.
Other Assets
Other assets consist of technologies and other assets as follows:
September 30,
----------------------
1996 1995
-------- --------
Medical Waste Technologies (see Note 5) $629,383 $629,383
Medical Diagnostic Technologies (Volu-Sol) - 466,358
The Technology (see Note 4) 70,000 70,000
Other 17,595 2,790
-------- --------
716,978 1,168,531
Accumulated amortization (218,575) (323,517)
-------- --------
Total other assets $498,403 $845,014
======== ========
The Medical Waste Technologies and the Technology are amortized using the
straight-line method over estimated lives of ten years. During 1996, the Company
determined that facts and circumstances warranted the write off of the remaining
net book value of approximately $245,000 related to the Medical Diagnostic
Technologies. This determination was based on the continued operating losses and
negative cash flows from Volu-Sol's operations.
Net Loss Per Common Share
Net loss per common share is computed based on the weighted average number of
common shares outstanding during the year. Convertible preferred stock, warrants
and options outstanding are not included in the computations because any
assumption regarding conversion would be antidilutive, thereby decreasing the
net loss per common share. Preferred stock dividends increase the net loss for
purposes of computing the net loss per common share.
Income Taxes
The Company recognizes deferred tax assets or liabilities for expected future
tax consequences of events that have been recognized in the financial statements
or tax returns. Under this method, deferred tax assets or liabilities are
determined based upon the difference between the financial statement and income
tax bases of assets and liabilities using enacted tax rates expected to apply
when differences are expected to be settled or realized.
Cash and Cash Equivalents
The Company considers all highly-liquid, short-term investments that have an
initial maturity of 90 days or less to be cash equivalents.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The new
standard is effective for fiscal years beginning after December 15, 1995 and
would change the Company's method of determining impairment of long-lived
assets.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This new standard is effective for
fiscal years beginning after December 15, 1995. The standard encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees based on fair
value. Companies that do not adopt the fair value accounting rules must disclose
the impact of adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or services must
be accounted for on the fair value method.
The Company will adopt SFAS No. 121 and SFAS No. 123 in fiscal year 1997
and no determination has been made as to the impact on the Company's
consolidated financial statements when implemented.
(3) COMMON STOCK SPLIT
During fiscal year 1994, the Company's Board of Directors approved a 3-for-1
common stock split in the form of a 200 percent common stock dividend effective
June 14, 1994. All common share amounts and per share information in the
accompanying consolidated financial statements have been retroactively adjusted
to reflect this common stock split.
(4) THE TECHNOLOGY LICENSE
Pursuant to a License agreement dated May 21, 1991, and subsequently amended as
of December 15, 1995, Protein Technology, Inc. ("PTI") has granted the Company
the exclusive right and license to utilize the Technology in connection with the
marketing and sale of pharmaceutical drugs and nutraceutical products, solely
for human applications, in the United States and Canada and each of their
territories and possessions. By First Amendment to the License Agreement entered
into effective as of September 13, 1996, the Company and PTI agreed to expand
the territories in which the Company is licensed to market and sell products
utilizing the Technology to include the following countries and areas and their
respective territories and possessions: (i) Kenya, (ii) the Ivory Coast, (iii)
Zimbabwe, (iv) Ghana, (v) Zambia, and (vi) Nigeria. The License expires in May
1999, unless the Company, prior to such date, has generated annual gross
revenues from the sale of products developed utilizing the Technology of not
less than $2 million, in which event the License will be automatically extended
until the expiration date of the latest patent to expire covered by the License,
including any extensions to such patent registrations. Based on the patents
currently covered by the License, it would expire on March 28, 2006. The Company
is required to pay PTI royalties in the amount of 5 percent of gross receipts
from the sale of all products covered by the License with respect to the first
$3.5 million of sales during each annual period and 7 percent of gross receipts
in excess of $3.5 million during such annual period. In addition, in the event
the License is extended past May 1999, the Company is required to pay PTI annual
advances to be applied against royalties in the amount of $100,000 for the first
year of such extension and increasing by $10,000 each year thereafter. There
have been no royalties paid to date.
(5) MEDICAL WASTE TECHNOLOGIES
On November 30, 1993, the Company purchased from Bryan Furtek, Ph.D., the
proprietary rights, trade secrets and interests in certain technologies
(collectively, the "Medical Waste Technologies"). The Medical Waste Technologies
consist of the following: 1) a device for the sterilization and decontamination
of medical devices and wastes, 2) a bioremediation process to detoxify and
degrade hazardous substances through the use of certain microbes, and 3) a
device and process for the safe treatment of used medical stains. An independent
appraiser evaluated the Medical Waste Technologies and found the concepts
scientifically valid and feasible for commercialization and further development.
The Medical Waste Technologies were initially recorded at $1,129,383.
On December 15, 1993, Mercedita Holdings, Inc. (an indirect shareholder of the
Company) purchased a 10 percent interest in the Medical Waste Technologies for
$500,000 ($50,000 in cash and $450,000 in a secured promissory note bearing
interest at prime plus one percent). The promissory note was paid in full during
fiscal year 1994, along with interest totaling approximately $16,000. The
Company accounted for this sale of the 10 percent interest in the Medical Waste
Technologies using the cost recovery method. As a result, the cash received
reduced Biomune's investment in the Medical Waste Technologies.
Pursuant to a license agreement dated May 6, 1996, the Company granted a 15-year
license to Biomed Patent Development L.L.C. ("Biomed") for the exclusive use of
a portion of the Medical Waste Technologies, known as the "Sterilization
Technology," in connection with the manufacture and distribution of medical
devices. Under the agreement, the Company will receive royalties for the first
year of the license equal to the greater of (a) 7.5 percent of gross sales or
(b) $45,000. The Company is entitled to receive royalties for all subsequent
years equal to the greater of (a) 0.9 percent of gross sales or (b) $90,000. The
Company will record royalty revenue as payments are received. Biomed has entered
into a license with a third party in settlement of an alleged infringement claim
by such third party relating to the Sterilization Technology and Biomed has
indemnified the Company against any damages resulting from the claims of such
third party. In addition, the Company's liability under this license agreement
has been limited to the aggregate royalties payable to the Company under the
license agreement.
(6) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under noncancelable operating leases which expire
at various dates through 2001. Lease expense for the years ended September 30,
1996, 1995 and 1994, was approximately $121,000, $108,000 and $71,000,
respectively. Future minimum lease commitments as follows:
Year Amount
---- --------
1997 $165,008
1998 169,508
1999 174,233
2000 75,008
2001 22,312
--------
$606,069
========
Litigation
The Company and certain of its officers and directors are currently involved in
a lawsuit filed by a shareholder. On October 12, 1995, a Proposed Class Action
Complaint for Violations of the Federal Securities Laws (the "Sterlin
Complaint") was filed in the United States District Court for the District of
Utah, Central Division, by Roman Sterlin. The Sterlin Complaint names as
defendants the Company, David G. Derrick (the Company's Chief Executive Officer
and Chairman of the Board), Aaron Gold (a director of the Company), Charles J.
Quantz (a director of the Company), Jack D. Solomon (a founder of the Company
and a member of the Company's Business Advisory Board), Genesis Investment
Corporation (a shareholder of the Company) and The Institute for Social &
Scientific Development, Inc. (a shareholder of the Company). The Sterlin
Complaint, among other things, alleges violations of Sections 10(b), 20(a) and
20A(a) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
Rule 10b-5 promulgated under the 1934 Act. The Company believes that the
allegations made in the Sterlin Complaint are baseless and that the Company has
meritorious defenses. The Company intends to vigorously defend against this
lawsuit. The Sterlin Complaint seeks, among other things, an award of
compensatory damages in an unspecified amount and an award of Mr. Sterlin's
costs and expenses incurred in connection with this action. In November 1995,
the Company filed its answer to the Sterlin Complaint and along with Aaron Gold,
Charles J. Quantz and David G. Derrick denied the allegations. On May 10, 1996,
the court ordered the plaintiff to file an amended complaint. The plaintiff
filed his amended complaint in August 1996 alleging violations of Sections
10(b), 20(a) and 20A(a) of the 1934 Act and Rule 10b-5 promulgated thereunder,
and general misappropriation of material nonpublic information. The Company
filed a motion to dismiss the amended complaint on September 25, 1996.
By letter dated April 17, 1995, Yoni Shaked Ashkenazi, a holder of a total of
158,000 shares of Biomune common stock, demanded that the Company repurchase
said shares of common stock for an aggregate of $1,045,000. Mr. Ashkenazi's
demand letter alleges, among other things, that David G. Derrick, the Company's
Chief Executive Officer and Chairman of the Board, wrongfully induced Mr.
Ashkenazi into purchasing such shares of common stock in or about July 1994,
through various alleged false and misleading statements and misrepresentations.
The Company denies any wrongdoing and further denies all of the allegations set
forth in Mr. Ashkenazi's April 17, 1995 demand letter. The Company prepared a
response to Mr. Ashkenazi's April 17, 1995 demand letter and transmitted the
same to Mr. Ashkenazi on or about May 12, 1995. To date, no response to that
letter has been received by the Company.
In the opinion of management, after consultation with legal counsel, the
ultimate outcomes of these two matters are not determinable at this time. The
Company has not accrued any liabilities with respect to these two disputed
matters.
(7) PREFERRED STOCK
Series A Convertible
On November 10, 1993, the Board of Directors amended Biomune's Articles of
Incorporation to designate 1,000,000 preferred shares as Series A 10% Cumulative
Convertible Preferred Stock ("Series A"). During fiscal years 1994 and 1993, the
Company sold a total of 1,000,000 shares of Series A for $5,000,000. The Company
paid commissions of $500,000, which were reflected as a reduction in the amount
recorded as equity. Series A has a 10 percent cumulative dividend and each share
is currently convertible into three shares of common stock. Dividends are
payable each year in either additional shares of Series A at $5 per share or
cash. Shares of Series A became redeemable at the option of the Company on
January 1, 1996 at a price of $5 per share plus any accrued and unpaid
dividends. On March 21, 1995 and July 3, 1996, the Board of Directors amended
the Company's Articles of Incorporation to designate an additional 75,000 and
45,000 shares of Series A, respectively, to be utilized by the Company for stock
dividends accrued on the outstanding shares of Series A. For fiscal years 1996,
1995 and 1994, the Company recorded dividends totaling an aggregate dollar
amount of $76,199, $102,471 and $318,001, respectively. The fiscal year 1996
dividends of $76,199 are accrued as of September 30, 1996 and the fiscal years
1995 and 1994 dividends were paid by issuing 20,494 and 63,600 additional shares
of Series A for each respective year. During fiscal years 1996, 1995 and 1994,
98,738, 181,767 and 668,000 shares of Series A with recorded values of $444,321,
$817,952 and $3,006,000 were converted into 296,214, 545,301 and 2,004,000
shares of common stock, respectively.
Series B Convertible
On April 26, 1994, the Board of Directors amended Biomune's Articles of
Incorporation to designate 1,000,000 preferred shares as Series B 10% Cumulative
Convertible Non-Voting Preferred Stock ("Series B"). During fiscal year 1994,
the Company sold 366,600 shares of Series B for $5,500,000. Commissions of
$550,000 were paid by the Company, and were reflected as a reduction in the
amount recorded as equity. Series B has a 10 percent cumulative dividend and
each share currently is convertible into three shares of common stock. Dividends
are payable each year in either additional shares of Series B or cash. Shares of
Series B became redeemable at the option of the Company on January 1, 1996 at a
price of $15 per share plus any accrued and unpaid dividends. For fiscal years
1996, 1995 and 1994, the Company recorded dividends totaling an aggregate dollar
amount of $15,000, $15,000 and $130,344, respectively. The fiscal year 1996
dividends of $15,000 are accrued as of September 30, 1996 and the fiscal year
1995 and 1994 dividends were paid by issuing 1,000 and 8,690 shares of Series B,
respectively. During fiscal years 1995 and 1994, 8,632 and 356,600 shares of
Series B with recorded values of $116,532 and $4,814,975 were converted into
25,896 and 1,069,800 shares of common stock, respectively.
Series C Convertible
On September 23, 1996, the Board of Directors amended the Company's Articles of
Incorporation to designate 10,000 preferred shares as Series C 8% Cumulative
Convertible Non-Voting Preferred Stock ("Series C"). As of September 30, 1996,
the Company has sold a total of 5,000 shares of Series C for $5,000,000 of which
$1,500,000 was received in cash in September 1996 and $3,500,000 was recorded as
subscriptions receivable for which cash was received by the Company subsequent
to year-end. The Company incurred offering costs of $500,000 which were
reflected as a reduction of the amount recorded as equity. Series C has an 8
percent cumulative dividend payable in cash or in additional shares of Series C
at the discretion of the Board of Directors. A special dividend in the amount of
1 1/2 percent of the stated value of Series C is payable in cash if the shares
of the Company's common stock underlying the Series C have not been registered
with the Securities and Exchange Commission by January 24, 1997. The Series C is
convertible at the investor's option into the number of shares of common stock
determined by dividing $1,000 plus any accrued and unpaid dividends by an amount
equal to the Market Price, as defined in the agreement, less 25%; provided
however, that the discount from the Market Price shall be 20% for all shares
converted prior to January 24, 1997. However, in the event a registration
statement does not become effective by January 24, 1997, the investors will not
be allowed to convert shares into common stock until after January 24, 1997. The
Company has the right to redeem up to 66 2/3 percent of the shares of Series C
beginning 50 days from the date of the closing of the private placement. The
Company's redemption price will be 125% of a conversion price as established by
the Company if the conversion is done prior to January 24, 1997 and 133% of such
price if such conversion occurs after January 23, 1997. In the event of the
Company's liquidation, the Series C shareholder will be entitled to $1,000 per
share plus all accrued and unpaid dividends multiplied by 125% if such
liquidation occurs prior to Janaury 24, 1997 or 133% if such liquidation occurs
after January 23, 1997.
In connection with the sale of Series C, the Company issued warrants to purchase
500,000 restricted shares of the Company's common stock to the purchasers of
Series C. These warrants are exercisable for two years from the date of grant at
$2.81 per share and the Company has the right to repurchase these warrants at
$4.00 per share in accordance with the terms of the Series C Preferred Stock
sale agreement. The Company determined the relative values of the Series C and
common stock warrants which resulted in a value of $328,500 being assigned to
the warrants.
Series D Convertible
In December 1995, Biomune amended its Articles of Incorporation by filing a
designation of rights and preferences of Series D 8% Cumulative Convertible
Non-Voting Preferred Stock ("Series D") with the Nevada Secretary of State. The
Series D consists of 6,000 shares of preferred stock, $.0001 par value per
share. Subject to the rights of the holders of the Company's Series A and Series
B preferred stock, the holders of shares of Series D are entitled to receive an
annual dividend at the rate of 8 percent per annum, payable either in cash or in
additional shares of Series D, at the election of the Company's Board of
Directors.
In December 1995, the Company had signed subscription agreements for 5,200
shares of Series D at $1,000 per share. The Company received a total of $3
million (less certain costs and expenses of the offering, including 200 shares
of Series D, which costs totaled $645,000) on January 3, 1996 in exchange for
3,000 shares of Series D. The Company also received a $2 million non-negotiable
promissory note (the "Note") dated December 17, 1995, payable to the Company on
September 30, 1996 (as extended), without interest, in exchange for 2,000 shares
of Series D. However, the Company had the right to cancel the Note and the sale
of the 2,000 shares of Series D, in whole or in part. Effective September 30,
1996, the Company canceled the Note and the sale of the 2,000 shares of Series
D. Also during fiscal year 1996, the 3,200 issued shares of Series D with a
recorded value of $2,467,936 were converted into 1,884,419 shares of common
stock.
In connection with the sale of Series D, the Company issued warrants to purchase
1,470,588 restricted shares of the Company's common stock to the purchaser of
Series D. These warrants are exercisable for two years from the date of grant at
$2.125 per share. The holder of these warrants has granted the Company an option
to purchase the unexercised portion of these warrants at a price of $2.875 per
share for a period of twelve months from September 30, 1996. The Company
determined the relative values of the Series D and common stock warrants based
on an analysis prepared by the Company's investment bankers which resulted in a
value of $544,773 being assigned to the warrants.
(8) COMMON STOCK TRANSACTIONS
During fiscal years 1996, 1995 and 1994, the Company issued 217,212, 441,438 and
348,000 shares of common stock, respectively, in exchange for services and
bonuses. These issuances have been recorded at prices which represent the fair
market value of the services received or the fair market value of the stock
issued, whichever was more readily determinable.
The Company sold 40,000 30,000, and 412,994 shares of restricted common stock
for $32,500, $67,500 and $454,592 in fiscal years 1996, 1995 and 1994,
respectively. The fiscal years 1996 and 1995 shares issued resulted from the
exercise of existing warrants at prices ranging from $0.33 to $2.25 per share.
The fiscal year 1994 sales included 7,500 shares sold at a price of $4 per share
and 405,494 shares issued through the exercise of existing warrants at prices
ranging from $1 to $4 per share.
At September 30, 1996, certificates for 20,890 shares of the total shares
reflected in the accompanying consolidated financial statements as being issued
and outstanding were not physically issued. However, the Company was obligated
to, and is in the process of, issuing such stock certificates.
(9) STOCK OPTIONS AND WARRANTS
The Company has from time to time granted certain stock options and warrants. A
summary of the stock option and warrant activity for fiscal years 1996, 1995 and
1994 is as follows.
Range of
Number of Exercise Prices
Shares Prices per Share
Options/warrants outstanding at September 30, 1993 3,330,0000 $0.33 - $2.25
Exercised (777,761) $1.00 - $4.00
Canceled (210,000) $2.25
Granted 965,000 $4.00 - $5.00
----------
Options/warrants outstanding at September 30, 1994 3,307,2390 $0.33 - $5.00
Exercised (99,322) $2.25
Canceled (475,400) $2.25 - $3.50
Granted 3,714,700 $2.00 - $6.00
----------
Options/warrants outstanding at September 30, 1995 6,447,2170 $0.33 - $6.00
Exercised (40,000) $0.33 - $2.25
Canceled (460,000) $0.67 - $6.00
Granted 3,374,088 $2.13 - $3.75
----------
Options/warrants outstanding at September 30, 1996 9,321,3050 $1.67 - $6.00
==========
All outstanding options/warrants, except for 50,000 at September 30, 1996, are
exercisable and expire at various dates through September 2001. The 50,000
options, become exercisable in fiscal year 1997.
During fiscal year 1993, the Company adopted the Biomune Systems, Inc. 1992
Stock Incentive Plan and the Biomune Systems, Inc. 1993 Stock Incentive Plan.
During fiscal year 1995, the Company adopted the Biomune Systems, Inc. 1995
Stock Incentive Plan. During fiscal year 1996, the Company adopted the Biomune
Systems, Inc. 1996 Stock Incentive Plan. The 1993, 1995 and 1996 Stock Incentive
Plans provide for the granting of incentive stock options ("ISOs") as defined
under the Internal Revenue Code and nonqualified stock options ("NSOs"). The
1992 Plan only provides for the granting of NSOs. The 1992, 1993, 1995 and 1996
Stock Incentive Plans (collectively, the "Plans") also allow Biomune to award
shares of common stock and designate shares to be purchased by certain
individuals. The Plans are administered by the Board of Directors of the
Company. The Company has designated 900,000 shares of common stock for issuance
under the 1992 plan, 1,500,000 shares under the 1993 plan, 2,250,000 shares
under the 1995 plan and 2,500,000 shares under the 1996 plan. Under the terms of
the Plans, the exercise price for ISOs shall not be less than the fair market
value at the date of grant. The exercise price for NSOs shall not be less than
the lesser of: 1) the book value per share of common stock as of the end of the
fiscal year of Biomune immediately preceding the date of grant, or 2) 50 percent
of the fair market value per share of common stock on the date of grant. Options
are exercisable within periods determined by the Board of Directors but may not
exceed ten years from the date of grant. As of September 30, 1996, 669,000,
334,500, 0 and 1,928,396 shares were available for issuance under the 1992,
1993, 1995 and 1996 plans, respectively. The 1992, 1993, 1995 and 1996 plans
expire in December 1997, September 1998, February 2005 and March 2006,
respectively.
(10) INCOME TAXES
As of September 30, 1996 and 1995, the Company had net operating loss
carryforwards ("NOLs") for federal income tax reporting purposes of
approximately $22,785,000 and $17,297,000, respectively, which result in
deferred tax assets of approximately $8,499,000 and $6,452,000, respectively.
There can be no assurance that all of these NOLs will be available to offset
future taxable income, if any. An NOL generated in a particular year will expire
for federal tax purposes if not utilized within 15 years. Additionally, the
Internal Revenue Code contains other provisions which could reduce or limit the
availability and utilization of these NOLs. For example, limitations are imposed
on the utilization of NOLs if certain ownership changes have taken place or will
take place. In accordance with SFAS No. 109, a valuation allowance is provided
when it is more likely than not that some portion of the deferred tax asset will
not be realized. Due to the uncertainty with respect to the ultimate realization
of the NOLs, the Company established a valuation allowance for the entire amount
of the deferred tax asset.
The Company has determined that as of December 10, 1991 an ownership change (as
that term is defined in Section 382 of the Internal Revenue Code) may have
occurred. The impact of this ownership change is to limit the use of
approximately $3,565,000 of the Company's total NOLs. The Company estimates that
the use of these NOLs would be limited to approximately $502,000 per year (on a
cumulative basis). The NOLs that may have been limited by the possible ownership
change expire in the years and in the amounts indicated below:
Year Year of
Generated Amount Expiration
--------- ------------ ----------
1982 $ 399,000 1997
1983 1,129,000 1998
1984 333,000 1999
1985 10,000 2000
1986 148,000 2001
1987 149,000 2002
1988 137,000 2003
1989 234,000 2004
1990 252,000 2005
1991 226,000 2006
1992 172,000 2007
------------
Total $ 3,189,000
============
The Company's NOLs that are not limited expire in the years and in the amounts
indicated below:
Year Year of
Generated Amount Expiration
--------- ------------ ----------
1992 $ 625,000 2007
1993 6,386,000 2008
1994 3,417,000 2009
1995 3,217,000 2010
1996 5,951,000 2011
------------
$ 19,596,000
============
(11) RELATED-PARTY TRANSACTIONS
Capital Funding Option Arrangement
Subsequent to year-end, the Company granted to each of its Chief Executive
Officer and Vice Chairman of the Board, options in the amount of 100,000 shares
of common stock upon the Company's successful raising of $5 million in gross
capital proceeds. These options were issued at the average of the closing bid
and asked prices of the Company's common stock on the date of grant.
ADP Management Corporation and David G. Derrick
Biomune had an agreement with ADP Management Corporation ("ADP") to manage
Biomune as well as to provide Biomune with a chief executive officer for a
two-year period beginning October 1, 1995. Biomune was obligated to pay ADP
$16,667 per month and reimburse ADP for all direct expenses incurred on behalf
of Biomune.
Effective June 15, 1996, the agreement with ADP was terminated and David G.
Derrick, Chief Executive Officer, was hired as an employee of the Company. The
employment agreement with Mr. Derrick has an initial term that expires on
September 30, 1997. Under the employment agreement Mr. Derrick has a base salary
of $200,000 per year. In addition, during fiscal year 1996, the Company granted
options to purchase 600,000 shares of common stock at $2.00 per share which vest
over the term of the employment agreement. The Company recorded $187,500 of
compensation expense related to those options of which $93,750 is deferred as of
September 30, 1996 and will be recognized over the remaining vesting period of
the options.
Genesis Investment Corporation
The Company has a consulting agreement with Genesis Investment Corporation
("Genesis"), whereby Genesis receives $10,000 per month and reimbursement of any
out-of-pocket expenses, which currently expires August 1, 1997. The services
provided to the Company by Genesis include primarily financial and general
business consulting services and introductions to the scientific, medical,
financial and business communities. The Company recorded consulting expense of
$120,000 in each of the three fiscal years ended September 30, 1996, 1995 and
1994 related to this consulting agreement. Effective October 1, 1996, the
consulting agreement with Genesis was terminated.
During fiscal years 1995 and 1994 the Company made certain loans to Genesis
totaling $2,975,800 and $2,192,552, respectively. These loans were unsecured,
bore interest rates of twelve percent and were repaid to the Company as of
September 30, 1995.
The Institute for Social & Scientific Development, Inc.
During fiscal year 1995, the Company made loans aggregating $77,607 to The
Institute for Social & Scientific Development, Inc. These loans bore interest at
an annual rate of twelve percent and were repaid with interest of $1,655 as of
September 30, 1995.
Federal Land and Development Corporation
During fiscal years 1995 and 1994, the Company made loans totaling $430,000 and
$30,000, respectively, to Federal Land and Development Corporation. These loans
were unsecured and bore interest at an annual rate of twelve percent, and were
due on demand. As of September 30, 1995, $182,811 remained outstanding on these
loans which amount was repaid in full, including interest, to the Company during
fiscal year 1996.
E. Wayne Nelson
On August 1, 1995, Biomune entered into an agreement with E. Wayne Nelson
("Nelson") that extended through September 30, 1996, whereby Nelson provided
services to Biomune as its Corporate Secretary and Treasurer in exchange for
10,800 shares of common stock. Biomune recorded $27,000 of consulting expense
associated with this agreement, of which $23,100 was deferred as of September
30, 1995 and recognized as expense in fiscal year 1996.
James J. Dalton
Biomune entered into an agreement with James J. Dalton ("Dalton"), the Vice
Chairman of the Board, whereby Dalton provided management and financial
consulting services to the Company for the period of March 15, 1994 through
March 15, 1995. Biomune issued options to purchase 75,000 shares of common stock
at an exercise price of $4 per share as compensation for the services performed.
The options were valued at a price determined to be equal to the trading price
of Biomune's common stock on the date the warrants were granted. Effective
October 23, 1996, these options were extended for a five-year period and the
price was adjusted to the average of the bid and asked prices on that date. In
addition, Biomune had committed to pay Dalton $3,000 per month, reimbursement of
expenses, and 50 percent of the net profits of Volu-Sol, if any (after Biomune
had been repaid a $100,000 advance made to Volu-Sol), for a period of three
years after the expiration of this agreement and any extension thereof.
On April 1, 1995, the Company entered into an agreement with Dalton that
extended through April 1, 1996, whereby Dalton provided services in exchange for
$3,000 in cash per month and 72,000 shares of Biomune common stock. The Company
recorded $216,000 of consulting expense associated with the issuance of common
stock, of which $90,000 was deferred as of September 30, 1995 and was recognized
as expense in fiscal year 1996. On July 20, 1995, Dalton received options to
purchase 120,000 shares of common stock at $2.00 per share with a five-year
exercise period.
Effective February 1, 1996, the Company extended its agreement with Dalton
through January 31, 1997 and agreed to pay Dalton $5,000 per month and 6,000
shares of common stock per month (a total of 72,000 shares). In addition, Dalton
received warrants to purchase 100,000 shares of common stock at $2.31 per share.
The Company recorded consulting expense of $175,500 related to the common shares
of which $58,500 was deferred as of September 30, 1996 and will be recognized
over the remaining term of the agreement. The Company recorded $106,000 of
consulting expense related to those warrants of which $35,333 was deferred as of
September 30, 1996 and will be recognized over the remaining term of the
agreement. Effective October 23, 1996, Dalton's remuneration was increased to
$161,000 per year and five-year options were granted to Dalton to purchase
72,000 shares of common stock for employment during each of fiscal year 1997 and
1998 at exercise prices equal to the average bid and asked prices of the
Company's common stock on that date.
During fiscal years 1995 and 1994, Biomune made loans aggregating $175,000 and
$90,000, respectively, to Dalton. These loans were unsecured, bore interest at
an annual rate of twelve percent, and were due on demand. During fiscal years
1996, 1995 and 1994, Dalton made principal and interest payments totaling
$60,000, $16,605 and $90,000, respectively, on these loans. In January 1996, the
Company agreed to eliminate the remaining principal and interest balances on
these loans, which totaled approximately $126,000, in exchange for Dalton's
relinquishment of his rights to receive 50 percent of the future net profits of
Volu-Sol, if any, under the existing consulting agreement.
Christopher D. Illick
Effective March 1, 1996 and expiring on February 28, 1997, the Company entered
into a consulting agreement with Christopher D. Illick ("Illick"), one of the
Company's directors, to provide services in developing and maintaining relations
with institutional investors. The agreement provides that Illick receive 2,250
shares of unrestricted common stock each month (a total of 27,000 shares) during
the twelve month term of the agreement. The Company recorded consulting expense
related to this agreement of $63,280 of which $26,325 was deferred as of
September 30, 1996 and will be recognized over the remaining term of the
agreement.
Other
During fiscal year 1994, Biomune loaned a total of $410,000 to two shareholders
of Biomune. These loans bore annual interest rates of twelve percent. These
amounts and related interest were repaid in full during fiscal year 1995.
(12) OTHER CONSULTING AGREEMENTS
Daliz Associates
In accordance with a consulting agreement with Daliz Associates ("Daliz"),
during fiscal year 1994, the Company issued a total of 174,000 shares of
unrestricted common stock and had agreed to issue an additional 216,000 shares
of common stock. The agreement required Daliz to assist Biomune in locating
business opportunities and extended through April 1995. For various reasons,
Biomune and Daliz terminated the consulting agreement by entering into another
agreement effective as of February 1, 1995. Pursuant to the February 1, 1995
agreement, and during fiscal year 1995, Biomune paid Daliz $150,000 in cash and
issued a total of 140,000 shares of common stock in settlement of Biomune's
obligation under the prior agreement. Also, the February 1, 1995 agreement
required Biomune to pay Daliz $5,000 per month and issue a total of 2,000 shares
of common stock per month for services provided to Biomune thereunder. The
February 1, 1995 agreement expired January 31, 1996. Effective February 1, 1996,
the Company extended the agreement through January 31, 1997 and agreed to pay
Daliz $5,000 per month and issue a total of 2,000 shares of common stock per
month (a total of 24,000 shares). However, this agreement was terminated on
November 4, 1996.
The Company recorded consulting expense totaling $117,400, $76,800 and
$1,104,000 in fiscal years 1996, 1995 and 1994, respectively, under the
agreements. Consulting expense related to common stock issuances under the
agreements was recorded using the fair market value of Biomune stock on the
dates the agreements were executed.
Barretto Pacific Corporation
Effective September 12, 1996, the Company entered into a six-month consulting
agreement with Barretto Pacific Corporation ("Barretto") to provide investment
advisory services. Under the agreement, the Company agreed to pay $90,000 in
cash and issued options to purchase 50,000 shares of common stock at $2.38 per
share. These options are currently exercisable. The Company also issued options
to purchase 50,000 shares of common stock at $3.38 per share, which options will
become exercisable on January 12, 1997. The Company recorded consulting expense
of $35,500 relating to the options of which approximately $32,500 is deferred as
of September 30, 1996 and will be recognized over the remaining term of the
agreement. The options expire March 12, 1997 if not exercised.
On November 1, 1996, in accordance with the agreement, the Company notified
Barretto that it was terminating the agreement. As a result, all options expire
if not exercised by December 12, 1996.
AAM Group, Inc.
On August 11, 1995, the Company entered into an agreement with AAM Group, Inc.
("AAM") that extended through February 10, 1996, whereby AAM provided services
to the Company in exchange for 90,000 shares of Biomune common stock. The
Company recorded $225,000 of consulting expense associated with this agreement.
Allen Lewin
On May 1, 1996, the Company entered into an agreement with Allen Lewin ("Lewin")
to provide consulting services to the Company. In connection with this
agreement, Lewin was granted warrants to purchase 100,000 shares of common stock
at $2.38 per share. The Company recorded consulting expense of $110,000 related
to the issuance of these warrants.
Aurora Consultants, LLC
Effective January 1, 1996, the Company entered into an agreement with Aurora
Consultants, LLC ("Aurora") to provide consulting services through June 1997, as
extended. Aurora is to receive cash for services performed and was granted
warrants to purchase 30,000 shares of common stock at $2.34 per share, which
warrants include "piggyback" registration rights on the underlying shares. The
Company recorded consulting expense of $32,400 related to the issuance of these
warrants.
Allen & Company, Inc.
On June 21, 1995, the Company entered into an agreement with Allen & Company,
Inc. ("Allen") that extended through June 20, 1996, whereby Allen provided
services to the Company in exchange for warrants to purchase 1,000,000 shares of
Biomune common stock exercisable at $2.25 per share. The fair market value on
June 21, 1995 was $2.63 per share. The Company recorded $375,000 of consulting
expense associated with this agreement, of which $273,400 was deferred as of
September 30, 1995 and recognized as expense during fiscal year 1996. Also, as
part of this agreement, the Company paid Allen $37,500 in cash per quarter. The
warrants expire on June 21, 2000 if not exercised.
Alan Sarroff
During fiscal year 1995, Biomune issued warrants to purchase 250,000, 125,000
and 125,000 shares of Biomune's common stock at $2.375 (the fair market value of
the common stock on the date of grant), $4.00 and $6.00 per share, respectively,
in exchange for $10,000 in cash and consulting services provided to the Company
by Alan Sarroff. During fiscal year 1996, the Company modified the exercise
price on the warrants to purchase 125,000 shares at $4.00 and 125,000 shares at
$6.00, both to an exercise price of $3.00 per share. The expiration date was
also extended to August 1, 2001. In connection with these modifications, the
Company recorded consulting expense of $182,500.
Replicate Management Group
On July 26, 1995, the Company entered into an agreement with Replicate
Management Group ("RMG") that extended through June 30, 1996, whereby RMG
provided services to the Company in exchange for warrants to purchase 175,000
shares of Biomune's common stock at $2.00 per share. The fair market value of
the common stock on July 26, 1995 was $2.00. The Company did not recognize any
consulting expense related to this agreement. The warrants expire on July 26,
1998 if not exercised by RMG.
David Pomerantz
On February 1, 1995, the Company entered into an agreement with David Pomerantz
("Pomerantz") that extended through December 31, 1995, whereby Pomerantz
provided services to the Company in exchange for 60,000 shares of common stock.
The Company recorded $140,000 of consulting expense associated with this
agreement, of which $38,200 was deferred as of September 30, 1995 and recognized
in fiscal year 1996.
Consolidated General Ltd.
Effective October 23, 1996, the Company entered into a one-year consulting
agreement with Consolidated General Ltd. In exchange for consulting services to
be rendered, the Company agreed to issue 200,000 shares of restricted common
stock with "piggy back" registration rights. The agreement allows for
termination at the option of the Company upon five days written notice in which
instance the compensation would be pro rated to the termination date.
(13) SIGNIFICANT CUSTOMER
During fiscal years 1996, 1995 and 1994, sales to Barret Healthcare Corporation
("Barret") accounted for approximately 12 percent, 17 percent and 15 percent,
respectively, of the Company's total revenues. No other single customer
accounted for more than 10 percent of the Company's total revenues in any of the
years presented. During fiscal year 1996, the Company discontinued selling
products to Barret and wrote off outstanding accounts receivable balances of
approximately $55,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of October 14, 1996, the directors and executive officers of the Company
were as follows:
Name Age Position
- ------------------------- --- ---------------------------------------
David G. Derrick 44 Chief Executive Officer,
Director and Chairman of the Board
James J. Dalton 54 Director and Vice Chairman of the Board
Milton G. Adair 63 President and Director
Frank A. Eldredge, Ph.D. 56 Executive Vice President--
New Product Development
E. Wayne Nelson 53 Secretary and Treasurer
Michael G. Acton 33 Chief Financial Officer and Controller
Thomas Q. Garvey III, M.D. 54 Director
Dr. Aaron Gold 69 Director
Charles J. Quantz 69 Director
Christopher D. Illick 57 Director
- ---------------------
A brief biographical summary of each of the Company's officers and
directors follows:
David G. Derrick. Mr. Derrick served as the Company's President from May
1989 through December 1995 and has served as its Chief Executive Officer since
January 1996. Mr. Derrick has also served as the Chief Executive Officer of
Optim since May 1, 1996. Prior to his service to the Company, Mr. Derrick was
the Managing Partner of Derrick Enterprises, a real estate development and
management services company, from April 1980 until September 1988. Prior to
organizing Derrick Enterprises, Mr. Derrick was a partner in Kirton Land
Company, an investment and real estate development company, from September 1976
until April 1980. Mr. Derrick also currently serves as President of Derrick
Properties Corporation, an investment company, and has served in that capacity
since 1986. Due primarily to adverse real estate conditions, Mr. Derrick filed a
petition for relief under Chapter 7 of the United States Bankruptcy Code in
1990, and received a discharge in that same year. From September 1979 to June
1983, Mr. Derrick was a faculty member at the University of Utah College of
Business, Department of Finance. Mr. Derrick graduated from the University of
Utah College of Business with a Bachelor of Science degree in Economics in 1975
and with a Masters in Business Administration degree with an emphasis in Finance
in 1976.
James J. Dalton. Mr. Dalton has served as a director of the Company and as
the Vice Chairman of the Board since February 1996. He has also served as a
director of Optim and as the Vice Chairman of its Board of Directors since May
1996. Mr. Dalton has been a consultant to the Company since April 1993 and
served as General Manager of Volu-Sol from that date until January 1996. From
1987 to present, Mr. Dalton has been the owner and President of Dalton
Development, a real estate development company, and in that capacity has
developed and managed several real estate projects.
Milton G. Adair. Mr. Adair has been the Company's President since January
1996 and has served as a director since February 1996. In addition, Mr. Adair
also has served as the Secretary and Treasurer of Volu-Sol since May 1, 1996 and
has been a director of and served as the President of Optim since May 1, 1996.
From October 1990 to June 1995, Mr. Adair was President and Chief Executive
Officer of Gull Laboratories, Inc., a medical diagnostic company. From 1984 to
1991, Mr. Adair was President and Chief Executive Officer of Mountain Medical
Equipment, Inc., a home health care medical equipment company. In addition, Mr.
Adair has 15 years of pharmaceutical sales and marketing experience with Pfizer,
Inc. and seven years of immunoassay and medical products experience with
Becton-Dickinson. Mr. Adair graduated from the College of the Pacific in 1955
with a Bachelor of Arts degree in Business Administration and a minor in
Psychology.
Frank A. Eldredge, Ph.D. Dr. Eldredge has been the Company's Executive Vice
President--New Product Development since October 1994. From April 15, 1993 to
October 1994, Dr. Eldredge was one of the primary scientific consultants to the
Company. Prior to serving as scientific consultant to the Company, Dr. Eldredge
spent 14 years in the medical products development field. Between 1991 and 1993,
Dr. Eldredge was an independent scientific consultant in the medical and health
video industry. Dr. Eldredge received a Ph.D. degree in Genetics and Applied
Sciences from the University of Utah in 1972.
E. Wayne Nelson. Since June 1993, Mr. Nelson has provided services to the
Company as corporate Secretary and has served as Treasurer since October 1994.
From April 1992 to June 1993, Mr. Nelson served as the Company's corporate
Secretary and Chief Financial Officer. Mr. Nelson has been employed as a Temple
Recorder for the Corporation of the President of the Church of Jesus Christ of
Latter-day Saints (the holding company for The Church of Jesus Christ of
Latter-day Saints) since January 1996. From May 1992 to December 1995, while
also serving as the Company's corporate Secretary and Treasurer, Mr. Nelson was
the Chief Executive Officer of the Utah Health Cost Management Foundation. Prior
to joining the Company in April 1992, Mr. Nelson was President and Chief
Executive Officer of Comlink International Corporation, a computer company
located in Salt Lake City, Utah.
Michael G. Acton, CPA. Mr. Acton has been Chief Financial Officer and
Controller of the Company since October 1994. He also has been the President of
Volu-Sol since March 15, 1996. 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.
Thomas Q. Garvey III, M.D. Dr. Garvey has been a director of the Company
since April 1994 and has served on the Company's Scientific Advisory Board and
as a scientific and regulatory consultant to the Company since November 1992.
Dr. Garvey has also served as a director of Optim since May 1, 1996. Dr. Garvey
has been a gastroenterologist in private medical and scientific consulting
practice with Garvey Associates, Inc. in Potomac, Maryland since 1981. Prior to
that time, Dr. Garvey was the Supervisory Medical Officer of the Cardiorenal
Drug Products, Center of Drug Evaluation at the FDA for approximately five
years. Prior to that he was in private practice with the Massachusetts General
Hospital in Boston, Massachusetts and with the National Cancer Institute at the
National Institute of Health. As a consultant to various pharmaceutical
companies, Dr. Garvey has developed, written and consulted on many new drug
applications. Dr. Garvey assisted the Company in preparing its IND on
BWPT-301(TM) for the treatment of cryptosporidiosis in individuals with AIDS and
the development of the protocols for the clinical trials on BWPT-301(TM) and
BWPT-302(TM).
Dr. Aaron Gold. Dr. Gold has been a director of the Company since April
1984 and a director of Optim since May 1, 1996. Dr. Gold has been a businessman
and religious leader in San Diego, California since 1974. Between July 1974 and
September 1992, Dr. Gold was a rabbi with the Tiferth Israel Synagogue in San
Diego, California. From July 1994 to the present he has been a rabbi with the
Nertamid Synagogue in Rancho Bernardo, California. He holds a Doctor of Divinity
degree from the Jewish Theological Seminary of America. He also holds a
Doctorate in Philosophy from Columbia University.
Charles J. Quantz. Mr. Quantz has been a director of the Company since
April 1984 and a director of Optim since May 1, 1996. Mr. Quantz was a
practicing attorney in California for 26 years prior to his retirement in 1981.
In 1991, Mr. Quantz filed bankruptcy under Chapter 7 of the United States
Bankruptcy Code and was discharged in bankruptcy that same year.
Christopher D. Illick. Mr. Illick has been a director of the Company since
February 1995 and a director of Optim since May 1, 1996. Mr. Illick has been a
limited partner in the investment banking firm of Oakes Fitzwilliams & Co., L.P.
in New York City, New York, since March 1995. He has also been a general partner
of Illick Brothers, a real estate and management concern, since 1965, and was
the founder and President of the U.S. subsidiary of Robert Fleming Holding
Limited, of London, England, from 1973 to 1983. Mr. Illick is also a member of
the Board of Directors of National Transaction Network, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established a Compensation Committee and an Audit
Committee. The Board of Directors does not have and does not intend to establish
a Nominating Committee, and such functions will continue to be performed by the
entire Board of Directors.
Compensation Committee. The Compensation Committee makes recommendations to
the Board of Directors with respect to the compensation of management employees
and administers plans and programs relating to employee benefits, incentives and
compensation. The Compensation Committee also determines the persons to whom
options should be granted under the Company's stock option plans and the number
of options to be granted to each person. The current members of the Compensation
Committee are David G. Derrick, Thomas Q. Garvey III, M.D., and Christopher D.
Illick. Mr. Derrick abstains from all votes of the Compensation Committee with
respect to his compensation package.
Audit Committee. The Audit Committee makes recommendations to the Board of
Directors with respect to the engagement of the Company's independent public
accountants and reviews the scope and effect of the audit engagement. The
current members of the Audit Committee are David G. Derrick, Charles J. Quantz
and Christopher D. Illick.
SCIENTIFIC ADVISORY BOARD
The Company has assembled a Scientific Advisory Board comprised of medical
practitioners and distinguished academicians and scientists in the field of
medicine to assist the Company with the development of its pharmaceutical drug
candidates and nutraceutical products. The Company's management periodically
consults with members of the Scientific Advisory Board as and when needed with
respect to issues arising within a particular member's area of expertise.
Although the Company periodically receives guidance from certain of the members
of the Scientific Advisory Board, all of the members of the Company's Scientific
Advisory Board except David O. Lucas, Ph.D., Thomas Q. Garvey III, M.D. and
Allan H. Barker, M.D., are employed on a full-time basis by others and,
accordingly, are able to devote only a small portion of their time to the
Company. David O. Lucas, Ph.D. currently provides approximately 80 hours per
month advising the Company, while Thomas Q. Garvey III, M.D. provides
approximately 5 hours per month and Allan H. Barker, M.D. provides approximately
50 hours per month advising the Company. None of the members of the Scientific
Advisory Board are members of the Company's Board of Directors except Thomas Q.
Garvey III, M.D., biographical information with respect to whom is set forth
above. Each member of the Scientific Advisory Board has entered into a
Confidentiality Agreement with the Company and has agreed not to disclose any of
the Company's confidential information during the period in which such person
serves on the Scientific Advisory Board and for a period of five years
thereafter. The members of the Scientific Advisory Board with whom the Company
consulted during fiscal 1996 are as follows:
Allan H. Barker, M.D. Dr. Barker has been a Clinical Associate Professor of
Internal Medicine at the University of Utah, College of Medicine since 1965, and
the President of the Salt Lake Clinic Research Foundation since 1967. Dr. Barker
has over 40 years of experience in the field of internal medicine and has been
the principal investigator in over 30 drug study projects and has overseen
clinical trials on over 36 drugs. Dr. Barker has published approximately 40
books and papers primarily on the subject of internal medicine.
Erwin W. Gelfand, M.D. Dr. Gelfand has been the Chairman of the Department
of Pediatrics, National Jewish Center for Immunology and Respiratory Medicine in
Denver, Colorado and has also been a professor of microbiology and immunology at
that institution. Dr. Gelfand has written over 300 published books and papers on
these subjects. Dr. Gelfand was a research fellow at Harvard Medical School and
at the Max Planck Institute in West Germany.
David O. Lucas, Ph.D. Dr. Lucas has been the President of PediaPharm
Corporation, a development stage pharmaceutical company based in California,
since 1994. Dr. Lucas has over 25 years of experience in the fields of
microbiology and immunology and serves as a consultant to Technology Resources
Group, a biomedical company based in California. From 1991 to 1994, Dr. Lucas
was Vice President of the Children's Hospital Medical Center of Northern
California, and prior to that, from 1986 to 1990, was Vice President of PTI, the
company from which the Company licenses the Technology pursuant to the License.
From 1970 to 1986, Dr. Lucas was an associate professor of Microbiology and
Immunology at the University of Arizona, College of Medicine. While at the
University of Arizona, Dr. Lucas and Dr. Gerald Stott began research on what
ultimately resulted in the Technology. Dr. Lucas is a named inventor on the
patents that are the subject of the License with PTI.
Joseph A. Smith, Jr., M.D. Dr. Smith has been Professor of Surgery and
Chairman of the Department of Urology at the Vanderbilt University Medical
Center in Nashville, Tennessee since 1991. Prior to that time, Dr. Smith was a
Professor of Surgery and Chairman of the Division of Urology at the University
of Utah Medical Center. Dr. Smith was a research fellow at the Memorial
Sloan-Kettering Cancer Center in New York. Dr. Smith specializes in the
treatment of cancer and immune-compromised patients as a result of chemotherapy
treatment. He has written and published 105 articles, participated in writing 48
books and is the sole author of nine books.
Thomas Q. Garvey III, M.D. Please refer to biographical information set
forth above. See Item 10, "Directors and Executive Officers of the Registrant",
subheading "Thomas Q. Garvey III, M.D."
Except for (1) David O. Lucas, Ph.D., who is a party to a Consulting
Agreement with the Company, (2) Thomas Q. Garvey III, M.D., who has a separate
agreement with the Company, and (3) Allan H. Barker, M.D., who has a separate
agreement with the Company, members of the Scientific Advisory Board are paid
either $250 per hour or $1,000 per day for their services, depending on the
individual. Dr. Lucas's Consulting Agreement provides for the payment of $5,000
per month for his services and the issuance of shares of the Company's Common
Stock with an aggregate fair market value of $4,000 for each three month period
during the term of his Consulting Agreement. The term of Dr. Lucas's Consulting
Agreement expires on December 31, 1996. Dr. Garvey's agreement with the Company
provides for the payment of $400 per hour, $1,500 per half-day and $3,000 per
full day for his services. Dr. Barker's agreement with the Company provides for
the payment of $250 per hour.
BUSINESS ADVISORY BOARD
The Company has also established a Business Advisory Board, the purpose of
which is to advise the Company's management and the Board of Directors regarding
the Company's development and future growth. None of the members of the Business
Advisory Board are members of the Company's Board of Directors. The Company's
management periodically consults with members of the Business Advisory Board, as
and when necessary. The members of the Business Advisory Board with whom the
Company consulted during fiscal 1996, including a brief biographical summary of
each member, are as follows:
Royden G. Derrick. Mr. Derrick has been a prominent business and civic
leader. Mr. Derrick has served on numerous boards, including as Chairman of the
Board of U & I Corporation, member-director of the Federal Reserve, Salt Lake
City Branch and as a director of First Security Corporation. He founded and
owned Western Steel Company, which eventually merged into Joy Manufacturing. As
a civic leader, Mr. Derrick was Chairman of the University of Utah Board of
Regents, Chairman of Partners of the Americas and a General Authority for The
Church of Jesus Christ of Latter-day Saints. Royden G. Derrick is David G.
Derrick's father.
David A. Duke, Ph.D. Mr. Duke is now retired, but formerly was
Vice-Chairman of Corning, Incorporated, with responsibility for Corning's
worldwide technology and materials management. In addition to serving on
Corning's Executive Committee and Board of Directors, Mr. Duke is a member of
the boards of Dow Corning Corporation, Siecor Corporation and Armco, Inc., in
addition to being a Trustee of the Corning Foundation and a member of several
advisory committees. He played a key role in the development of fiber optics and
opto- electronic technologies and helped make Corning a leader in this field.
Wilford W. Kirton, Jr., J.D. Mr. Kirton is a prominent lawyer who founded
the Salt Lake City, Utah- based law firm of Kirton & McConkie. Mr. Kirton has
served on numerous boards, including Lawyers Title Company, Murdock Travel and
the American Bar Association.
E. Wayne Nelson. Mr. Nelson currently works part-time as the Company's
corporate Secretary and Treasurer. See Item 10, "Directors and Executive
Officers of the Registrant", subheading "E. Wayne Nelson", above.
John M. Sabin, J.D., M.B.A. Mr. Sabin is an attorney and Certified Public
Accountant and is presently Vice President--Finance for Manor Care, Inc. Prior
to that, Mr. Sabin was an adjunct professor at the University of Arizona and at
Brigham Young University. Mr. Sabin was a founder and is an officer of the
Adheron Corporation, which is in the business of researching patented marine
biotechnology. Mr. Sabin has been a member of the Company's Business Advisory
Board since 1992.
Jacob ("Jack") D. Solomon. Mr. Solomon was one of the Company's founders
and has served as a consultant to the Company since its incorporation. Mr.
Solomon was also a founder and director of First Federal Financial Corporation
and the American Bank of Commerce. He has been Chairman and Chief Executive
Officer of Federal Electronics Corporation, International Technical Development
Corporation and Advanced Patent Technology Corporation. Mr. Solomon has served
on numerous corporate boards, including Cinecolor Corporation, Western
Transistor Corporation and Federal Research and Development Corporation. During
the Johnson and Kennedy Administrations, Mr. Solomon was the National Director
of the Equal Opportunities Foundation. See Item 13, "Certain Relationships and
Related Transactions", below.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company of David G. Derrick, the Chief
Executive Officer, and Allan H. Barker, M.D., the former Executive Vice
President--Research and Clinical Trials, the only executive officers of the
Company whose total annual salary and bonuses exceeded $100,000 during the
relevant period (collectively, the "Named Officers"), for the fiscal years ended
September 30, 1996, 1995 and 1994. No other current or former executive officer
of the Company received salary or bonus compensation exceeding $100,000 in any
of the referenced periods. No options or long-term incentive plan awards were
granted or made to the referenced executive officers during the referenced
periods, except as provided below:
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------------- ----------------------------------
Awards Payouts
<CAPTION>
---------------------- -----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------------------------------------------------------------------------------------------------------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Principal Position Year(1) Salary Bonus Compensation Awards SARs(#) Payouts ($) Compensation($)
- --------------------------- ------- ------ ----- ------------ ------- -------- ----------- ---------------
($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David G. Derrick, 1996 $203,000(2) -0- -0- -0 600,000 -0- -0-
Chief Executive Officer 1995 $150,000 -0- -0- -0- 580,000 -0- -0-
Chairman of the Board(3) 1994 $120,000 -0- -0- -0- -0- -0- -0-
Allan H. Barker, M.D., 1996 $126,625 -0- -0- -0- 21,622(4) -0- -0-
former Executive 1995 -- -0- -0- -0- -- -0- -0-
Vice President-- 1994 -- -0- -0- -0- -- -0- -0-
Research and Clinical
Trials(5)
</TABLE>
- ------------------------
(1) As of September 30th of each of the fiscal years indicated.
(2) Represents salary pursuant to the June 15, 1996 Employment and
Non-Competitive Agreement plus $3,000 in director's fees paid to Mr. Derrick
between October 1, 1995 and June 15, 1996, during which time Mr. Derrick was
the Chairman of the Board but not an employee of the Company.
(3) Pursuant to a Management Agreement between the Company and ADP Management
Corporation ("ADP"), during fiscal 1994 and fiscal 1995, as well as through
June 15, 1996, ADP provided the Company with the management and
administrative services necessary to manage the daily business operations
and affairs of the Company and, in addition, furnished the Company with a
president or chief executive officer (i.e., David G. Derrick). The
Management Agreement with ADP was terminated effective as of June 15, 1996.
While that Management Agreement was in force, the Company's Board of
Directors determined the dollar amount of compensation that was paid to Mr.
Derrick (through ADP). Mr. Derrick and his wife own ADP. See "Certain
Relationships and Related Transactions-- Transactions with Management and
Others," subheading, "ADP Management Corporation and David G. Derrick",
below. Mr. Derrick resigned as the Company's President effective December
31, 1995, but continues in the capacity as the Company's Chief Executive
Officer and as Chairman of the Board of Directors.
(4) Represents 21,622 shares of the Company's Common Stock granted to Dr. Barker
by Letter Agreement dated effective as of October 1, 1995 that were issued
for medical consultation services to be provided through May 31, 1996.
(5) Dr. Barker resigned as Executive Vice President--Research and Clinical
Trials effective as of February 12, 1996 but continued as a consultant to
the Company after that date.
In addition to the Named Officers listed in the above Summary Compensation
Table, the following officers, directors and employees of the Company were
granted options in the amounts and exercise prices indicated below during fiscal
1996: (a) James J. Dalton, Vice Chairman of the Board -- 100,000 options at
$2.31 per share; (b) Milton G. Adair, President and director -- 75,000 options
at $2.34 per share; (c) Frank A. Eldredge, Executive Vice President--New Product
Development -- 20,000 options at $2.31 per share; (d) E. Wayne Nelson, Secretary
and Treasurer -- 10,800 options at $2.50 per share; (e) Christopher D. Illick,
director -- 15,750 options at $2.34 per share; (f) R. James Jones, Executive
Vice President of Optim Nutrition -- 60,000 options at $2.50 per share and
20,000 options at $2.25 per share; (g) Cynthia Donovan, Regulatory Affairs
Specialist -- 2,500 options at $2.34 per share; (h) Treesa J. Parker, Operations
Manager for Optim Nutrition -- 2,000 options at $2.25 per share; (i) Jeffrey S.
Smith, Corporate Dietitian for Optim Nutrition -- 3,000 options at $2.25 per
share; (j) Eric S. Cohan, Eastern Region Sales Manager for Optim Nutrition --
5,000 options at $2.25 per share; (k) Dawn T. Purdue, Director of Production
Operations for Optim Nutrition -- 5,000 options at $2.25 per share; (l) Saundra
J. Biggs, Assistant Product Manager for Optim Nutrition -- 500 options at $2.25
per share; and (m) David W. Fredricks, Shipping/Receiving Coordinator -- 500
options at $2.25 per share.
EMPLOYMENT AGREEMENT WITH DAVID G. DERRICK
The Company employed the services of David G. Derrick pursuant to a
Management Agreement with ADP through and until June 15, 1996. Such Management
Agreement was terminated as of such date and replaced by an Employment and
Non-Competition Agreement between the Company and Mr. Derrick. The initial term
of that Employment and Non-Competition Agreement expires on September 30, 1997.
That Employment and Non- Competition Agreement employs Mr. Derrick as the
Company's Chief Executive Officer and requires him to provide specified services
to the Company, including, but not limited to, negotiating all business and
financial transactions, investment banking agreements, secondary stock
offerings, and private placement transactions. Pursuant to that Employment and
Non-Competition Agreement, the Company has agreed to pay Mr. Derrick a base
salary of $200,000 per year and to provide Mr. Derrick with the same benefits
that other employees of the Company are given. Mr. Derrick was also granted an
option, as of December 20, 1995, to purchase up to 600,000 shares of the
Company's Common Stock, 300,000 shares of which became vested and exercisable on
September 30, 1996 and the remaining 300,000 of which will vest and become
exercisable on September 30, 1997.
All of the Company's executive officers and directors have entered into
Confidentiality Agreements with the Company and have agreed not to disclose any
of the Company's confidential information during the period of service with the
Company and for a period of five years thereafter.
On May 1, 1989, the Company entered into a Management Agreement with ADP
pursuant to which ADP agreed to provide the Company with a president or chief
executive officer and to provide management and administrative services to the
Company initially for $6,000 per month (subsequently increased to $12,500 per
month) plus reimbursement of all expenses associated with the management of the
Company. In addition, effective at the beginning of fiscal 1996, the management
fee under the ADP Management Agreement was increased to $16,667 per month until
it was terminated on June 15, 1996.
In December 1992, July 1993, February 1995 and March 26, 1996, the
Company's Board of Directors approved the 1992 Stock Incentive Plan, the 1993
Stock Incentive Plan, the 1995 Stock Incentive Plan, and the 1996 Stock
Incentive Plan, respectively. Under the 1992 Stock Incentive Plan and the 1993
Stock Incentive Plan, non-qualified stock options could be granted and stock
bonuses or issuances made to qualified recipients, while under the 1995 Stock
Incentive Plan and the 1996 Stock Incentive Plan, incentive stock options and
non-qualified stock options could be granted and stock bonuses or issuances made
to qualified recipients. As of September 30, 1996, 669,000 shares of the
Company's Common Stock (on a post-split basis) were reserved for issuance under
the 1992 Stock Incentive Plan, 334,500 shares of Common Stock (on a post-split
basis) were reserved for issuance under the 1993 Stock Incentive Plan, -0-
shares of Common Stock (on a post-split basis) were reserved for issuance under
the 1995 Stock Incentive Plan, and 1,928,396 shares of Common Stock (on a
post-split basis) were reserved for issuance under the 1996 Stock Incentive
Plan.
STOCK OPTION AND STOCK APPRECIATION RIGHTS
The following table sets forth information concerning the grant of stock
options and stock appreciation rights (SARs) made under the Company's 1995
Incentive Stock Option Plan for the fiscal year ended September 30, 1996 to the
Named Officers:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed
Annual Rates of Stock Price
<CAPTION>
Individual Grants Appreciation for Option Term
- ------------------------------------------------------------------------------------------ ----------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/SA
Securities Rs
Underlying Granted to Market Price
Options/SARs Employees Exercise or on Date of
Granted (#) in Fiscal Base Price Grant Expiration
Name Year ($/Share) ($/Share) Date 5% ($) 10% ($) 0% ($)
- ------------------ ------------- ------------- ------------ ------------- ----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David G. Derrick 600,000 75.6% $2.00 $2.31 12/20/2000 $255,300 $324,600 $186,000
Allan H. Barker, M.D. -0- -- -- -- -- -- -- --
</TABLE>
EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION COMMITTEE
Notwithstanding anything to the contrary set forth in any of the previous
filings made by the Company under the 1933 Act or the 1934 Act that might
incorporate future filings, including, but not limited to, this Annual Report on
Form 10-K, in whole or in part, the following Executive Compensation Report and
the performance graph appearing herein shall not be deemed to be incorporated by
reference into any such future filings.
This Executive Compensation Report discusses the Company's executive
compensation policies and the basis for the compensation paid to the Company's
executive officers, including its Chief Executive Officer, David G. Derrick,
during the fiscal year that ended September 30, 1996.
Compensation Policy
The Company's policy with respect to executive compensation has been
designed to:
o Adequately and fairly compensate executive officers in relation to their
responsibilities, capabilities and contributions to the Company and in a
manner that is commensurate with compensation paid by companies of
comparable size or within the Company's industry;
o Reward executive officers for the achievement of short-term operating goals
and for the enhancement of the long-term value of the Company; and
o Align the interests of the executive officers with those of the Company's
shareholders with respect to short-term operating goals and long-term
increases in the price of the Company's Common Stock.
The components of compensation paid to executive officers consists of: (a)
base salary, (b) incentive compensation in the form of annual bonus payments and
stock options awarded by the Company under the Company's Stock Incentive Plans
and (c) certain other benefits provided to the Company's executive officers. The
Company's Compensation Committee is responsible for reviewing and approving cash
compensation paid by the Company to its executive officers and members of the
Company's senior management team, including annual bonuses and stock options
awarded under the Company's Stock Incentive Plans, selecting the individuals who
will be awarded bonuses and stock options under the Stock Incentive Plans, and
for determining the timing, pricing and amount of all stock options granted
thereunder, each within the terms of the Company's Stock Incentive Plans.
The Company's executive compensation program has historically emphasized
the use of incentive-based compensation to reward the Company's executive
officers and members of senior management for the achievement of goals
established by the Board of Directors. The Company uses stock options to provide
an incentive for a substantial number of its officers and employees, including
selected members of management, and to reward such officers and employees for
achieving goals that have been established for the Company. The Company believes
its incentive compensation plan rewards management when the Company and its
shareholders have benefited from achieving the Company's goals and targeted
research and development objectives, all of which the Compensation Committee
feels will dictate, in large part, the Company's future operating results. The
Compensation Committee believes that its policy of compensating officers and
employees with incentive-based compensation fairly and adequately compensates
those individuals in relation to their responsibilities, capabilities and
contribution to the Company, and in a manner that is commensurate with
compensation paid by companies of comparable size or within the Company's
industry.
Components of Compensation
The primary components of compensation paid by the Company to its executive
officers and senior management personnel, and the relationship of such
components of compensation to the Company's performance, are discussed below:
Base Salary. Each year the Compensation Committee reviews and approves the
base salary paid by the Company to its executive officers and members of the
senior management team. Annual adjustments to base salaries are determined based
upon a number of factors, including the Company's performance (to the extent
such performance can fairly be attributed or related to each executive's
performance), as well as the nature of each executive's responsibilities,
capabilities and contributions. In addition, the Compensation Committee
periodically reviews the base salaries of its senior management personnel in an
attempt to ascertain whether those salaries fairly reflect job responsibilities
and prevailing market conditions and rates of pay. The Compensation Committee
believes that base salaries for the Company's executive officers have
historically been reasonable in relation to the Company's size and performance
in comparison with the compensation paid by similarly sized companies or
companies within the Company's industry.
Incentive Compensation. As discussed above, a substantial portion of each
executive officer's compensation package is in the form of incentive
compensation designed to reward the achievement of short-term operating goals
and long-term increases in shareholder value. The Company's Stock Incentive
Plans allow the Board of Directors or the Compensation Committee to grant stock
options to executive officers and employees for the purchase of shares of the
Company's Common Stock. Under the terms of the Stock Incentive Plans, the Board
of Directors and the Compensation Committee have authority, within the terms of
the Stock Incentive Plans, to select the executive officers and employees who
will be granted stock options and to determine the timing, pricing and number of
stock options to be awarded. The Compensation Committee believes that the stock
options granted under the Stock Incentive Plans reward executive officers only
to the extent that shareholders have benefited from increases in the value of
the Company's Common Stock.
Other Benefits. The Company maintains certain other plans and arrangements
for the benefit of its executive officers and members of senior management. The
Company believes these benefits are reasonable in relation to the executive
compensation practices of other similarly sized companies or companies within
the Company's industry.
Compensation of the Chief Executive Officer
The Company had a Management Agreement with ADP Management Corporation
("ADP"), pursuant to which ADP agreed to manage the Company and provide it with
a president or chief executive officer for a two-year period beginning October
1, 1995. The Company was obligated to pay ADP $16,667 per month and reimburse
ADP for all direct expenses incurred on the Company's behalf. The Management
Agreement with ADP was terminated effective as of June 15, 1996 and at that time
David G. Derrick, the Company's Chief Executive Officer, became an employee of
the Company pursuant to an Employment and Non-Competition Agreement dated
effective as of June 15, 1996. Prior to June 15, 1996, David G. Derrick was made
available to the Company by ADP pursuant to the Management Agreement with ADP.
ADP is owned 10% by Mr. Derrick and 90% by Mr. Derrick's wife. The Employment
and Non-Competition Agreement with Mr. Derrick has an initial term that expires
on September 30, 1997 and provides for a monthly base salary of $16,667 (or
$200,000 per year). The Compensation Committee believes that Mr. Derrick's
monthly compensation adequately and fairly compensates Mr. Derrick in relation
to his responsibilities, capabilities, contributions and dedication to the
Company and secures for the Company the benefit of Mr. Derrick's leadership,
management and financial and fund raising skills and capabilities. Moreover, the
Compensation Committee believes that Mr. Derrick's monthly base salary under his
Employment and Non- Competition Agreement with the Company is reasonable in
relation to Mr. Derrick's responsibilities, capabilities, contributions and
dedication to the Company and is warranted to keep Mr. Derrick's annual salary
in line with the compensation earned by chief executive officers employed by
companies of comparable size or within the Company's industry.
Mr. Derrick did not receive a bonus during fiscal 1996. However, in
December 1995, Mr. Derrick was granted stock options under the 1996 Stock
Incentive Plan for a total of 600,000 shares of Common Stock at $2.00 per share.
Based upon these factors and considering the leadership, management and
financial and fund raising skills and capabilities and individual efforts of Mr.
Derrick in guiding the overall performance and development of the Company, as
well as recognizing his continuing and increasingly active role in representing
the Company in the business and financial communities, the Compensation
Committee elected to pay Mr. Derrick a monthly base salary of $16,667 in his
Employment and Non-Competition Agreement.
Conclusion
The Compensation Committee believes that the concepts discussed above
further the shareholders' interests because a significant part of executive
compensation is based upon the Company achieving its research and development
goals and other specific goals set by the Board of Directors. At the same time,
the Compensation Committee believes that the program encourages responsible
management of the Company in the short-term. The Compensation Committee
regularly considers plan design so that the total program is as effective as
possible in furthering shareholder interests. The Compensation Committee bases
its review on the experience of its own members, on information requested from
management personnel, and on discussions with and information compiled by
various independent consultants retained by the Company.
Compensation Committee:
David G. Derrick
Thomas Q. Garvey III, M.D.
Christopher D. Illick
STOCK PERFORMANCE GRAPH
The following graph compares the yearly cumulative total returns from the
Company's Common Stock during the five fiscal year period ended September 30,
1996, with the cumulative total return on the Media General Index and the
Standard Industrial Classification (SIC) Code Index for that same period. The
comparison assumes $100 was invested on October 1, 1991 in the Company's Common
Stock and in the Common Stock of the companies in the referenced Indexes and
further assumes reinvestments of dividends.
[LINE GRAPH]
In the printed graph, there is a line chart representing the following:
BIOMUNE SYSTEMS, MEDIA GENERAL
INC. INDEX SIC CODE INDEX
10/1/91 100.00 100.00 100.00
10/1/92 167.00 106.77 81.74
10/1/93 167.00 126.06 80.44
10/1/94 475.00 132.26 59.60
10/1/95 312.50 159.79 93.97
10/1/96 197.00 188.46 89.32
Compensation of Directors. Members of the Board of Directors who are not
directly or indirectly employed by the Company are paid $500 for each Board
meeting attended, in addition to being reimbursed for their expenses incurred in
connection with attending meetings of the Board of Directors. The total number
of stock options each director was granted during fiscal 1996 is as follows:
David G. Derrick--600,000; James J. Dalton--100,000; Milton G. Adair-- 75,000.
Each of those stock options was granted pursuant to the Company's Amended 1995
Stock Incentive Plan and are exercisable for five years from the date of grant
at exercise prices between $2.00 and $2.34 per share.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of the Company's Common Stock and
other equity securities. Officers, directors and greater than 10% shareholders
are requested by SEC Regulations to furnish the Company with copies of all
Section 16(a) reports they file.
Based solely upon a review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended September
30, 1996 with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than 10% beneficial owners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of November 12, 1996
regarding beneficial ownership of the Company's Common Stock by (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the outstanding shares of the Company's Common Stock, (ii) each
of the Company's directors, (iii) each of the Company's executive officers, and
(iv) all executive officers and directors of the Company as a group.
Shares of Common Stock
Name and Address Beneficially Owned(2)
of Beneficial Owner(1) ----------------------
Number Percent
------ -------
David G. Derrick(3) 1,298,503 6.20%
James J. Dalton(4) 467,000 2.28%
P.O. Box 3621
Park City, UT 84060
Dr. Aaron Gold(5) 204,612 1.01%
4363 Sheldon Drive
LaMesa, CA 92401
Charles J. Quantz(6) 87,150 *
P.O. Box 8186
Emeryville, CA 94662
Leviticus Trust(7) 2,107,553 10.49%
1233 Beech Street, #315
Atlantic Beach, NY 11509
Milton G. Adair(8) 75,000 *
Frank A. Eldredge(9) 102,832 *
E. Wayne Nelson(10) 75,000 *
2681 East Willowbend Drive
Sandy, UT 84093
Michael G. Acton(11) 235,438 1.16%
Thomas Q. Garvey III, M.D.(12) 105,000 *
10125 Gary Road
Potomac, MD 20854
Christopher D. Illick(13) 132,000 *
22 Mountain Avenue
Princeton, NJ 08540
Allan H. Barker(14) 181,051 *
All executive officers and
directors as a group (10 persons) 2,782,535 12.52 %
- ------------------------
* Less than 1%
(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 November 12, 1996 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 November 12, 1996 have been fully exercised. Unless otherwise
noted, the Company believes the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
shown as being beneficially owned. Percentages are calculated based on
20,094,490 shares of Common Stock outstanding as of November 12, 1996 (as
adjusted for shares deemed to be beneficially owned by such shareholder).
(3) Mr. Derrick owns 458,503 shares of Common Stock directly and options to
purchase 840,000 shares of Common Stock.
(4) Mr. Dalton owns 72,000 shares of Common Stock directly and options to
purchase 395,000 shares of Common Stock.
(5) Dr. Gold owns 69,612 shares of Common Stock directly and options to
purchase 135,000 shares of Common Stock.
(6) Mr. Quantz owns 12,150 shares of Common Stock directly and options to
purchase 75,000 shares of Common Stock.
(7) The Leviticus Trust owns 2,107,553 shares of Common Stock directly.
(8) Mr. Adair owns -0- shares of Common Stock directly and options to purchase
75,000 shares of Common Stock.
(9) Dr. Eldredge owns 7,832 shares of Common Stock directly and options to
purchase 95,000 shares of Common Stock.
(10) Mr. Nelson owns -0- shares of Common Stock directly and options to purchase
75,000 shares of Common Stock.
(11) Mr. Acton owns 438 shares of Common Stock directly and options to purchase
235,000 shares of Common Stock.
(12) Dr. Garvey owns 5,331 shares of Common Stock directly and options to
purchase 99,669 shares of Common Stock.
(13) Mr. Illick owns 27,000 shares of Common Stock directly and options to
purchase 105,000 shares of Common Stock.
(14) Dr. Barker owns 51,051 shares of Common Stock directly and options to
purchase 130,000 shares of Common Stock.
Approximately 13% of the issued and outstanding shares of the Company's
Common Stock are beneficially owned by current directors and executive officers
of the Company. 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
ADP Management Corporation and David G. Derrick. The Company entered into
an Employment and Non- Competition Agreement with David G. Derrick, the
Company's Chief Executive Officer and Chairman of the Board, effective as of
June 15, 1996. The initial term of that Employment and Non-Competition Agreement
expires on September 30, 1997. That Employment and Non-Competition Agreement
employs Mr. Derrick as the Company's Chief Executive Officer and requires him to
provide specified services to the Company, including, but not limited to,
negotiating all business and financial transactions, investment banking
agreements, secondary stock offerings, and private placement transactions.
Pursuant to the Employment and Non-Competition Agreement, the Company has agreed
to pay Mr. Derrick a base salary of $200,000 per year. In addition, subsequent
to fiscal year end 1996, the Company granted Mr. Derrick options in the amount
of 100,000 shares of Common Stock for raising capital for the Company.
Subsequent to September 30, 1996, Mr. Derrick was successful in raising the
desired capital and was issued those options at the fair market value of the
Company's Common Stock on that date. See Item 11, Executive Compensation,
"Employment Agreement With David G. Derrick," above.
James J. Dalton. The Company entered into a Consulting Agreement with James
J. Dalton, the Vice Chairman of the Board, effective as of February 1, 1996 and
expiring on January 31, 1997. That Consulting Agreement provides for Mr.
Dalton's services as a director of the Company and as Vice Chairman of the
Board. Pursuant to that Consulting Agreement, the Company agreed to pay Mr.
Dalton a fee of $5,000 per month and to issue Mr. Dalton 6,000 shares of Common
Stock each month during the term of the Consulting Agreement (for a total of
72,000 shares). Mr. Dalton was also granted effective as of February 1, 1996 a
five year warrant exercisable for 100,000 shares of the Company's Common Stock
at an exercise price of $2.31 per share. In addition, subsequent to fiscal year
end 1996, the Company granted options to Mr. Dalton in the amount of 100,000
shares of Common Stock for raising capital for the Company. Subsequent to
September 30, 1996, Mr. Dalton was successful in raising the desired capital and
was issued those options at the fair market value of the Company's Common Stock
on that date. Pursuant to the February 1, 1996 agreement, the Company also
forgave a loan to Mr. Dalton in the amount of approximately $126,000. In
addition, on March 15, 1994, the Company entered into an Agreement with Mr.
Dalton, who at that time was a consultant to the Company but not a member of the
Board of Directors. Mr. Dalton subsequently became a director of the Company and
the Vice Chairman of the Board on February 1, 1996. That Agreement required Mr.
Dalton to provide management and financial consulting services to the Company's
then-Volu- Sol Medical Division (now known as Volu-Sol, a wholly-owned
subsidiary of the Company) for the period March 15, 1994 through March 14, 1995.
The Company issued warrants to purchase a total of 75,000 shares of the
Company's Common Stock at an exercise price of $4.00 per share as compensation
for the services to be performed by Mr. Dalton under that Agreement. Those
warrants were valued at a price determined to be equal to the trading price of
the Company's Common Stock on the date they were granted and expired if not
exercised within two years from the date of grant. Those warrants expired on
March 15, 1996. In addition, the Company committed to pay Mr. Dalton $3,000 per
month, reimburse him for expenses incurred, and pay him 50% of the net profits
of the Volu- Sol Medical Division (after the Company had been repaid a $100,000
advance made to the Volu-Sol Medical Division) for a period of three years after
the expiration of that Agreement and any extension thereof. On April 1, 1995,
the Company entered into an Agreement with Mr. Dalton that extended through
March 31, 1996, pursuant to which Mr. Dalton provided services to Volu-Sol in
exchange for a total of 72,000 shares of the Company's Common Stock. The Company
recorded $216,000 of consulting expense associated with the April 1, 1995
Agreement, of which $90,000 was deferred as of September 30, 1995 and recognized
as expense in fiscal 1996.
Christopher D. Illick. The Company entered into a Consulting Agreement with
Christopher D. Illick, one of the Company's directors and a member of its
Compensation and Audit Committees, effective as of March 1, 1996 and expiring on
February 28, 1997. That Consulting Agreement provides for Mr. Illick's services
as a director of the Company and as a member of the Company's Compensation and
Audit Committees. Pursuant to that Consulting Agreement, the Company agreed to
issue Mr. Illick 2,250 shares of Common Stock each month during the term of the
Consulting Agreement (for a total of 27,000 shares).
Thomas Q. Garvey III, M.D. Dr. Garvey is paid on an hourly basis. During
fiscal 1996, the Company paid Dr. Garvey $89,192.
E. Wayne Nelson. On August 1, 1995, the Company entered into a Compensation
Contract with E. Wayne Nelson ("Nelson") that extended through September 30,
1996, whereby Nelson is providing services to the Company as its corporate
Secretary and Treasurer in exchange for a total of 10,800 shares of the
Company's Common Stock.
CERTAIN BUSINESS RELATIONSHIPS
ADP Management Corporation. Effective May 1, 1989, the Company entered into
a Management Agreement with ADP to manage the Company, as well as to provide the
Company with an individual who would serve as the Company's president or chief
executive officer. ADP is owned by David G. Derrick, the Company's Chief
Executive Officer and Chairman of the Board, and his wife. Under that Management
Agreement, as amended as of the beginning of fiscal 1996, the Company was
required to pay ADP a management fee of $16,667 per month or $200,000 per year.
David G. Derrick was made available to the Company by ADP pursuant to that
Management Agreement through June 15, 1996, during which time Mr. Derrick
devoted substantially all of his time to the management and operation of the
Company. Under the Management Agreement with ADP, the Company recorded
management fees of $141,667 and reimbursed expenses of $-0- during fiscal 1996.
The Company's Board of Directors determined the dollar compensation paid to Mr.
Derrick under the Management Agreement with ADP. See Item 11, Execution
Compensation, "Employment Agreement with David G. Derrick," above.
Genesis Investment Corporation. In August 1991, the Company entered into an
Agreement with Genesis whereby Genesis would receive $10,000 per month plus
reimbursement of any out-of-pocket expenses incurred by Genesis on behalf of the
Company in connection with the consulting services provided thereunder. This
Agreement was renewed in August 1992. The Company recorded consulting fees of
$120,000 in fiscal 1996 related to this Agreement. The services provided to the
Company by Genesis include primarily financial and general business consulting
services and introductions to the scientific, medical, financial and business
communities.
INDEBTEDNESS OF RELATED PARTIES
James J. Dalton. During fiscal 1995 and fiscal 1994, the Company made loans
aggregating $175,000 and $90,000, respectively, to James J. Dalton, a director
of the Company and Vice Chairman of the Board. These loans were unsecured, bore
interest at an annual rate of 12% and were due on demand. During fiscal 1996,
1995 and 1994, Mr. Dalton made principal and interest payments totaling $60,000,
$16,605 and $90,000, respectively, on those loans. On January 29, 1996, the
Company agreed to eliminate the remaining principal and interest balances on
these loans, which totaled approximately $126,000, in exchange for Mr. Dalton
relinquishing his right to receive 50% of the future net profits of Volu-Sol, if
any, for three years after the expiration of his Agreement with the Company (or
any extension thereof). Mr. Dalton was a consultant to the Company through
fiscal 1996 and, during fiscal 1996, became a director of the Company and the
Vice Chairman of the Company's Board of Directors. Effective October 15, 1996,
Mr. Dalton became an employee of the Company with the title of Senior Executive
Vice President--Investor Relations.
Federal Land and Development Corporation. During fiscal 1995 and 1994, the
Company made loans totaling $430,000 and $30,000, respectively, to Federal Land
and Development Corporation ("FLDC"). These loans were unsecured, bore interest
at an annual rate of 12% and were due on demand. As of September 30, 1995,
$182,811 remained outstanding on these loans, which were repaid in full,
including interest, during fiscal 1996.
CONSULTING RELATIONSHIPS WITH UNRELATED PARTIES
Aurora Consultants. On December 14, 1995, the Company entered into a letter
agreement effective as of January 1, 1996 with Aurora Consultants, LLC (the
"Letter Agreement") for consulting services through June 1997. Aurora
Consultants, LLC has received and will continue to receive cash from the Company
for the consulting services it provides to the Company through June 1997 and was
granted warrants to purchase a total of 30,000 shares of the Company's Common
Stock at $2.34 per share, which warrants include "piggyback" registrations right
on the underlying shares of Common Stock.
Allen & Company, Inc. On June 21, 1995, the Company entered into an
Agreement with Allen & Company, Inc. ("Allen") that extended through June 20,
1996, whereby Allen provided services to the Company in exchange for warrants to
purchase 1,000,000 shares of the Company's Common Stock exercisable at $2.25 per
share. The fair market value of the Company's Common Stock on June 21, 1995 was
$2.63 per share. The Company recorded $375,000 of consulting expense associated
with this Agreement, of which $273,400 was deferred as of September 30, 1995 and
recognized as expense during fiscal 1996. In addition, as part of this
Agreement, the Company paid Allen $37,500 in cash per quarter. These warrants
expire on June 21, 2000 if not exercised by Allen. This Agreement expired on
June 20, 1996.
Daliz Associates. On April 1, 1994, the Company entered into a Consulting
Agreement with Daliz Associates ("Daliz"), whereby Daliz agreed to provide
certain consulting services to the Company in exchange for a total of 216,000
shares of the Company's Common Stock. For various reasons, the Company and Daliz
terminated that Consulting Agreement by an Agreement dated effective as of
February 1, 1995. Pursuant to the February 1, 1995 Agreement, and during the
fiscal year ended September 30, 1995, the Company paid Daliz $150,000 in cash
and issued a total of 140,000 shares of the Company's Common Stock in settlement
of the Company's obligations under the April 1, 1994 Consulting Agreement. The
February 1, 1995 Agreement required the Company to pay Daliz $5,000 per month
and issue a total of 2,000 shares of the Company's Common Stock per month for
the services provided to the Company thereunder. The February 1, 1995 Agreement
expired on January 31, 1996. Effective February 1, 1996, the Company extended
the Agreement through January 31, 1997 and agreed to pay Daliz $5,000 per month
and issue a total of 2,000 shares of the Company's Common Stock per month. The
Company recorded consulting expense totaling $117,400, $76,800 and $1,104,000 in
fiscal 1996, 1995 and 1994, respectively, under those Agreements.
Replicate Management Group. On July 26, 1995, the Company entered into an
Agreement with Replicate Management Group ("Replicate Management") that extended
through June 30, 1996, whereby Replicate Management provided services to the
Company in exchange for warrants to purchase a total of 175,000 shares of the
Company's Common Stock at $2.00 per share. The fair market value of the
Company's Common Stock on July 26, 1995 was $2.00 per share. The Company did not
recognize any consulting expense related to this Agreement. These warrants
expire on July 26, 1998 if not exercised by Replicate Management.
David Pomerantz. On February 1, 1995, the Company entered into an Agreement
with David Pomerantz that extended through December 31, 1995, whereby Mr.
Pomerantz provided services to the Company in exchange for a total of 60,000
shares of the Company's Common Stock. The Company recorded $140,000 of
consulting expense associated with this Agreement, of which $38,200 was deferred
as of September 30, 1995 and recognized as expense in fiscal 1996.
AAM Group, Inc. On August 11, 1995, the Company entered into an Agreement
with AAM Group, Inc. that extended through February 10, 1996, whereby AAM Group,
Inc. provided services to the Company in exchange for a total of 90,000 shares
of the Company's Common Stock. The Company recorded $225,000 of consulting
expense associated with that Agreement.
David O. Lucas, Ph.D. On June 21, 1995, the Company entered into an
Agreement with David O. Lucas, Ph.D., a member of the Company's Scientific
Advisory Board ("Lucas"), that extended through December 31, 1995, whereby Lucas
provided services to the Company in exchange for 4,000 shares of the Company's
Common Stock. The Company recorded $16,000 of consulting expense associated with
this Agreement, of which $8,000 was deferred as of September 30, 1995 and was
recognized as expense as the services were performed. The June 21, 1995
Agreement also required the Company to pay Lucas $5,000 per month through
December 31, 1995 for the services provided to the Company thereunder.
Alan Sarroff. On January 1, 1995, for $10,000 in cash and certain
consulting services provided to the Company by Alan Sarroff, the Company issued
warrants to purchase 250,000, 125,000 and 125,000 shares of Common Stock at
$2.375 (the fair market value of the Company's Common Stock on the date of a
grant), $4.00 and $6.00 per share, respectively. During fiscal 1996, the Company
modified the exercise price of the warrants to purchase 125,000 shares at $4.00
and of the warrants to purchase 125,000 shares at $6.00, both to an exercise
price of $3.00 per share. The expiration date of both of those warrants was also
extended to August 1, 2001.
Barretto Pacific Corporation. Effective September 12, 1996, the Company
entered into a six-month Consulting Agreement with Barretto Pacific Corporation
("Barretto") to provide investment advisory services. Under the Consulting
Agreement, the Company agreed to pay $90,000 in cash and issued options to
purchase a total of 50,000 shares of the Company's Common Stock at $2.38 per
share. These options are currently exercisable. The Company also issued options
to purchase a total of 50,000 shares of its Common Stock at $3.38 per share. The
Company recorded consulting expense of $35,500 relating to the options, of which
approximately $32,500 is deferred as of September 30, 1996 and will be
recognized over the remaining term of the Consulting Agreement. By letter dated
November 1, 1996, the Company notified Barretto that it is cancelling this
Consulting Agreement and notified Barretto that it has until December 12, 1996
to exercise those options.
Allen Lewin. On May 1, 1996, the Company entered into an Agreement with
Allen Lewin to provide consulting services to the Company. In connection with
this Agreement, Mr. Lewin was granted warrants to purchase a total of 100,000
shares of the Company's Common Stock at $2.38 per share. The Company recorded
consulting expense of $110,000 related to the issuance of these warrants.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Documents filed as part of this Form 10-K:
1. Financial Statements (included in Part II, Item 8)
Consolidated Balance Sheets as of September 30, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994 and for the Period from Inception to
September 30, 1996
Consolidated Statements of Shareholders' Equity for the Years
Ended September 30, 1996, 1995 and 1994 and for the Period
from Inception to September 30, 1996
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 and for the Period from
Inception to September 30, 1996.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: Financial statement schedules have been
omitted because they are not required or are not applicable, or
because the required information is shown in the financial statements
or notes thereto.
3. Exhibits: The following Exhibits are filed with this Form 10-K:
Exhibit No. Description of Exhibit
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws (adopted March 22, 1996)
3.3 Certificate and Statement of Determination of Rights and
Preferences of Series A 10% Cumulative Convertible Preferred
Stock
3.4 Certificate and Statement of Determination of Rights and
Preferences of Series B 10% Cumulative Convertible Non-Voting
Preferred Stock
3.5 Certificate and Statement of Determination of Rights and
Preferences of Series D 8% Cumulative Convertible Non-Voting
Stock
3.6 Certificate of Amendment to the Designation of Rights and
Preferences Related to Series A 10% Cumulative Convertible
Preferred Stock
3.7 Certificate and Statement of Determination of Rights and
Preferences of Series C 8% Cumulative Convertible Non-Voting
Preferred Stock
4.1** Form of Common Stock Certificate
4.3** Form of Series A 10% Cumulative Convertible Preferred Stock
Certificate
4.4* Form of Series B 10% Cumulative Convertible Preferred Stock
Certificate
4.5# Form of Series D 8% Cumulative Convertible Preferred Stock
Certificate
4.6 Form of Series C 8% Cumulative Convertible Preferred Stock
Certificate
10.37** Genesis Investment Corporation Agreement
10.38* Berkeley Securities Corporation Consulting Agreement
10.39*** Daliz Associates Agreement
10.40** Sovran Financial Corporation Consulting Agreement
10.41** Ladenburg, Thalmann & Co. Inc. Agreement
10.42** William Baquet Business Consulting Agreement
10.43* Office Lease Agreement
10.44* Volu-Sol Stipulation and Order Regarding Lease
Extension
10.45* Norman Rothstein Consulting Agreement
10.46* Daliz Associates Consulting Agreement
10.47* Salt Lake Clinic Research Foundation Statement of Agreement
(Protocol No. IMC-94-001)
10.48* Salt Lake Clinic Research Foundation Statement of Agreement
(Protocol No. IMC-94-002)
10.49* Allan H. Barker Indemnification Agreement
10.50* Thomas Q. Garvey, III Indemnification Agreement
10.51* St. Luke's-Roosevelt Hospital Center Statement of Agreement
10.52* Michael G. Acton Agreement
10.53* Frank A. Eldredge Agreement
10.54* James Dalton Agreement
10.55* Genesis Investment Corporation Promissory Note
10.56* James E. Cannon Promissory Note
10.57* Ronald L. Wigington Promissory Note
10.58* Ronald L. Wigington Amended Promissory Note
10.59* Royden G. Derrick Promissory Note
10.60# Amended License Agreement with PTI
10.61# Commercial and Industrial Lease--Volu-Sol, Inc.
10.62# Agreement with Daliz Associates (February 1, 1995)
10.63# Agreement with Sovran Financial Corporation (February 1,
1995)
10.64# Agreement with Norman Rothstein (May 8, 1995)
10.65# Agreement with James Dalton (April 1, 1995)
10.66# Agreement with Allen & Company, Inc. (June 21, 1995)
10.67# Agreement with Allen Sarroff
10.68# Agreement with Replicate Management Group (July 25, 1995)
10.69# Compensation Contract with E. Wayne Nelson (August 1, 1995)
10.70# Agreement with Robert Pomerantz (August 1, 1995)
10.71# Agreement with David Pomerantz (February 1, 1995)
10.72# Agreement with AAM Group, Inc. (August 11, 1995)
10.73# Agreement with David Lucas (June 1995)
10.74# Offshore Securities Subscription Agreement (Series D
Preferred)
10.75# Non-Negotiable Promissory Note (Series D Preferred)
10.76# Agreement with Ladenberg, Thalmann & Co., Inc. (February 1,
1995)
10.77# 1995 Stock Incentive Plan
10.78# Invoice from Robert J. Pomerantz (January 19, 1995)
10.79# Employment Agreement with Michael G. Acton (May 4, 1995)
10.80# Incentive Stock Option Agreement with Michael G. Acton
(May 4, 1995)
10.81# Consulting Agreement with David O. Lucas (August 30, 1994)
(including June 19, 1995 Amendment to Consulting Agreement)
10.82# Amended 1995 Stock Incentive Plan
10.83# Non-Qualified Stock Option Agreement with Christopher D.
Illick
10.84# Schedule Identifying Other Non-Qualified Stock Option
Agreements
10.85# Incentive Stock Option Agreement with Frank A. Eldredge
10.86# Schedule Identifying Other Incentive Stock Option Agreements
10.87# Letter Agreement with Bruce M. Kartchner (Extended
Computerware, Inc.)
10.88# Addendum to Fee Schedule with Lora Lea Mock (Professional
Recruiters, Inc.)
10.89# Employment Agreement with Etta Jane Bechtel
10.90# Consulting Agreement with David Zuchero (Zuchero &
Associates)
10.91# Consulting Contract with E. Wayne Nelson
10.92# Business Consulting Agreement with Robert J. Pomerantz
(August 15, 1995)
10.93# Loan and Consulting Agreement with Summit Financial
Marketing, Inc. (August 14, 1995)
10.94# Agreement with Commonwealth Associates (May 18, 1995)
10.95 Lease Agreement with Young Electric Sign Company
10.96 Employment and Non-Competition Agreement with David G.
Derrick
10.97 Form of Registration Rights Agreement (Series C Preferred)
10.98 Form of Investor Questionnaire and Subscription Agreement
(Series C Preferred)
10.99 401(k) Plan
10.100 First Amendment to Stock Purchase Warrant - A.L. Sarroff
(Warrant B-1000)
10.101 First Amendment to Stock Purchase Warrant - A.L. Sarroff
(Warrant C-1000)
10.102 Commercial and Industrial Lease with RJF Companies, Ltd.
10.103 Barretto Letter Agreement
10.104 ADUN & Company Purchase Agreement
10.105 Agreement with Clinimetrics Research Associates
10.106 David G. Derrick Non-Qualified Stock Option Agreement
(600,000 shares)
10.107 Commercial and Industrial Lease - Volu Sol, Inc.
10.108 License Agreement with Biomed Patent Development LLC
10.109 Letter Agreement with Aurora Consultants, LLC
10.110 Letter Agreement with Aurora Capital Corp.
10.111 Termination and Mutual Release Agreement with Aurora Capital
Corporation and Aurora Consultants, L.L.C.
10.112 First Amendment to Amended License Agreement with Protein
Technology, Inc.
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
- -------------------
# Incorporated by reference to the Company's Annual Report on Form 10-K/A for
the fiscal year ended September 30, 1995.
* Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1994.
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993 and the two month period ended
November 30, 1993.
*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.
(B) Reports filed on Form 8-K during the last quarter of the fiscal year
ended September 30, 1996: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 15th day of
November, 1996.
BIOMUNE SYSTEMS, INC.
(Registrant)
By: /s/ David G. Derrick
_________________________
David G. Derrick
Its: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ David G. Derrick Chief Executive Officer and November 15, 1996
- ------------------------- Chairman of the Board of
David G. Derrick Directors (Principal Executive
Officer)
/s/ James J. Dalton Vice Chairman of the Board November 15, 1996
- -------------------------
James J. Dalton
/s/ Milton G. Adair Director and President November 15, 1996
- -------------------------
Milton G. Adair
/s/ Michael G. Acton Chief Financial Officer and November 15, 1996
- ------------------------- Controller (Principal Financial
Michael G. Acton and Accounting Officer)
/s/ Aaron Gold Director November 15, 1996
- -------------------------
Aaron Gold
/s/ Charles J. Quantz Director November 15, 1996
- -------------------------
Charles J. Quantz
/s/ Thomas Q. Garvey III Director November 15, 1996
- -------------------------
Thomas Q. Garvey III
/s/ Christopher D. Illick Director November 15, 1996
- -------------------------
Christopher D. Illick
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BIOMUNE SYSTEMS, INC.
Biomune Systems, Inc., a corporation incorporated pursuant to the
provisions of the Nevada Private Corporations Law, does hereby certify, by and
through its undersigned President and Secretary, that the following sets forth
the Articles of Incorporation of Biomune Systems, Inc., as amended and restated
to read in their entirety as follows:
ARTICLE I
Name
The name of the Corporation is Biomune Systems, Inc.
ARTICLE II
Registered Office and Resident Agent
The address of the registered office of the Corporation is 2765 South
Highland Drive, Suite 112, Las Vegas, Nevada; but the Board of Directors may
from time to time establish other places within or without the State of Nevada
for the conduct of business. The name of the resident agent at such address is
Edward J. Achrem.
ARTICLE III
Purpose
The nature of business or purposes to be conducted or promoted is to engage
in any lawful act or activity.
ARTICLE IV
Capital Stock
4.1. Authorized Capital Stock. The Corporation shall have authority to
issue a total of five hundred fifty million (550,000,000) shares of capital
stock, consisting of five hundred million (500,000,000) shares of Common Stock,
$0.0001 par value per share (the "Common Stock"), and fifty million (50,000,000)
shares of Preferred Stock, $0.0001 par value per share (the "Preferred Stock").
All of the shares of the Corporation's capital stock shall be non-assessable.
4.2. Preferred Stock. The Preferred Stock may be issued by the Corporation
from time to time in one or more series and in such amounts as may be determined
by the Board of Directors thereof. The designations, voting rights, amounts of
preference upon distribution of assets, rates of dividends, premiums of
redemption, conversion rights and other variations, if any, the qualifications,
limitations or restrictions thereof, if any, of the Preferred Stock, and of each
series thereof, shall be such as are fixed by the Board of Directors, the
authority so to do being hereby expressly granted, as stated and expressed in a
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series of Preferred Stock (a "Director's Resolution"). The
authority of the Board of Directors with respect to each such series of
Preferred Stock shall include, but shall not be limited to, determination of the
following:
4.2.1. The distinctive serial designation and number of shares
comprising each such series;
4.2.2. The rate of dividends, if any, on the shares of that series,
whether dividends shall be non-cumulative, cumulative to the extent earned
or cumulative (and, if cumulative, from which date or dates), whether
dividends shall be payable in cash, property or rights, or in shares of the
Corporation's capital stock, and the relative priority, if any, of payment
of dividends on shares of that series over shares of any other series;
4.2.3. Whether the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, the event or events
upon or after which they shall be redeemable or at whose option they shall
be redeemable, and the amount per share payable in case of redemption
(which amount may vary under different conditions and at different
redemption dates) or the property or rights, including securities of any
other corporation, payable in case of redemption;
4.2.4. Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms and
amounts payable into such sinking fund;
4.2.5. The rights, if any, to which the holders of the shares of that
series shall be entitled in the event of voluntary involuntary liquidation,
dissolution or winding-up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series in any such event;
4.2.6. Whether the shares of that series shall be convertible into or
exchangeable for shares of stock of any other class of the capital stock of
the Corporation or any other series of Preferred Stock of the Corporation
or the securities of any other entity and, if so, the terms and conditions
of such conversion or exchange, including the rate or rates of conversion
or exchange, the date or dates upon or after which or the events upon which
they shall be convertible or exchangeable or at whose option they shall be
convertible or exchangeable, and the method, if any, of adjusting the rates
of conversion or exchange in the event of a stock split, stock dividend,
combination of shares or similar event;
4.2.7. Whether the issuance of any additional shares of such series
shall be subject to restrictions, or whether any shares of any other series
shall be subject to restrictions as to issuance, or as to the powers,
preferences or rights of any such other series;
4.2.8. Voting rights, if any, including, without limitation, the
authority to confer multiple votes per share, voting rights as to specified
matters or issues or, subject to the provisions of these Amended and
Restated Articles of Incorporation, voting rights to be exercised either
together with holders of Common Stock as a single class, or independently
as a separate class; and
4.2.9. Any other preferences, privileges and powers, and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of
these Amended and Restated Articles of Incorporation and as shall now or
hereafter be permitted by the Nevada Private Corporations Law.
4.3. Series A 10% Cumulative Convertible Preferred Stock. The Corporation
incorporates herein the Designation of Rights and Preferences filed with the
Nevada Secretary of State regarding the Company's Series A 10% Cumulative
Convertible Preferred Stock.
4.4. Series B 10% Cumulative Convertible Non-Voting Preferred Stock. The
Corporation incorporates herein the Designation of Rights and Preferences filed
with the Nevada Secretary of State regarding the Company's Series B 10%
Cumulative Convertible Non-Voting Preferred Stock.
4.5. Common Stock. Except as otherwise required by law or these Amended and
Restated Articles of Incorporation or as otherwise provided with respect to the
relative rights of shares of Preferred Stock in any Director's Resolution, all
shares of Common Stock shall be identical and the holders of shares of Common
Stock shall possess voting power and each share of Common Stock shall have one
(1) vote.
4.6. Relative Ranking of Common Stock. The Common Stock is junior to the
Preferred Stock and is subject to all of the powers, rights, privileges,
preferences and priorities of the Preferred Stock as herein set forth and as may
be stated in any Director's Resolution.
4.7. Definition of Voting Stock. For all purposes in these Amended and
Restated Articles of Incorporation, the term "Voting Stock" means all shares of
any class or series of the capital stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE V
Directors
5.1. Name and Number of Directors. The governing board of the Corporation
shall be known as the Board of Directors, and its members shall be known as
directors, and the authorized number of directors of the Corporation shall be
not less than three (3) (minimum number) nor more than eleven (11) (maximum
number), as established by the Board of Directors from time to time by
resolution. The actual authorized number of directors shall be fixed from time
to time exclusively by the Board of Directors within the above range pursuant to
a resolution adopted by a majority of the actual authorized directors. The
action taken by the appropriate number or percent of the actual authorized
directors, as such number or percent is specified by these Amended and Restated
Articles of Incorporation, by the Corporation's Bylaws or by the Nevada Private
Corporations Law, shall be deemed to be the action of the Corporation's Board of
Directors.
5.2. Term of Office. Directors shall hold office for one year or until
their successors shall have been duly elected and qualified, as provided for in
the Bylaws; provided, however, that any one or more of the directors may be
removed, with or without cause, at any time in the manner prescribed by
applicable law.
5.3 Removal of Directors. Except as otherwise fixed pursuant to the
provisions of Article IV relating to the rights of holders of any class or
series of Preferred Stock to elect directors under specified circumstances, any
director, or the entire Board of Directors, may be removed from office at any
time, with or without cause, by the affirmative vote of the holders of not less
than sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of Voting Stock, voting together as a single class.
5.4. Names and Addresses of Current Directors. The names and addresses of
each member of the current Board of Directors of the Corporation are set forth
below:
David G. Derrick 540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108-1202
Allan H. Barker, M.D. 333 South 900 East
Salt Lake City, Utah 84102
Aaron Gold 4363 Sheldon Drive
La Mesa, California 92041
Charles J. Quantz 350 7th Avenue, #180
San Francisco, California 94118
Thomas Q. Garvey, III, M.D. 10125 Gary Road
Potomac, Maryland 10854
Christopher D. Illick 22 Mountain Avenue
Princeton, New Jersey 08540
ARTICLE VI
Certain Contracts and Transactions
The Corporation shall have authority, to the fullest extent now or
hereafter permitted by the law of the State of Nevada or by any other applicable
law, to enter into any contract or transaction with one or more of its directors
or officers, or with any corporation, partnership, joint venture, trust,
association or other entity in which one or more of the Corporation's directors
or officers are directors or officers or have a financial interest,
notwithstanding such relationships and notwithstanding the fact that the
director or officer is present at or participates in the meeting of the Board of
Directors or committee thereof that authorizes the contract or transaction.
ARTICLE VII
Elimination of Liability; Indemnification
7.1. Elimination of Liability. No director or officer of the Corporation
will be liable to the Corporation or its shareholders for damages for breach of
fiduciary duty as a director or officer, excepting only (a) acts or omissions
that involve intentional misconduct, fraud or a knowing violation of law or (b)
the payment of dividends in violation of Nevada Revised Statutes Section 78.300.
In the event that the Nevada Private Corporations Law is amended after the
filing of these Amended and Restated Articles of Incorporation to authorize
corporate action further eliminating or limiting the personal liability of a
director or officer, then the liability of a director or officer of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Nevada Private Corporations Law, as so amended.
7.2. Mandatory Indemnification. The Corporation shall indemnify the
directors and officers of the Corporation to the fullest extent permitted by the
Nevada Private Corporations Law as the same now exists or may hereafter be
amended.
7.3. Mandatory Payment of Expenses. The Corporation shall pay the expenses
incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it should be ultimately determined that he or she is not entitled to be
indemnified by the Corporation as authorized by the Nevada Private Corporations
Law.
7.4. Effect of Amendment or Repeal. Any amendment to or repeal of any of
the provisions in this Article VII shall not apply to or have any effect on the
liability or alleged liability of any director or officer of the Corporation, or
otherwise affect any right or protection of a director or officer of the
Corporation, for or with respect to any acts or omissions of the director or
officer occurring prior to the amendment or repeal, except as otherwise required
by a mandatory provision of law.
ARTICLE VIII
Preemptive or Preferential Rights
No shareholder of the Corporation shall, by reason of holding any shares of
any class of the Corporation's capital stock, have any preemptive or
preferential right to acquire or subscribe for any treasury or unissued shares
of any class of the Corporation now or hereafter to be authorized, or any notes,
debentures, bonds or other securities convertible into or carrying any right,
option or warrant to subscribe for or acquire shares of any class of the
Corporation capital stock now or hereafter authorized, whether or not the
issuance of any such shares, or such notes, debentures, bonds or other
securities would adversely affect the dividends or voting rights of such
shareholder, and the Board of Directors of the Corporation may issue shares of
any class of this Corporation, without offering any such shares, either in whole
or in part, to the existing shareholders of any class of the Corporation.
ARTICLE IX
Other Constituencies
In evaluating any offer of any person for a tender or exchange of shares,
merger, consolidation or acquisition of all or substantially all the properties
and assets of the Corporation, the Board of Directors may, in connection with
the exercise of its judgment in determining what is in the best interests of the
Corporation and its shareholders, give due consideration to all relevant
factors, including, without limitation:
(i) the social, legal, environmental and economic effects on the
employees, agents, customers, suppliers, advisors and other affected
persons, firms and companies, and on the communities and geographical areas
in which the Corporation and any majority-owned subsidiaries of the
Corporation operate or are located and any other businesses and properties
of the Corporation or any majority-owned subsidiaries of the Corporation,
as well as such other factors as the directors deem relevant;
(ii) not only the financial consideration being offered in relation to
the then-current market price of the Corporation's outstanding shares of
capital stock, but also in relation to the then-current value of the
Corporation and in relation to the Board of Director's estimate of the
future value of the Corporation (including the unrealized value of its
properties and assets) as an independent going concern; and
(iii) the relationships of the Corporation and any majority-owned
subsidiaries of the Corporation, to their regulators and to the public.
ARTICLE X
Unanimous Consent; Meetings of Shareholders
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called and noticed annual or special
meeting of the shareholders of the Corporation, and no action required to be
taken or that may be taken at any such annual or special meeting of the
shareholders of the Corporation may be taken without a meeting, except by the
unanimous written consent of all of the shareholders. Except as otherwise
required by law, special meetings of the shareholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption).
ARTICLE XI
Duration
The Corporation is to have perpetual existence.
ARTICLE XII
Reservation of Right to Amend
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Amended and Restated Articles of Incorporation in
the manner now or hereafter prescribed herein and by the laws of the State of
Nevada, and all rights conferred upon the shareholders are granted subject to
this reservation.
ARTICLE XIII
Amendments
Notwithstanding any other provision of these Amended and Restated Articles
of Incorporation or any provision of law that might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of Voting Stock required by law, these Amended and
Restated Articles of Incorporation or the terms of any class or series of
Preferred Stock, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of Voting Stock voting together as a single class shall be required to
alter, amend or repeal Article V, Article VII, Article X and this Article XIII.
ARTICLE XIV
Bylaws
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors is expressly authorized to make, alter, amend and repeal the
Bylaws of the Corporation.
ARTICLE XV
Incorporators
The names and addresses of the original incorporators executing the
original Articles of Incorporation in 1981 are set forth below:
Jill White 324 South Third Street
Las Vegas, Nevada 89101
Robin Alvey 324 South Third Street
Las Vegas, Nevada 89101
Jodi Robertson 324 South Third Street
Las Vegas, Nevada 89101
IN WITNESS WHEREOF, the undersigned President and Secretary of Biomune
Systems, Inc. do hereby certify (a) that the foregoing Amended and Restated
Articles of Incorporation were approved at an annual meeting of the
shareholders, which annual meeting was duly called, noticed and held, and (b)
that at such annual meeting, shareholders of Biomune Systems, Inc. representing
a majority of the shares entitled to vote thereon, being 8,850,257 shares of the
total issued and outstanding shares of the equity securities of Biomune Systems,
Inc. entitled to vote thereon, approved the foregoing Amended and Restated
Articles of Incorporation in accordance with the Nevada Private Corporations
Law.
DATED this 25th day of July, 1995.
/s/ David G. Derrick
-----------------------
David G. Derrick
President
/s/ E. Wayne Nelson
-----------------------
E. Wayne Nelson
Secretary
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
This instrument was acknowledged before me on July 25, 1995, by David G.
Derrick, the President of Biomune Systems, Inc.
/s/ Thomas R. Taylor
-----------------------
NOTARY PUBLIC
My Commission Expires:
[ NOTARY SEAL STAMP]
- ----------------------
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
This instrument was acknowledged before me on July 25, 1995, by E. Wayne
Nelson, the Secretary of Biomune Systems, Inc.
/s/ Thomas R. Taylor
-----------------------
NOTARY PUBLIC
My Commission Expires:
[NOTARY SEAL STAMP]
- ----------------------
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
BIOMUNE SYSTEMS, INC.
As adopted
March 22, 1996
TABLE OF CONTENTS
OF THE AMENDED AND RESTATED BYLAWS OF
BIOMUNE SYSTEMS, INC.
ARTICLE I. IDENTIFICATION ...................................................1
Section 1.01. Name..................................................1
Section 1.02. Registered Office and Resident Agent .................1
Section 1.03. Other Offices.........................................1
Section 1.04. Seal .................................................1
Section 1.05. Fiscal Year...........................................1
ARTICLE II. CAPITAL STOCK ...................................................1
Section 2.01. Consideration for Shares..............................1
Section 2.02. Certificates Representing Shares......................1
Section 2.03. Transfer of Stock.....................................1
Section 2.04. Regulations...........................................2
Section 2.05. Transfer Agents and Registrars .......................2
Section 2.06. Lost or Destroyed Certificates .......................2
ARTICLE III. SHAREHOLDERS....................................................2
Section 3.01. Place of Shareholder Meetings.........................2
Section 3.02. Annual Shareholder Meetings...........................2
Section 3.03. Special Shareholder Meetings..........................2
Section 3.04. Business at Meetings of Shareholders..................2
Section 3.05. Notice of Shareholder Meetings........................3
Section 3.06. Shareholder Quorum....................................3
Section 3.07. Adjourned Shareholder Meetings........................4
Section 3.08. Entry of Notice.......................................4
Section 3.09. Voting................................................4
Section 3.10. Consent of Absentees..................................4
Section 3.11. Action Without Meeting................................4
Section 3.12. Proxies...............................................5
Section 3.13. Definition of Shareholder.............................5
ARTICLE IV. BOARD OF DIRECTORS...............................................5
Section 4.01. Number; Term; Election................................5
Section 4.02. Nominations...........................................5
Section 4.03. Vacancies.............................................6
Section 4.04. Annual Meetings.......................................7
Section 4.05. Regular Meetings......................................7
Section 4.06. Other Meetings........................................7
Section 4.07. Notice of Adjourned Meetings..........................7
Section 4.08. Entry of Notice.......................................7
Section 4.09. Waiver of Notice......................................7
Section 4.10. Quorum ...............................................7
Section 4.11. Participation in Meetings by Telephone ...............8
Section 4.12. Adjournment...........................................8
Section 4.13. Action Without Meeting................................8
Section 4.14. Fees and Compensation.................................8
Section 4.15. Limitation of Liability...............................8
Section 4.16. Indemnification; Advancement of Expenses..............8
Section 4.17. Indemnification of Employees and Agents...............8
Section 4.18. Powers of Directors...................................9
Section 4.19. Committees............................................9
Section 4.20. Audit Committee.......................................9
ARTICLE V. OFFICERS..........................................................9
Section 5.01. Officers..............................................9
Section 5.02. Election..............................................9
Section 5.03. Subordinate Officers.................................10
Section 5.04. Removal and Resignation..............................10
Section 5.05. Vacancies............................................10
Section 5.06. Chairman of the Board................................10
Section 5.07. Vice Chairman of the Board...........................10
Section 5.08. Chief Executive Officer..............................10
Section 5.09. President............................................10
Section 5.10. Executive Vice Presidents............................10
Section 5.11. Secretary............................................11
Section 5.12. Assistant Secretaries................................11
Section 5.13. Chief Financial Officer..............................12
Section 5.14. Treasurer............................................12
Section 5.15 Assistant Treasurers.................................12
Section 5.16. Corporate Bank Accounts..............................12
Section 5.17. Transfers of Authority...............................12
ARTICLE VI. MISCELLANEOUS...................................................12
Section 6.01. Record Date and Closing Stock Books..................12
Section 6.02. Stock List...........................................12
Section 6.03. Checks, Drafts, etc..................................13
Section 6.04. Contracts, etc.; How Executed........................13
Section 6.05. Lost Certificates of Stock...........................13
Section 6.06. Representation of Shares.............................13
Section 6.07. Inspection of Bylaws.................................14
ARTICLE VII. AMENDMENTS.....................................................18
Section 7.01. Power of Shareholders................................18
Section 7.02. Power of Directors...................................18
AMENDED AND RESTATED
BYLAWS
OF
BIOMUNE SYSTEMS, INC.
ARTICLE I
IDENTIFICATION
Section 1.01. Name. The name of the Corporation is Biomune Systems, Inc.
Section 1.02. Registered Office and Resident Agent. The address of the
registered office of the Corporation is 2765 South Highland Drive, Suite 112,
Las Vegas, Nevada. The name of the resident agent at such address is Edward J.
Achrem.
Section 1.03. Other Offices. The principal business office of the
Corporation shall be established by the Board of Directors and branch or
subordinate offices may be established by the Board of Directors.
Section 1.04. Seal. The seal of the Corporation, if any, will be circular
in form and mounted upon a metal die, suitable for impressing the same upon
paper. The use of the seal is not necessary on any corporate document and its
use or non-use shall not in any way affect the legality of the document.
Section 1.05. Fiscal Year. The fiscal year of the Corporation will be
determined by resolution of the Board of Directors.
ARTICLE II
CAPITAL STOCK
Section 2.01. Consideration for Shares. The capital stock may be issued for
such consideration, expressed in dollars, as shall be fixed from time to time by
the Board of Directors. Treasury shares may be disposed of by the Corporation
for such consideration expressed in dollars as may be fixed from time to time by
the Board of Directors.
Section 2.02. Certificates Representing Shares. Each holder of the capital
stock of the Corporation is entitled to a certificate in such form as may be
required by applicable law signed by the Chairman of the Board, President, Chief
Executive Officer, Chief Operating Officer or a Vice President, and the
Secretary (or an Assistant Secretary), certifying the number of shares owned by
the shareholder in the Corporation. In case any officer or officers who shall
have signed, or whose facsimile signature or signatures shall have been used on,
any certificate or certificates shall cease to be an officer or officers of the
Corporation, whether because of death, resignation or otherwise, before the
certificate or certificates shall have been delivered by the Corporation, the
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed the
certificate or certificates, or whose facsimile signature or signatures shall
have been used thereon, had not ceased to be an officer or officers of the
Corporation.
Section 2.03. Transfer of Stock. Transfers of stock shall be made only upon
the transfer books of the Corporation kept in an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Section 2.04. Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
Section 2.05. Transfer Agents and Registrars. The Board of Directors may
appoint one or more transfer agent and one or more registrar with respect to the
certificates representing shares of stock of the Corporation.
Section 2.06. Lost or Destroyed Certificates. The Corporation may issue a
new certificate for stock of the Corporation in place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the Board
of Directors may, in its discretion, require the owner of the lost or destroyed
certificate or his, her or its legal representative, to give the Corporation a
bond in such form and amount as the Board of Directors may direct, and with such
surety or sureties as may be satisfactory to the Board of Directors, to
indemnify the Corporation and its transfer agent(s) and/or registrar(s), if any,
against any claims that may be made against it or any such transfer agent or
registrar on account of the issuance of such new certificate. A new certificate
may be issued without requiring any bond when, in the judgment of the Board of
Directors, it is proper to do so.
ARTICLE III
SHAREHOLDERS
Section 3.01. Place of Shareholder Meetings. Meetings of the shareholders
of the Corporation shall be held at the principal executive offices of the
Corporation, or at such other place as may be designated by the Chairman of the
Board, President, Chief Executive Officer or the Board of Directors.
Section 3.02. Annual Shareholder Meetings. The annual meeting of the
shareholders shall be held on such date and at such time as the Board of
Directors shall fix for the purposes of electing directors and transacting such
other business as may properly be brought before the meeting.
Section 3.03. Special Shareholder Meetings. Subject to the Corporation's
Amended and Restated Articles of Incorporation, special shareholders' meetings
may be called by the Board of Directors, and shall be held on such date and at
such time as shall be fixed by resolution. Written notice of a special meeting
of shareholders stating the time and place and object thereof, shall be given to
each shareholder entitled to vote at such meeting not less then ten (10) days
nor more than sixty (60) days before such meeting, unless a greater period of
notice is required by applicable law.
Section 3.04. Business at Meetings of Shareholders. Except as otherwise
provided by law (including, but not limited to, Rule 14a-8 under the Securities
Exchange Act of 1934, as amended, or any successor provision thereto) or in
these Bylaws, the business that shall be conducted at any meeting of the
shareholders shall (a) have been specified in the written notice of the meeting
(or any supplement thereto) given by the Corporation, (b) be brought before the
meeting at the direction of the Board of Directors or the presiding officer of
the meeting or (c) have been specified in a written notice given to the
Secretary of the Corporation by or on behalf of any shareholder who shall have
been a shareholder of record on the record date for such meeting and who shall
continue to be entitled to vote thereat (the "Shareholders Notice"), in
accordance with all of the following requirements:
(a) Each Shareholder Notice must be delivered to, or be mailed and
received at, the principal executive offices of the corporation:
(i) in the case of an annual meeting that is called for a date
that is within thirty (30) days before or after the anniversary date
of the immediately preceding annual meeting of shareholders, not less
than sixty (60) days nor more than ninety (90) days prior to such
anniversary date; and
(ii) in the case of an annual meeting that is called for a date
that is not within thirty (30) days before or after the anniversary
date of the immediately preceding annual meeting, not later than the
close of business on the tenth (10th) day following the day on which
notice of the date of the meeting was mailed or public disclosure of
the date of the meeting was made, whichever occurs first; and
(b) Each such Shareholder Notice must set forth each of the following:
(i) the name and address of the shareholder who intends to bring
the business before the meeting;
(ii) the general nature of the business that he or she seeks to
bring before the meeting; and
(iii) a representation that the shareholder is a holder of record
of the stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to bring the
business specified in the notice before the meeting.
The presiding officer of the meeting may, in his or her sole discretion,
refuse to acknowledge any business proposed by a shareholder not made in
compliance with the foregoing procedure.
Section 3.05. Notice of Shareholder Meetings. Written notice stating the
place, day and hour of a shareholders' meeting must be delivered not less than
ten (10) days, nor more than sixty (60) days before the date of the meeting,
either personally, or by mail or by other means of written communication,
charges prepaid, by or at the direction of the Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer, Secretary or the officer or
person(s) calling the meeting, to each registered shareholder entitled to vote
at the meeting. If mailed, the notice shall be considered to be delivered when
deposited in the United States mail addressed to the shareholder at the
shareholder's address as it appears on the stock transfer books of the
Corporation, with postage prepaid. If a shareholder gives no address, notice
shall be deemed to have been given to the shareholder if sent by mail or other
written communication addressed to the place where the Corporation's registered
office is located, or if published at least once in a newspaper of general
circulation in the county in which the Corporation's registered office is
located. Waiver by a shareholder in writing of notice of a meeting is equivalent
to giving notice. Attendance by a shareholder, without objection to the notice,
whether in person or by proxy, at a meeting is a waiver of notice of the
meeting.
Section 3.06. Shareholder Quorum. A majority of the shares entitled to
vote, represented in person or by proxy, is a quorum at a shareholders' meeting,
unless or except to the extent that the presence of a larger number may be
required by law. Where separate vote by a class or classes is required, a
majority of the shares of such class or classes present in person or represented
by proxy shall constitute a quorum entitled to take action with respect to that
vote on that matter. The shareholders present at a duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum present.
Section 3.07. Adjourned Shareholder Meetings. Any shareholders' meeting,
whether annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy, but in the absence of a
quorum, no other business may be transacted at any shareholders' meeting. When
any shareholders' meeting, either annual or special, is adjourned for thirty
(30) days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting. As to any adjournment of less than thirty (30) days, it
shall not be necessary to give any notice of the time and place of the adjourned
meeting or of the business to be transacted, other than by announcement at the
meeting at which the adjournment is taken.
Section 3.08. Entry of Notice. An entry in the minutes of any meeting of
shareholders, whether annual or special, to the effect that notice has been duly
given shall be conclusive and incontrovertible evidence that due notice of the
meeting was given to all shareholders as required by law and by these Bylaws.
Section 3.09. Voting. Except as otherwise provided by law, only persons in
whose names shares entitled to vote stand on the stock registry of the
Corporation on the day prior to any shareholders' meeting, or, if a record date
for voting purposes is fixed as provided in Section 6.01 below, then on that
record date, shall be entitled to vote at the meeting. Voting shall be by
ballot, each of which shall state the shareholders name or proxy voting and such
other information as may be required under the procedure established for the
meeting. The Corporation may, and to the extent required by law shall, in
advance of any meeting of shareholders, appoint one or more inspectors to act at
the meeting and make written report thereof. Each vote taken by ballot shall be
counted by an inspector or inspectors appointed by the chairperson of the
meeting. Except as otherwise provided by law or by an express provision in the
Corporation's Amended and Restated Articles of Incorporation, or in any
directors' resolution for a series of Preferred Stock, each full share is
entitled to one (1) vote and, when a quorum is present at the commencement of
any shareholders' meeting, the vote of the holders of a majority of the shares
entitled to vote present, in person or by proxy, shall decide any question
brought before the shareholders' meeting. Fractional shares shall not be
entitled to any voting rights whatsoever.
Section 3.10. Consent of Absentees. The transactions of any shareholders'
meeting, either annual or special and however called and noticed, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present, either in person or by proxy, and if, either before or after
the meeting, each of the shareholders entitled to vote not present in person or
by proxy, signs a written waiver of notice or a consent to the holding of the
meeting, or an approval of the minutes thereof, all such waivers, consents or
approvals shall be filed with the Secretary or be made a part of the minutes of
the meeting.
Section 3.11. Action Without Meeting. Subject to the Corporation's Amended
and Restated Articles of Incorporation, any action that, under applicable
provisions of law, may be taken or ratified at a meeting of the shareholders,
may be taken or ratified without a meeting if authorized in writing by
shareholders holding all of the voting power. In no instance where action is
taken by written consent need a meeting of the shareholders be called or
noticed. The Board of Directors may fix a record date to determine the
shareholders entitled to sign the written consent. If no record date has been
fixed by the Board of Directors, the record date for determining shareholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by the Nevada Private
Corporation's Act, shall be the earliest date that a shareholder signed the
written consent. All written consents shall be filed with the minutes of the
proceeding of the shareholders.
Section 3.12. Proxies. Every person entitled to vote or execute consents
shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by the person or by the person's duly
authorized agent and filed with the Secretary of the Corporation; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of its execution unless the shareholder executing it specified
therein the length of time for which the proxy is to continue in force, which in
no event shall exceed seven (7) years from the date of its execution.
Section 3.13. Definition of Shareholder. As used in these Bylaws, the term
"shareholder", and any term of like import, shall include all persons entitled
to vote the shares held by a shareholder, unless the context in which the term
is used indicates that a different meaning is intended.
ARTICLE IV
BOARD OF DIRECTORS
Section 4.01. Number; Term; Election. The number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exists any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption) but the number shall be not less than three (3) nor more than eleven
(11). In the case of any vacancy on the Board of Directors, including a vacancy
created by an increase in the number of directors, the vacancy shall be filled
by election of the Board of Directors with the director so elected to serve for
the remainder of the term of the director being replaced or, in the case of an
additional director, until directors are again elected and qualified for office.
All directors shall continue in office until the election and qualification of
their respective successors in office. No decrease in the number of directors
shall have the effect of shortening the term of any incumbent director. Election
of directors need not be by written ballot unless these Bylaws so provide.
Section 4.02. Nominations. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors at the annual
meeting, by or at the direction of the Board of Directors, may be made by any
Nominating Committee or person appointed by the Board of Directors; nominations
may also be made by any shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 4.02. Such nomination, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
office of the Corporation addressed to the attention of the Secretary of the
Corporation not less than thirty-five (35) days prior to the meeting or the date
the shareholders are first solicited for their consents as the case may be;
provided, however, that in the case of an annual meeting and in the event that
less than fifty (50) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received no later than the earlier of (a) the close of business on
the tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever first occurs,
or (b) two (2) days prior to the date of the meeting.
Such shareholder's notice to the Secretary shall set forth
(a) as to each person who the shareholder proposes to nominate for
election or reelection as a director, each of the following:
(i) the name, age, business address and residence address of the
person;
(ii) the principal occupation or employment of the person;
(iii) the class and number of shares of capital stock of the
Corporation that are beneficially owned by the person;
(iv) a statement as to the person's citizenship; and
(v) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and the Rules and Regulations promulgated thereunder; and
(b) as to the shareholder giving the notice, each of the following:
(i) the name and record address of the shareholder giving the
notice;
(ii) the name and record address of the shareholder; and
(iii) the class, series and number of shares of capital stock of
the Corporation that are beneficially owned by the shareholder.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
No person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the Board, the
President, the Chief Executive Officer or such officer presiding at the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure and that the
defective nomination shall be disregarded.
Section 4.03. Vacancies. 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 of the Board of Directors was present, or by the sole
remaining Director. A director elected to fill a vacancy shall be elected for
the unexpired term of the director's predecessor in office. A vacancy or
vacancies in the Board of Directors shall be deemed to exist in case of the
death, resignation or removal of any director, or if the authorized number of
directors is increased, or if the shareholders fail at any annual or special
meeting of shareholders at which any director or directors are elected to elect
the full authorized number of directors to be voted for at that meeting, or if a
vacancy is declared by the Board of Directors for any reason permitted by law.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the Board of Directors. If the Board of
Directors accepts the resignation of a director tendered to take effect at a
future time, the Board of Directors shall have power to elect a successor to
take office when the resignation is to become effective. No reduction of the
authorized number of directors shall have the effect of removing any director
prior to the expiration of the director's term of office.
Section 4.04. Annual Meetings. Immediately after the annual meeting of the
shareholders, at the same place as the meeting of the shareholders, or such
other place as may be provided in a notice thereof, the Board of Directors shall
meet each year for the purpose of organization, election of officers and
consideration of any other business that is properly brought before the meeting.
No notice of any kind to either old or new members of the Board of Directors for
this annual meeting shall be necessary unless the meeting is to be held at a
place other than the place of the annual meeting of the shareholders, in which
case notice of the place of the meeting shall be given as provided in Section
4.06 below.
Section 4.05. Regular Meetings. Regular meetings of the Board of Directors
shall be held at the times and places within or without the State of Nevada as
may be designated from time to time by resolution of the Board of Directors or
by written consent of all members of the Board of Directors. No notice of any
kind to members of the Board of Directors for these regular meetings shall be
necessary unless the meeting is to be held at a place other than the principal
executive office of the Corporation, in which case notice of the place of the
meeting shall be given as provided in Section 4.06 below.
Section 4.06. Other Meetings. Other meetings of the Board of Directors for
any purpose or purposes may be held at any time upon call by the Chairman of the
Board, or, if the above-listed individual is absent or unable or refuses to act,
by any two (2) directors. The other meetings may be held at any place within or
without the State of Nevada as may be designated from time to time by resolution
of the Board of Directors or by written consent of all directors. Written notice
of the time and place of other meetings shall be delivered personally to each
director or sent to each director by mail or other form of written
communication, charges prepaid, addressed to the director at the director's
address as shown upon the records of the Corporation or, if it is not so shown
on the Corporation's records or is not readily ascertainable, at the place in
which the meetings of the directors are regularly held. In case the notice is
mailed or telegraphed, it shall be deposited in the United States mail or
delivered to the telegraph company in the place in which the principal executive
office of the Corporation is located at least twenty-four (24) hours prior to
the time of the holding of the meeting. In case the notice is delivered
personally as above provided, it shall be so delivered at least eight (8) hours
prior to the time of the holding of the meeting. The mailing, telegraphing or
delivery as above-provided shall constitute due, legal and personal notice to
the director.
Section 4.07. Notice of Adjourned Meetings. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the time
and place is fixed at the meeting that is adjourned.
Section 4.08. Entry of Notice. An entry in the minutes of any special
meeting of the Board of Directors to the effect that notice has been duly given
shall be conclusive and incontrovertible evidence that due notice of the special
meeting was given to all directors as required by law and by these Bylaws.
Section 4.09. Waiver of Notice. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present, and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice or a consent to the
holding of the meeting or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 4.10. Quorum. A majority of the established number of directors
shall be necessary to constitute a quorum for the transaction of business,
except to adjourn as hereinafter provided. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number or different vote is required by the Corporation's Amended and Restated
Articles of Incorporation, these Bylaws or applicable law.
Section 4.11. Participation in Meetings by Telephone. Members of the Board
of Directors, or of any committee thereof, may participate in any meeting of the
Board of Directors or committee by means of telephone conference or similar
communications by which all persons participating in the meeting can hear each
other and such participation shall constitute presence in person at such
meeting.
Section 4.12. Adjournment. A quorum of the Directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum, a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors.
Section 4.13. Action Without Meeting. Any action required or permitted to
be taken by the Board of Directors under the Corporation's Amended and Restated
Articles of Incorporation, these Bylaws or under applicable law, may be taken
without a meeting if all members of the Board of Directors shall individually or
collectively consent, in writing, before or after the action, to the action. Any
action by written consent shall have the same force and effect as a unanimous
vote of all directors. All written consents must be filed with the Secretary of
the Corporation.
Section 4.14. Fees and Compensation. Directors shall not receive any stated
salary for their services as Directors or as members of committees, but, by
resolution of the Board of Directors, a fixed fee, with or without expenses of
attendance, may be allowed to directors for the director's services. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity as an officer, agent, employee or otherwise,
and receiving compensation therefor.
Section 4.15. Limitation of Liability. To the fullest extent permitted by
the Nevada Private Corporations Act, as the same now exists or may hereafter be
amended, or other applicable law, a director shall have no personal liability to
the Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director. Any amendment to or repeal of this Section 4.15 shall not
adversely affect any right or protection of a director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
Section 4.16. Indemnification; Advancement of Expenses. The Corporation
shall indemnify the officers and directors of the Corporation to the fullest
extent permitted by the Nevada Private Corporations Act as the same now exists
or may hereafter be amended. In the event that the Nevada Private Corporations
Act is amended after the filing of the Corporation's Amended and Restated
Articles of Incorporation with the Nevada Secretary of State's Office so as to
authorize corporate action further eliminating or limiting the personal
liability of an officer or director, then the liability of an officer or
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Nevada Private Corporations Act as so amended. The Corporation
shall pay the expenses incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such officer or director to repay such
amount if it should by ultimately determined that he or she is not entitled to
be indemnified by the Corporation as authorized by the Nevada Private
Corporations Act. Any amendment to or repeal of any of the provisions in this
Section 4.16 shall not adversely affect any right or protection of an officer or
director of the Corporation for or with respect to any act or omission of such
director occurring prior to such amendment or repeal.
Section 4.17. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent permitted by the provisions of
Section 4.16 of these Bylaws and Article VII of the Corporation's Amended and
Restated Articles of Incorporation.
Section 4.18. Powers of Directors. The Board of Directors may, except as
otherwise provided or required by law, exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
Section 4.19. Committees. The Board of Directors, by resolution passed by a
majority of the directors, may from time to time designate committees of the
Board of Directors, including, without limitation, Executive, Nomination, Audit
and Compensation Committees with such lawfully delegable powers and duties as
the Board of Directors may confer, to serve at the pleasure of the Board of
Directors and shall, for those committees and any other provided herein, elect
one or more directors to serve on each such committee. Except as otherwise
provided in these Bylaws or by resolution of the Board of Directors, each
committee may fix its own rules of procedure and shall hold its meetings as
provided by such rules.
Section 4.20. Audit Committee. The Board of Directors shall, by resolution
passed by a majority of the directors, create an Audit Committee. The majority
of the members of the Audit Committee shall be independent directors. The Audit
Committee shall conduct appropriate reviews of all related party transactions,
review situations and transactions that may pose a potential or actual conflict
of interest and perform such other responsibilities as the Board of Directors
may direct by resolution.
ARTICLE V
OFFICERS
Section 5.01. Officers. The Officers of the Corporation shall be a Chairman
of the Board, Chief Executive Officer, President, Chief Operating Officer, Chief
Financial Officer, President, Treasurer and Secretary. The Corporation may also
have, at the discretion of the Board of Directors, one or more Executive Vice
Presidents and Vice Presidents, one or more Assistant Treasurers, one or more
Assistance Secretaries and such other Officers as may be designated from time to
time by the Board of Directors. Any number of offices may be held by the same
person. The officers shall be elected by the Board of Directors and shall hold
office at the pleasure of the Board of Directors, subject to any powers of
removal set forth as set forth in Section 5.04 hereof. Officers, other than the
Chairman of the Board, need not be directors.
Section 5.02. Election. The officers of the Corporation, except those
officers as may be appointed in accordance with the provisions of Section 5.03
or Section 5.05 hereof, shall be elected annually by the Board of Directors, and
each shall hold office until the officer shall resign or shall be removed or
otherwise disqualified to serve, or the officer's successor shall be elected and
qualified; provided, however, that officers may be elected at any time by the
Board of Directors, or, as permitted by Section 5.03 hereof, appointed by the
Chairman of the Board, for the purpose of initially filling an office or filling
a newly-created or vacant office.
Section 5.03. Subordinate Officers. The Board of Directors may elect, and
may empower the Chairman of the Board or the Chief Executive Officer to appoint,
such other officers as the business of the Corporation may require, each of whom
shall hold office for the term, have the authority and perform the duties as are
provided in these Bylaws or as the Board of Directors may from time to time
determine.
Section 5.04. Removal and Resignation. Any officer may, subject to any
contractual arrangements between the officer and the Corporation, be removed,
either with or without cause, by a majority of the directors in office at the
time, at any regular or special meeting of the Board of Directors, or, unless
otherwise specified by the Board of Directors, by the Chairman of the Board or
any other officer upon whom a general or special power of removal may be
conferred by the Board of Directors. Any officer may resign at any time by
giving written notice to the Board of Directors or to the Chairman of the Board,
the Chief Executive Officer, the Chief Operating Officer, the President or to
the Secretary of the Corporation. Any resignation shall take effect at the date
of the receipt of the notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5.05. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to that office.
Section 5.06. Chairman of the Board. The Chairman of the Board, if there be
such an officer, shall, if present, preside at and conduct all meetings of the
Board of Directors and exercise and perform such other powers and duties as may
be from time to time assigned to him or her by the Board of Directors or
prescribed by these Bylaws. If there is not a Chief Executive Officer, the
Chairman of the Board shall, in addition, be the Chief Executive Officer of the
Corporation and shall have the powers and duties prescribed in Section 5.08
hereof. In the absence of the Chairman of the Board at any meeting of the Board
of Directors, the Vice Chairman of the Board shall preside at and conduct all
such meetings of the Board of Directors.
Section 5.07. Vice Chairman of the Board. The Vice Chairman of the Board
shall exercise and perform such powers and duties as may be from time to time
assigned to him or her by the Board of Directors or the Chairman of the Board or
prescribed by these Bylaws.
Section 5.08. Chief Executive Officer. Subject to the control of the Board
of Directors and the Chairman of the Board, the Chief Executive Officer shall
have the general supervision, direction and control of the business and affairs
of the Corporation. In the absence of the Chairman of the Board, or if there be
none, the Chief Executive Officer shall preside at all meetings of the Board of
Directors and the shareholders. Except as expressly stated otherwise in these
Bylaws, the Chief Executive Officer shall be ex officio a member of all standing
committees of the Board of Directors, including the Executive Committee, if any.
The Chief Executive Officer shall have all the powers and shall perform all of
the duties that are ordinarily inherent in the office of Chief Executive Officer
of a corporation, and he or she shall have such further powers and shall perform
such further duties as may be prescribed for him or her by the Board of
Directors.
Section 5.09. President. In the absence or disability of the Chief
Executive Officer, or if there be none, the President shall perform all of the
duties of the Chief Executive Officer, and when so acting shall have all of the
powers of and be subject to all of the restrictions upon the Chief Executive
Officer. The President shall also be the Chief Operating Officer with such
duties as the Board of Directors may from time to time prescribe. The President
shall have such other duties as from time to time may be prescribed for him or
her by the Board of Directors.
Section 5.10. Executive 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, the Executive Vice President or Vice President
designated by the Board of Directors, the President or the officer(s), if any,
who are senior to the President, 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 Executive Vice Presidents or Vice
Presidents shall have such other powers and perform such other duties as may be
prescribed for them, respectively, by the Board of Directors, the President, any
officer(s), if any, who are senior to the President or by these Bylaws.
Section 5.11. Secretary. The Secretary shall keep or cause to be kept, at
the registered office, the principal business office or such other place as the
Board of Directors may order, a book of minutes of all meetings of the directors
and shareholders, with the time and place of holding, whether regular or
special, and, if special, how authorized, the notice thereof given, the names of
those present at directors' meetings, the number of shares present or
represented at shareholders' meetings and the proceedings thereof. The Secretary
shall be responsible for authenticating records of the Corporation.
The Secretary shall keep or cause to be kept, in any form permitted by law,
at the registered office, the principal business office or at the office of the
Corporation's transfer agent, a stock register, or a duplicate stock register,
revised at least annually, showing the names of the shareholders and their
residence addresses and the number and classes of shares held by each
shareholder. If the share register or a duplicate share register is located at a
place other than the registered office of the Corporation, the Secretary shall
file a certificate with the resident agent located at the registered office
setting out the name of the custodian of the stock ledger or a duplicate stock
ledger, and the present and complete post office address, including street and
number, if any, where such stock ledger or duplicate stock ledger is kept.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors and written consents in lieu
thereof required by these Bylaws or by law to be given, and shall keep the seal
of the Corporation, if any, in safe custody, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer, the President or by
these Bylaws.
After fixing a record date for a meeting, the Secretary shall prepare an
alphabetical list of the names of all of the Corporation's shareholders who are
entitled to notice of a shareholders meeting, which list shall be arranged by
voting group and class of stock, if applicable, and show the address and number
of shares held by each shareholder. The list must be available for inspection by
any shareholder, for any purpose germane to the meeting, beginning ten (10)
business days before the meeting and shall continue to be available throughout
the meeting at the place indicated in the meeting notice in the city where the
meeting is held.
Section 5.12. Assistant Secretaries. It shall be the duty of the Assistant
Secretaries, if any, to assist the Secretary in the performance of his or her
duties and generally to perform such other duties as may be delegated to them by
the Board of Directors.
Section 5.13. Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of account of the Corporation. He or she shall receive and
deposit all moneys and other valuable belongings of the Corporation in the name
and to the credit of the Corporation and shall disburse the same and only in
such manner as the Board of Directors or the appropriate officer of the
Corporation may from time to time determine, shall render to the Board of
Directors, the Chairman of the Board, the Chief Executive Officer and the Chief
Operating Officer, whenever any of them may request it, an account of all his or
her transactions as Chief Financial Officer and of the financial condition of
the Corporation, and shall perform such additional duties as the Board of
Directors or the Chairman of the Board may require.
Section 5.14. Treasurer. The Treasurer shall have such duties as may be
specified by the Chief Financial Officer to assist the Chief Financial Officer
in the performance of his or her duties.
Section 5.15. Assistant Treasurer. It shall be the duty of the Assistant
Treasurers, if any, to assist the Treasurer in the performance of his or her
duties and generally to perform such other duties as may be delegated to them by
the Board of Directors.
Section 5.16. Corporate Bank Accounts. Bank accounts in the name of the
Corporation may be opened without the approval of the Board of Directors if
opened with the consent of both the Chief Executive Officer and the Chief
Financial Officer. The Chief Financial Officer shall inform the Board of
Directors of any bank account opened by the Chief Executive Officer and Chief
Financial Officer pursuant to the authority granted in this Section 5.15 at the
next meeting of the Board of Directors.
Section 5.17. Transfers of Authority. In case of the absence of any officer
of the Corporation, or for any reason that the Board of Directors may consider
sufficient, the Board of Directors may transfer the powers or duties of that
officer to any other officer or to any director or employee of the Corporation,
provided a majority of the Board of Directors concurs.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Record Date and Closing Stock Books. The Board of Directors
may fix a time in the future, as a record date for the determination of the
shareholders entitled to notice of and to vote at any meeting of shareholders,
or entitled to receive any dividend or distribution, or any allotment of rights,
or to exercise rights in respect to any change, conversion or exchange of
shares. The record date so fixed shall not be more than sixty (60) days prior to
the date of the meeting or event for the purposes of which it is fixed. When a
record date is so fixed, only shareholders of record on that date shall be
entitled to notice of and to vote at the meeting, or to receive the dividend,
distribution or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date. The Board of Directors may close the books of the
Corporation against transfers of shares during the whole or any part of the
sixty (60) day period.
Section 6.02. Stock List. A list of all shareholders entitled to vote at
any meeting of the shareholders, arranged in alphabetical order by voting group
and class of stock, if applicable, and showing the address of each such
shareholder and the number of shares registered in his or her name, shall be
open to the examination of any such shareholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least ten (10)
business days before the meeting at the place appointed in the notice of the
meeting, or if not so specified, at the Corporation's primary place of business,
which list shall continue to be available throughout the meeting at the place
indicated in the meeting notice in the city where the meeting is held.
Section 6.03. Checks, Drafts, etc. All checks, drafts, bonds, bills of
exchange or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Corporation shall be signed
or endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the Board of Directors.
Section 6.04. Contracts, etc.; How Executed. The Board of Directors, except
as in these Bylaws otherwise provided, may authorize any officer(s) or agent(s)
to enter into any contract or execute any instrument or document in the name of
and on behalf of the Corporation, and the authority may be general or confined
to specific instances. Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts, promissory notes and
other evidences of indebtedness, deeds of trust, mortgages and certificates for
shares of stock owned by the Corporation shall be executed, signed or endorsed
by the President (or any Vice President) and by the Secretary (or any Assistant
Secretary) or the Treasurer (or any Assistant Treasurer). The Board of Directors
may, however, authorize any one (1) of these officers to sign any of such
instruments, for and on behalf of the Corporation, without necessity of
countersignature; may designate officers or employees of the Corporation, other
than those named above, who may, in the name of the Corporation, sign such
instruments; and may authorize the use of facsimile signatures for any of such
persons. No officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit to render
it liable for any purpose or to any amount except as specifically authorized in
these Bylaws or by the Board of Directors in accordance with these Bylaws.
Section 6.05. Lost Certificates of Stock. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
destroyed or stolen, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing the
issue of a new certificate or certificates, the Board of Directors may, in its
discretion, and as a condition precedent to the issuance thereof, require the
owner of the lost or destroyed certificate or certificates, or the shareholder's
legal representative, to advertise the same in any manner as it shall require or
give the Corporation a bond in any sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the
certificate(s) alleged to have been lost or destroyed, or both.
Section 6.06. Representation of Shares. The Chairman of the Board, the
Chief Executive Officer, the Chief Operating Officer or the President (or any
Vice President) and the Secretary (or any Assistant Secretary) of the
Corporation are authorized to vote, represent and exercise on behalf of the
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the Corporation. The authority herein
granted to these officers to vote or represent on behalf of the Corporation any
and all shares held by the Corporation in any other corporation or corporations
may be exercised either by these officers in person or by any persons authorized
so to do by proxy or power of attorney duly executed by said officers.
Section 6.07. Inspection of Bylaws. The Corporation shall keep in its
registered office for the transaction of business the original or a copy of
these Bylaws as amended or otherwise altered to date, certified by the
Secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
ARTICLE VII
AMENDMENTS
Section 7.01. Power of Shareholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written assent of shareholders
entitled to exercise a majority of the voting power of the Corporation, unless a
greater number is required by law, by the Corporation's Amended and Restated
Articles of Incorporation or by these Bylaws.
Section 7.02. Power of Directors. Subject to the right of the shareholders
as provided in Section 7.01 hereof to adopt, amend or repeal Bylaws, Bylaws for
the Corporation may be adopted, amended or repealed by the Board of Directors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
CERTIFICATE OF SECRETARY
OF
BIOMUNE SYSTEMS, INC.
I, E. Wayne Nelson, hereby certify:
1. That I am the duly elected Secretary of Biomune Systems, Inc.
2. That the foregoing Amended and Restated Bylaws, comprising eighteen (18)
pages, excluding this page, are the Bylaws of Biomune Systems, Inc. as duly
adopted at a meeting of the Board of Directors thereof duly held on the 22nd day
of March, 1996.
IN WITNESS WHEREOF, I have subscribed my name this 25th day of March, 1996.
/s/ E. Wayne Nelson
---------------------
E. Wayne Nelson
Secretary
EXHIBIT 3.3
BIOMUNE SYSTEMS, INC.
DESIGNATION OF RIGHTS AND PREFERENCES
OF
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Pursuant to the authority vested in the Board of Directors of Biomune
Systems, Inc., a Nevada corporation (the "Corporation"), in its Articles of
Incorporation and as permitted by Title 7, Chapter 78 of the Nevada Revised
Statutes, the Board of Directors does hereby establish a series of the
Corporation's Preferred Stock designated as Series A 10% Cumulative Convertible
Preferred Stock and does hereby designate the rights, preferences, privileges
and other attributes of the shares of Series A 10% Cumulative Convertible
Preferred Stock, as follows:
1. Designation and Number of Shares.
An initial series of the Corporation's Preferred Stock is hereby
established, to be designated and known as "Series A 10% Cumulative Convertible
Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock"),
consisting of one million (1,000,000) shares of the authorized and unissued
shares of the Corporation's Preferred Stock, $0.0001 par value per share. The
Corporation shall from time to time, in accordance with the laws of the State of
Nevada, 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 Corporation's Common Stock
remaining unissued and available for issuance shall not be sufficient to permit
conversion of the Series A Preferred Stock as provided herein.
2. Dividends.
Subject to the rights of any series of Preferred Stock that may from time
to time come into existence, the holders of shares of Series A Preferred Stock
shall be entitled to receive an annual dividend out of any of the Corporation's
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend on the Common Stock of the Corporation, at the rate of
ten percent (10%) per annum ($0.50) per share of Series A Preferred Stock.
Dividends will be paid to holders of record of shares of Series A Preferred
Stock as they appear on the books and records of the Corporation 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
Corporation. Dividends shall be fully cumulative and shall accrue from the date
of original issuance of the Series A Preferred 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 Corporation junior to the Series A Preferred Stock for
any period unless full cumulative dividends have been paid or 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 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 Corporation's Board of Directors, be
paid in either cash or additional shares of Series A Preferred Stock. 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.
(1) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of Series A Preferred Stock shall
be entitled to receive out of the assets of the Corporation 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
Corporation ranking junior upon liquidation to the Series A Preferred Stock,
liquidation distributions in the amount of Five Dollars and No/100 ($5.00) per
share, plus all accrued and unpaid dividends, if any. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to make the full payment of Five
Dollars and No/100 ($5.00) per share, plus all accrued and unpaid dividends
thereon, on the Series A Preferred Stock and similar payments on any other class
of shares ranking on a parity with the Series A Preferred Stock upon
liquidation, then the holders of the Series A Preferred Stock and of such other
shares will share ratably in any such distribution of assets of the Corporation
in proportion to the full respective distributable amounts to which they are
entitled.
(2) 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 Corporation, and the entire remaining assets and funds of the
Corporation 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.
(3) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation that does not involve a distribution by the Corporation of
cash or other property to the holders of shares of Common Stock, shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 3, but shall be subject to the provisions of Section
6 below.
4. Voting Rights.
(1) Except as otherwise expressly provided herein or as required by Nevada
law, the holders of Series A Preferred Stock shall be entitled to one (1) vote
for each whole share of Common Stock into which each such share of Series A
Preferred Stock may be converted at the record date for any meeting or written
consent on all matters submitted to a vote or for the consent of the
shareholders, and the holders of Series A Preferred Stock shall have voting
rights and powers equal to the voting rights and powers of the Common Stock
(except as otherwise expressly provided herein or as required by Nevada law),
and shall be entitled to notice of any shareholders' meeting in accordance with
the Bylaws of the Corporation. Fractional votes shall not, however, be permitted
and any fractional voting rights resulting from the above formula (after
aggregating all shares into which shares of Series A Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number
(with one-half (1/2) being rounded upward).
(2) Unless the vote or consent of the holders of a greater number of
shares shall then be required by Nevada law, so long as any shares of Series A
Preferred Stock are outstanding, the Corporation will not, (a) without the
affirmative vote or consent of the holders of at least two-thirds (2/3) of the
outstanding shares of Series A Preferred Stock, voting as a separate voting
group, amend any of the provisions of the Corporation's Articles of
Incorporation so as to adversely affect the powers, preferences or special
rights of the Series A Preferred Stock, or (b) without the affirmative vote or
consent of the holders of at least a majority of the outstanding shares of
Series A Preferred Stock, merge or consolidate with or into any other
corporation if such merger or consolidation would adversely affect the powers,
preferences or rights of the Series A Preferred Stock. Holders of shares of
Series A Preferred Stock will also have the right to vote as a separate voting
group in certain circumstances where permitted under Nevada law.
5. Conversion of Series A Preferred Stock. The holders of shares of the
Series A Preferred Stock shall have the following conversion rights
(collectively, the "Conversion Rights"):
(1) Right to Convert.
(i) Each share of Series A Preferred Stock shall be convertible,
at the option of the holder thereof, at any time after the date of
issuance of such share (except as to shares called for redemption as
to which all conversion rights shall cease upon the redemption date
unless the Corporation shall default in the payment of the redemption
price), at the office of the Corporation or any transfer agent for
such stock, into such number of fully-paid and nonassessable shares of
the Corporation's Common Stock equal to the aggregate value of the
Series A Preferred Stock to be converted determined by multiplying the
number of the shares of Series A Preferred Stock to be converted by
Five Dollars and No/100 ($5.00) per share and dividing that product by
the then-applicable Series A Conversion Price (as that term is defined
below). The initial Series A Conversion Price shall be Five Dollars
and No/100 ($5.00). Such initial Series A Conversion Price shall be
adjusted as hereinafter provided (the "Series A Conversion Price").
(ii) Upon conversion, no adjustments will be made for accrued
dividends and, therefore, shares of Series A Preferred Stock
surrendered for conversion during the period between the close of
business on any dividend payment record date and the opening of
business on the corresponding dividend payment date (except shares of
Series A Preferred Stock called for redemption on a date during such
period) must be accompanied by payment of an amount equal to the
dividend payable on such shares of Series A Preferred Stock on such
dividend payment date.
(2) 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 Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation 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 Corporation 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. Such conversion shall be deemed to have been made on the date set
forth in the written notice of conversion (which date may be any date on or
after the date of the written notice, including, without limitation, the closing
date of any Sales Transaction (as that term is defined in Section 6(a) below)),
or if no date is specified, immediately prior to the close of business on the
date of surrender of the shares of Series A Preferred Stock to be converted, and
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.
(3) Adjustments for Combinations or Subdivisions of Common Stock. In the
event the Corporation 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 Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
increased or decreased, as appropriate.
(4) Other Distributions. In the event the Corporation 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 Corporation or any of its subsidiaries, if any,
then in each such event 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 Corporation that they would have received had their Series A
Preferred Stock been converted into shares of Common Stock on the date of such
event.
(5) No Impairment. The Corporation 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 Corporation, 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 the
Series A Preferred Stock against impairment. No amendment shall be made to the
Corporation'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.
(6) Certificates as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Series A Conversion Price pursuant to this Section 5, the
Corporation 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 Corporation'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 Corporation
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
Conversion Price 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 Series A
Preferred Stock.
(7) Notices of Record Date. In the event of any taking by the Corporation
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 Corporation
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.
(8) Issue Taxes. The Corporation 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 Corporation 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.
(9) Reservation of Stock Issuable Upon Conversion. The Corporation 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 Corporation 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 Corporation's Articles of Incorporation.
(10) 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 Corporation 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.
(11) 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 Corporation.
(12) Adjustments. In case of any reorganization or any reclassification of
the capital stock of the Corporation, any consolidation or merger of the
Corporation with or into another corporation or corporations, or the conveyance
of all or substantially all of the assets of the Corporation 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 of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Corporation'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.
(1) 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 Corporation'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
Corporation, unless the Corporation's shareholders immediately prior
to such sale will, as a result of such sale, hold (by virtue of
securities issued as consideration for the Corporation'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, subject to the rights of any series of Preferred Stock that
may from time to time come into existence, 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, an amount per share equal to Five Dollars and No/100 ($5.00)
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 aforesaid preferential amounts to the
holders of the Series A Preferred Stock in accordance herewith, then, subject to
the rights of any series of Preferred Stock that may from time to time come into
existence, 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 shares of Common
Stock then held by them. 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 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 Corporation in the discretion of the Corporation.
(2) Any securities to be delivered to the holders of the 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
National Market System, 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 Corporation's
Board of Directors and the holders of a majority of the outstanding
shares of Series A Preferred Stock.
(ii) 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) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) above to reflect the
approximate fair market value thereof, as mutually determined by the
Corporation and the holders of a majority of the outstanding shares of
Series A Preferred Stock.
(3) In the event the requirements of Section 6(a) are not complied with,
the Corporation 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 the 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.
(4) The Corporation 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 Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the notice provided for herein or sooner than ten (10)
days after the Corporation has given notice of any material changes 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 outstanding, the Corporation shall not, without the vote
or written consent by the holders of not less than a majority of the outstanding
shares of Series A Preferred Stock:
(i) 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
Corporation; 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 Corporation or
any subsidiary, if any, pursuant to agreements approved by the
Corporation's Board of Directors under which the Corporation has a right of
first refusal with respect to such shares or the option to repurchase such
shares upon the occurrence of certain events, including termination of
employment or services, or
(ii) 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 or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise, superior to, or on a parity with, any such
preference or priority of the Series A Preferred Stock, or
(iii) Increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Preferred Stock of the Corporation
or the total number of shares of Preferred Stock designated as Series A
Preferred Stock, or
(iv) Authorize or issue, or obligate itself to issue, any other equity
security senior to or on a parity with the Series A Preferred Stock as to
dividends or 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 rights to
purchase, any such equity security that is senior to, or on a parity with,
the Series A Preferred Stock.
8. No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Corporation 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 Preferred Stock.
9. Redemption. Except as set forth below, the shares of Series A Preferred
Stock are not redeemable prior to January 1, 1996. Commencing on January 1,
1996, the Series A Preferred Stock may be redeemed at the option of the
Corporation at a redemption price of Five Dollars and No/100 ($5.00) per share
of Series A Preferred Stock plus all accrued and unpaid dividends, if any, by
the Corporation providing written notice of such redemption to the holders of
the shares of Series A Preferred Stock that are to be redeemed. If less than all
of the issued and outstanding shares of Series A Preferred Stock are to be
redeemed, the Corporation will select those shares to be redeemed by lot or on a
pro rata basis or by any other method deemed by the Corporation'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 outstanding and all
rights of the holders thereof as shareholders of the Corporation shall cease
unless the Corporation defaults on payment of the redemption price.
EXHIBIT 3.4
BIOMUNE SYSTEMS, INC.
DESIGNATION OF RIGHTS AND PREFERENCES
OF
SERIES B 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Pursuant to the authority vested in the Board of Directors of Biomune
Systems, Inc., a Nevada corporation (the "Corporation"), in its Articles of
Incorporation and as permitted by Title 7, Chapter 78 of the Nevada Revised
Statutes, the Board of Directors does hereby establish a series of the
Corporation's Preferred Stock designated as Series B 10% Cumulative Convertible
Preferred Stock and does hereby designate the rights, preferences, privileges
and other attributes of the shares of Series B 10% Cumulative Convertible
Preferred Stock, as follows:
1. Designation and Number of Shares.
An initial series of the Corporation's Preferred Stock is hereby
established, to be designated and known as "Series A 10% Cumulative Convertible
Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock"),
consisting of one million (1,000,000) shares of the authorized and unissued
shares of the Corporation's Preferred Stock, $0.0001 par value per share. The
Corporation shall from time to time, in accordance with the laws of the State of
Nevada, 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 Corporation's Common Stock
remaining unissued and available for issuance shall not be sufficient to permit
conversion of the Series B Preferred Stock as provided herein.
2. Dividends.
Subject to the rights of the Corporation's Series A 10% Cumulative
Convertible Preferred Stock, the holders of shares of Series B Preferred Stock
shall be entitled to receive an annual dividend out of any of the Corporation's
assets legally available therefor, after the dividends due and payable on the
Series A 10% Cumulative Convertible Preferred Stock but prior and in preference
to any declaration or payment of any dividend on the Common Stock of the
Corporation, at the rate of ten percent (10%) per annum ($1.50) per share of
Series B Preferred Stock. Dividends will be paid to holders of record of shares
of Series B Preferred Stock as they appear on the books and records of the
Corporation 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 Corporation. Dividends shall be fully cumulative and shall
accrue from the date of original issuance of the Series B Preferred 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 Corporation junior to the
Series B Preferred Stock for any period unless full cumulative dividends have
been paid or contemporaneously are declared and paid or set apart for payment on
the Series B Preferred Stock. A dividend payable in shares of Common Stock or
another class of shares junior to the Series B Preferred Stock may, however, be
made. Dividends on the Series B Preferred Stock may, at the option of the
Corporation's Board of Directors, be paid in either cash or additional shares of
Series B Preferred Stock. Holders of Series B Preferred Stock shall not
participate in excess dividends remaining following payment of all accrued and
unpaid dividends owing to holders of Series B Preferred Stock.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of Series B Preferred Stock shall
be entitled to receive out of the assets of the Corporation 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
Corporation ranking junior upon liquidation to the Series B Preferred Stock,
liquidation distributions in the amount of Fifteen dollars and No/100 ($15.00)
per share, plus all accrued and unpaid dividends, if any. If upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to make the full payment of
Fifteen Dollars and No/100 ($15.00) per share, plus all accrued and unpaid
dividends thereon, on the Series B Preferred Stock and similar payments on any
other class of shares ranking on a parity with the Series B Preferred Stock upon
liquidation, then the holders of the Series B Preferred Stock and of such other
shares will share ratably in any such distribution of assets of the Corporation
in proportion to the full respective distributable amounts to which they are
entitled.
(b) After payment to the holders of the Series B Preferred Stock of the
amounts set forth in subparagraph 3(a) above, the holders of Series B Preferred
Stock will not be entitled to any further participation in any distribution or
payment by the Corporation, and the entire remaining assets and funds of the
Corporation 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 Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation that does not involve a distribution by the Corporation of
cash or other property to the holders of shares of Common Stock, shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 3, but shall be subject to the provisions of Section
6 below.
4. Voting Rights.
(a) Except as otherwise expressly provided herein or as required by Nevada
law, the holders of Series B Preferred Stock shall be entitled to voting rights.
Upon conversion of shares of Series B Preferred Stock by holders thereof into
Common Stock of the Corporation, 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 B Preferred Stock. The holders of shares of the
Series B Preferred Stock shall have the following conversion rights
(collectively, the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series B Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of
such share (except as to shares called for redemption as to which all
conversion rights shall cease upon the redemption date unless the
Corporation shall default in the payment of the redemption price), at the
office of the Corporation or any transfer agent for such stock, on a
one-for-one basis into fully-paid and nonassessable shares of the
Corporations's Common Stock subject to adjustment as provided herein (the
"Conversion Rate").
(ii) Upon conversion, no adjustments will be made for accrued
dividends and, therefore, shares of Series B Preferred Stock surrendered
for conversion during the period between the close of business on any
dividend record date and the opening of business on the corresponding
dividend payment date (except shares of Series B Preferred Stock called for
redemption on a date during such period) must be accompanied by payment of
an amount equal to the dividend payable on such shares of Series B
Preferred Stock on such dividend payment date.
(b) Mechanics of Conversion. Before any holder of Series B 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 Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation 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 Corporation 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. Such conversion shall be deemed to have been made on the date set
forth in the written notice of conversion (which date may be any date on or
after the date of the written notice, including, without limitation, the closing
date of any Sales Transaction (as that term is defined in Section 6(a) below)),
or if no date is specified, immediately prior to the close of business on the
date of surrender of the shares of Series B Preferred Stock to be converted, and
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.
(c) Adjustments for Combinations or Subdivisions of Common Stock. In the
event the Corporation at any time or from time to time after the date on which a
share of Series B 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 B Conversion Rate in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
increased or decreased, as appropriate.
(d) Other Distributions. In the event the Corporation 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 Corporation or any of its subsidiaries, if any,
then in each such event provision shall be made so that the holders of shares of
Series B Preferred Stock shall receive, upon the conversion thereof, the
securities of the Corporation that they would have received had their Series B
Preferred Stock been converted into shares of Common Stock on the date of such
event.
(e) No Impairment. The Corporation 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 Corporation, 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 the
Series B Preferred Stock against impairment. No amendment shall be made to the
Corporation's Articles of Incorporation that would alter or change the powers,
preferences or privileges of the shares of Series B 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 B Preferred Stock.
(f) Certificates as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Series B Conversion Rate pursuant to this Section 5, the
Corporation 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 Corporation's Board of Directors to verify such
computation and prepare and furnish to each holder of Series B 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 Corporation
shall, upon the written request at any time of any holder of Series B Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Series B
Conversion Rate 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 Series B
Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the Corporation
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 Corporation
shall mail to each holder of Series B 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.
(h) Issue Taxes. The Corporation 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 B Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder of shares
of Series B Preferred Stock in connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation 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 B 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 B 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 B Preferred Stock, the Corporation 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 Corporation's Articles of Incorporation.
(j) 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 B Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one (1) share of Series B 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 Corporation 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.
(k) Notices. Any notice required by the provisions of this Section 5 to be
given to the holders of shares of Series B 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 Corporation.
(l) Adjustments. In case of any reorganization or any reclassification of
the capital stock of the Corporation, any consolidation or merger of the
Corporation with or into another corporation or corporations, or the conveyance
of all or substantially all of the assets of the Corporation to another
corporation, each share of Series B 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 B Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Corporation'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 B 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 B 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 Corporation'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
Corporation, unless the Corporation's shareholders immediately prior to
such sale will, as a result of such sale, hold (by virtue of securities
issued as consideration for the Corporation'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, subject to the rights of holders of Series A Preferred
Stock, holders of the Series B 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, an amount per
share equal to Fifteen Dollars and No/100 ($15.00) 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 aforesaid preferential amounts to the holders of the Series B Preferred
Stock in accordance herewith, then, subject to the rights of holders of series A
Preferred Stock, the entire amount payable in respect of the proposed Sales
Transaction shall be distributed ratably among the holders of the Series B
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 B 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 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 holders of Common Stock by
purchase of such shares of Series B Preferred Stock and Common Stock by the
surviving corporation, entity or person or by redemption of such shares by the
Corporation in the discretion of the Corporation.
(b) Any securities to be delivered to the holders of the Series B 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
Small Cap 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 Corporation's
Board of Directors and the holders of a majority of the outstanding
shares of Series B Preferred Stock.
(ii) 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 Corporation) 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 Corporation and the holders of a majority of the
outstanding shares of Series B Preferred Stock.
(c) In the event the requirements of Section 6(a) above are not complied
with, the Corporation 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 the Series B 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 Corporation shall give each holder of record of Series B 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 Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the notice provided for herein or sooner than ten (10)
days after the Corporation has given 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 B Preferred Stock.
7. Restrictions and Limitations. So long as any shares of Series B
Preferred Stock remain issued and outstanding, the Corporation shall not without
the consent of the holders of a majority of the shares of Series B Preferred
Stock then outstanding:
(i) 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
Corporation; 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 Corporation or
any subsidiary, if any, or
(ii) 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 or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise, that are superior to any such preference or
priority of the Series B Preferred Stock, or
(iii) Increase or decrease (other than by redemption or conversion)
the total number of authorized shares of the Corporation's Preferred Stock
of the Corporation or the total number of shares of the Corporation's
Preferred Stock designated as Series B Preferred Stock, or (iv) Authorize
or issue, or obligate itself to issue, any other equity security senior to
the Series B Preferred Stock as to dividends or 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 B Preferred Stock. The consent of the holders of a
majority of the shares of Series B Preferred Stock shall not be required if
any other equity security on parity with the Series B Preferred Stock as to
dividends, redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise is to be issued.
8. No Reissuance of Series B Preferred Stock. No share or shares of Series
B Preferred Stock acquired by the Corporation 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 Corporation's Preferred Stock.
9. Redemption. Except as set forth below, the shares of Series B Preferred
Stock are not redeemable prior to January 1, 1996. Commencing on January 1,
1996, the Series B Preferred Stock may be redeemed at the option of the
Corporation at a redemption price of Fifteen Dollars and No/100 ($15.00) per
share of Series B Preferred Stock to be redeemed plus all accrued and unpaid
dividends thereon, if any, by the Corporation providing written notice of such
redemption to the holders of the shares of Series B Preferred Stock that are to
be redeemed. If less than all of the issued and outstanding shares of Series B
Preferred Stock are to be redeemed, the Corporation will select those shares to
be redeemed by lot or on a pro rata basis or by any other method deemed by the
Corporation's Board of Directors to be equitable (with any necessary adjustments
to avoid fractional shares). Any shares of Series B 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 B Preferred Stock. After the date fixed for
redemption, dividends on shares of Series B 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 Corporation shall cease unless the Corporation 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.
EXHIBIT 3.5
BIOMUNE SYSTEMS, INC.
DESIGNATION OF RIGHTS AND PREFERENCES
OF
SERIES D 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Pursuant to the authority vested in the Board of Directors of Biomune
Systems, Inc., a Nevada corporation (the "Corporation"), in its Articles of
Incorporation and as permitted by Title 7, Chapter 78 of the Nevada Revised
Statutes, the Corporation's Board of Directors does hereby establish a series of
the Corporation's Preferred Stock designated as Series D 8% Cumulative
Convertible Non-Voting Preferred Stock as follows:
1. Designation and Number of Shares.
A series of the Corporation's Preferred Stock is hereby established, to be
designated and known as "Series D 8% Cumulative Convertible Non-Voting Preferred
Stock" (hereinafter referred to as the "Series D Preferred Stock"), consisting
of six thousand (6,000) shares of the authorized and unissued shares of the
Corporation's Preferred Stock, $0.0001 par value per share. The Corporation
shall from time to time, in accordance with the laws of the State of Nevada,
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 Corporation's Common Stock remaining
unissued and available for issuance shall not be sufficient to permit conversion
of the Series D Preferred Stock as provided herein.
2. Dividends.
Subject to the rights of the Corporation's Series A 10% Cumulative
Convertible Preferred Stock and the Corporation's Series B 10% Cumulative
Convertible Stock, the holders of shares of Series D Preferred Stock shall be
entitled to receive an annual dividend out of any of the Corporation's assets
legally available therefor, after the dividends due and payable on the Series A
10% Cumulative Convertible Preferred and the Series B 10 Cumulative Convertible
Preferred Stock, but prior and in preference to any declaration or payment of
any dividend on the Common Stock of the Corporation, at the rate of eight
percent (8%) per annum per share of Series D Preferred Stock. Dividends will be
paid to holders of record of shares of Series D Preferred Stock as they appear
on the books and records of the Corporation 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 Corporation. Dividends
shall be fully cumulative and shall accrue from the date of original issuance of
the Series D Preferred 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 Corporation junior to the Series D Preferred Stock for any period unless
full cumulative dividends have been paid or contemporaneously are declared and
paid or set apart for payment on the Series D Preferred Stock. Dividends on the
Series D Preferred Stock may, at the option of the Corporation's Board of
Directors prior to conversion, be paid in either cash or additional shares of
Series D Preferred Stock and upon conversion any and all dividends will be paid
in kind. Holders of Series D Preferred Stock shall not participate in excess
dividends remaining following payment of all accrued and unpaid dividends owing
to holders of Series D Preferred Stock.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of Series D Preferred Stock shall
be entitled to receive out of the assets of the Corporation available for
distribution to shareholders, after any distribution or payment is made to
holders of shares of the Corporation's Series A 8% Cumulative Convertible
Preferred Stock and to holders of Series B Cumulative Convertible Preferred
Stock, but before any distribution or payment is made to holders of shares of
Common Stock, or to holders of any other shares of the Corporation ranking
junior upon liquidation to the Series D Preferred stock, liquidation
distributions in the amount of One Thousand Dollars and No/100 ($1,000.00) per
share, plus all accrued and unpaid dividends, if any. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to make the full payment of One
Thousand Dollars and No/100 ($1,000.00) per share, plus all accrued and unpaid
dividends thereon, on the Series D Preferred Stock and similar payments on any
other class of shares ranking on a parity with the Series D Preferred Stock upon
liquidation, then the holders of the Series D Preferred Stock and of such other
shares will share ratably in any such distribution of assets of the Corporation
in proportion to the full respective distributable amounts to which they are
entitled.
(b) After payment to the holders of the Series D Preferred Stock of the
amounts set forth in subparagraph 3(a) above, the holders of Series D Preferred
Stock will not be entitled to any further participation in any distribution or
payment by the Corporation, and the entire remaining assets and funds of the
Corporation 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 Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation that does not involve a distribution by the Corporation of
cash or other property to the holders of shares of Common Stock, shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 3, but shall be subject to the provisions of Section
6 below.
4. Voting Rights.
(a) Except as otherwise expressly provided herein or as required by Nevada
law, the holders of Series D Preferred Stock shall not be entitled to voting
rights. Upon conversion of shares of Series D Preferred Stock by holders thereof
into Common Stock of the Corporation, 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 D Preferred Stock. The holders of shares of the
Series D Preferred Stock shall have the following conversion rights
(collectively, the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series D Preferred Stock shall be convertible commencing
after forty (40) days from the date hereof, at the option of the holder thereof,
at any time after the date of issuance of such share (except as to shares called
for redemption as to which all conversion rights shall cease upon the redemption
date unless the Corporation shall default in the payment of the redemption
price), at the office of the Corporation or any transfer agent for such stock,
into Common Stock determined by dividing $1,000.00 by an amount equal to the
Market Price less 25% provided, however, that if the Series D Preferred Stock is
converted within 90 days of the closing date, it shall be convertible by
dividing $1,000.00 by an amount equal to the lesser of (a) the Bid Price on the
closing date, or (b) the Market Price less 20% but in no event less than $1.60
per share of Common Stock so converted (the "Conversion Rate"). Accrued
dividends shall be paid in kind simultaneously with conversion.
Market Price shall be defined as the average closing bid prices of the
Common Stock for the three (3) NASDAQ 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
interdealer quotation system as may list the Common Stock. Each conversion shall
be effected by surrendering the certificates for the Series D Preferred Stock to
be converted to the Company. The date of execution by facsimile delivery to the
Company or such certificate shall be defined as the "Conversion Date" provided
that share certificates are delivered within three (3) business days thereafter
to the Company or transfer agent.
(b) Mechanics of Conversion. Before any holder of Series D Preferred Stock
shall be entitled to receive the same into shares of Common Stock, such holder
shall surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation or of any transfer agent for such stock as set forth
in 5(a)(i), and shall give written notice to the Corporation 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 Corporation 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. Such conversion shall be deemed to have been made on
the date set forth in the written notice of conversion as at the Conversion
Date; or if no date of surrender of the shares of Series D Preferred Stock to be
converted, and 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.
(c) Other Distributions. In the event the Corporation 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 cash or securities of the Corporation or any of its subsidiaries, if
any, then in each such event provision shall be made so that the holders of
shares of Series D Preferred Stock shall receive, upon the conversion thereof,
the cash or securities of the Corporation that they would have received had
their Series D Preferred Stock been converted into shares of Common Stock on the
date of such event.
(d) No Impairment. The Corporation 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 Corporation, 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 the
Series D Preferred Stock against impairment. No amendment shall be made to the
Corporation's Articles of Incorporation that would alter or change the powers,
preferences or privileges of the shares of Series D 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 D Preferred Stock.
(e) Notices of Record Date. In the event of any taking by the Corporation
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 Corporation
shall mail to each holder of Series D 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.
(f) Issue Taxes. The Corporation 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 D Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder of shares
of Series D Preferred Stock in connection with any such conversion.
(g) Reservation of Stock Issuable Upon Conversion. The Corporation 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 D 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 D 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 D Preferred Stock, the Corporation 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 Corporation's Articles of Incorporation.
(h) 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 D Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one (1) share of Series D 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 Corporation 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.
(i) Notices. Any notice required by the provisions of this Section 5 to be
given to the holders of shares of Series D 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 Corporation.
(j) Adjustments. In case of any reorganization or any reclassification of
the capital stock of the Corporation, any consolidation or merger of the
Corporation with or into another corporation or corporations, or the conveyance
of all or substantially all of the assets of the Corporation to another
corporation, each share of Series D 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 D Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Corporation'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 D 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 D Preferred Stock.
(k) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Series D Conversion Rate pursuant to this Section 5, the
Corporation, 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 Corporation's Board of Directors to verify such
computation and prepare and furnish to each holder of Series D 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 Corporation
shall, upon the written request at any time of any holder of Series D Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Series D
Conversion Rate 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
D 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 Corporation'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
Corporation, unless the Corporation's shareholders immediately prior to
such sale will (by virtue of securities issued as consideration for the
Corporation's sale) hold, as a result of such 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, subject to the rights of holders of Series A Preferred
Stock, and Series B Preferred Stock, holders of the Series D Preferred Stock of
record as of the date of consummation of the Sales Transaction shall be entitled
to either 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, an amount per share equal to One Thousand Dollars and No/100
($1,000.00) 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, or convert into that number of shares of Common Stock
into which such preferred shares are then convertible at the time of such
transaction. In the event the proceeds of the Sales Transaction are not
sufficient to make full payment of the aforesaid preferential amounts to the
holders of the Series D Preferred Stock in accordance herewith, then, subject to
the rights of holders of series A Preferred Stock, and Series D Preferred Stock,
the entire amount payable in respect of the proposed Sales Transaction shall be
distributed ratably among the holders of the Series D 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 D 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 shares of Common Stock then held.
Unless otherwise consented to by the holders of a majority of the outstanding
shares of Series D Preferred Stock, such payments shall be made with respect to
the Series D Preferred Stock and to holders of Common Stock by purchase of such
shares of Series D Preferred Stock and Common Stock by the surviving
corporation, entity or person, or by redemption of such shares by the
Corporation, in the discretion of the Corporation.
(b) Any securities to be delivered to the holders of the Series D 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
Small Cap 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 fair market
value thereof, as mutually determined by the Corporation's Board of
Directors and the holders of a majority of the outstanding shares of
Series D Preferred Stock.
(ii) 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 Corporation) 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 Corporation and the holders of a majority of the
outstanding shares of Series D Preferred Stock.
(c) In the event the requirements of Section 6(a) above are not complied
with, the Corporation 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 the Series D 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 Corporation shall give each holder of record of Series D 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 Corporation shall
thereafter give such holders prompt notice of any material changes to the
impending transaction. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the notice provided for herein
or sooner than ten (10) days after the Corporation has given 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 D Preferred Stock.
7. Restrictions and Limitations. So long as any shares of Series D
Preferred Stock remain issued and outstanding, the Corporation shall not without
the consent of the holders of a majority of the shares of Series D Preferred
Stock then outstanding:
(i) 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
Corporation; 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 Corporation or
any subsidiary, if any, or
(ii) 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 D Preferred Stock, or
(iii) Increase or decrease (other than by redemption or conversion)
the total number of authorized shares of the Corporation's Preferred Stock
of the Corporation or the total number of shares of the Corporation's
Preferred Stock designated as Series D Preferred Stock, or
(iv) Authorize or issue, or obligate itself to issue, any other equity
security senior to the Series B 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 D Preferred Stock. The
consent of the holders of a majority of the shares of Series D Preferred
Stock shall not be required if any other equity security on parity with the
Series D Preferred Stock as to dividends, redemption rights, liquidation
preferences, conversion rights, voting rights or otherwise is to be issued.
8. No Reissuance of Series B Preferred Stock. No share or shares of Series
B Preferred Stock acquired by the Corporation 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 Corporation's Preferred Stock.
9. Redemption. Except as set forth below, the shares of Series D Preferred
Stock are not redeemable prior to April 1, 1996. On April 1, 1996, by ten (10)
days prior written notice from the Corporation, the Series D Preferred Stock may
be redeemed at the option of the Corporation at a redemption price of One
Thousand Two Hundred Seventy Dollars and No/100 ($1,270.00) per share of Series
D Preferred Stock to be redeemed, plus all accrued and unpaid dividends thereon.
If less than all of the issued and outstanding shares of Series D Preferred
Stock are to be redeemed, the Corporation will select those shares to be
redeemed by lot or on a pro rata basis or by any other method deemed by the
Corporation's Board of Directors to be equitable (with any necessary adjustments
to avoid fractional shares). Any shares of Series D 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 D Preferred Stock. After the date fixed for
redemption, dividents on shares of Series D 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 Corporation shall cease unless the Corporation defaults on the payment of
the redemption price. The Series D Preferred Stock is subject to redemption at
the option of the Corporation, in whole or in part, on ten (10) days prior
written notice commencing at any time after January 1, 1997, at a redemption
price of one hundred thirty-three percent (133%) in excess of liquidation
preference, together with all accrued interest thereon.
10. United States Dollars. All references herein to Dollars shall be deemed
to refer to United States Dollars.
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT TO THE DESIGNATION
OF RIGHTS AND PREFERENCES RELATED TO SERIES A 10%
CUMULATIVE CONVERTIBLE PREFERRED STOCK OF BIOMUNE SYSTEMS, INC.
The undersigned, being the President and the Secretary of Biomune Systems,
Inc., a Nevada corporation, do hereby certify and declare as follow:
1. The name of the Corporation is Biomune Systems, Inc.
2. Attached hereto as Exhibit "A" and incorporated herein by this reference
is a true and correct copy of the amendment to Section 1 of the Designation of
Rights and Preferences related to the Series A 10% Cumulative Convertible
Preferred Stock of Biomune Systems, Inc.
3. The amendment to Section 1 of the Designation of Rights and Preferences
related to the Series A 10% Cumulative Convertible Preferred Stock described
above was adopted by the Corporation's Board of Directors by Unanimous Written
Consent dated June 5, 1996, pursuant to Section 78.315 of the Nevada Private
Corporations Act and is being filed with the Nevada Secretary of State pursuant
to Section 78.195 and Section 78.207 of the Nevada Private Corporations Act.
4. The above-referenced amendment was consented to by a majority of the
current and certain former holders of a majority of the shares of the
Corporation's Series A 10% Cumulative Convertible Preferred Stock as required by
Section 7(iii) of the Designation of Rights and Preferences related to the
Series A 10% Cumulative Convertible Preferred Stock.
5. The current number of authorized shares and the par value of each class
and series of shares before the amendment is as follows:
(a) Common Stock, $0.0001 par value per share: 500,000,000
(b) Preferred Stock, $0.0001 par value per share: 50,000,000, which have
been designated as follows:
(i) Series A 10% Cumulative Convertible Preferred Stock: 1,075,000
(ii) Series B 10% Cumulative Convertible Non-Voting Preferred Stock:
1,000,000
(iii) Series D 8% Cumulative Convertible Non-Voting Preferred Stock:
6,000
6. The number of authorized shares and the par value of each class and
series of shares after the amendment will be as follows:
(a) Common Stock, $0.0001 par value per share: 500,000,000
(b) Preferred Stock, $0.0001 par value per share: 50,000,000, which will be
designated as follows:
(i) Series A 10% Cumulative Convertible Preferred Stock: 1,120,000
(ii) Series B 10% Cumulative Convertible Non-Voting Preferred Stock:
1,000,000
(iii) Series D 8% Cumulative Convertible Non-Voting Preferred Stock:
6,000
7. This Certificate of Amendment shall be effective upon filing with the
Nevada Secretary of State.
IN WITNESS WHEREOF, we have signed this Certificate of Amendment as of this
24th day of June, 1996.
BIOMUNE SYSTEMS, INC., a Nevada
corporation
By: /s/ Milton G. Adair
--------------------------
Milton G. Adair
Its: President
By: /s/ E. Wayne Nelson
--------------------------
E. Wayne Nelson
Its: Secretary
Attested and Verified:
By: /s/ E. Wayne Nelson
-----------------------------
E. Wayne Nelson
Its: Secretary
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On the 24th day of June, 1996, Milton G. Adair, who, being by me duly
sworn, did say that he is the President of Biomune Systems, Inc., a Nevada
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.
/s/ Thomas R. Taylor
--------------------------
NOTARY PUBLIC
My Commission Expires:
[NOTARY SEAL STAMP]
- ----------------------
EXHIBIT "A"
1. Designation and Number of Shares.
An initial series of the Corporation's Preferred Stock is hereby
established, to be designated and known as "Series A 10% Convertible Preferred
Stock" (hereinafter referred to as the "Series A Preferred Stock"), consisting
of one million one hundred twenty thousand (1,120,000) shares of the authorized
and unissued shares of the Corporation's Preferred Stock, $0.0001 par value per
share. The Corporation shall from time to time, in accordance with the laws of
the State of Nevada, 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 Corporation's
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit conversion of the Series A Preferred Stock as provided
herein.
EXHIBIT 3.7
BIOMUNE SYSTEMS, INC.
DESIGNATION OF RIGHTS AND PREFERENCES
OF
SERIES C 8% CUMULATIVE CONVERTIBLE NON-VOTING PREFERRED STOCK
Pursuant to the authority vested in the Board of Directors of Biomune
Systems, Inc., a Nevada corporation (the "Company"), in its Articles of
Incorporation and as permitted by Title 7, Chapter 78 of the Nevada Revised
Statutes, the Board of Directors does hereby establish a series of the Company's
Preferred Stock designated as Series C 8% Cumulative Convertible Non-Voting
Preferred Stock and does hereby designate the rights, preferences, privileges
and other attributes of the shares of Series C 8% Cumulative Convertible
NonVoting 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 C 8% Cumulative Convertible Non-Voting Preferred
Stock" (hereinafter referred to as the "Series C Preferred Stock"), consisting
of ten thousand (10,000) 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 Nevada, 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 C Preferred Stock as provided herein.
2. Dividends.
Subject to the rights of the holders of the Company's Series A 10%
Cumulative Convertible Preferred Stock, (the "Series A Preferred Stock"), Series
B 10% Cumulative Convertible Non-Voting Preferred Stock (the "Series B Preferred
Stock") and the Series D 8% Cumulative Convertible Non-Voting Preferred Stock
(the "Series D Preferred Stock"), the holders of shares of Series C Preferred
Stock shall be entitled to receive an annual dividend out of any of the
Company's assets legally available therefor, after the dividends due and payable
on the Series A Preferred Stock, the Series B Preferred Stock and the Series D
Preferred Stock, but prior and in preference to any declaration or payment of
any dividend on the Common Stock of the Company, at the rate of eight percent
(8%) per annum on the stated value of the Series C Preferred Stock (or $80.00
per share of Series C Preferred Stock). Dividends will be paid either in cash or
in additional shares of Series C Preferred Stock at the discretion of the Board
of Directors to holders of record of shares of Series C 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 C Preferred Stock. Once dividends are paid on the series C Preferred
Stock, holders of shares of Series C Preferred Stock will not participate in
dividends paid to holders of Common Stock. A special dividend in the amount of
1-1/2% of the stated value of the Series C Preferred Stock will be paid in cash
if the shares of the Company's Common Stock underlying the Series C Preferred
Stock have not been registered with the Securities and Exchange Commission by
January 1, 1997. The special dividend shall be paid in cash on the 1st and 15th
day of each month that the shares of Common Stock underlying the Series C
Preferred Stock have not been registered with the Securities and Exchange
Commission, commencing with January 1, 1997. 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 C Preferred Stock
for any period unless full cumulative dividends have been paid or
contemporaneously are declared and paid or set apart for payment on the Series C
Preferred Stock. A dividend payable in shares of Common Stock or in shares of
another class of shares junior to the Series C Preferred Stock or in shares of
another class of shares junior to the Series C Preferred Stock may, however, be
made. Dividends on the Series C Preferred Stock may, at the option of the
Company's Board of Directors, be paid in either cash or in additional shares of
Series C Preferred Stock; provided, however, that if accrued dividends on the
Series C Preferred Stock are paid in additional shares of Series C Preferred
Stock, accrued dividends paid subsequent thereto shall not be paid on shares of
Series C Preferred Stock that were previously paid as stock dividends. Holders
of Series C Preferred Stock shall not participate in excess dividends remaining
following payment of all accrued and unpaid dividends owing to holders of Series
C 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 C Preferred Stock shall be
entitled to receive out of the assets of the Company available for distribution
to shareholders, after any distribution or payment is made to holders of shares
of Series A Preferred Stock, Series B Preferred Stock and Series D Preferred
Stock, but 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 C Preferred Stock, liquidation distributions in
the amount of One Thousand Dollars ($1,000) per share plus all accrued and
unpaid regular or special dividends, if any, multiplied by (a) 125% if such
liquidation occurs prior to January 1, 1997; and (b) 133% if such liquidation
occurs after January 1, 1997, before any payment is made to holders of shares of
the Company's equity securities that are junior to the Series C 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 C 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 C 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 C Preferred Stock of the
amounts set forth in subparagraph 3(a) above, the holders of Series C 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 not 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 Nevada
law, the holders of Series C 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 C Preferred Stock, the Company will not (a)
authorize, create or issue any shares of any class or series ranking senior to
the Series C Preferred Stock as to liquidation rights; (b) amend, alter or
repeal by any means the Company's Articles of Incorporation if the powers,
preferences or special rights of the Series C Preferred Stock would be
materially adversely affected; or (c) become subject to any restriction on the
Series C Preferred Stock, other than restrictions arising solely under the
Nevada Private Corporations Law or existing under the Company's Articles of
Incorporation as in effect on September 1, 1996. Upon conversion of shares of
Series C 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 C Preferred Stock. The holders of shares of Series
C 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 C Preferred Stock may be converted at
the holder's option at any time commencing on the 41st day after the closing of
the private placement transaction pursuant to which the Series C Preferred Stock
was issued (the "Closing") into the number of shares of the Company's Common
Stock determined by dividing $1,000 plus any accrued and unpaid regular or
special dividends by an amount equal to the Market Price (as defined below) less
25%; provided, however, that the discount from the Market Price shall be 20% for
all shares of Series C Preferred Stock converted by the holder prior to January
1, 1997. 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) NASDAQ trading days immediately proceeding 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 C Preferred Stock to be converted to
the Company with a Conversion Certificate executed by the holder for not less
than $50,000 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) 582-2630 shall be defined as the
"Conversion Date". Upon conversion the Company shall use its reasonable best
efforts to deliver 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 C Preferred Stock within three (3) business days of the Conversion
date or the Closing, as appropriate. In the event of 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 C
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 C 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 C 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 1% of the principal amount of the
shares of Series C 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 C 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 C 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 C 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 $50,000
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 Corporation at any time or from time to time after the date on which a
share of Series C 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 C 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 provision shall be made so that the holders of shares of Series
C Preferred Stock shall receive, upon the conversion thereof, the securities of
the Company that they would have received had their Series C 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 the Series C 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 C 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 C Preferred Stock.
(g) Certificates as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Series C 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 C
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
C Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series C 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 C 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 C 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 C 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 C
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 C 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 C 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 C
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 C Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one (1) share of Series C 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 C 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 Corporation to another corporation, each
share of Series C 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 C Preferred Stock would have been entitled
upon the record date of (or date of, if no record date is fixed) such
reorganization, reclassification, consolidation, merger or conveyance; and, 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 C 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 C 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, subject to the rights of holders of shares of Series A
Preferred Stock, Series B Preferred Stock and Series D Preferred Stock, holders
of the Series C 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 One Thousand Dollars ($1,000) 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 aforesaid preferential amounts to the holders of the Series C
Preferred Stock in accordance herewith, then, subject to the rights of holders
of series A Preferred Stock, Series B Preferred Stock and Series D Preferred
Stock, the entire amount payable in respect of the proposed Sales Transaction
shall be distributed ratably among the holders of the Series C 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 C 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 C Preferred Stock, such payments shall be made with
respect to the Series C Preferred Stock and holders of Common Stock by purchase
of such shares of Series C 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 the Series C 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 C Preferred Stock.
(ii) 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 Corporation) 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 C 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 the Series B 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 C 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 sooner 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 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 C Preferred Stock.
7. Restrictions and Limitations. So long as any shares of Series C
Preferred Stock remain issued and outstanding, the Corporation shall not without
the consent of the holders of a majority of the shares of Series C 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 or redemption
rights, liquidation preferences, conversion rights, voting rights or otherwise,
that are superior to any such preference or priority of the Series C 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 C Preferred
Stock, or
(d) Authorize or issue, or obligate itself to issue, any other equity
security senior to the Series C 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 C Preferred Stock. The consent of the holders of a majority of
the shares of Series C Preferred Stock shall not be required if any other equity
security on parity with the Series C Preferred Stock as to dividends, redemption
rights, liquidation preferences, conversion rights, voting rights or otherwise
is to be issued. 8. No Reissuance of Series C Preferred Stock. No share or
shares of Series C 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 C Preferred Stock initially
issued at its option at any time following the Closing. Notwithstanding what the
Market Price or the Conversion Factor may be at the time, the Company may
designate a different and lower conversion price (the "New Conversion Price")
and the call price for all shares of Series C Preferred Stock called for
redemption by the Company shall be as follows: (a) 125% of the New Conversion
Price for all shares of Series C Preferred Stock called prior to January 1,
1997; and (b) 133% of the New Conversion Price for all shares of Series C
Preferred Stock called after January 1, 1997. 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 C 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 C 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 C Preferred Stock. After the
date fixed for redemption, dividends on shares of Series C 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.
EXHIBIT 4.6
BIOMUNE SYSTEMS, INC.
Number _____ ____ Shares
Series C 8%
Cumulative Convertible
Non-Voting Preferred Stock
Incorporated Under
The Laws of The
State of Nevada
THIS CERTIFIES THAT _____________ is the recordholder of ___________________
fully paid and non-assessable shares of Series C 8% Cumulative Convertible
Non-Voting Preferred Stock, $0.0001 par value per share, of Biomune Systems,
Inc. (herein called the "Corporation"), transferable only on the share register
of the Corporation by the holder hereof in person, or by duly authorized
attorney, upon the 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: _____________________, 1996
- ------------------------------ -----------------------------------
E. Wayne Nelson, Secretary David G. Derrick,
Chief Executive Officer
FOR VALUE RECEIVED, ______________________________________________________
HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO THE SHARES REPRESENTED BY THE WITHIN
CERTIFICATE AND DOES HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ATTORNEY TO
TRANSFER SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED: _______________________, 19__
IN PRESENCE
OF _______________________________ _______________________________
(WITNESS) (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 SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE
CORPORATION RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT THAT AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
THE SHARES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS (i) AS PART OF THEIR DISTRIBUTION AT ANY
TIME OR (ii) OTHERWISE UNTIL FORTY (40) DAYS AFTER THE LATER OF THE COMMENCEMENT
OF THE OFFERING AND THE CLOSING DATE, EXCEPT IN EITHER CASE IN ACCORDANCE WITH
REGULATION S (OR RULE 144A, IF AVAILABLE) UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR PURSUANT TO REGISTRATION OF THE SHARES OR AN EXEMPTION FROM
REGISTRATION. THE TERMS USED IN THIS LEGEND HAVE THE MEANING GIVEN TO THEM BY
REGULATION S. THE SALE OR OTHER DISPOSITION OF THE SHARES IS RESTRICTED AND IN
ANY EVENT IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION
CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN INVESTOR
QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND THE HOLDER
HEREOF, WHICH INVESTOR QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT CONTAINS
RESTRICTIONS REGARDING THE SALE, SHORT SALE, LOAN, GRANT OF ANY OPTION FOR THE
PURCHASE OF OR OTHER TRANSFER OR DISPOSITION OF ANY OF THE SHARES REPRESENTED
HEREBY OTHER THAN THROUGH AN EFFECTIVE REGISTRATION STATEMENT AND
ALSO IMPOSES CERTAIN OTHER RESTRICTIONS ON THE SALE, TRANSFER OR OTHER
DISPOSITION OF THE SHARES REPRESENTED HEREBY.
EXHIBIT 10.95
LEASE AGREEMENT
YOUNG ELECTRIC SIGN COMPANY
---------------------------
LANDLORD
BIOMUNE SYSTEMS, INC.
---------------------------
TENANT
2401 Foothill Drive
Salt Lake City, Utah 84109
---------------------------
PREMISES
STANDARD COMMERCIAL LEASE
THIS LEASE, (the "lease") is made and entered into this 8th day of July,
1996, by and between Young Electric Sign Company, a Utah corporation,
hereinafter called "Landlord," and Biomune Systems, Inc., a Nevada corporation,
hereinafter called "Tenant."
W I T N E S S E T H:
In consideration of the covenants and promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed by the parties hereto as follows:
I. DEMISED PREMISES:
1. Landlord hereby leases to Tenant that real property (the "Premises")
more fully described on Exhibit "A" attached hereto and incorporated herein by
reference for the term and upon the rental herein set forth. The Premises
consists of approximately 5,000 square feet of that certain building containing
approximately 23,500 square feet, located at 2401 Foothill Drive in Salt Lake
City, State of Utah. (See attached Exhibit "A".)
2. Tenant shall have the right to reasonable use of the common and parking
areas in conjunction with other tenants of the building.
II. TERM:
1. Length of Term. By this Lease, Landlord leases the Premises unto Tenant
for a term of three (3) years beginning on the 1st day of October, 1996, and
ending on the 30th day of September, 1999 (the "Lease Term").
2. Delivery of the Premises. If Landlord fails to deliver possession of the
Premises ready for occupancy, at the commencement of the Lease Term, for any
reason beyond Landlord's control, Landlord shall not be liable for any damage
caused thereby, nor shall this Lease become void or voidable, nor shall the
Lease Term be extended. In such event no rental shall be payable by Tenant to
Landlord for that portion of the Lease Term prior to the time Landlord can
deliver possession of the Premises to Tenant ready for occupancy by Tenant.
However, in the event the Premises are not completed and ready for occupancy by
October 1, 1996, Tenant, at its option, may cancel this Lease by written notice
to Landlord, and no damages shall accrue or be claimed by either party as a
result of such cancellation or the reasons therefore.
III. TERMS AND CONDITIONS OF LEASE:
This Lease is made on the following terms and conditions, which are
expressly agreed to by Landlord and Tenant:
1. RENT: Tenant agrees to pay as rental to Landlord, at the address
specified in item 27 below, or at such other place as Landlord may from time to
time designate in writing, the sum of (see below in this paragraph) to be lawful
money of the United States, due and payable on the first day of each month, in
advance, and according to these additional terms:
$7,500 per month, beginning October 1, 1996 and ending September 30,
1997;
$7,875 per month, beginning October 1,1997 and ending September 30,
1998; and
$8,268.75 per month, beginning October 1, 1998 and ending September
30, 1999.
A. LATE CHARGES: In the event Tenant fails to make any payments of rent to
Landlord under this Lease on the due date or within ten (l0) days thereafter, a
late charge of two percent (2%) per month of the delinquent rent shall be added
to said rent and paid to Landlord together therewith.
B. DEPOSIT: Tenant shall pay a $10,000, fully refundable security depositas
a condition of this Lease Agreement.
2. AUTHORIZED USE: Tenant shall use the Premises for the following purpose,
and for no other purpose whatsoever, without the express written consent of
Landlord, which consent shall not unreasonably be withheld: Typical office and
lab use.
A. WASTE: Tenant shall not commit or permit any waste of the Premises or
use the same for any unlawful purpose. Tenant will comply with all material
laws, ordinances, regulations and rules pertinent to the use of and disposal of
hazardous wastes and all other applicable federal, state and local laws,
ordinances and regulations relating to the Premises and its use and operation.
3. CONDITION OF THE PREMISES: Tenant accepts the Premises in the condition
existing at the time Tenant takes possession. Tenant agrees that if, during the
Lease Term, Tenant changes the usual method of conducting its business on the
Premises, or installs thereon or therein any new facilities, Tenant will, at the
sole cost and expense of Tenant, make whatever alterations or improvements in or
to the Premises as may be required by reason of any federal or state law, or by
any municipal ordinance or applicable regulation.
4. INSURANCE:
A. Fire Insurance on Tenant's Fixtures. At all times during the Lease Term,
Tenant shall keep in force at its sole cost and expense, fire insurance and
extended coverage with companies reasonably acceptable to Landlord, equal to the
replacement cost of Tenant's improvements, trade fixtures, furnishings,
equipment, and contents upon the Premises, and naming Landlord as an additional
insured. The insurance company must be approved by Landlord in writing, which
approval shall not unreasonably be denied, and a copy of the policy or a
certificate of insurance shall be delivered to Landlord.
B. Liability Insurance. Tenant, at its sole expense, shall, during the
Lease Term, keep in full force and affect a policy of public liability and
property damage insurance with respect to the Premises, the business operated by
Tenant, on the Premises, and any subtenants, concessionaires, or licensees of
Tenant at or operating on the Premises, with coverage of not less than $500,000
per person and $l,000,000 per occurrence and with limits of property damage
liability coverage of not less than $l00,000 per accident or occurrence. The
insurance policy shall name Landlord, any person, firms, or corporations
designated by Landlord, and Tenant as insured. The insurance policy shall be
with an insurance company approved by Landlord, in writing, which approval shall
not unreasonably be denied, and a copy of the policy or a certificate of
insurance shall be delivered to Landlord.
5. REPAIR AND CARE OF THE PREMISES AND IMPROVEMENTS:
A. Tenant agrees to keep the interior of the Premises and the improvements
on the Premises in good condition, ordinary wear, tear, and damage by the
elements excluded.
6. REPAIR OF BUILDING BY LANDLORD: Landlord agrees for the term of this
Lease Term, to maintain in good condition and repair the exterior walls, floor
joists, roof, and foundations of the Premises, and to commence repairs to the
plumbing, electrical, heating and air conditioning systems as well as any
repairs necessitated by any damage that might result from acts of Landlord or
Landlord's representatives. Landlord shall not, however, be obligated to repair
any such damage until written notice of the need of repair has been given to
Landlord by Tenant and, after such notice is so given, Landlord shall have a
reasonable time (not to exceed ten (10) days) in which to make such repairs.
Additionally, Landlord will employ at its sole cost a nightly (five times a
week) janitorial firm to clean and maintain the premises. Landlord will also be
responsible for the care and condition of all common areas inside and outside of
the building in
which the Premises is a part.
7. ALTERATIONS OF BUILDING AND INSTALLATION OF FIXTURES AND OTHER
APPURTENANCES: Tenant may, with written consent of Landlord, which consent shall
not be unreasonably withheld or delayed, but at Tenant's sole cost and expense,
in a good and workmanlike manner make such alterations and repairs to the
Premises as Tenant may require for the conduct of its business without, however,
materially altering the basic character of the building or improvements on the
Premises. Tenant shall be allowed to reconfigure all tenant owned furniture and
items of personal property. Tenant shall have the right, with the written
permission of Landlord, to erect, at Tenant's sole cost and expense, such
temporary partitions, including office partitions, as may be necessary to
facilitate the handling of Tenant's business, and to install telephone and
telephone equipment and wiring and other trade appliances. Any permanent
alterations or improvements to the Premises, shall, at the option of Landlord,
become the property of Landlord, at the expiration or sooner termination of this
Lease. Should Landlord request Tenant to remove all or any part of the above
mentioned items, Tenant shall do so prior to the expiration of this Lease and
repair the Premises as described below. Temporary shelves, bins, and machinery
installed by Tenant shall remain the property of Tenant and may be removed by
Tenant at any time. At the expiration or sooner termination of this Lease, or
any extension hereof, Tenant shall remove said shelves, bins and machinery and
repair, in a good and workmanlike manner, any damage occasioned by such removal.
8. ERECTION AND REMOVAL OF SIGNS: Tenant may, if building policy permits,
place suitable signs on the Premises for the purpose of indicating the nature of
the business carried on by Tenant in the Premises; provided, however, that such
signs shall be in keeping with other signs in the district where the Premises
are located; and provided, further, that such signs and their proposed locations
shall be approved by Landlord prior to their erection, which approval shall not
unreasonably be denied. Signs shall be removed prior to the expiration of the
Lease Term and any damage to the Premises caused by installation or removal of
signs shall be repaired at the expense of Tenant. All work shall be competed in
a good and workmanlike manner.
9. GLASS: Tenant agrees to promptly replace all glass in the Premises if
broken or damaged during the Lease Term, with glass of the same quality as that
broken or damaged; provided, however, that Tenant shall not be responsible for
replacing any glass in the Premises that is broken or damaged by Landlord or its
agents, representatives, customers or clients.
10. RIGHT OF ENTRY BY LANDLORD: Tenant shall permit inspection of the
Premises during reasonable business hours by Landlord or Landlord's agents or
representatives for the purpose of ascertaining the condition of the Premises
and in order that Landlord may make such repairs as may be required to be made
by Landlord under the terms of this Lease. Landlord may post suitable notice on
the Premises that the same are "For Rent" and may show the Premises to
prospective tenants at reasonable times. Landlord may not however, thereby
unnecessarily interfere with the use of the Premises by Tenant.
11. ASSIGNMENT AND SUBLETTING: Neither this Lease nor any interest herein
may be assigned by Tenant voluntarily, involuntarily or by operations of law.
Neither all nor any portion of the Premises shall be sublet by Tenant without
the written consent of Landlord; however, Landlord agrees not to withhold its
consent unreasonably for Tenant to sublet the Premises or any portion of the
Premises. In the event the Premises should be sublet, as herein provided, at an
increased rental, fifty percent (50%) of said increase shall be paid to Landlord
by Tenant as additional rental, after Tenant's costs of said subletting have
been recouped from such additional rents.
12. DAMAGE OR DESTRUCTION: If the Premises or any part thereof shall be
damaged or destroyed by fire or other casualty, Landlord shall promptly repair
all such damage and restore the Premises without expense to Tenant, subject to
reasonable delays due to adjustment of insurance claims, strikes and other
causes beyond Landlord's reasonable control. If such damage or destruction shall
render the Premises untenantable in whole or in part, the rent shall be abated
wholly or proportionately as a percentage of the total square footage of the
Premises, as the case may be until the damage shall be repaired and the Premises
restored. If the damage or destruction shall be so extensive as to require the
substantial rebuilding (i.e., expenditure of fifty percent (50%) or more of
replacement cost of the building in which the Premises Landlord or Tenant may
elect to terminate this Lease by written notice to the other given within thirty
(30) days after the occurrence of such damage or destruction. Landlord and
Tenant hereby release each other from responsibility for loss or damage
occurring on or to the Premises or any improvements thereon, caused by fire or
other hazards covered by fire or extended coverage insurance policies and each
waives all rights of recovery against the other for such loss or damage. Willful
misconduct contributing to the casualty shall not be excused under the foregoing
release and waiver.
13. INDEMNIFICATION: Tenant agrees to indemnify and hold harmless, Landlord
and Landlord agrees to indemnify and hold harmless Tenant from any and all
claims of any kind or nature arising from Tenant's or from Landlord's respective
use of the Premises during the Lease Term, and Tenant hereby waives all claims
against Landlord for damage to goods, wares, merchandise or for injury to
persons in and upon the Premises from any cause whatsoever, except such as might
result from the negligence of Landlord or Landlord's agents, representatives,
customers or clients or from the failure of Landlord to perform its obligations
hereunder within a reasonable time after notice in writing by Tenant requiring
such performance by Landlord.
14. SURRENDER OF PREMISES: Tenant agrees to surrender the Premises at the
expiration of the Lease Term, any extension thereof, or sooner termination, in
the same condition as when the Premises were delivered to Tenant, or as altered
pursuant to the provisions of this Lease, ordinary wear, tear and damage by the
elements excepted. Tenant shall remove all of its personal property from the
Premises.
15. HOLDOVER: Should Landlord permit Tenant to holdover the Premises or any
part thereof after the Lease Term, then and unless otherwise agreed in writing,
such holding over shall constitute a tenancy from month-to-month only, and shall
in no event be construed as a renewal of this Lease, and all provisions of this
Lease not inconsistent with a tenancy from month-to-month shall remain in full
force and effect. The reasonable rental for the month-to-month tenancy shall be
set by the Landlord within l0 days after Landlord receives notice from Tenant of
its intention to continue to occupy the Premises.
16. QUIET ENJOYMENT: If and so long as Tenant pays the rents required by
this Lease and performs and observes all the covenants and provisions hereof,
Tenant shall quietly enjoy the Premises, subject, however, to the terms of this
Lease, and Landlord will warrant and defend Tenant in the enjoyment and peaceful
possession of the Premises throughout the Lease Term and any extensions thereof.
17. WAIVER OF COVENANTS: The failure of either party to enforce the
provisions of this Lease shall not constitute a waiver unless specifically
stated in writing, signed by the party whose rights are deemed waived,
regardless of the party's knowledge of a breach hereunder.
18. DEFAULT: If Tenant shall default in any of the covenants and conditions
hereof (except in payment of rent), Landlord may, at its option, after thirty
(30) days prior written notice to Tenant, make performance for Tenant and for
that purpose advance such amounts as may be reasonably necessary. Any amounts so
advanced, or any such expense incurred, or sum of money paid by Landlord by
reason of the failure of Tenant to comply with any covenant, obligation or
provision of this Lease, or in defending any action to which Landlord may be
subjected by reason of any such failure, shall be deemed to be additional rent
for the Premises and shall be immediately due and payable to Landlord.
The acceptance by Landlord of any installment of fixed rent, or of any
additional rent due under this Lease, shall not be a waiver of any other rent
then due or of the right to demand the performance of any other obligation of
Tenant under this Lease. Interest shall be paid to Landlord on all sums advanced
by Landlord at an interest rate of eighteen per cent (l8%) per annum.
If Tenant shall default in any of the covenants or conditions of this lease
(other than the covenants for the payment of rent or other amounts) and any such
default shall continue for a period of thirty (30) days after written notice,
Landlord may, at its option, terminate this Lease by giving Tenant written
notice of such termination and, thereupon, this Lease shall expire as if it were
the completion of the Lease Term. Tenant shall immediately quit the Premises.
19. EVENTS OF DEFAULT; REMEDIES:
1. DEFAULT BY TENANT: Upon the occurrence of any of the following events,
Landlord shall have the remedies set forth in Section 19.2 of this Lease:
(a) Tenant fails to pay any rental due hereunder within ten (10) days
after the same shall be due.
(b) Tenant fails to perform any other term, condition, or covenant to
be performed by it pursuant to this Lease within thirty (30) days after
written notice of such default shall have been given to Tenant by Landlord.
(c) Tenant or any guarantor of this Lease shall become bankrupt or
insolvent or file any debtor proceedings or have taken against such party
in any court pursuant to state or federal statute, a petition in bankruptcy
or insolvency, reorganization, or appointment of a receiver or trustee; or
Tenant petitions for or enters into an arrangement; or suffers this Lease
to be taken under a writ of execution.
2. REMEDIES: Upon the occurrence of any event set forth in Section 19.1,
Landlord shall have the option to take any or all of the following actions,
without further notice or demand of any kind to Tenant or any other person:
(a) Collect by suit or otherwise each installment of rent or other sum
as it becomes due hereunder, or enforce, by suit or otherwise, any other
term or provision hereof on the part of Tenant required to be kept or
performed.
(b) Terminate this Lease by written notice to Tenant. In the event of
such termination, Tenant agrees to immediately surrender possession of the
Premises. Should Landlord terminate this Lease, Tenant shall have no
further interest in the Premises, and Landlord may recover from Tenant all
damages it may incur by reason of Tenant's default, including (i) the cost
of recovering the Premises, (ii) reasonable attorneys' fees, and (iii) all
rentals due for the period prior to the breach, plus the whole of the
remaining unpaid rentals to become due in the future, which shall, without
notice, accelerate and, subject to reasonable mitigation of damages, be
immediately due and payable.
(c) Should Landlord reenter, as provided above, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided
for by law, and whether or not it terminates this Lease, Landlord may relet
the Premises to any party for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and
upon such other terms and conditions as Landlord may in good faith
reasonably deem advisable. Upon each such reletting all lease payments
received by Landlord from such reletting shall be applied, at Landlord's
election, first, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; second, to the payment of any costs and
expenses of such reletting, including reasonable brokerage fees and
reasonable attorneys' fees and costs of any reasonable alterations and
repairs; third, to the payment of rent due and unpaid hereunder, and the
residue, if any, shall be held by Landlord and applied in payment of future
rent as the same may become due and payable. If such rentals received from
reletting during any month are less than that to be paid to Landlord by
Tenant pursuant to this Lease during such month, Tenant shall pay the
deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such reentry and reletting of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a
written notice of such intention be given to Tenant pursuant to subsection
(b) above, or unless the termination of this Lease is decreed by a court of
competent jurisdiction. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous default.
(d) If Landlord defaults in any of its responsibilities, outlined in
this Lease Agreement, and after a reasonable number of days have passed
without Landlord curing default, Tenant may, at its option, cure the
default and seek the cost of curing with Landlord.
The remedies given to Landlord in this Section 19.2 shall be in addition
and supplemental to all other rights or remedies Landlord may have in law or at
equity.
20. ATTORNEYS' FEES: In the event either party shall enforce the terms of
this Lease by suit or otherwise, the party at fault shall pay the costs and
expenses of the other party incident thereto, including a reasonable attorney's
fee.
21. FAILURE TO PERFORM COVENANT: Any failure on the part of either party to
this Lease to perform any obligation hereunder, other than Tenant's obligation
to pay rent, and any delay in doing any act required hereby shall be excused if
such failure or delay is caused by any strike, lockout, governmental restriction
or any similar cause beyond the reasonable control of the party so failing to
perform, to the extent and for the period that such continues.
22. RIGHTS OF SUCCESSORS AND ASSIGNS: The covenants and agreements
contained in this Lease will apply to, inure to the benefit of, and be binding
upon the parties hereto, their heirs, executors, administrators, legal
representatives, assigns, and upon their respective successors in interest
except as expressly otherwise hereinabove provided.
23. TIME: Time is of the essence of this Lease.
24. LIENS: Tenant agrees not to permit any lien for monies owing by Tenant
to remain against the Premises for a period of more than thirty (30) days
following discovery of the same by Tenant unless Tenant is formally and
aggressively contesting the payment of the same in good faith. Except as
provided in the immediately preceding sentence, should any such lien be filed
and not released or discharged within thirty (30) days after discovery of the
same by Tenant, Landlord may at Landlord's option (but without any obligation so
to do) pay and discharge such lien and likewise pay and discharge any taxes,
assessments or other charges against the Premises that Tenant is obligated
hereunder to pay and that may or might become a lien on the Premises. Tenant
agrees to repay any sum so paid by Landlord upon written demand therefor.
25. CONSTRUCTION OF LEASE: Words of any gender used in this Lease shall be
held to include any other gender, and words in the singular number shall be held
to include the plural when applicable, and vice versa.
26. PARAGRAPH HEADINGS: The paragraph headings as to the contents of a
particular paragraph herein, are inserted only for convenience and are in no way
to be construed as part of such paragraph or as a limitation on the scope of the
particular paragraph to which they refer.
27. NOTICES: It is agreed that all notices required or permitted to be
given hereunder shall be deemed sufficient if given by a communication in
writing by United States mail, postage prepaid and certified and addressed as
follows:
If to Landlord, at the following address:
Young Electric Sign Company
2401 Foothill Drive
Salt Lake City, Utah 84109
Attention: Paul C. Young, Vice President
If to Tenant, at the following address:
Biomune Systems, Inc.
2401 Foothill Drive
Salt Lake City, Utah 84109
Attention: Milton G. Adair, President
28. GOVERNING LAW: The terms of this Lease shall be governed by and
construed in accordance with Utah law, and the parties intend that no third
party obtain Third Party Beneficiary status pursuant to this Lease.
29. DOCUMENTATION: The parties hereto agree to execute such additional
documentation as may be necessary or desirable to carry out the intent of this
Lease.
30. CONTINGENCY REGARDING USE: This Lease is contingent upon there being no
restrictions, covenants, agreements, laws, ordinances, rules or regulations,
that would prohibit Tenant from using the Premises for the purposes described
herein.
31. EMINENT DOMAIN: If at any time during the Lease Term the Premises or
any part thereof shall be taken as a result of the exercise of the power of
eminent domain or by an agreement in lieu thereof, this Lease shall terminate as
to the part of the Premises so taken as of the date possession is taken by the
condemning authority. If all or a substantial portion of the Premises shall be
taken, Landlord or Tenant may terminate this Lease at its option, by giving the
other party written notice of such termination within thirty (30) days of such
taking. If all or a portion of the Premises taken are substantially impaired,
Tenant may terminate this Lease pursuant to this section. If this lease is not
terminated hereunder, this Lease shall remain in full force and effect, except
that the rent payable by Tenant hereunder shall be reduced in the same
proportion that the area taken compares to the Premises in whole. Landlord shall
be entitled to and Tenant hereby assigns to Landlord the entire amount of any
award in connection with such taking. Nothing in this Section shall give
Landlord any interest in or preclude Tenant from seeking, on its own account,
any award attributable to the taking of personal property or trade fixtures
belonging to Tenant, or of the interruption of Tenant's business.
32. REPRESENTATION REGARDING AUTHORITY: The persons who have executed this
Lease represent and warrant that they are duly authorized to execute this Lease
in their or representative capacities as indicated.
33. ENTIRE AGREEMENT: This Lease and Exhibit "A" and Lease Addendum 1
attached hereto constitute the entire agreement and understanding between the
parties hereto and supersedes all prior discussions, understandings and
agreements, both written and oral. This Lease may not be altered or amended
except by a subsequent written agreement executed by Landlord and Tenant.
34. REVIEW OF DOCUMENTS: The parties hereto represent that they have read
and understand the terms of this Lease, and that they have sought legal counsel
to the extent deemed necessary in order to protect their respective interests.
35. KEY & LOCKS: Tenant shall not change locks or install other locks on
doors without the written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant upon termination of the tenancy, shall deliver to
Landlord all the keys that have been furnished to Tenant and to all locks that
Tenant may have had installed.
36. AUCTION, FIRE OR BANKRUPTCY SALE: Tenant shall not conduct any auction
or permit any fire or bankruptcy sale to be held on the Premises without the
prior written consent of Landlord, which consent shall be withheld..
ADDITIONAL PROVISIONS:
See attached Lease Addendum 1
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed as
of the day and year first above written.
"TENANT" "LANDLORD"
BIOMUNE SYSTEMS, INC., a YOUNG ELECTRIC SIGN COMPANY, a
Nevada Corporation Utah Corporation
By: /s/ Milton G. Adair By: /s/ Paul C. Young
-------------------------- ----------------------------
Milton G. Adair Paul C. Young
Its: President Its: President
-------------------------- ----------------------------
LEASE ADDENDUM
BETWEEN
YOUNG ELECTRIC SIGN COMPANY, AS LANDLORD,
AND
BIOMUNE SYSTEMS, INC., AS TENANT
ADDITIONAL LEASE PROVISIONS
38(a) This Lease is intended to be a Full Service Lease, with the rent
provisions contained in Paragraph one, to represent all the rent that Tenant is
required to pay.
38(b) Landlord at its sole cost and expense, shall construct and finish the
leased space as shown in exhibit "A." Finish materials shall be in like color,
style, and quality as presently exist in other areas of the Premises. Any
additional modifications requested by Tenant not expressly shown or represented
in Exhibit "A" may result in a recalculation of the Ten ant's rent as stipulated
in Paragraph one.
38(c) As a part of this Lease, Tenant shall enjoy the reasonable use of the
YESCO conference room in the building in which the building is located, on a
reservation basis.
38(d) Tenant shall be entitled to use the common areas shown on the
attached Exhibit "A" which include breakroom, restrooms, and up to twelve (12)
lockers.
Exhibit "A" (which consists of two pages) shows the floor plan of the Premises.
EXHIBIT 10.96
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (the "Agreement") is
effective as of June 15, 1996 and is being entered into by and between David G.
Derrick, an individual (the "Employee"), and Biomune Systems, Inc., a Nevada
corporation (the "Company").
RECITALS:
A. WHEREAS, the Company is a biotechnology and biopharmaceutical company
engaged in the research, development and marketing of certain pharmaceutical and
nutraceutical products;
B. WHEREAS, prior to the date of this Agreement, the Employee has served as
the Company's President and/or Chief Executive Officer pursuant to a Management
Agreement (the "ADP Management Agreement") between the Company and ADP
Management Corporation, a Utah corporation ("ADP Management"), and has provided
services to the Company in that capacity, as outlined in the ADP Management
Agreement;
C. WHEREAS, since January 1, 1996, the Employee has served as the Company's
Chief Executive Officer pursuant to the ADP Management Agreement and in that
capacity has provided services to the Company as outlined in the ADP Management
Agreement;
D. WHEREAS, effective as of June 15, 1996, the Company and ADP Management
entered into a Management Agreement Termination and Release Agreement that
terminated the ADP Management Agreement; and
E. WHEREAS, the Company desires to establish its right to the services of
the Employee in the capacity described below, on the terms and conditions and
subject to the rights of termination hereinafter set forth, and the Employee is
willing to accept such employment on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Employee and the Company have
agreed and do hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES. The Company does hereby employ, engage, and
hire the Employee in the capacity of Chief Executive Officer, and the Employee
does hereby accept and agree to such hiring, engagement and employment. The
Employee's duties and responsibilities during the Employment Period (as that
term is defined in Section 2(b) below) shall be such duties as the Company's
Board of Directors shall from time-to-time prescribe, including, but not limited
to:
(a) Set direction and provide oversight for the Company's President;
(b) Provide oversight of the payment of all costs and expenses associated
with the operations of the Company's business;
(c) Negotiate all business and financial transactions, including, but not
limited to, investment banking agreements, secondary stock offerings and private
placement transactions;
(d) Pursue possibilities for joint venture agreements and new business
development opportunities;
(e) Review and approve operational budgets for the Company; and
(f) Direct and lead activities associated with stock analysts, brokers and
institutional investors.
In addition, the Company's Board of Directors, in its sole and absolute
discretion, shall direct the Employee's duties and responsibilities and may
assign or reassign the Employee to such duties, obligations, responsibilities or
positions as it deems in the Company's best interest and in the best interest of
its shareholders. The Employee will devote the majority of his business time to
the performance of his duties and responsibilities to the Company hereunder,
reasonable vacations authorized by the Company's Board of Directors and
reasonable absences because of illness excepted. Furthermore, the Employee will
exercise due diligence and care in the performance of his duties and
responsibilities to the Company under this Agreement.
2. EMPLOYMENT PERIOD.
(a) Initial Term. The Employee shall be employed by the Company in the
capacity as set forth in Section 1 above for the period commencing on the
effective date hereof (i.e., June 15, 1996) and terminating on September 30,
1997 (the "Initial Term"), unless this Agreement or the Employee's employment
with the Company is sooner terminated in accordance with the provisions hereof.
(b) Renewal; Employment Period Defined. The parties hereto may extend or
renew this Agreement for additional periods of two (2) years each (individually,
a "Renewal Term" and, collectively, the "Renewal Terms") on mutually acceptable
terms and conditions, but neither the Company nor the Employee is under any
obligation to agree to any such extension or renewal and may refuse to extend or
renew this Agreement for any or no reason whatsoever. The period of time
commencing as of the effective date hereof (i.e., June 15, 1996) and ending on
the effective date of the expiration of this Agreement or the termination of the
Employee's employment with the Company under this Agreement or any successor
employment agreement is referred to herein as the "Employment Period."
3. COMPENSATION.
(a) Base Salary. The Company shall pay the Employee, and the Employee
agrees to accept from the Company in full payment for his services and promises
to the Company (specifically including the Employee's covenant not to compete as
set forth in Section 11 below and the proprietary information provisions set
forth in Section 12 below) a base salary per year at the rate of Two Hundred and
67/100 ($16,666.67) per month) until the termination of this Agreement at the
end of the Initial Term.
(b) Recognition of Stock Option Grant. The Company hereby recognizes the
prior grant to the Employee pursuant to the ADP Management Agreement of an
option to purchase a total of six hundred thousand (600,000) shares of the
Company's unregistered and restricted Common Stock at a price of Two Dollars and
No/100 ($2.00) per share, which options shall vest and be exercisable by the
Employee as follows: (i) three hundred thousand (300,000) shares on September
30, 1996; and (ii) three hundred thousand (300,000) shares on September 30,
1997. All of such shares of the Company's Common Stock will be vested one
hundred percent (100%) on the respective vesting dates set forth hereinabove.
While the ADP Management Agreement has now been cancelled, the Company and the
Employee hereby expressly acknowledge that said options previously granted to
the Employee pursuant to the ADP Management Agreement nevertheless remain in
full force and effect and are deemed to have the same terms and conditions as
originally granted, except for the vesting provisions set forth in this Section
3(b) hereof. In addition, the Company hereby acknowledges that as of the date of
this Agreement all options and warrants previously granted by the Company to the
Employee (other than as set forth above in this Section 3(b)) are fully vested
in the Employee.
4. FRINGE BENEFITS. The Employee shall be entitled to the following
benefits:
(a) Benefit Plans. The Employee will be entitled to participate in any
benefit plans available to other Company employees, including, but not limited
to, retirement or 401(k) plans and any health, life and dental insurance plans,
subject to any restrictions (including waiting periods) specified in any such
plans.
(b) Vacations. The Employee is entitled to four (4) weeks of paid vacation
per year for each year during the Initial Term and any Renewal Term, with such
vacations to be scheduled and taken in accordance with the Company's standard
vacation policies.
5. BUSINESS EXPENSES. The Company will reimburse the Employee for any and
all necessary, customary and usual expenses, properly receipted in accordance
with the Company's policies, incurred by the Employee for and on behalf of the
Company during the Employment Period.
6. DEATH OR DISABILITY.
(a) Termination of Employment. If the Employee becomes physically or
mentally disabled while employed by the Company, and as a result thereof becomes
unable to continue the proper performance of his duties and responsibilities
hereunder, or if the Employee dies while employed by the Company, the Employee's
employment shall automatically cease and terminate on the date of death or the
Employee's last day of active employment with the Company, as the case may be.
The Company's obligation to pay the Employee's base salary pursuant to Section
3(a) above shall cease as of the date of the Employee's death, or, in the case
of disability, the Employee's last day of active employment with the Company.
(b) Definition of Disabled. The Employee shall be considered to be
"disabled" for purposes of this Section 6, if, in the judgment of a licensed
physician selected by the disinterested members of the Company's Board of
Directors, the Employee is unable to perform his customary duties and
responsibilities under this Agreement because of a physical or mental impairment
or illness.
7. TERMINATION BY THE COMPANY.
(a) Termination for Cause. The Company may terminate this Agreement and the
Employee's employment hereunder at any time before the last day of the Initial
Term (or before the last day of any Renewal Term if this Agreement is renewed as
provided by Section 2(b) above) for "cause." The term "cause" as used herein
shall mean:
(i) The failure of the Employee to discharge or perform his duties and
responsibilities to the Company promptly and in good faith under this
Agreement and with due diligence and care;
(ii) The refusal of the Employee to implement or adhere to lawful or
reasonable policies or directives of the Company's Board of Directors;
(iii) Conduct of a criminal nature that may have an adverse impact on
the Company's reputation and standing in the community or in the industry
in which it or any of its subsidiaries operate;
(iv) Conduct that is in violation of the Employee's common law duty of
loyalty and fiduciary duty owed to the Company and its shareholders;
(v) Fraudulent conduct in connection with the business or affairs of
the Company (or any of its subsidiaries), regardless of whether said
conduct is designed to defraud the Company (or any of its subsidiaries) or
others; or
(vi) Conduct that is in violation of any provision of this Agreement
or any other agreement or contract between the Employee and the Company or
any of the Company's subsidiaries.
The existence of cause shall be conclusively determined by the
disinterested members of the Company's Board of Directors or by its duly
appointed agent. If the Employee's employment is terminated for any of the
reasons specified in subparagraphs (iii), (iv) or (v) above, the Employee's
employment may be terminated immediately without any advance notice whatsoever.
However, if the Employee's employment is terminated for any of the reasons
specified in subparagraphs (i), (ii) or (vi) above, the Employee shall be
entitled to receive ten (10) days advance written notice of his termination
hereunder. If the Employee's employment is terminated pursuant to this Section
7(a), the Company's obligation to pay the Employee's base salary as determined
pursuant to Section 3(a) above shall cease as of the Employee's last day of work
and the Company shall have no obligation to pay the Employee any severance pay
as provided under Section 10 below.
(b) Termination Without Cause. The Company may also terminate this
Agreement and the Employee's employment hereunder without cause for any or no
reason prior to the stated termination date of the Initial Term (or prior to the
stated termination date of any Renewal Term if this Agreement is extended or
renewed as provided by Section 2(b) above) by providing the Employee with thirty
(30) days advance written notice of his termination hereunder. If the Employee's
employment is terminated pursuant to this Section 7(b), however, the Company
shall pay the Employee the severance pay determined in accordance with Section
10(b) below, which shall be paid in accordance with the requirements of Section
10(d) below.
(c) Normal Termination. This Agreement shall automatically terminate on the
expiration of the Initial Term without any notice from either party hereto,
unless the parties extend or renew this Agreement for an additional Renewal Term
pursuant to Section 2(b) above. If the parties hereto agree to extend or renew
this Agreement, this Agreement, as extended or renewed, shall automatically
terminate as of the last day of each such Renewal Term, without any notice from
either party hereto, unless the parties agree in writing in advance to again
extend or renew this Agreement for an additional Renewal Term as provided by
Section 2(b) above.
(d) Discontinuance of Operations. The Company may terminate this Agreement
and the Employee's employment hereunder at any time if the Company discontinues
its operations, liquidates, becomes insolvent or voluntarily files for
protection under the United States Bankruptcy Code or files any petition or
action in bankruptcy or insolvency or for the appointment of a receiver or
trustee or for the assignment of its assets for the benefit of its creditors.
(e) Final Compensation Payments. The Company's obligation to pay the
Employee's base salary pursuant to Section 3(a) above shall terminate as of the
last day of the Initial Term (or as of the last day of any Renewal Term if this
Agreement is extended or renewed as provided by Section 2(b) above) or on the
day properly specified in any notice of termination issued pursuant to any of
the preceding paragraphs of this Section 7 or pursuant to Section 8 below.
8. VOLUNTARY TERMINATION BY THE EMPLOYEE. The Employee shall have the right
at any time during the Initial Term (or prior to the stated termination date of
any Renewal Term if this Agreement is extended or renewed as provided by Section
2(b) above) to terminate his employment with the Company and this Agreement;
provided, however, that the Employee will give the Company ninety (90) days
prior written notice of his voluntary termination of employment pursuant hereto.
In the event the Employee voluntarily terminates his employment with the Company
pursuant to this Section 8, the Company's obligation to pay the Employee's base
salary pursuant to Section 3(a) above shall cease as of the Employee's last day
of work and the Employee will forfeit all unvested stock options and warrants,
all unpaid cash bonuses and all vacation, and the Employee shall be entitled to
severance pay in accordance with Section 10(c) below.
9. EFFECT OF TERMINATION. Upon the proper termination of the Employee's
employment and this Agreement by the Company pursuant to Section 7 above for any
reason whatsoever, or upon the voluntary termination of the Employee's
employment and this Agreement by the Employee pursuant to Section 8 above, this
Agreement shall thereupon be and become null and void and of no further force or
effect; provided, however, that the covenants not to compete set forth in
Sections 11(a), 11(b) and 11(c) below and the proprietary information provisions
set forth in Section 12 below shall survive any such termination and shall
continue to bind the Employee as set forth therein. Any payments due pursuant to
the terms of this Agreement for services rendered by the Employee to the Company
prior to the expiration or termination of this Agreement or the Employee's
employment hereunder shall be made as otherwise provided herein.
10. SEVERANCE PAY.
(a) Termination by the Company for Cause. If the Company terminates this
Agreement and the Employee's employment hereunder at any time before the last
day of the Initial Term or any Renewal Term for cause pursuant to Section 7(a)
above, the Company shall not be obligated to pay the Employee any severance pay
hereunder, but the Employee shall nevertheless be subject to the two (2) year
covenant not to compete set forth in Section 11(a) below.
(b) Termination by the Company Without Cause. If the Company terminates
this Agreement and the Employee's employment hereunder at any time before the
last day of the Initial Term or any Renewal Term without cause pursuant to
Section 7(b) above, the Company shall pay the Employee as severance pay in
accordance with the requirements of Section 10(d) below an amount equal to the
actual total cash compensation paid to the Employee during the preceding twelve
(12) months; provided, however, that such severance pay shall in no event exceed
Two Hundred Thousand Dollars ($200,000) (1) year non-competition period;
provided, further, however, that in the event the Company does not desire to
subject the Employee to the one (1) year covenant not to compete set forth in
Section 11(b) below upon the termination of this Agreement by the Company
pursuant to Section 7(b) above, the Employee may compete with the Company and
the Company shall not be obligated to pay the Employee any severance pay under
this Section 10(b).
(c) Voluntary Termination by the Employee. If the Employee voluntarily
terminates his employment with the Company and this Agreement at any time during
the Initial Term or any Renewal Term pursuant to Section 8 above, the Company
shall not be obligated to pay the Employee any severance pay and the Employee
shall be subject to a two (2) year non-competition period pursuant to Section
11(c) below.
(d) Payment of Severance Pay. In the event the Company is obligated to pay
the Employee any severance pay pursuant to Section 10(b) above, such severance
pay shall be amortized over the applicable period of the covenant not to compete
and paid by the Company to the Employee in arrears in equal monthly installments
(with any deductions or withholdings that may be required under applicable state
or federal tax laws or regulations) within ten (10) days after the end of the
last day of each of the first five (5) months of the applicable non-competition
period, the balance of which severance payments will be paid to the Employee in
a lump sum (with any deductions or withholdings that may be required under
applicable state or federal tax laws or regulations) within ten (10) days after
the end of the sixth month of the applicable non-competition period if there has
been no breach by the Employee of Section 11(e) below during said six (6) month
period; provided, however, that if there has been any breach by the Employee of
Section 11(e) below during said six (6) month period, the Employee shall not be
entitled to any remaining severance pay hereunder, but rather shall promptly
repay to the Company all severance pay that was paid to the Employee pursuant to
this Section 10(d) and the Employee shall nevertheless be subject to the legal
remedies set forth in Section 11(f) below.
11. COVENANT NOT TO COMPETE. The Employee acknowledges that he will be
employed by the Company in the capacity indicated in Section 1 above and that in
such capacity the Employee will be the Company's representative with the
Company's clients, customers, employees, consultants, financial advisors,
suppliers, sources of supply, investors, investment bankers, and the financial
and business communities (individually, a "Business Contact" and, collectively,
the "Business Contacts"). The Employee also acknowledges that he has in the past
had access to and has received, and acknowledges that he will in the future have
access to and receive, secret, confidential, proprietary and trade secret
information about the Company and its products, product candidates, research and
development activities, clinical trial results, nutritional study results,
services and Business Contacts, and that he will have access to other
Proprietary Information (as that term is defined in Section 12(c) below)
licensed to or owned, acquired or developed by the Company at its expense for
use in its business or proposed business operations. The Employee's services to
the Company are special, unique and extraordinary, and the success or failure of
the Company is highly dependent upon the Employee's discharge of his duties and
responsibilities as provided herein. Accordingly, by execution of this
Agreement:
(a) Duration of Covenant--Termination by the Company for Cause. Except as
otherwise provided herein, the Employee agrees that during the Initial Term and
any Renewal Term and for a period of two (2) years following the termination of
this Agreement and the Employee's employment with the Company pursuant to
Section 7(a) above for cause, the Employee shall not violate the provisions of
Section 11(e) below. The Employee agrees that the two (2) year period referred
to in the immediately preceding sentence shall be extended by the number of days
included in any period of time during which the Employee is or was engaged in
activities constituting a breach of Section 11(e) below.
(b) Duration of Covenant--Termination by the Company Without Cause. Except
as otherwise provided herein, the Employee agrees that during the Initial Term
and any Renewal Terms and for a period of one (1) year following the termination
of this Agreement and the Employee's employment with the Company pursuant to
Section 7(b) above for any reason whatsoever, the Employee shall not violate the
provisions of Section 11(e) below. The Employee agrees that the one (1) year
period referred to in the immediately preceding sentence shall be extended by
the number of days included in any period of time during which the Employee is
or was engaged in activities constituting a breach of Section 11(e) below.
(c) Duration of Covenant--Voluntary Termination by the Employee. Except as
otherwise provided herein, the Employee agrees that during the Initial Term and
any Renewal Terms and for a period of two (2) years following the Employee's
voluntary termination of his employment with the Company and of this Agreement
pursuant to Section 8 above, the Employee shall not violate the provisions of
Section 11(d) below. The Employee agrees that the two (2) year period referred
to in the immediately preceding sentence shall be extended by the number of days
included in any period of time during which the Employee is or was engaged in
activities constituting a breach of Section 11(e) below.
(d) Geographical Scope. The geographical scope of the covenants not to
compete contained in this Section 11 shall include the United States of America
and Canada and their respective territories and possessions, and all other
countries where the Company or any of its subsidiaries has conducted business
operations at any time during the Initial Term or any Renewal Term.
(e) Prohibited Competitive Activities. During the time periods specified
Section herein and in Sections 11(a), 11(b) and 11(c) above, the Employee will
not:
(i) Directly or indirectly own, operate, manage, consult with,
control, participate in the management or control of, be employed by,
maintain or continue any interest whatsoever in any company, corporation,
partnership, entity or person that intends to engage in or that
manufactures, markets, distributes or sells pharmaceutical or nutraceutical
products similar to or competitive with any of the Company's products or
product candidates or any of the products or product candidates of any of
the Company's subsidiaries; or
(ii) Directly or indirectly solicit any Business Contact for any
company, corporation, partnership, entity or person that is a competitor or
potential competitor of the Company or any of the Company's subsidiaries.
(f) Need for Covenant and Legal Remedies. The Employee expresses, agrees
and acknowledges that the covenants not to compete contained in this Section 11
are necessary for the Company's protection because of the nature and scope of
the Company's business and the Employee's position with and the scope of the
duties and responsibilities delegated to the Employee by the Company pursuant to
this Agreement. Furthermore, the Employee acknowledges that, in the event of his
breach of any of the covenants not to compete contained in Section 11(a),
Section 11(b) or Section 11(c) above, money damages will not sufficiently
compensate the Company for the injury caused thereby, and the Employee
accordingly agrees that in addition to such money damages (and further, in
addition to the return to the Company of any severance pay paid to the Employee
that is required to be returned to the Company pursuant to Section 10(d) above),
he may be restrained and enjoined from any continuing breach of any of the
covenants not to compete contained in Section 11(a), Section 11(b) or Section
11(c) above without any bond or other security being required by any court. The
Employee acknowledges that any breach of any of the covenants not to compete
contained in Section 11(a), Section 11(b) or Section 11(c) above will result in
irreparable damage, harm and injury to the Company.
(g) Acknowledgements by the Employee. The Employee expressly agrees and
acknowledges as follows:
(i) The covenants not to compete contained in Sections 11(a), 11(b)
and 11(c) above are reasonable as to time and geographical scope and area,
and do not place any unreasonable burden on the Employee;
(ii) The general public will not be harmed as a result of enforcement
of either of the covenants not to compete contained in Section 11(a),
Section 11(b) or Section 11(c) above;
(iii) The Employee has requested or has had the opportunity to request
that his personal legal counsel review this Agreement and the covenants not
to compete contained in Sections 11(a), 11(b) and 11(c) above; and
(iv) The Employee understands and hereby agrees to each and every term
and condition of this Agreement and the covenants not to compete contained
in Sections 11(a), 11(b) and 11(c) above.
12. PROPRIETARY INFORMATION.
(a) Return of Proprietary Information. Upon the expiration or termination
of this Agreement and the termination of the Employee's employment hereunder for
any reason whatsoever (whether such termination shall be voluntary or
involuntary and whether with or without cause), the Employee shall immediately
turn over to the Company any and all Proprietary Information (as that term is
defined in Section 12(c) below). The Employee shall have no right to retain any
copies (in any form whatsoever) of any material qualifying as Proprietary
Information for any reason whatsoever after the termination of his employment
hereunder without the express prior written consent of the Company.
(b) Non-Disclosure. It is understood and agreed that, in the course of the
Employee's employment hereunder and through his past activities for and on
behalf of the Company, and his future contemplated activities for and on behalf
of the Company as provided in this Agreement, the Employee has received and will
receive, has dealt with and will deal with, and has had access to and will have
access to the Company's Proprietary Information and that the Employee holds and
will hold all of the Company's Proprietary Information in trust and confidence
for the Company and only for its benefit and use. The Employee agrees that he
will not, during the Initial Term, any Renewal Term or the Employment Period or
thereafter, in any fashion, form or manner, directly or indirectly, retain, make
copies of, divulge, disclose or communicate to any person, company, corporation,
partnership or entity, in any manner whatsoever, except when necessary or
required in the normal course of the Employee's employment hereunder and for the
benefit of the Company or with the express prior written consent of the Company,
any of the Company's Proprietary Information or any information of any kind,
nature or description whatsoever concerning any matters affecting or relating to
the Company's business or proposed business operations.
(c) Proprietary Information Defined. For purposes of this Agreement,
"Proprietary Information" means and includes the following: (i) the identity of
Business Contacts in, of or to the Company, or potential Business Contacts in,
of or to the Company; (ii) any written, typed or printed list or other materials
identifying Business Contacts or potential Business Contacts of the Company;
(iii) any financial or other information supplied to the Company by any Business
Contact; (iv) any and all data or information involving the formulas, processes,
techniques, programs, methods, suppliers or contacts employed by the Company in
the conduct of its business or proposed business operations; (v) any lists,
documents, manuals, records, forms or other instruments or materials used by the
Company in the conduct of its business or proposed business operations; (vi) any
descriptive materials describing the methods and procedures employed by the
Company in the conduct of its business or proposed business operations; and
(vii) any other secret, proprietary or confidential information or data
concerning or related to the Company or the Company's business or proposed
business operations. The terms "list," "document" or their equivalent, as used
in this Section 12(c), are not limited to a physical writing or compilation, but
rather include any and all information or data whatsoever regarding the subject
matter of the "list" or "document," whether or not such compilation has been
reduced to writing. In addition, the term "Company" as used in this Section
12(c) includes the Company and all of its subsidiaries.
13. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the parties
hereto (including, but not limited to, the ADP Management Agreement) with
respect to employment, the compensation to be received by the Employee from the
Company, non-competition and the confidentiality of the Company's proprietary
information.
14. MISCELLANEOUS.
(a) Assignment. This Agreement is personal in nature to the Employee and
neither this Agreement nor any of the Employee's duties, responsibilities,
rights and obligations hereunder can be assigned or transferred by the Employee
without the express prior written consent of the Company. Neither this Agreement
nor any of the Company's duties, responsibilities, rights and obligations
hereunder can be assigned or transferred by the Company without the expressed
prior written consent of the Employee.
(b) Governing Law; Jurisdiction. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Utah, and no action involving this
Agreement may be brought except in the Third District Court of the State of Utah
or in the Federal District Court for the District of Utah.
(c) Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto respecting the matters within its scope and may be modified,
altered, amended or changed only in a writing signed by both of the parties
hereto.
(d) Waiver. Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of any such term,
covenant or condition, nor shall any waiver or relinquishment of, or failure to
insist upon strict compliance with, any right or power hereunder at any time be
deemed to constitute a waiver or relinquishment of such right or power at any
other time or times.
(e) Severability. In the event a court of competent jurisdiction determines
that any portion or provision of this Agreement is in violation of any statute,
law, rule, regulation, ordinance or public policy, then only the portions or
provisions of this Agreement that violate such statute, law, rule, regulation,
ordinance or public policy shall be stricken. All portions or provisions of this
Agreement that do not violate any applicable statute, law, rule, regulation,
ordinance or public policy shall continue in full force and effect for all
purposes. Furthermore, any court order striking any portion or provision of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties to this Agreement.
(f) Headings; Incorporation; Interpretation. The headings and captions used
in this Agreement are for convenience only and shall not be considered in
interpreting this Agreement. The above Recitals are deemed to be incorporated
herein by reference. Notwithstanding any rule or maxim of construction to the
contrary, any ambiguity or uncertainty in this Agreement shall not be construed
against either of the parties hereto based upon authorship of any portion or
provision hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Employee has hereunto signed this
Agreement, effective as of the date first-above written.
THE EMPLOYEE: THE COMPANY:
BIOMUNE SYSTEMS, INC., a Nevada
corporation
/s/ Milton G. Adair
- ------------------------------- -------------------------------
/s/ David G. Derrick Milton G. Adair
Its: President
EXHIBIT 10.97
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of September ___, 1996 by and between Biomune Systems, Inc., a Nevada
corporation (the "Company"), and _______________ (the "Investor").
RECITALS:
A. WHEREAS, the Company has prepared a Confidential Private Placement
Memorandum (the "Memorandum") in connection with the offering by the Company of
a total of 5,000 shares of its Series C 8% Cumulative Convertible Non-Voting
Preferred Stock (the "Shares") at $1,000 per Share in a private placement
transaction; and
B. WHEREAS, the Investor desires to purchase the Shares from the Company
and enter into this Agreement to evidence certain registration rights granted by
the Company to the Investor in connection with the offer and sale of the Shares
to the Investor.
IN CONSIDERATION OF the foregoing and other promises contained herein, the
parties hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at
the time.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the 1933
Act.
"Common Stock" shall mean the restricted shares of Common Stock,
$0.0001 par value per share, of the Company, as constituted as of the date
of this Agreement that are issued to the Investor upon the conversion of
the Series C Preferred Stock or that are issued to the Investor upon the
exercise of the Prior Warrants and/or the Current Warrants.
"Current Warrants" shall mean the warrants to purchase a total of
500,000 of the Company's common shares at $3.25 per share for two years
from the date of the closing of the private placement transaction
contemplated by the Memorandum.
"Prior Warrants" shall mean the warrants to purchase a total of
1,295,657 of the Company's common shares at an exercise price of $2.38 per
share that were issued by the Company to Flurina Development S.A. in
connection with the issuance by the Company of shares of its Series D 8%
Cumulative Convertible Non-Voting Preferred Stock on or about March 10,
1996, which warrants have been amended to increase the number of the
Company's common shares thereunder to 1,470,588 shares at an exercise price
of $2.125 per share.
"Registration Statement" shall mean the registration statement on Form
S-1, Form S-3 or other Form of general applicability satisfactory to the
Company and its legal counsel filed with the Commission to register the
Common Stock under the 1933 Act.
"Selling Expenses" shall mean the expenses described in Section 5
below.
"Series C Preferred Stock" shall mean the shares of the Company's
Series C 8% Cumulative Convertible Non-Voting Preferred Stock, $0.0001 par
value per share, issued to the Investor pursuant to the Memorandum.
2. Restrictive Legend. Each certificate representing Common Stock shall,
except as otherwise provided herein, be stamped or otherwise imprinted with a
legend substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS SECURITY IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT
ENTERED INTO BY AND BETWEEN BIOMUNE SYSTEMS, INC. AND THE
INVESTOR, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF BIOMUNE SYSTEMS, INC.
3. Registration Rights. The Company will use its reasonable best efforts to
prepare and file the Registration Statement with the Commission no later than
October 30, 1996 covering the Common Stock (which Common Stock underlies the
Series C Preferred Stock, the Company's common shares underlying the Prior
Warrants and the Company's common shares underlying the Current Warrants) and
shall use its reasonable best efforts to have the Registration Statement
declared effective by the Commission by January 2, 1997. In the event the
Registration Statement has not been declared effective by the Commission by
March 1, 1997, the Investor shall have the right to convert the Series C
Preferred Stock into any other type of exempt transaction as may be determined
by the Investor, in its sole discretion, and the Company shall provide all
required cooperation in that regard.
4. Registration Procedures. The Company will, as expeditiously as possible,
use its reasonable best efforts to:
(a) prepare and file with the Commission the Registration Statement
with respect to the Common Stock and use its reasonable best efforts to
cause the Registration Statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration Statement
effective for twelve (12) months and comply with the provisions of the 1933
Act with respect to the disposition of shares of Common Stock covered by
the Registration Statement in accordance with the Investor's intended
method of disposition set forth in the Registration Statement for such
period;
(c) furnish to the Investor such number of copies of the Registration
Statement and the printed prospectus included therein (including each
preliminary prospectus) as the Investor reasonably may request in order to
facilitate the public sale or other disposition of the Common Stock covered
by the Registration Statement;
(d) after the filing of the Registration Statement, the Company will
promptly notify the Investor of all comments delivered to the Company by
the Commission and take all reasonable actions required and use its best
efforts to respond to such comments and to prevent the entry of any stop
order or to remove any stop order if entered;
(e) use its reasonable best efforts to register or qualify the Common
Stock covered by the Registration Statement under the securities or "blue
sky" laws of such states or jurisdictions as the Investor shall request;
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation
in any state or jurisdiction where it is not so qualified or to consent to
general service of process in any such state or jurisdiction;
(f) use its reasonable best efforts to list the Common Stock covered
by the Registration Statement on the NASDAQ SmallCap Market or any
securities exchange on which the Company's common shares are then-listed;
(g) immediately notify the Investor at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event of which the Company has knowledge, as a result of
which the prospectus contained in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(h) make available for inspection by the Investor and any attorney,
accountant or other agent retained by the Investor all financial and other
records, pertinent corporate documents and properties of the Company and
cause the Company's officers, directors and employees to supply all
information reasonably requested by the Investor, attorney, accountant or
agent in connection with the Registration Statement;
(i) in connection with the registration hereunder, the Investor will
furnish to the Company in writing such information with respect to itself
and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities
laws, rules and regulations;
(j) in connection with the preparation and filing of the Registration
Statement under the 1933 Act pursuant to this Agreement, the Company will
give the Investor the opportunity to participate in the preparation of such
aspects of the Registration Statement as relate to or impact upon the
Investor's interests, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto; and
(k) notwithstanding the provisions of Sections 3 and 4(a) above, the
Company's obligation to file the Registration Statement or cause the
Registration Statement to become and remain effective, shall be suspended
for a period not to exceed ninety (90) days if there exists at the time
material non-public information relating to the Company that, in the
reasonable opinion of the Company, should not be disclosed.
5. Selling Expenses. All expenses incurred by in connection with the
registration pursuant to Section 3 above (excluding underwriters' commissions
and discounts and legal fees incurred by the Investor, if any), including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance shall be borne by the Company.
6. Indemnification and Contribution.
(a) In the event of a registration of any of the Common Stock under the
1933 Act pursuant to Section 3 above, the Company will indemnify and hold
harmless the Investor and each other person, if any, who controls the Investor
within the meaning of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which the Investor or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement under which such Common Stock was
registered under the 1933 Act pursuant to Section 3 above, any final prospectus
contained therein, or any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Investor and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by the Investor or any such controlling person in writing specifically
for use in the Registration Statement or any prospectus.
(b) In the event of a registration of any of the Common Stock under the
1933 Act pursuant to Section 3 above, the Investor will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the Registration
Statement and each director of the Company against all losses, claims, damages
or liabilities, joint or several, to which the Company or such officer, director
or controlling person may become subject under the 1933 Act or otherwise insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement under which such
Common Stock was registered under the 1933 Act pursuant to Section 3 above, any
final prospectus contained therein, or any amendment thereof or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Investor will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to the
Investor, as such, furnished in writing to the Company by the Investor
specifically for use in the Registration Statement or prospectus; provided,
further, however, that the liability of the Investor hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense that is
equal to the proportion that the public offering price of the shares sold by the
Investor under the Registration Statement bears to the total public offering
price of all securities sold thereunder, but not in any event to exceed the net
proceeds received by the Investor from the sale of Common Stock covered by the
Registration Statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action or the threat of commencement thereof, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission to so notify the indemnifying party shall not relieve it from
any liability that it may have to such indemnified party other than under this
Section 6 and shall only relieve it from any liability that it may have to such
indemnified party under this Section 6 if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it desires, to assume and undertake the defense thereof with
counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 6 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with and oversight of
counsel so selected; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it that are different from or in addition to those
available to the defenses available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select a separate counsel and to assert such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the 1933 Act in any case in which either (i) the Investor or any
controlling person of the Investor makes a claim for indemnification pursuant to
this Section 6 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 6
provides for indemnification in such case, or (ii) contribution under the 1933
Act may be required on the part of the Investor or any such controlling person
in circumstances for which indemnification is provided under this Section 6;
then, and in each such case, the Company and the Investor will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Investor is
responsible for the portion represented by the percentage that the public
offering price of its Common Stock offered by the Registration Statement bears
to the public offering price of all securities offered by the Registration
Statement, and the Company is responsible for the remaining portion; provided,
however, that, in any such case, (A) the Investor will not be required to
contribute any amount in excess of the net proceeds of the sale of all such
shares of Common Stock sold by it pursuant to the Registration Statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) will be entitled to contribution from
any person or entity.
7. Changes in Common Stock. If, and as often as, there is any change in the
Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions of this Agreement so that the rights and privileges granted
hereby shall continue with respect to the Common Stock as so changed.
8. Special Dividends. The Company shall pay the Investor one or more
special dividends in the amount of 1-1/2% of the Share Purchase Price (as that
term is defined in the Memorandum in cash if the shares of the Company's Common
Stock underlying the Series C Preferred Stock have not been registered with the
Commission by January 2, 1997. The special dividend shall be paid in cash on the
1st and 15th day of each month that the shares of Common Stock underlying the
Series C Preferred Stock have not been registered with the Commission,
commencing with January 2, 1997.
9. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of either of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including, without
limitation, transferees of any Common Stock), whether so expressed or not.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be hand-delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
(i) if to the Company, to the address of the Company set forth in the
Memorandum;
(ii) if to the Investor, to it at such address as may have been
furnished to the Company in writing;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of the Investor) or to the Investor (in
the case of the Company) in accordance with the provisions of this Section 9(b)
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Utah.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and the Investor.
(e) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which, when taken together, shall
constitute one and the same instrument.
(f) The obligations of the Company to register shares of Common Stock under
Section 3 above shall terminate on the first (1st) anniversary of the date of
this Agreement.
(g) If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable, such illegality, invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render illegal,
invalid or unenforceable any other provision of this Agreement, and this
Agreement shall be carried out as if any such illegal, invalid or unenforceable
provision were not contained herein.
(h) If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
attorneys' fees, costs and disbursements in addition to any other relief to
which such party may otherwise be entitled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, effective as of
the date first written above.
THE INVESTOR: THE COMPANY:
______________________________, BIOMUNE SYSTEMS, INC.,
a ____________ corporation a Nevada corporation
By: __________________________ By: _____________________________
__________________________ David G. Derrick
Its: __________________________ Its: Chief Executive Officer
EXHIBIT 10.98
BIOMUNE SYSTEMS, INC.
INVESTOR QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT
ALL SUBSCRIBERS FOR SHARES MUST EXECUTE AN INVESTOR QUESTIONNAIRE AND
SUBSCRIPTION AGREEMENT. THIS INFORMATION IS NECESSARY FOR THE PURPOSE OF
DETERMINING THE QUALIFICATIONS OF PROSPECTIVE INVESTORS FOR AN INVESTMENT IN
SECURITIES THAT HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITIES OF
ANY STATE OR FOREIGN COUNTRY. THIS INFORMATION WILL BE HELD CONFIDENTIAL AND
WILL BE USED SOLELY FOR THE PURPOSES SET FORTH HEREIN.
The following information is provided in order that Biomune Systems, Inc.,
a Nevada corporation (the "Company"), can determine the undersigned's
suitability and ability to become an Investor in the Company's Series C 8%
Cumulative Convertible Non-Voting Preferred Stock, $0.0001 par value per share
(collectively, the "Shares" and, individually, a "Share"). Capitalized terms
used but not defined in this Investor Questionnaire and Subscription Agreement
(the "Agreement") are deemed to have the same meanings ascribed to them in the
Supplemental Confidential Private Placement Memorandum dated September 26, 1996
and the Confidential Private Placement Memorandum dated September 19, 1996
related to the Shares that have been prepared by the Company in connection with
this Offering (collectively, the "Memorandum").
In making a decision to subscribe for and purchase Shares, the undersigned
has relied solely upon the information contained in the Memorandum. No one has
made any representations or statements to the undersigned that conflict with
those contained in the Memorandum.
The undersigned understands that, to qualify as and be allowed to become an
Investor, the person or entity making this investment must come within one of
the categories of persons or entities defined as an "accredited investor" under
Section 501(a) of Regulation D under the Securities Act of 1933, as amended (the
"1933 Act"), and the prospective Investor has such knowledge and experience in
financial and business matters that he, she or it is capable of evaluating the
merits and risks of an investment in the Shares. The following is provided so
that the Company may be able to determine that the undersigned or the entity on
whose behalf this Agreement is being completed and executed qualifies as an
accredited investor in connection with the proposed offer and sale of the
Shares. For purposes of this Agreement, all dollar amounts shall be deemed to be
United States Dollars, all references to states shall be deemed to refer to
states in the United States of America and provinces in the Country of Canada
and all references to federal laws, rules or regulations shall refer to the
applicable laws, rules and regulations of the United States of America and the
Country of Canada.
THE UNDERSIGNED IS WILLING AND ABLE TO BEAR THE ECONOMIC RISK OF AN
INVESTMENT IN THE SHARES. In making this declaration, the undersigned has
considered whether the undersigned can afford a complete loss of his, her or its
investment in the Shares that are hereby being subscribed. As evidence of the
undersigned's ability to bear the economic risk of an investment in the Shares,
the undersigned has provided the Company with the following information.
I. GENERAL INFORMATION
A. Complete Name: ____________________ S.S. #/Tax I.D. #__________________
Birth Date: _____/_____/________ Organization Date:_____/_____/_____
Citizenship: ____________________ Business Telephone: ( )
Marital Status: ____________________ Home Telephone: ( )
Mailing Address: ________________________________________________________
City/State/Zip: ________________________________________________________
II. EDUCATIONAL BACKGROUND
INSTITUTION YEARS/DEGREE AREA OF STUDY
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
III. FINANCIAL BACKGROUND
A. Net Worth:*
_______ Less than $120,000 _______ $300,001 to $500,000
_______ $120,001 to $200,000 _______ $500,001 to $1,000,000
_______ $200,001 to $300,000 _______ Over $1,000,000
* For purposes of this Question III(A), if the subscriber is an
individual, "net worth" means the excess of total assets at fair market
value (excluding principal residence, furnishings therein and personal
automobiles) over total liabilities. If the subscriber is a partnership or
limited liability company, "net worth" means the aggregate net worth of its
general partners or members, as appropriate. If the subscriber is a trust
or corporation, "net worth" means the excess of total assets at fair market
value over total liabilities.
B. Cash, Negotiable Securities and Other Liquid Assets:
$______________________
C. Individual Gross Income* During the Preceding Two (2) Years:
YEAR-ENDING 1995 YEAR-ENDING 1994
_______ Less than $50,000 _______ Less than $50,000
_______ $50,001 to $100,000 _______ $50,001 to $100,000
_______ $100,001 to $200,000 _______ $100,001 to $200,000
_______ Over $200,000 _______ Over $200,000
* "Gross income" means adjusted gross income, as reported or to be
reported for federal income tax purposes.
D. Anticipated Individual Gross Income* in 1996:
_______ Less than $50,000
_______ $50,001 to $100,000
_______ $100,001 to $200,000
_______ Over $200,000
* "Gross income" means adjusted gross income, as reported or to be
reported for federal income tax purposes.
E. Joint Gross Income* During the Preceding Two (2) Years:
YEAR-ENDING 1995 YEAR-ENDING 1994
_______ Less than $60,000 _______ Less than $60,000
_______ $60,001 to $100,000 _______ $60,001 to $100,000
_______ $100,001 to $200,000 _______ $100,001 to $200,000
_______ $200,001 to $300,000 _______ $200,001 to $300,000
_______ Over $300,000 _______ Over $300,000
* "Joint Gross Income" means adjusted gross income of the subscriber
and his or her spouse, as reported or to be reported for federal income tax
purposes.
F. Anticipated Joint Gross Income* in 1996:
_______ Less than $60,000
_______ $60,001 to $100,000
_______ $100,001 to $200,000
_______ $200,001 to $300,000
_______ Over $300,000
* "Joint Gross Income" means adjusted gross income of the subscriber
and his or her spouse, as reported or to be reported for federal income tax
purposes.
IV. EMPLOYMENT INFORMATION
A. Current Employment, or, if Retired, Previous Employment:
Employment Period: __________________________________________________________
Company Name: _______________________________________________________________
Address: ____________________________________________________________________
City/State/Zip: _____________________________________________________________
Telephone: (___) _______
Position/Title: _____________________________________________________________
Occupation/Profession: ______________________________________________________
Nature of Business: _________________________________________________________
Duties/Responsibilities: ____________________________________________________
B. Are You Retired? _________ Yes _________ No
V. INVESTMENT EXPERIENCE
A. _______ Precious Metals _______ Limited Partnerships
_______ Commodities _______ General Partnerships
_______ Stocks _______ Personal Business
_______ Real Estate _______ Other (Describe: _____________
_______ Debentures/Bonds/Notes ________________________________)
List investment firms where the undersigned currently has an account OR has
had an account within the past three (3) years:
NAME OF INVESTMENT FIRM TYPE OF ACCOUNT
_________________________________________ ____________________________________
_________________________________________ ____________________________________
_________________________________________ ____________________________________
B. The following sets forth the undersigned's knowledge and experience in
financial and business matters not previously described above (such as present
or past occupations, education, seminars attended or training received,
investment experience, etc.), that the undersigned believes qualifies the
undersigned as being capable of evaluating the merits and risks of an investment
in the Shares (attach separate sheet(s) if necessary):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
VI. ACCREDITED INVESTOR STATUS
The undersigned hereby certifies that the undersigned (or, if this
Agreement is being completed and executed for an entity, then such entity) is an
"accredited investor" as described above in that the prospective Investor
qualifies for the category that has been designed below. For purposes of this
Agreement, the ultimate Investor in the Shares, whether the undersigned or an
entity on whose behalf the undersigned is completing and executing the same, may
be referred to as the "Investor". The Company is entitled to rely on the
information provided herein in making the foregoing determination for the
purpose of confirming an exemption from registration of the Shares being
offered.
(Please check the applicable box(es) and provide any information required.)
o $200,000 INDIVIDUAL ANNUAL INCOME: I am a natural person. I had an
individual income in excess of $200,000 in 1995 and 1994. I reasonably
expect an income in excess of $200,000 in the current year (1996). My
income for 1995 was approximately $___________ and for 1994 was
approximately $_______________. During 1996, I reasonably expect my
income to be approximately $_______________.
o $300,000 JOINT ANNUAL INCOME: I am a natural person, and, along with
my spouse, had a joint income in excess of $300,000 in 1995 and 1994.
I reasonably expect a joint annual income in excess of $300,000 with
my spouse in the current year (1996). My joint income for 1995 was
approximately $_________ and for 1994 was approximately $__________.
During 1996, I reasonably expect my joint income to be approximately
$________________.
o $1,000,000 NET WORTH: I am a natural person whose individual net
worth,* or joint net worth* with my spouse, at the time of purchase
exceeds $1,000,000. My personal net worth,* or joint net worth* with
my spouse, is approximately $__________________.
* For purposes of this Question VI, if the subscriber is an
individual, "net worth" means the excess of total assets at fair
market value (excluding principal residence, furnishings therein
and personal automobiles) over total liabilities. If the
subscriber is a partnership or limited liability company, "net
worth" means the aggregate net worth of its general partners or
members, as appropriate. If the subscriber is a trust or
corporation, "net worth" means the excess of total assets at fair
market value over total liabilities.
o $5,000,000 PARTNERSHIP OR CORPORATION: The Investor is a partnership
or corporation that was not formed for the specific purpose of
acquiring the Shares. The Investor has total assets in excess of
$5,000,000. I hereby certify that the present value of the Investor's
assets is approximately $_________________________.
o $5,000,000 TRUST: The Investor is a trust with total assets in excess
of $5,000,000 that was not formed for the specific purpose of
acquiring the Shares, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of Regulation D under the
1933 Act. I hereby certify that the present value of the Investor's
assets is approximately $_____________________.
o ENDOWMENT OR CHARITY: The Investor is an organization described in
Section 501(c)(3) of the Internal Revenue Code, that was not formed
for the specific purpose of acquiring the Shares and that has total
assets in excess of $5,000,000. I hereby certify that the present
value of the Investor's assets is approximately
$_________________________.
o BANK OR SAVINGS AND LOAN ASSOCIATION: The Investor is a bank or
savings and loan association, acting for its own account or in a
fiduciary capacity.
o INSURANCE COMPANY: The Investor is an insurance company.
o INVESTMENT COMPANY: The Investor is an investment company or a
business development company registered under the Investment Company
Act of 1940.
o SMALL BUSINESS INVESTMENT COMPANY: The Investor is a Small Business
Investment Company licensed under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
o BUSINESS DEVELOPMENT COMPANY: The Investor is a private business
development company as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940.
o EMPLOYEE BENEFIT PLAN: The Investor is an employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974 and
the investment decision is made by a plan fiduciary that is either a
bank, savings and loan association, insurance company, registered
investment advisor or the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, the investment
decisions are made solely by persons who are accredited investors.
o ALL ACCREDITED ENTITY: The Investor is an entity in which all of the
equity owners are accredited investors.
VII. PROFESSIONAL ADVISORS
A. Attorney:____________________________________________________________________
Firm Name:___________________________________________________________________
Firm Address:________________________________________________________________
City/State/Zip:______________________________________________________________
Firm Telephone:(______)______________________________________________________
May we Contact? Yes ______ No ______
B. Bank:________________________________________________________________________
Bank Name:___________________________________________________________________
Person Familiar with Account(s):_____________________________________________
Bank Address:________________________________________________________________
City/State/Zip:______________________________________________________________
Bank Telephone:(_______)_____________________________________________________
May we Contact? Yes _____ No _____
C. Accountant:__________________________________________________________________
Firm Name:___________________________________________________________________
Firm Address:________________________________________________________________
City/State/Zip:______________________________________________________________
Firm Telephone:(________)____________________________________________________
May we Contact? Yes _____ No _____
Are tax returns professionally prepared?
Yes _____ No _____
D. Does the undersigned have any other investments or contingent
liabilities that could reasonably cause the need for sudden cash requirements in
excess of cash readily available?
Yes _____ No _____
VIII. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SUBSCRIBER
The undersigned hereby represents and warrants to the Company and agrees as
follows:
A. By executing this Agreement below, the undersigned represents and
warrants the truth and accuracy of the information contained herein and
expressly indicates the undersigned's desire to become an Investor in the Shares
or for the entity on whose behalf the undersigned executed the same to become an
Investor in the Shares. By executing this Agreement, the undersigned agrees and
understands that the Investor will be deemed to be subscribing for the Shares
indicated below. The undersigned agrees to be bound by all of the terms and
conditions of the Offering as set forth in the Memorandum. Any information that
the undersigned has heretofore furnished to the Company with respect to his, her
or its financial position and/or business experience is correct and complete as
of the date of this Agreement, and if there should be any material change in
such information prior to the Closing, the undersigned will immediately furnish
such revised or corrected information to the Company.
B. The undersigned has received a complete copy of the Memorandum and has
carefully read the Memorandum (both the Confidential Private Placement
Memorandum dated September 19, 1996 and the Supplemental Confidential Private
Placement Memorandum dated September 26, 1996) and all Exhibits attached thereto
in their entirety, and in particular the Investor Suitability Standards,
Description of Securities, Uses of Proceeds and Risk Factors sections of the
Memorandum, and understands the contents thereof and agrees to be bound by all
of the terms and conditions contained in the Memorandum and in the Exhibits
attached thereto. The undersigned has relied only on the information contained
in the Memorandum and in the Exhibits attached thereto in making his, her or its
investment decision. The undersigned understands the terms and conditions of the
Shares and the Offering, as set forth in the Memorandum, and agrees to all of
such terms and conditions.
C. The undersigned is an "accredited investor" as that term is defined in
Section 501(a) of Regulation D under the 1933 Act and is sufficiently
experienced and sophisticated in financial, investment and business matters so
as to be able to understand the merits and risks of an investment in the Shares.
D. The undersigned hereby subscribes for and agrees to pay for the Shares
indicated below in cash at the time of submission of this Agreement to the
Company.
E. The undersigned is able to bear the economic risk of an investment in
the Shares, is able to hold the Shares indefinitely and can afford a complete
loss of his, her or its investment in the Shares. In addition, the undersigned
has adequate means for providing for the undersigned's current needs and
contingencies and has no need for liquidity in the Shares.
F. The undersigned confirms that, in making the decision to purchase
Shares, the undersigned has relied solely upon independent investigations made
by the undersigned, including the undersigned's own professional tax,
accounting, financial, legal and other advisors, and that the undersigned and
such advisors have been given the opportunity to ask questions of, and receive
answers from, persons acting on behalf of the Company concerning the terms and
conditions of the Offering and to obtain any additional information, to the
extent such persons possess such information or can acquire it without
unreasonable effort or expense.
G. The undersigned understands that no federal or state agency or body has
passed on the Memorandum or made any recommendation or endorsement of the Shares
or the Company, and that the Company is relying on the truth and accuracy of the
representations, declarations and warranties herein made by the undersigned. The
undersigned understands that the Memorandum has not been and will not be filed
with or reviewed by the SEC or the securities department of any state because of
the private nature of the Offering.
H. The undersigned understands that the certificates representing the
Shares will bear a restrictive legend regarding the restricted transferability
thereof and, therefore, that the Shares are and will be "restricted securities",
as that term is defined in the 1933 Act. The Investor is not acquiring the
Shares with any view towards the resale or redistribution thereof. The
undersigned understands that the Shares have not been registered with the SEC
under the 1933 Act nor with the securities department of any state in reliance
upon an exemption therefrom for non-public offerings.
I. The undersigned and the advisors upon whom he or she has relied (other
than representatives of the Company) have such knowledge and experience in
financial, tax and business matters to enable the undersigned to utilize the
information made available in connection with the Offering, to evaluate the
merits and risks of the prospective investment and to make an informed
investment decision with respect thereto.
J. The undersigned recognizes that an investment in the Shares will involve
significant risks, including, but not limited to, those set forth under the
heading "Risk Factors" in the Memorandum.
K. The undersigned has relied solely upon the information contained in the
Memorandum and the independent investigations made by the undersigned or
information otherwise provided in writing by the Company, and the undersigned is
not relying upon any oral representation not also contained in the Memorandum in
making the decision to subscribe for and purchase Shares.
L. Except as allowed by applicable securities laws, rules and regulations,
the Shares are being purchased solely for the Investor's own account and not for
the account of any other person or entity, and not for distribution, assignment
or resale to others and no other person or entity will have a direct or indirect
beneficial interest in the Shares.
M. The undersigned agrees that the Investor will neither directly nor
indirectly seek to assign, transfer or sell the Shares in any way inconsistent
with the legend that will be placed on the certificates evidencing the Shares.
N. The undersigned understands and agrees that the Shares cannot be
transferred unless, in the opinion of counsel to the Company, the transfer will
not violate any federal or state securities law, rule or regulation, or cause
any other Shares issued in connection with the Offering, to be in violation of
any such law, rule or regulation.
O. Special acknowledgement by trustees. If the subscriber is a trust:
(i) The undersigned hereby represents, warrants and covenants that
the trust listed below (the "Trust") is duly organized and
validly existing and has all requisite authority to acquire the
Shares being subscribed.
(ii) The undersigned has been duly authorized by all requisite action
on the part of the Trust to act on its behalf in making that
acquisition, including the execution of this Agreement.
(iii) The undersigned represents and warrants that each of the above
representations or agreements or understandings set forth herein
applies to the Trust.
(iv) The Trust (a) was not formed for the specific purpose of
acquiring Shares, (b) qualifies as an accredited investor under
Rule 501(a) of Regulation D promulgated under the 1933 Act and
(c) each equity owner thereof has executed and delivered
simultaneously herewith an agreement substantially identical to
this Agreement.
P. Special acknowledgement by corporations. If the subscriber is a
corporation:
(i) The undersigned hereby represents, warrants and covenants that
the corporation listed below (the "Corporation") is duly
organized and validly existing and has all requisite authority to
acquire the Shares being subscribed.
(ii) The undersigned has been duly authorized by all requisite action
on the part of the Corporation to act on its behalf in making
that acquisition, including the execution of this Agreement.
(iii) The undersigned represents and warrants that each of the above
representations or agreements or understandings set forth herein
applies to the Corporation.
(iv) The Corporation (a) was not formed for the specific purpose of
acquiring Shares, (b) qualifies as an accredited investor under
Rule 501(a) of Regulation D promulgated under the 1933 Act and
(c) each equity owner thereof has executed and delivered
simultaneously herewith an agreement substantially identical to
this Agreement.
Q. Special acknowledgement of partnerships and limited liability companies.
If the subscriber is a partnership or limited liability company:
(i) That entity (the "Entity") is duly organized and validly existing
and has all requisite authority to acquire the Shares being
subscribed.
(ii) The undersigned has been duly authorized by the Entity to acquire
Shares and to execute all documents, including this Agreement, in
that regard.
(iii) The undersigned represents and warrants that each of the above
representations or agreements or understandings set forth herein
applies to the Entity.
(iv) The Entity (a) was not formed for the specific purpose of
acquiring Shares, (b) qualifies as an accredited investor under
Rule 501(a) of Regulation D promulgated under the 1933 Act and
(c) each equity owner thereof has executed and delivered
simultaneously herewith an agreement substantially identical to
this Agreement.
R. The undersigned is a bona fide resident of the state set forth as the
undersigned's "mailing address" in Question I above and further represents that
(i) if a corporation, partnership, limited liability company, trust or other
form of business organization, it has a principal office within such state, and
(ii) if an individual, the undersigned has his or her principal residence in
such state.
S. All information provided by the undersigned in this Agreement is true
and accurate in all respects, and the undersigned acknowledges that the Company
will be relying on such information to its possible detriment in deciding
whether the Investor can purchase Shares without giving rise to the loss of the
exemption from registration under the applicable securities laws, rules and
regulations, including the 1933 Act.
T. In addition to the representations, warranties and agreements of the
subscriber set forth hereinabove, all subscribers who are not residents of the
United States* hereby represent, warrant, covenant and agree with the Company as
follows:
(i) The undersigned is not a U.S. Person* (as that term is defined
under Regulation S promulgated under the 1933 Act.
(ii) At the time the buy order for the Shares was originated, the
undersigned was outside the United States and is outside of the
United States as of the date of the execution and delivery of
this Agreement.
_______________
* See Appendix "A" attached hereto for the definitions of "Distributor",
"U.S. Person" and "United States" under Regulation S.
(iii) The undersigned is purchasing the Shares for the undersigned's
own account and not on behalf of any U.S. Person, and the sale of
the Shares has not been pre-arranged with the undersigned in the
United States.
(iv) To the best knowledge of the undersigned, each Distributor* (as
that term is defined in Regulation S) participating in the
offering of the Shares, if any, has agreed that all offers and
sales of the Shares prior to the expiration of a period
commencing on the date of the closing of the Offering (the
"Closing") and ending forty (40) days thereafter shall only be
made in compliance with the safe harbor provisions contained in
Regulation S, or pursuant to registration of the Shares under the
1933 Act or pursuant to an applicable exemption from registration
under the 1933 Act.
(v) The undersigned represents and warrants and hereby agrees that
all offers and sales of the Shares prior to the expiration of a
period commencing on the Closing and ending forty (40) days
thereafter shall only be made in compliance with the safe harbor
provisions contained in Regulation S or pursuant to registration
of the Shares under the 1933 Act or pursuant to an exemption from
registration or to such an exemption from registration under the
1933 Act and that thereafter all offers and sales in the United
States or to U.S. Persons shall be made only pursuant to such a
registration or pursuant to an exemption from registration.
(vi) All offering documents received by the undersigned include
statements to the effect that the Shares have not been registered
under the 1933 Act and may not be offered or sold in the United
States or to U.S. Persons during a period commencing on the
Closing and ending forty (40) days thereafter unless the Shares
are registered under the 1933 Act or an exemption from the
registration requirements of the 1933 Act is available.
(vii) The undersigned is not an officer, director or "Affiliate" (as
that term is defined in Rule 405 under the 1933 Act) of the
Company.
(viii) The address set forth below is the true and correct residence
of the undersigned, and the undersigned has no present intention
of becoming a resident of the United States or of any other
jurisdiction. (ix) The undersigned consents to the placement of a
legend on the certificate(s) representing the Shares purchased by
the undersigned (or in the case of the Shares being converted
into Common Shares, the Common Shares will carry such a legend),
which legend shall be in form substantially as follows:
THE SHARES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (i) AS PART OF THEIR
DISTRIBUTION AT ANY TIME OR (ii) OTHERWISE UNTIL FORTY (40) DAYS AFTER
THE LATER OF THE COMMENCEMENT OF THE OFFERING AND THE CLOSING DATE,
EXCEPT IN EITHER CASE IN ACCORDANCE WITH REGULATION S (OR RULE 144A,
IF AVAILABLE) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
PURSUANT TO REGISTRATION OF THE SHARES OR AN EXEMPTION FROM
REGISTRATION. THE TERMS USED IN THIS LEGEND HAVE THE MEANING GIVEN TO
THEM BY REGULATION S. THE SALE OR OTHER DISPOSITION OF THE SHARES IS
RESTRICTED AND IN ANY EVENT IS PROHIBITED UNLESS THE COMPANY RECEIVES
AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL
THAT SUCH SALE OR OTHER DISPOSITION CAN BE MADE WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
U. In consideration of the Company agreeing to its obligations under this
Agreement, the subscriber agrees not to sell, make short sales, loan, grant any
option for the purchase of or otherwise transfer or dispose of any of the Shares
other than as set forth herein. The subscriber further agrees that
notwithstanding the legend requirements set forth in Part III(T) (ix) above, the
subscriber further agrees that an appropriate restrictive legend in
substantially the form set forth below and/or a stop transfer order may be
imposed with respect to all Shares that are subject to this restriction:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN INVESTOR
QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND THE
HOLDER HEREOF, WHICH INVESTOR QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT
CONTAINS RESTRICTIONS REGARDING THE SALE, SHORT SALE, LOAN, GRANT OF
ANY OPTION FOR THE PURCHASE OF OR OTHER TRANSFER OR DISPOSITION OF ANY
OF THE SHARES REPRESENTED HEREBY OTHER THAN THROUGH AN EFFECTIVE
REGISTRATION STATEMENT AND ALSO IMPOSES CERTAIN OTHER RESTRICTIONS ON
THE SALE, TRANSFER OR OTHER DISPOSITION OF THE SHARES REPRESENTED
HEREBY.
V. The undersigned understands that the Shares have been or will be issued
pursuant to an exemption from the registration requirements of the 1933 Act. The
exemption is available under Section 4(2) of the 1933 Act and Rules 505 and 506
of Regulation D promulgated thereunder and/or Regulation S promulgated under the
1933 Act. Accordingly, the undersigned specifically acknowledges that the Shares
may not be sold or transferred absent registration or an applicable exemption
therefrom or compliance with the requirements of Regulation S thereunder.
IX. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby acknowledges, represents and warrants to the subscriber
as follows:
A. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, has all requisite corporate
power and authority to own and to operate its properties and assets and to carry
on its business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, to issue and sell the Shares offered in the Offering,
and to carry out the provisions of this Agreement;
B. All corporate action on the part of the Company, its officers and
directors necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder at the
Closing and the authorization, issuance, sale and delivery of the Shares being
sold in the Offering has been taken or will be taken prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) to the extent any
indemnification provisions contained in this Agreement may be limited by
applicable federal or state securities laws;
C. The Shares that are being purchased by the undersigned subscriber, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer described or disclosed under this Agreement, in the
Memorandum and under applicable federal and state securities laws;
D. No consent, approval, qualification, order or authorization of, or
filing with, any local, state or federal governmental authority is required on
the part of the Company in connection with the Company's valid execution,
delivery or performance of this Agreement, the offer, sale or issuance of the
Shares except such filings as have been made prior to the Closing, and further
except that any notices of sale required to be filed with the SEC under
Regulation D under the 1933 Act, or such post-closing filings as may be required
under applicable state securities laws, which will be timely filed within the
applicable periods therefor;
E. The Memorandum, which has been delivered to the prospective Investor,
has been prepared in good faith by the Company and does not contain any untrue
statement of a material fact nor does it omit to state a material fact necessary
to make the statements made therein not misleading; and
F. Except as disclosed in the Memorandum and except for losses incurred in
the ordinary course of business, there has not been:
(i) any change in the assets, liabilities, financial condition or
operating results of the Company taken as a whole from that
reflected in the financial statements disclosed in the Memorandum
or elsewhere in the Memorandum except changes in the ordinary
course of business that have not been, in the aggregate,
materially adverse;
(ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets,
properties, financial condition, operating results, prospects or
business of the Company taken as a whole (as such business is
presently conducted and as it is proposed to be conducted in the
Memorandum);
(iii) any waiver by the Company of a right or of a debt owed to it
that is material to the Company taken as a whole;
(iv) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the
assets, properties, financial condition, operating results or
business of the Company taken as a whole (as such business is
presently conducted and as it is proposed to be conducted in the
Memorandum);
(v) any change or amendment to a contract or arrangement by which the
Company or any of its assets or properties are bound or subject
that is material to the Company taken as a whole; or
(vi) any change in any compensation arrangement or agreement with any
employee that is material to the Company taken as a whole.
G. The Shares (and the shares of the Company's Series C 8% Cumulative
Convertible NonVoting Preferred Stock that may be issued as dividends on the
Shares) have been duly authorized and, when issued upon conversion of the
Shares, the shares of Common Stock so issued, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such a holder. There are no pre-emptive
rights of any stockholder of the Company, as such, to acquire Shares. The
Company has registered its Common Stock pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the Common Stock
currently trades on the NASDAQ SmallCap Market, and the Company has not received
any notice, either oral or written, with respect to discontinuance of its
continued eligibility for such listing.
H. This Agreement and the Registration Rights Agreement, the form of which
is attached to the Memorandum as Exhibit "B" thereto (the "Registration Rights
Agreement"), have been duly and validly authorized by the Company, this
Agreement has been duly executed and delivered by the Company and this Agreement
is, and the Registration Rights Agreement, when executed and delivered by the
Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally; and the Shares
will be duly and validly authorized and, when executed and delivered on behalf
of the Company in accordance with this Agreement, will be a valid and binding
obligation of the Company in accordance with its terms, subject to general
principles of equity and to bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally.
I. The execution and delivery of this Agreement and the Registration Rights
Agreement by the Company, the issuance of the Shares and the consummation by the
Company of the other transactions contemplated by this Agreement, the
Registration Rights Agreement and the Shares do not and will not conflict with
or result in a breach by the Company of any of the terms or provisions of, or
constitute a default under, the Articles of Incorporation or the Bylaws of the
Company, or any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party or by which it or any of its
properties or assets are bound, or any material existing applicable law, rule or
regulation or any applicable decree, judgment or order of any court, United
States federal or state regulatory body, administrative agency or other
governmental body or agency having jurisdiction over the Company or any of its
properties or assets, except such conflict, breach or default as would not have
a material adverse effect on the transactions contemplated herein.
J. No authorization, approval or consent of any court, governmental body,
regulatory agency, self-regulatory organization or stock exchange or market or
the stockholders of the Company is required to be obtained by the Company for
the issuance and sale of the Shares to the undersigned as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained.
K. The Company's filings with the SEC, as of the date of filing the same
with the SEC, do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
L. Since December 31, 1995, there has been no material adverse change and
no material adverse development in the business, properties, operations,
financial condition, outstanding securities, results of operations or prospects
of the Company, except as disclosed in the Memorandum or in filings made with
the SEC.
M. Except as disclosed in the Memorandum, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company or any of its subsidiaries,
currently threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiaries taken as a whole or the transactions contemplated by this Agreement
or any of the documents contemplated hereby or that would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
N. Except as set forth in the Memorandum, no Event of Default, as defined
in any agreement to which the Company is a party, and no event which, with the
giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
material adverse effect on the Company's financial condition or results of
operations.
O. The Company undertakes and agrees to make all necessary filings with the
SEC in connection with the sale of the Shares to the undersigned as required by
the laws, rules and regulations of the SEC, or by any domestic securities
exchange or market on which the Company's Common Stock is traded, and to
promptly provide a copy thereof to the undersigned upon written request.
P. The Company shall promptly file with the National Association of
Securities Dealers, Inc. any required notice of the issuance of the Shares and
shall provide evidence of such filing to the undersigned. So long as the
undersigned beneficially owns any of the Shares, the Company shall file all
reports required to be filed with the SEC pursuant to Section 13 or Section
15(d) of the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination.
X. MISCELLANEOUS
A. Subscription. The undersigned hereby applies to the Company to purchase
Shares and have issued to the prospective Investor a stock certificate for those
Shares in accordance with the terms of this Agreement and the Memorandum. This
subscription may be rejected by the Company in its sole discretion, in whole or
in part, for any reason whatsoever.
B. Method of Subscription. The undersigned hereby subscribes for the
purchase of that number of Shares in the total amount as designated below, which
total amount will be invested in Shares at the Share Purchase Price. The
undersigned understands that before this subscription for those Shares will be
accepted by the Company, the undersigned must have completed, executed and
returned to the Company, the following:
(i) A copy of this Agreement; and
(ii) A copy of the Registration Rights Agreement.
C. Acceptance by the Company. The undersigned understands that the Company
will notify the undersigned whether the subscription has been accepted, in whole
or in part, or rejected, in whole or in part. In the event this subscription is
rejected by the Company, all funds tendered by the undersigned will promptly be
returned, without interest or other income and without deduction. It is
understood that the Company will have the sole discretion to determine whether
this subscription should be accepted or rejected, and whether this subscription
should be accepted or rejected, in whole or in part.
D. Indemnification. The undersigned agrees to indemnify and hold harmless
the Company and its officers, directors, shareholders and employees from and
against any and all damages, losses, costs and expenses (including, but not
limited to, reasonable attorneys' fees) that it or any of them may incur by
reason of the failure of the undersigned to fulfill any of the terms or
conditions of this Agreement, or by reason of any breach of any of the
representations or warranties made by the undersigned herein or in connection
with or in any document or instrument provided by the undersigned to the Company
in connection with the subscription of Shares in the Offering.
E. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by all of the parties hereto.
F. Modification. Neither this Agreement nor any provisions hereof can be
modified, discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge or terminate is sought.
G. Notices. Any notice, demand or other communication that any party hereto
may be required, or may elect, to give to anyone interested hereunder shall be
sufficiently given if (a) deposited, postage prepaid, in a United States mail
letter box, registered or certified mail, return receipt requested, addressed to
such address as may be given herein, or (b) deliver personally at such address.
H. Execution. By the execution of the signature page attached hereto, the
parties hereby agree to be bound by all of the terms and conditions of this
Agreement.
I. Counterparts. This Agreement may be executed through the use of separate
signature pages or in any number of counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same counterpart.
J. Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns. If the
undersigned is more than one person, the obligation of the undersigned shall be
joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his or her heirs, executors, administrators and
successors.
K. Governing Law. This Agreement shall be governed by and construed under
the internal laws of the State of Utah without regard to conflict of law rules.
L. Incorporation of Joint Escrow Instructions. The Joint Escrow
Instructions, a copy of which is attached to the Memorandum as Exhibit "N", are
deemed to be incorporated in this Agreement by reference.
M. Remedies for Misrepresentation. By accepting the Investor's Investor
Questionnaire and Subscription Agreement, the Company shall be granting to the
Investor in the Province of Ontario, Canada, a contractual right of action for
damages or rescission against the Company if the Memorandum, or any amendment
thereto, contains a misrepresentation, provided that:
(1) the right is only exercisable on written notice given not more
than 90 days after the date of the investment;
(2) the Company will not be liable if it is proved that, at the time
of the transaction, the Investor knew of the alleged
misrepresentation;
(3) in an action for damages, the Company is not liable for all or
any portion of such damages that the Company proves do not
represent the depreciation in value of the investment as a result
of the misrepresentation;
(4) in no case shall the amount recoverable exceed the amount
invested; and
(5) this right of action is in addition to any other right or remedy
available to the Investor at law.
For this purpose a "misrepresentation" means an untrue statement of a material
fact or an omission to state a material fact that is necessary in order to make
any statement not misleading in light of the circumstances in which it was made.
N. Conversion. Subject to the conversion limitation set forth below and
notwithstanding the terms of the Designation of Rights and Preferences related
to the Shares, each Share may be converted at the Investor's option into the
number of shares of the Company's Common Stock determined by dividing $1,000
plus any accrued and unpaid regular or special dividends by an amount equal to
the Market Price (as defined below) less 25%; provided, however, that the
discount from the Market Price shall be 20% for all Shares converted by an
Investor prior to January 1, 1997, as follows:
A. No Registration Statement Effective by January 2, 1997:
(i) 50 days following the closing. For 50 days following the
closing of the Offering, no Investor will be allowed to convert Shares
into shares of the Company's Common Stock.
(ii) Day 51 to January 2, 1997. From the 51st day following the
closing of the Offering through January 2, 1997, no Investor will be
allowed to convert Shares into shares of the Company's Common Stock.
(iii) After January 2, 1997. After January 2, 1997, the Investors
can convert Shares into shares of the Company's Common Stock upon
providing the Company with two (2) business days prior written notice
thereof.
B. Registration Statement Effective by January 2, 1997:
(i) 50 days following the closing. For 50 days following the
closing of the Offering, no Investor will be allowed to convert Shares
into shares of the Company's Common Stock.
(ii) Day 51 to January 2, 1997. From the 51st day following the
closing of the Offering through January 2, 1997, the Investors can
convert the Shares into shares of the Company's Common Stock upon
providing the Company with two (2) business days prior written notice
thereof.
(iii) After January 2, 1997. After January 2, 1997, the Investors
can convert Shares into shares of the Company's Common Stock upon
providing the Company with two (2) business days prior written notice
thereof.
The applicable denominator in the formula set forth above 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 NASDAQ trading
days immediately proceeding 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 below, each
conversion shall be effected by the Investor surrendering the certificate(s) for
the Shares to be converted to the Company, with a Conversion Certificate
executed by the Investor for not less than $50,000 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)
582-2630 shall be defined as the "Conversion Date". Upon conversion the Company
shall use its reasonable best efforts to deliver 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 Investor
certificates evidencing Shares within three (3) business days of the Conversion
Date or the Closing, as appropriate. In the event of 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, at the option of
the Investor, may be converted into the number of shares of Common Stock into
which the Shares 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 within five (5)
business days of the Conversion Date, the Company shall pay the Investor daily
liquidated damages in an amount equal to 1% of the principal amount of the
Shares converted into Common Stock for each day beyond said five (5) business
days.
Notwithstanding the conversion provisions regarding the Shares, the
Investor 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,
the Investor will only be allowed to convert Shares into shares of Common Stock
in an amount such that the Investor's ownership of shares of Common Stock does
not exceed 4.9% of the total number of issued and outstanding shares of Common
Stock.
O. Redemption. Notwithstanding the terms of the Designation of Rights and
Preferences related to the Shares, the Company shall have the right to call for
redemption up to 66-2/3% of the total number of Shares issued in the Offering
(i.e., 3,333 Shares) at its option at any time following the Closing, as
follows:
A. No Registration Statement Effective by January 2, 1997:
(i) 50 days following the closing. For 50 days following the
closing of the Offering, the Company will not be allowed to redeem
Shares.
(ii) Day 51 to January 2, 1997. From the 51st day following the
closing of the Offering through January 2, 1997, the Company will be
allowed to redeem up to 66-2/3% of the Shares.
(iii) After January 2, 1997. After January 2, 1997, the Company
will be allowed to redeem up to 66-2/3% of the Shares.
B. Registration Statement Effective by January 2, 1997:
(i) 50 days following the closing. For 50 days following the
closing of the Offering, the Company will not be allowed to redeem
Shares.
(ii) Day 51 to January 2, 1997. From the 51st day following the
closing of the Offering through January 2, 1997, the Company will be
allowed to redeem up to 66-2/3% of the Shares.
(iii) After January 2, 1997. After January 2, 1997, the Company
will be allowed to redeem up to 66-2/3% of the Shares.
Notwithstanding what the Market Price or the Conversion Factor may be at
the time, the Company may designate a different and lower conversion price (the
"New Conversion Price") and the call price for all Shares called for redemption
by the Company shall be as follows: (a) 125% of the New Conversion Price
multiplied by the number of shares of Common Stock issuable in such conversion
for all Shares called prior to January 1, 1997; and (b) 133% of the New
Conversion Price multiplied by the number of shares of Common Stock issuable in
such conversion for all Shares called after January 1, 1997. 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.
P. Amount of Subscription. The undersigned hereby subscribes (or subscribes
for the Investor, as the case may be) for the total amount as set forth below:
Total Amount of Subscription: $__________________
Make checks or wire transfers payable to: "BIOMUNE SYSTEMS, INC."
THE UNDERSIGNED HEREBY CERTIFIES that the foregoing information is
true, correct and accurate to the best of the undersigned's knowledge.
DATED this _____ day of September, 1996.
IF INDIVIDUAL(S):
________________________________ ________________________________
Name (Please Print) Signature
________________________________ ________________________________
Name (Please Print) Signature
IF CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY OR TRUST (ATTACH
RESOLUTION AUTHORIZING ACQUISITION OF SHARES, IF NECESSARY):
________________________________ ________________________________
Name (Please Print) Signature
Title: _________________________
________________________________ ________________________________
Name (Please Print) Signature
Title: _________________________
CERTIFICATE OF ACCEPTANCE
Subscription: Accepted: __________ Rejected __________
BIOMUNE SYSTEMS, INC.,
a Nevada corporation
________________________________ ____________________________, 1996
David G. Derrick Date
Chief Executive Officer
APPENDIX "A"
Pursuant to Rule 902(c), (o) and (p) of Regulation S, the terms
"Distributor", "U.S. Person" and "United States" are defined as follows:
(c) Distributor. "Distributor" means any underwriter, dealer, or other
person who participates, pursuant to a contractual arrangement, in the
distribution of the securities offered or sold in reliance on this Regulation S.
(o) U.S. Person. (1) "U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) An estate of which any executor or administrator is a U.S.
person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account other than
an estate or trust held by a dealer or other fiduciary for the benefit
or account of a U.S. person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B)
formed by a U.S. person principally for the purpose of investing in
securities not registered under the [Securities Act of 1933], unless
it is organized or incorporated, and owned, by accredited investors
(as defined in Rule 501(a) under the [Securities Act of 1933]) who are
not natural persons, estates or trusts.
(2) Notwithstanding paragraph (o)(1) of this section, any
discretionary account or similar account (other than any estate or trust)
held for the benefit or account of a non-U.S. person by a dealer or other
professional fiduciary organized, incorporated, or (if an individual)
resident in the United States shall not be deemed a "U.S. person".
(3) Notwithstanding paragraph (o)(1) of this section, any estate of
which any professional fiduciary acting as executor or administrator is a
U.S. person shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a U.S.
person has sole or shared investment discretion with respect to the
assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1) of this section, any trust of
which any professional fiduciary acting as trustee is a U.S. person shall
not be deemed a U.S. person if a trustee who is not a U.S. person has sole
or shared investment discretion with respect to the trust assets, and no
beneficiary of the trust (and no settlor if the trust is revocable) is a
U.S. person.
(5) Notwithstanding paragraph (o)(1) of this section, an employee
benefit plan established and administered in accordance with the law of a
country other than the United States and customary practices and
documentation of such country shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1) of this section, any agency or
branch of a U.S. person located outside the United States shall not be
deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons; and
(ii) The agency or branch is engaged in the business of insurance
or banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located.
(7) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations,
and their agencies, affiliates and pension plans, any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons".
(p) United States. "United States" means the United States of America, its
territories and possessions, any state of the United States, and the District of
Columbia.
EXHIBIT 10.99
ALLIANCE PROTOTYPE 401(K) PLAN
STANDARDIZED ADOPTION AGREEMENT
This standardized adoption agreement has been prepared to accommodate the
needs of most employers desiring to adopt a 401(k) plan in a prototype format.
It is an important legal document and should be reviewed carefully by an
attorney or other retirement plan adviser. In particular, because of its
standardized structure, note that the adoption agreement requires that employees
of both the adopting employer and of any affiliate of the employer must
participate in the plan. If an employer contemplating adoption of this prototype
form is a parent or a subsidiary of, or otherwise closely connected with,
another business that will not be participating in the plan (such as through an
"employee leasing" or other servicing arrangement), professional guidance is
essential.
Alliance offers a non-standardized 401(k) plan adoption agreement that may
accommodate these and other situations requiring additional options to satisfy
more complicated 401(k) plan structures. Please contact the Alliance Retirement
Plan Department to receive the Alliance non-standardized 401(k) plan adoption
agreement.
ALLIANCE PROTOTYPE 401(k) PLAN
(STANDARDIZED)
Employer Business Name:
Biomune Systems, Inc
The Employer named above hereby
X adopts a Section 401(k) plan in the form of the Alliance Prototype
401(k) Plan.
___ amends and continues its existing Section 401(k) plan referred to in
Item II below to provide as set forth in the Alliance Prototype 401(k)
Plan.
Biomune Systems Inc, 401(k) Plan
The name of the plan is
-------------------------------------------------------
I. EMPLOYER DATA
A. 2401 South Foothill Blvd
----------------------------------------------------------
Employer's Address: Number and Street
Salt Lake City, Utah 84109
----------------------------------------------------------
City State Zip
B. (801)466-3441
----------------------------------------------------------
Employer's Telephone Number
C. 9/30
----------------------------------------------------------
Employer's Taxable Year Ends
D. 87-038008
----------------------------------------------------------
Employer's Taxpayer Identification Number
E. The Employer is: X a corporation
--
a partnership or unincorporated sole
-- proprietorship
-- an S corporation
F. Biological Research & Sales
-----------------------------------------------------------
Type of Business
II. PLAN DATA
A. Effective Date: The first day of the Plan Year
beginning June 15,1996 (insert date).
-------------
B. If this is an amendment of an existing plan, complete the following:
--------------------------------------------------------
Name of Prior Plan
--------------------------------------------------------
Original Effective Date of Prior Plan
C. 12/31
---------------------------------------------------------
The Plan Year Ends
III. PARTICIPATION REQUIREMENTS
A. Eligibility. Subject to the exclusions for Employees subject to
collective bargaining (union) and non-resident alien Employees set
forth in the Prototype Plan, all Employees of all Employers are
eligible to participate in the Plan.
B. Age and Service Requirements.
1. Age (choose one - if neither box is checked, the first box will
be deemed to have been selected):
No minimum age requirement
--
X The Employee must be at least age __18__ (not greater than
-- 21)
2. Years of Service (choose one - if no box is checked, the first
box will be deemed to have been selected):
No service requirement
--
The Employee must complete one Year of Service.
--
X The Employee must complete __0_ months of Service (no more
-- than 12). (If this option is selected, Service will be
determined using the elapsed time method regardless of the
option selected in Item IV.A.)
3. Waiver (choose either or both, if applicable):
For individuals employed on the Effective Date:
X The age requirement is waived
--
X The service requirement is waived
--
C. Entry Date (choose one - if no box is checked, the first box will be
deemed to have been selected):
X Semi-annually as of the first day of the first month and
--
first day of the seventh month of the Plan Year.
Quarterly as of the first day of the first month, of the
--
fourth month, of the seventh and the tenth month of the Plan
Year.
Monthly as of the first day of the calendar month.
--
D. Calculation of Service. Service for eligibility will be determined on
the basis of (choose one - if neither box is checked, the first box
will be deemed to have been selected):
X Hours (actual hours)
--
Elapsed time
--
IV. CONTRIBUTIONS AND FORFEITURES
A. Salary Deferral Contributions. Participant elections to defer
Compensation shall be made in either (a) increments of 1% which shall
not be less than 1% nor greater than _15__% (not greater than 15) or
(b) a specific dollar amount which shall not exceed the percentage
contribution specified in (a).
The deferral amount is to be allocated to the Participant's
Account under the Plan as a Section 401(k) Contribution.
B. 401(k) Bonus Contributions
If the Employer declares a 401(k) Bonus Contribution for a Plan
Year, the contribution will be allocated as a Section 401(k)
Contribution to the Accounts of (choose one - if neither box is
checked, the first box will be deemed to have been selected):
Only eligible Participants who are Non-Highly Compensated
-- Employees
X All eligible Participants
--
C. Matching Contributions
1. Amount of Matching Contributions (choose one - if no box is
checked, the first box will be deemed to have been selected):
No Matching Contributions shall be made.
--
The Employer shall with respect to each payroll period make
-- Matching Contributions for each Participant equal to ___% of
the Participant's Salary Deferral Contribution attributable
to that payroll period but not in excess of the first ____%
of the Participant's Compensation for that payroll period
which is contributed as a Salary Deferral Contribution, but
no Matching Contribution shall be made on Salary Deferral
Contributions in excess of $________ per payroll period
The Employer shall make Matching Contributions
-- equal to the sum of (1) _______% of the portion of
the Participant's Salary Deferral Contribution
which does not exceed (a) ______ % of the
Participant's Compensation plus (2) _______% of
the portion of the Participant's Salary Deferral
Contribution which exceeds (b) ______% of the
Participant's Compensation, but does not exceed
(c) ______% of the Participant's Compensation. The
percentage entered in (2) must not be greater than
the percentage in (1), the percentage entered in
(b) must be equal to or greater than the
percentage in (a) and the percentage entered in
(c) must be greater than the percentage in (b).
X The Employer may make discretionary Matching
-- Contributions for each Participant equal to a
specified percentage of the Participant's
Compensation which is contributed as a Salary
Deferral Contribution; provided that the Employer
may establish a maximum limit on the amount of
Salary Deferral Contributions that are matched
specified either as a dollar amount or as a
percentage of Compensation.
2. Eligibility for Matching Contributions. Matching contributions
will be allocated to the Accounts of (choose one - if neither box
is checked, the first box will be deemed to have been selected):
X All eligible Participants
--
Only eligible Participants who are Non-Highly
-- Compensated Employees
3. Forfeitures Attributable to Matching Contributions will be
(choose one - if neither box is checked, the first box will be
deemed to have been selected):
used to reduce the Employer's Matching
-- Contribution in the Plan Year in which they occur
in the manner described in Section 3.8 of the
Prototype Plan.
X reallocated at the end of the Plan Year in which
-- the forfeiture occurs to each eligible
Participant's Account, in the ratio that the
Participant's total Compensation bears to all
eligible Participants' total Compensation.
D. Profit-Sharing Contribution (choose one - if neither box is checked,
the first box will be deemed to have been selected):
No Profit-Sharing Contributions shall be made.
--
X The Employer may make discretionary Profit-Sharing
-- Contributions under the Plan.
1. Who Shares in Profit-Sharing Contributions:
General Rule: Except as provided below, any Participant who has
Compensation in the Plan Year will be entitled to share in
Profit-Sharing Contributions for the Plan Year. (choose (a) or
(b) as applicable - if no box is checked, the first box will be
deemed to have been selected):
(a) X A Participant who is not employed by an Employer or an
-- Affiliate on the last day of the Plan Year and who did not
complete more than 500 Hours of Service for the Plan Year
will not share in Profit-Sharing Contributions for that
year. (Note - If this option is selected, the Plan
Administrator is required to obtain records of Hours of
Service even if the elapsed time method of determining
service is selected in Item IV.A. or Item VI.B.)
If this box is checked, Participants who die, incur a
-- Disability or retire after age ______ (insert an age
not greater than the Normal Retirement Age specified in
Item VI.A) during the Plan Year will be entitled to
share in any Profit-Sharing Contributions for the Plan
Year even if they would otherwise be excluded from
sharing in the contributions under the preceding
paragraph.
(b) No exceptions to the general rule apply.
--
2. Allocation of Profit-Sharing Contributions (choose one - if
neither box is checked, the first box will be deemed to have been
selected):
X Profit-Sharing Contributions will not be allocated
-- using permitted disparity.
Profit-Sharing Contributions will be allocated using
-- permitted disparity.
E. After-Tax Contributions (choose one - if neither box is checked, the
first box will be deemed to have been selected):
After-tax contributions
X Will not be permitted
--
Will be permitted
--
F. Compensation
For purposes of determining permissible amounts of Salary Deferral
Contributions, Matching Contributions and After-Tax Contributions, and
allocating any Section 401(k) Bonus Contributions, Compensation paid
before a Participant's Entry Date (choose one - if neither box is
checked, the first box will be deemed to have been selected):
__ will not X will
--
be taken into consideration.
V. VESTING OF CONTRIBUTIONS
A. Normal Retirement Age is Age 65.
B. Calculation of Service for Vesting.
1. Method of calculation (choose one - if neither box is checked,
the first box will be deemed to have been selected):
X Hours (actual hours)
--
Elapsed time
--
2. For vesting purposes, Service during any period which neither the
Employer nor any Affiliate maintained the Plan or a "predecessor
plan" within the meaning of Code Section 414(a) (choose one - if
neither box is checked, the first box will be deemed to have been
selected):
will not
--
X will
--
be excluded
C. Vesting Schedule
1. Profit-Sharing Contributions vest in accordance with the
following schedule (choose one - if no box is checked, the first
box will be deemed to have been selected):
Full and immediate vesting
--
100% after __________ (not greater than 3) Years of Service
--
20% after __________ (not greater than 2) Years of Service
-- and an additional 20% for each year thereafter
X Other vesting schedule (complete schedule):
--
Years of Vested
Service Percentage
1 50 %
----------
2 100 % (not less than 20)
----------
3 % (not less than 40)
----------
4 % (not less than 60)
----------
5 % (not less than 80)
----------
6 % (not less than 100)
----------
2. Matching Contributions vest in accordance with the following
schedule (choose one - if no box is checked, the first box will
be deemed to have been selected):
X Same vesting schedule as Profit-Sharing Contributions
--
Full and immediate vesting
--
Other vesting schedule (complete schedule):
--
Years of Vested
Service Percentage
1 %
----------
2 % (not less than 20)
----------
3 % (not less than 40)
----------
4 % (not less than 60)
----------
5 % (not less than 80)
----------
6 % (not less than 100)
----------
VI. WITHDRAWALS AND LOANS
Withdrawals of After-Tax Contributions are always permitted to the extent
provided in the Prototype Plan.
A. Withdrawals After Age 59 1/2 (choose one - if neither box is checked,
the first box will be deemed to have been selected):
X Are not permitted
--
Withdrawals of the vested portion of the Participant's Account
-- will be permitted to the extent allowable under the law after a
Participant attains age 59 1/2.
B. Hardship Withdrawals From Salary Deferral Accounts (choose one - if
neither box is checked, the first box will be deemed to have been
selected):
X Are permitted to the extent allowable under the law
--
Are not permitted
--
C. Loans (choose one - if neither box is checked, the first box will be
deemed to have been selected):
X Loans will not be permitted
--
Loans will be permitted
--
VII. DIRECTION OF INVESTMENTS
A Participant's Account will be invested among the investments selected by
the Employer as investment options under the Plan as directed by the
Participant.
To the extent a Participant fails to exercise investment control over his
Account when such control is given to him above, the assets in the
Participant's Account will be invested in the "default investment vehicle"
which is ___ Money Market __________.
(NOTE: Plan fiduciaries are not afforded protection under the Department of
Labor's regulations under section 404(c) of the Employee Retirement Income
Security Act of 1974, as amended, for investments made pursuant to a default
investment provision of an employee benefit plan.)
VIII. TOP-HEAVY PROVISIONS
A. Satisfaction of Requirements (choose one - if neither box is checked,
the first box will be deemed to have been selected):
X Check this box and complete the remainder of this item if this
-- Plan is to satisfy the top-heavy requirements only in Plan Years
in which the Plan is a Top-Heavy Plan. If the Employer or any of
its Affiliates maintain any other plan, indicate which plan will
provide the required minimum allocation:
-------------------------------------------------------
-------------------------------------------------------
Check this box if this Plan is to automatically satisfy
-- the top-heavy requirements each Plan Year. Each Plan Year
the Employer will make a Profit-Sharing Contribution at
least equal to 3% of the Compensation of each eligible
Participant.
B. Top-Heavy Amendments. Notwithstanding any other provision of the Plan
to the contrary, the following special top-heavy adjustments, relating
to minimum allocation and valuation date provisions, interest rate and
mortality assumptions for defined benefit plan computations and
adjustments to the limitations of section 415 of the Code shall apply:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
IX. MAXIMUM ALLOCATIONS
A. Other Defined Contribution Plans. If a Participant is covered under
another Defined Contribution Plan (other than a Master or Prototype
Plan), or a Welfare Benefits Fund or Individual Medical Account
(choose one - if neither box is checked, the first box will be deemed
to have been selected):
X The provisions of subsections (c)(i) through (c)(vi) of Section
-- 4.1 of the Prototype Plan will apply as if the other plan were a
Master or Prototype Plan.
The following method will be used to limit total Annual Additions
-- to the Maximum Permissible Amount, and will properly reduce any
Excess Amounts, in a manner that precludes Employer discretion:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
B. Defined Benefit Plans. If a Participant is or has ever been a
participant in a Defined Benefit Plan the following method (which must
preclude Employer discretion) will be used to ensure that (1) the
limitation on contributions to Defined Contribution Plans under
section 415(c) of the Code, and (2) the sum of the Defined Benefit
Fraction and the Defined Contribution Fraction does not exceed 1.0:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
C. Limitation Year (if other than the Plan Year):
------------------------------------------------------------
X. PLAN ADMINISTRATOR
The Plan Administrator will be the Employer, unless another person
identified below has been appointed.
----------------------------------------------------------------
Name
----------------------------------------------------------------
Street Address
----------------------------------------------------------------
City State Zip
( )
----------- ----------------------------------------------------
Telephone
----------------------------------------------------------------
Signature of Plan Administrator (if other than the Employer)
XI. TRUSTEE/CUSTODIAN
A. Trustee (choose one - if neither box is checked, the first box will be
deemed to have been selected):
1. The Trustee will be Frontier Trust Company.
--
2. X The Trustee will be the following individual(s):
--
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
B. Custodian
Frontier Trust Company will be the Custodian.
XII. REQUIRED ADOPTION AGREEMENT STATEMENTS
Alliance is required under Internal Revenue Services rules to print the
following statements on this Adoption Agreement:
1. The Sponsor of this prototype plan is Alliance Fund Distributors Inc.,
1345 Avenue of the Americas, New York, New York 10292 1(800) 221-5672
2. Alliance will send a notice to the address indicated on this adoption
agreement in the event of any amendments to the Plan or in the
unlikely event it decides to discontinue or abandon this form of
prototype plan.
3. Please note, failure to properly complete this adoption agreement may
result in disqualification of the Employer's plan in the form of this
prototype plan.
XIII. EMPLOYER SIGNATURE
This Adoption Agreement must be used only in conjunction with the Alliance
Prototype 401(k) Plan (Basic Plan Document #02).
NOTE: An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in section 419(e) of the Internal
Revenue Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees, as defined in section 419A(d)(3) of the
Internal Revenue Code, or an individual medical account, as defined in section
415(1)(2) of the Code) in addition to this Plan may not rely on the opinion
letter issued by the National Office of the Internal Revenue Service as evidence
that this Plan is qualified under section 401 of the Internal Revenue Code. If
the Employer who adopts or maintains multiple plans wishes to obtain reliance
that its plans are qualified, application for a determination letter should be
made to the appropriate Key District Director of Internal Revenue.
Biomune Systems, Inc 5/13/96
- -----------------------------------------------------
Print Employer's Name Date
By: /s/ Milton Adair President
- -----------------------------------------------------
Signature Title
ATTEST:
/s/ Jillene Cahill Administrative Assistant
- -----------------------------------------------------
Signature Title
ACCEPTANCE:
Accepted by Frontier Trust Company, this day of , 19 .
------ ------------- --
By:
--------------------------------------------------------
Signature Title
[if applicable]
The undersigned individual(s) accept(s) appointment as Trustee, this day
------
of , 19 .
------------- --
- -----------------------------------------------------------
Signature
- -----------------------------------------------------------
Signature
- -----------------------------------------------------------
Signature
ALLIANCE
PROTOTYPE 401(K) PLAN
TABLE OF CONTENTS
Page
ARTICLE I: DEFINITIONS
1. 1 "Account"................................................. 1
1. 2 "ACP Matching Contribution"............................... 1
1. 3 "Adoption Agreement"...................................... 1
1. 4 "Affiliate"............................................... 1
1. 5 "After-Tax Contributions"................................. 2
1. 6 "Aggregate Limit"......................................... 2
1. 7 "Alliance"................................................ 2
1. 8 "Applicable Life Expectancy".............................. 2
1. 9 "Beneficiary"............................................. 2
1.10 "Break in Service"........................................ 3
1.11 "Business"................................................ 3
1.12 "Code".................................................... 4
1.13 "Compensation"............................................ 4
1.14 "Compensation Reduction Agreement"........................ 5
1.15 "Contribution Percentage"................................. 6
1.16 "Contribution Percentage Amounts"......................... 6
1.17 "Custodian"............................................... 6
1.18 "Deferral Percentage"..................................... 7
1.19 "Deferral Percentage Amounts"............................. 7
1.20 "Defined Benefit Plan".................................... 7
1.21 "Defined Contribution Plan"............................... 7
1.22 "Disability".............................................. 8
1.23 "Distribution Calendar Year:.............................. 8
1.24 "Early Retirement Date"................................... 8
1.25 "Earned Income"........................................... 8
1.26 "Effective Date".......................................... 9
1.27 "Eligible Employee"....................................... 9
1.28 "Employee"................................................ 10
1.29 "Employer"................................................ 10
1.30 "Employer Contributions".................................. 10
1.31 "Employment".............................................. 10
1.32 "Entry Date".............................................. 10
1.33 "ERISA"................................................... 11
1.34 "Excess Aggregate Contributions".......................... 11
1.35 "Excess Contributions".................................... 11
1.36 "Excess Deferral Amounts"................................. 12
1.37 "Former Participant"...................................... 12
1.38 "401(k) Bonus Contributions".............................. 12
1.39 "Highly Compensated Employee"............................. 12
1.40 "Hour of Service"......................................... 14
1.41 "Immediately Distributable"............................... 16
1.42 "Leased Employee"......................................... 16
1.43 "Leave of Absence"........................................ 16
1.44 "Life Expectancy"......................................... 16
1.45 "Matching Contributions................................... 17
1.46 "Net Profits"............................................. 17
1.47 "Non-Highly Compensated Employee"......................... 17
1.48 "Normal Retirement Age"................................... 17
1.49 "Normal Retirement Date".................................. 17
1.50 "Owner-Employee".......................................... 17
1.51 "Participant"............................................. 18
1.52 "Participant's Benefit"................................... 18
1.53 "Plan".................................................... 18
1.54 "Plan Administrator"...................................... 18
1.55 "Plan Year"............................................... 18
1.56 "Profit-Sharing Contributions"............................ 19
1.57 "Prototype Plan".......................................... 19
1.58 "Qualified Joint and Survivor Annuity".................... 19
1.59 "Qualified Plan".......................................... 19
1.60 "Qualified Preretirement Survivor Annuity"................ 19
1.61 "Required Beginning Date"................................. 19
1.62 "Rollover Contribution"................................... 20
1.63 "Salary Deferral Contributions"........................... 20
1.64 "Section 401(k) Contributions"............................ 20
1.65 "Self-Employed Individual"................................ 21
1.66 "Service"................................................. 21
1.67 "Service Company"......................................... 21
1.68 "Severance Date".......................................... 21
1.69 "Severance Period"........................................ 22
1.70 "Top-Heavy Plan".......................................... 22
1.71 "Trust"................................................... 22
1.72 "Trustee"................................................. 22
1.73 "Trustee Transfer"........................................ 22
1.74 "Trust Fund".............................................. 22
1.75 "Valuation Date".......................................... 22
1.76 "Year of Service"......................................... 23
ARTICLE II: PARTICIPATION
2.1 Initial Participation..................................... 25
2.2 Ineligible Employees and Employees
Returning to Participation................................ 25
2.3 Transferred and Reclassified Participants................. 25
2.4 Limitations for Owner-Employees........................... 26
2.5 Omission of Eligible Employee............................. 27
2.6 Inclusion of Ineligible Employee.......................... 27
ARTICLE III: CONTRIBUTIONS AND ALLOCATIONS
3.1 Salary Deferral Contributions............................. 28
3.2 Matching Contributions.................................... 29
3.3 Profit-Sharing Contributions and Reallocated Forfeitures.. 29
3.4 401(k) Bonus Contributions................................ 31
3.5 After-Tax Contributions by Participants................... 32
3.6 Rollover Contributions and Other Transfers................ 33
3.7 Subaccounts............................................... 34
3.8 Application of Forfeitures................................ 34
3.9 Eligible Participants..................................... 35
3.10 General Provisions........................................ 35
ARTICLE IV: LIMITATIONS ON CONTRIBUTIONS,
AND TREATMENT OF EXCESS
4.1 Limitations on Allocations................................ 36
4.2 Limitations on Section 401(k) Contributions............... 44
4.3 Limitations on After-Tax Contributions and
Matching Contributions.................................. 46
4.4 Distribution of Excess Deferral Amounts................... 48
4.5 Distribution of Excess Contributions...................... 49
4.6 Distribution of Excess Aggregate Contributions............ 51
ARTICLE V: INVESTMENTS, VALUATIONS, LOANS
AND WITHDRAWALS
5.1 Investments............................................... 52
5.2 Investment Directions..................................... 52
5.3 Determination of Value of Trust Fund and
Allocation of Net Earnings or Losses.................... 53
5.4 Loans..................................................... 53
5.5 Withdrawals............................................... 57
ARTICLE VI: DISTRIBUTIONS
6.1 Timing of Payment of Benefits upon
Normal Termination of Service or
by Reason of Disability................................. 60
6.2 Distributions on Death.................................... 61
6.3 Beneficiary............................................... 64
6.4 Commencement and Modes of Distribution.................... 65
6.5 Change in Form or Timing of Benefit Payments.............. 68
6.6 Transitional Rule......................................... 69
6.7 Valuation................................................. 70
6.8 Other Rules............................................... 71
ARTICLE VII: TRANSFEREE PLANS
7.1 Qualified Joint and Survivor Annuity Requirements......... 73
ARTICLE VIII: VESTING AND FORFEITURES
8.1 Vesting................................................... 80
8.2 Forfeitures............................................... 81
ARTICLE IX: ADMINISTRATION AND RELATED MATTERS
9.1 Plan Administrator's Authority and Responsibility......... 83
9.2 More Than One Person as Plan Administrator................ 83
9.3 Persons Serving as Plan Administrator and Successors...... 83
9.4 Resignation and Removal................................... 84
9.5 Compensation and Expenses................................. 84
9.6 Advice.................................................... 84
9.7 Delegation of Responsibility, Appointment
of Recordkeeper......................................... 85
9.8 Claims and Claims Review Procedure........................ 86
9.9 Action by Employer........................................ 86
9.10 Cooperation and Information............................... 87
9.11 Responsibilities Limited.................................. 87
ARTICLE X: POWERS, DUTIES AND OBLIGATIONS OF THE
TRUSTEE
10.1 No Investment Discretion.................................. 88
10.2 Investment Directions..................................... 88
10.3 Trustee's Authority....................................... 89
10.4 Permitted Investments..................................... 91
10.5 Direction of Voting and Other Rights...................... 92
10.6 Valuation................................................. 92
10.7 Records and Reports....................................... 93
10.8 Right to Request Judicial Assistance...................... 93
10.9 Scope of Trustee's Duties................................. 93
10.10 Scope of Trustee's Liability.............................. 95
10.11 Liquidation of Assets..................................... 96
10.12 Resignation or Removal of Trustee......................... 96
10.13 Resignation or Removal of Custodian....................... 97
10.14 Compensation, Taxes and Expenses.......................... 98
10.15 Special Provisions Concerning the Custodian............... 98
10.16 Scope Alliance's and Custodian's Liability................ 100
ARTICLE XI: AMENDMENT AND TERMINATION
11.1 Amendments................................................ 102
11.2 Employer Withdrawal....................................... 104
11.3 When Consent of Trustee to an Amendment is Necessary...... 104
11.4 Termination............................................... 104
11.5 Distributions upon Plan Termination....................... 105
ARTICLE XII: MISCELLANEOUS
12.1 Status of Participants.................................... 106
12.2 Source of Benefits........................................ 106
12.3 Exclusive Benefit......................................... 106
12.4 Plan Merger, Consolidation or Transfer.................... 106
12.5 Non-Reversion of Contributions............................ 106
12.6 Return of Employer Contributions Under
Special Circumstances................................... 107
12.7 Inalienability of Benefits................................ 108
12.8 Domestic Relations Orders................................. 108
12.9 Employer's and Trustee's Protective Clause................ 108
12.10 Insurer's Protective Clause............................... 109
12.11 Notices................................................... 109
12.12 Applicable Plan Years..................................... 109
12.13 Governing Law and Plan Qualification...................... 110
12.14 Severability.............................................. 110
12.15 Articles and Section References........................... 110
12.16 Gender and Number......................................... 110
ARTICLE XIII: TOP-HEAVY PROVISIONS
13.1 Top-Heavy Rules........................................... 111
13.2 Top-Heavy Plan............................................ 111
13.3 Definitions............................................... 111
13.4 Vesting Requirements...................................... 114
13.5 Minimum Benefit........................................... 115
13.6 Limit on Includible Compensation.......................... 116
13.7 Employees Covered by a Collective
Bargaining Agreement.................................... 116
13.8 Simplified Employee Pensions.............................. 116
13.9 Combined Limit on Contributions and
Benefits for Key Employees.............................. 116
ARTICLE I: DEFINITIONS
As used in this Prototype Plan and the Adoption Agreement, each of the
following terms shall have the meaning for that term set forth in this Article
I, unless a different meaning is provided or is clearly required by the context
in which the term is used:
1.1 "Account" means a separate account maintained for each Participant to which
contributions under the Plan on behalf of or by the Participant and earnings
thereon are to be credited.
1.2 "ACP Matching Contribution" means an Employer contribution made to this or
any other defined contribution plan on behalf of a Participant on account of a
Participant's Salary Deferral Contribution.
1.3 "Adoption Agreement" means a document so designated with respect to this
Prototype Plan and executed by the Employer, as amended from time to time.
1.4 "Affiliate" means any corporation or unincorporated business (other than the
Employer): (a) while it is controlled by, or under common control with, the
Employer within the meaning of sections 414(b) and (c) of the Code, (b) which is
a member of an "affiliated service group" (as defined in section 414(m) of the
Code) which includes the Employer, or (c) which is required to be aggregated
with the Employer under Section 414(o) of the Code and the regulations
thereunder; provided that for purposes of Section 4.1, "Affiliate" status shall
be determined in accordance with section 415(h) of the Code.
1.5 "After-Tax Contributions" means contributions to a Qualified Plan made or
deemed to have been made by an Employee which were includible in the Employee's
gross income at the time they were credited to the Employee's account under the
Qualified Plan and that are made or held under the Plan pursuant to Section 3.5.
1.6. "Aggregate Limit" means the greater of (a) or (b) below:
(a) the sum of (i) 125 percent of the greater of the ADP of the Non-Highly
Compensated Employees for the Plan Year or the ACP of Non-Highly Compensated
Employees under the Plan and (ii) the lesser of 200% or two plus the lesser of
such ADP or ACP;
or
(b) the sum of (i) 125 percent of the lesser of the ADP of the Non-Highly
Compensated Employees for the Plan Year or the ACP of Non-Highly Compensated
Employees under the Plan and (ii) the lesser of 200% or two plus the greater of
such ADP or ACP.
1.7 "Alliance" means Alliance Fund Distributors, Inc. or a successor to all
or substantially all of its business.
1.8 "Applicable Life Expectancy" means Life Expectancy (including joint and last
survivor expectancy) calculated using the attained age of the Participant (or
Beneficiary) as of the Participant's (or Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year which has elapsed
since the date Life Expectancy was first calculated. If Life Expectancy is being
recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so
recalculated. The applicable calendar year shall be the first Distribution
Calendar Year, and if Life Expectancy is being recalculated, such succeeding
calendar year.
1.9 "Beneficiary" means a person so referred to in Section 6.3.
1.10 "Break in Service" means:
(a) With respect to determinations based on the hour-counting method: an
"eligibility computation period" or a "vesting computation period," whichever is
applicable, during which the individual involved has not completed more than 500
Hours of Service. For purposes of determining whether a Break in Service has
occurred in a particular computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the Hours of
Service which would otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be determined, eight Hours of
Service per day of such absence. The Hours of Service to be so credited shall be
credited in the computation period in which the absence begins if the crediting
is necessary to prevent a Break in Service in that period or, in all other
cases, in the following computation period. The terms "eligibility computation
period" and "vesting computation period" shall have the meaning set forth for
those terms in Section 1.76.
(b) With respect to determinations based on the elapsed time method, a
Severance Period of not less than 12 consecutive months. In the case of an
individual who is absent from work for maternity or paternity reasons, the 12
consecutive month period beginning on the first anniversary of the first day of
such absence shall not constitute a Break in Service.
For purposes of this Section 1.10, an absence from work for maternity or
paternity reasons means an absence (i) by reason of the pregnancy of the
individual, (ii) by reason of a birth of a child of the individual, (iii) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (iv) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
1.11 "Business" means, in the case of an Employer that is a sole proprietorship
or partnership, the trade or business of the Employer described in the Adoption
Agreement with respect to which this Plan is adopted, and in the case of an
Employer that is a corporation, each trade or business of the corporation.
1.12 "Code" means the Internal Revenue Code of 1986, as now in effect or as
amended from time to time. A reference to a provision of the Code shall be to
such provision and any valid regulations pertaining thereto as well as to the
corresponding provision of any legislation which amends, supplements or
supersedes that provision and any valid regulations pertaining thereto.
1.13 "Compensation" means, except as otherwise provided in the Adoption
Agreement or in subsection (d) of this Section 1.13:
(a) For an Employee other than a Self-Employed Individual, compensation as
that term is defined in Section 4.1(a)(ii)(A) actually paid to the Employee
during the Plan Year involved.
(b) For a Self-Employed Individual, his Earned Income for the Plan Year
involved, provided, however, that (i) if the Adoption Agreement provides that
Compensation prior to a Participant's Entry Date will be disregarded for a
particular purpose, and if the Self-Employed Individual is not a Participant for
an entire Plan Year, his Compensation for that Plan Year for the purpose shall
be his Earned Income for that Plan Year multiplied by a fraction the numerator
of which is the number of days he is a Participant during the Plan Year and the
denominator of which is the number of days in the Plan Year, and (ii) if the
Adoption Agreement provides that certain items of income are to be excluded in
determining a Participant's Compensation, Compensation for a Self-Employed
Individual shall be determined by multiplying his Earned Income for the Plan
Year involved by the percentage of compensation, as such term is defined within
the meaning of Code section 415(c)(3) (modified, if otherwise provided in the
Plan, to include any amount which is contributed by an Employer pursuant to a
salary reduction agreement and which is not includible in the gross income of
the Employee under Code sections 125, 402(a)(8), 402(h) or 403(b)) included as
Compensation for Employees who are neither Self- Employed Individuals nor Highly
Compensated Employees.
(c) For either an Employee or a Self-Employed Individual, Compensation
shall include any amount which is contributed by the Employer pursuant to a
salary reduction agreement and which is not includible in the gross income of
the Employee under sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
(d) For Plan Years beginning after December 31, 1988, the annual
Compensation of each Participant taken into account for determining all benefits
provided under the Plan for any Plan Year shall not exceed the amount that is
permitted for the Plan Year pursuant to section 401(a)(17) of the Code;
provided, however, that the dollar limitation in effect on January 1 of any
calendar year is effective for years beginning in such calendar year. If a plan
determines compensation on a period of time that contains fewer than 12 months,
then the annual compensation limit is an amount equal to the annual compensation
limit for the calendar year in which the compensation period begins multiplied
by the ratio obtained by dividing the number of full months in the period by 12.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the year. If, as a result of the application of such
rules the adjusted limitation under Section 401(a)(17) of the Code is exceeded,
then (except for purposes of determining the portion of Compensation up to the
integration level if this Plan provides for permitted disparity), the limitation
shall be prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this subsection (d) prior to the
application of this limitation.
(e) Notwithstanding any other provision of this Section 1.13 to the
contrary, if this Plan is an amendment and restatement of a Qualified Plan, for
Plan Years ending prior to the Effective Date of this Plan, Compensation shall
have the meaning as set forth in the Qualified Plan prior to its amendment.
1.14 "Compensation Reduction Agreement" means an agreement entered into between
a Participant and the Employer to reduce the Compensation otherwise payable
directly to the Participant in cash, as further described in Section 3.1.
1.15 "Contribution Percentage" means the ratio (expressed as a percentage) of
the Participant's Contribution Percentage Amounts to the Participant's
Compensation for the entire Plan Year (unless the Employee was not a Participant
for the entire Plan Year and the Adoption Agreement provides that Compensation
paid before a Participant's Entry Date will not be taken into consideration).
For purposes of determining such ratio with respect to a Participant who is a
5-percent owner or one of the ten most highly-paid Highly Compensated Employees,
the Contribution Percentage Amounts and Compensation of such Participant shall
include the Contribution Percentage Amounts and Compensation for the Plan Year
of "family members", within the meaning of Code section 414(q)(6), and such
"family members" shall not be considered as separate Employees in determining
Contribution Percentages both for Participants who are Non- Highly Compensated
Employees and for Participants who are Highly Compensated Employees.
1.16 "Contribution Percentage Amounts" means the sum of the After-Tax
Contributions and ACP Matching Contributions actually made on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts shall not
include any ACP Matching Contribution to the extent such contributions are
included in the Deferral Percentage Amounts under Section 1.19 or Matching
Contributions that are forfeited either to correct Excess Aggregate
Contributions or because the contributions to which they relate are Excess
Deferral Amounts, Excess Contributions or Excess Aggregate Contributions. The
Employer may also elect to use Salary Deferral Contributions in the Contribution
Percentage Amounts as long as the limitations prescribed by Section 4.2 are
satisfied before the Salary Deferral Contributions are so used and continue to
be satisfied following exclusion of those Salary Deferral Contributions that are
used in satisfying the limitations prescribed by Section 4.3.
1.17 "Custodian" means the custodian named in the Adoption Agreement, which may
be an affiliate of Alliance and the Service Company, and any successor thereto
serving as such from time to time.
1.18 "Deferral Percentage" means the ratio (expressed as a percentage) of
the Participant's Deferral Percentage Amounts to the Participant's Compensation
for the Plan Year (unless the Employee was not a Participant for the entire Plan
Year and the Adoption Agreement provides that Compensation paid before a
Participant's Entry Date will not be taken into consideration). For purposes of
determining such ratio with respect to a Participant who is a 5-percent owner or
one of the ten most highly-paid Highly Compensated Employees, the Section 401(k)
Contributions and Compensation of such Participant shall include the Section
401(k) Contributions and Compensation for the Plan Year of "family members",
within the meaning of Code section 414(q)(6), and such "family members" shall
not be considered as separate Employees in determining Deferral Percentages both
for Participants who are Non-Highly Compensated Employees and for Participants
who are Highly Compensated Employees.
1.19 "Deferral Percentage Amounts" means the Section 401(k) Contributions made
on behalf of the Participant for the Plan Year. Such Deferral Percentage Amounts
shall include Excess Deferral Amounts of Highly Compensated Employees, but shall
exclude (a) Excess Deferral Amounts of Non-Highly Compensated Employees that
arise solely from Salary Deferral Contributions made under the Plan or plans of
the Employer and (b) any Salary Deferral Contributions used in the Contribution
Percentage Amounts under Section 1.16 provided the limitation prescribed by
Section 4.2 is satisfied both with and without exclusion of these Salary
Deferral Contributions.
1.20 "Defined Benefit Plan" means a plan of the type defined in section 414(j)
of the Code maintained by the Employer or an Affiliate, as applicable.
1.21 "Defined Contribution Plan" means a plan of the type defined in section
414(i) of the Code maintained by the Employer or an Affiliate, as applicable,
including for purposes of Section 4.1, any portion of a Defined Benefit Plan
treated as a Defined Contribution Plan under Treasury Regulation ss.1.415-3(d).
1.22 "Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in the Participant's death or that has lasted, or
can be expected to last, for a continuous period of not less than 12 months. The
permanence and degree of such impairment shall be supported by medical evidence
acceptable to the Plan Administrator.
1.23 "Distribution Calendar Year" means a calendar year for which a minimum
distribution is required. For distributions beginning before the Participant's
death, the first Distribution Calendar Year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date. For distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which distributions are
required to begin pursuant to Section 6.2.
1.24 "Early Retirement Date" means, if selected in the Adoption Agreement, the
date upon which the Participant satisfies the early retirement age and service
requirements specified in the Adoption Agreement.
1.25 "Earned Income" means the "net earnings from self-employment" (within the
meaning of section 401(c)(2) of the Code) of a Self-Employed Individual from the
Business, but only if the personal services of the Self-Employed Individual are
a material income-producing factor with respect to the Business. Net earnings
will be determined (a) without regard to items not included in gross income and
the deductions properly allocable to or chargeable against such items and are to
be reduced by contributions by the Employer to a Qualified Plan to the extent
deductible under section 404 of the Code and (b) for taxable years beginning
after 1989, with regard to the deduction allowed to the Self-Employed Individual
by section 164(f) of the Code.
Where this Plan refers to Earned Income in the context of a trade or
business other than the Business, the term Earned Income means such net earnings
as would be Earned Income as defined above if that trade or business was the
Business.
1.26 "Effective Date" means except as otherwise provided in the Adoption
Agreement, the first day of the Plan Year in which the Plan is adopted or in
which a plan previously maintained by the Employer is amended and continued in
the form of the Plan.
1.27 "Eligible Employee" means any Employee of an Employer, subject to such
limitations as are specified in the Adoption Agreement. Unless otherwise
provided in the Adoption Agreement the following shall not be Eligible
Employees:
(a) Employees included in a unit of employees covered by a collective
bargaining agreement between the Employer or any Affiliate and employee
representatives, if retirement benefits were the subject of good faith
bargaining and two percent or less of the Employees who are covered pursuant to
that agreement are professionals as defined in proposed Treasury Regulation ss.
1.410(b)-9(g). For this purpose, the term "employee representatives" does not
include any organization more than half of whose members are employees who are
owners, officers or executives of the Employer or any Affiliate.
(b) Non-resident aliens within the meaning of section 7701(b)(1)(B) of the
Code who receive no earned income within the meaning of section 911(d)(2) of the
Code from the Employer or any Affiliate which constitutes income from sources
within the United States within the meaning of section 861(a)(3) of the Code.
1.28 "Employee" means a Self-Employed Individual, any individual who is employed
by the Employer in the Business and any individual who is employed by an
Affiliate. Each Leased Employee as provided in sections 414(n) or (o) of the
Code shall also be treated as an Employee of the recipient Employer. The
preceding sentence shall not apply, however, to any Leased Employee who is
covered by a money purchase pension plan maintained by a "leasing organization"
referred to in Section 1.42 which provides, with respect to such Leased
Employee, a nonintegrated employer contribution rate of at least 10 percent of
compensation (as defined in section 415(c)(3) of the Code, but including amounts
contributed by the Employer pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under section 125, section
402(a)(8), section 402(h) or section 403(b) of the Code), immediate
participation and full and immediate vesting; provided that this sentence shall
only apply if Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce. For purposes of the Plan,
contributions provided a Leased Employee by a "leasing organization" referred to
in Section 1.42 which are attributable to services performed for the Employer
shall be treated as provided by the Employer.
1.29 "Employer" means the corporation, proprietorship, partnership or other
organization which adopts the Plan by execution of an Adoption Agreement. Such
Employer may permit any of its Affiliates to adopt this Plan in writing or the
Adoption Agreement may require each Affiliate to adopt this Plan, in which event
each of such adopting Affiliates shall be deemed an "Employer" with respect to
the Plan; provided, that the Employer signing the Adoption Agreement shall (a)
be the Plan sponsor within the meaning of section 3(16)(B) of ERISA, and (b)
have the authority to act for all participating Employers with respect to Plan
administration and the execution and amendment of the Plan.
1.30 "Employer Contributions" mean the Salary Deferral Contributions,
Matching Contributions, Profit-Sharing Contributions and 401(k) Bonus
Contributions made by the Employer as specified in the Adoption Agreement.
1.31 "Employment" means employment with the Employer or an Affiliate.
1.32 "Entry Date" means the date specified in the Adoption Agreement.
1.33 "ERISA" means the Employee Retirement Income Security Act of 1974, as now
in effect or as amended from time to time. A reference to a provision of ERISA
shall be to such provision and any valid regulations pertaining thereto as well
as to the corresponding provision of any legislation which amends, supplements
or supersedes that provision and any valid regulations pertaining thereto.
1.34 "Excess Aggregate Contributions" means, with respect to any Plan Year,
the excess of:
(i) the aggregate Contribution Percentage Amounts taken into account
in computing the numerator of the Contribution Percentage for the Highly
Compensated Employees for such Plan Year, over
(ii) the maximum Contribution Percentage Amounts permitted by the ACP
test (determined by reducing contributions made on behalf of Highly
Compensated Employees in order of their Contribution Percentages beginning
with the highest of such percentages).
The determination of Excess Aggregate Contributions shall be made after
first determining Excess Deferral Amounts pursuant to Section 4.4 and then
determining Excess Contributions pursuant to Section 4.2.
1.35 "Excess Contributions" means, with respect to any Plan Year, the
excess of:
(i) the aggregate amount of Section 401(k) Contributions actually
taken into account in computing the ADP of Highly Compensated Employees for
such Plan Year, over
(ii) the maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest of
such percentages).
1.36 "Excess Deferral Amounts" means those Salary Deferral Contributions that
are includible in a Participant's gross income under section 402(g) of the Code
to the extent such Participant's Salary Deferral Contributions for a taxable
year when added to all other employer contributions made on behalf of such
participant pursuant to an election to defer under any qualified CODA as
described in section 401(k) of the Code, any simplified employee pension cash or
deferred arrangement as described in section 402(h)(l)(B), any eligible deferred
compensation plan under section 457, any plan as described under section
501(c)(18), and any employer contributions made on the behalf of a participant
for the purchase of an annuity contract under section 403(b) pursuant to a
salary reduction agreement, exceed the dollar limitation under section 402(g).
Excess Deferral Amounts shall be treated as Annual Additions, as described in
Section 4.1, unless such amounts are distributed no later than the first April
15 following the close of the Participant's taxable year.
1.37 "Former Participant" means an individual who has been a Participant but who
is no longer an Employee or who ceases to be a Participant for any other reason.
1.38 "401(k) Bonus Contributions" mean the contributions described in Section
3.4.
1.39 "Highly Compensated Employee" means:
(a) Any Employee who performs service for the Employer during the
"determination year" and (i) who during the "look-back year" received
compensation from the Employer in excess of either (A) $50,000 and was in the
group of Employees consisting of the top 20% of the Employees when ranked on the
basis of compensation paid during the year ("top-paid group") or (B) $75,000 (as
both of the amounts specified in (A) and (B) may be adjusted pursuant to section
415(d) of the Code) or (ii) was an officer of the Employer and received
compensation during the "look-back year" in excess of 50% of the dollar
limitation in effect under section 415(b)(1)(A) of the Code;
(b) Any Employee described in clause (a) above if the term "determination
year" is substituted for the term "look-back year" and who is one of the 100
Employees who received the most compensation from the Employer during the
"determination year";
(c) If during either the "determination year" or "look-back year" no
officer received compensation in excess of 50% of the dollar limitation in
effect under section 415(b)(1)(A) of the Code, then the highest-paid officer for
such year; and
(d) Any Employee who is a 5-percent owner at any time during the "look-
back year" or the "determination year".
Any former Employee who separated from service (or was deemed to have
separated) prior to the "determination year", performs no service for the
employer during the "determination year", and was a Highly Compensated Employee
for either the separation year or any "determination year" ending on or after
the Employee's 55th birthday shall be treated as a highly compensated former
employee.
If an Employee is, during a "determination year" or "look-back year", a
family member of either a 5-percent owner who is an active or former Employee or
a Highly Compensated Employee who is one of the 10 most highly compensated
Employees ranked on the basis of compensation paid by the Employer during such
year, then the family member and the 5-percent owner or top-ten Highly
Compensated Employee shall be aggregated. In such case, the family member and
5-percent owner or top-ten Highly Compensated Employee shall be treated as a
single Employee receiving compensation and Plan contributions or benefits equal
to the sum of such compensation and contributions or benefits of the family
member and 5-percent owner or top-ten Highly Compensated Employee. "Family
member" includes the spouse, lineal ascendants and descendants of the Employee
or former Employee and the spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the "top-paid group",
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with section 414(q)
of the Code and the regulations thereunder. The determination of who is a
5-percent owner shall be made in accordance with section 416(i) of the Code and
the regulations thereunder.
For purposes of this Section 1.39, the term "determination year" shall mean
the Plan Year and the term "look-back year" shall mean the twelve month period
immediately preceding the "determination year."
1.40 "Hour of Service" means:
(a) Each hour for which an individual is paid, or entitled to payment, for
the performance of duties for the Employer or an Affiliate. These hours will be
credited to the individual for the computation period in which the duties are
performed; and
(b) Each hour for which an individual is paid, or entitled to payment, by
the Employer or an Affiliate on account of a period of time during which no
duties are performed (irrespective of whether the Employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty, military duty or Leave of Absence. No more than
501 Hours of Service will be credited under this paragraph to an individual for
any single continuous period (whether or not such period occurs in a single
computation period). An hour for which an individual is paid, or entitled to
payment, on account of a period during which no duties are performed is not
required to be credited to the individual if such payment is made or due under a
plan maintained solely for the purpose of complying with an applicable worker's
compensation, unemployment compensation or disability insurance law. Hours of
Service are not to be credited for a payment which solely reimburses an
individual for medical or medically related expenses incurred by the individual.
If an individual is not paid, or entitled to payment, by an Employer or an
Affiliate on account of a period of time during which no duties are performed,
he shall not be credited with any Hours of Service in respect of such period.
Hours under this paragraph will be calculated and credited pursuant to
ss.2530.200b-2 of the United States Department of Labor Regulations which are
incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded to an individual or agreed to for an individual by the Employer
or an Affiliate. The same Hours of Service will not be credited both under
subsection (a) or subsection (b) of this Section 1.40, as the case may be, and
under this subsection (c). Hours for which credit is to be given under this
subsection (c) will be credited to the individual involved for the computation
period or periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made.
(d) For purposes of this Section 1.40, a payment shall be deemed to be made
by or due from the Employer or an Affiliate regardless of whether such payment
is made by or due from the Employer or Affiliate directly or indirectly through,
among others, a trust, fund or insurer to which the Employer or Affiliate
contributes or pays premiums, and regardless of whether contributions made or
due to the trust, fund, insurer or other person or entity are for the benefit of
particular individuals or are on behalf of a group of individuals in the
aggregate.
(e) In computing an individual's Hours of Service, service with a
"predecessor employer" of an Employer, an Affiliate or a "leasing organization"
referred to in Section 1.42 shall be treated as service for the Employer,
Affiliate or "leasing organization," as the case may be, to the extent required
under section 414 of the Code or as otherwise specified in the Adoption
Agreement. Also, in any case in which the Employer, an Affiliate or such a
"leasing organization" maintains a plan of a "predecessor employer" (within the
meaning of section 414(a) of the Code), service with such "predecessor employer"
shall be treated as service for the Employer, Affiliate or "leasing
organization", as the case may be.
(f) For purposes of computing Hours of Service, the entire period for which
a Leased Employee performed services for the Employer (and "related persons"
referred to in Section 1.42) shall be taken into account, not just the service
after the one year period referred to in Section 1.42.
(g) The computation period for purposes of this Section 1.40 shall be the
same as the Year of Service computation period described in Section 1.76. If the
Adoption Agreement so provides, in lieu of actually determining all of an
Employee's Hours of Service, the number of Hours of Service to be credited to an
Employee shall be determined:
(i) On the basis of days of Employment, in which case the Employee
shall be credited 10 Hours of Service for each day for which he would be
required to be credited with at least one Hour of Service under this
Section; or
(ii) On the basis of weeks of Employment, in which case the Employee
shall be credited with 45 Hours of Service for each week for which he would
be required to be credited with at least one Hour of Service under this
Section; or
(iii) On the basis of semi-monthly payroll periods, in which case the
Employee shall be credited with 95 Hours of Service for each semi-monthly
payroll period for which he would be required to be credited with at least
one Hour of Service under this Section; or
(iv) On the basis of the months of Employment, in which cases the
Employee shall be credited with 190 Hours of Service for each month for
which he would be required to be credited with at least one Hour of Service
under this Section.
1.41 "Immediately Distributable" refers to any part of a Participant's Account
which could be distributed to the Participant or surviving spouse before the
Participant attains or would have attained, if not deceased, the later of his
Normal Retirement Age or age 62.
1.42 "Leased Employee" means any individual (other than an Employee) who,
pursuant to an agreement between the recipient Employer and any other person
(the "leasing organization"), has performed services for the recipient Employer
(or for the recipient Employer and "related persons" determined in accordance
with section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one year, which services are of a type historically
performed, in the business field of the recipient Employer, by employees and any
other individual who must be treated as a "leased employee" under regulations
adopted pursuant to section 414(o) of the Code.
1.43 "Leave of Absence" means a temporary cessation from active Employment
authorized by the Employer or Affiliate pursuant to a nondiscriminatory policy,
whether occasioned by illness, injury, childbirth, hardship, training, study,
military service, other government service or any other reason.
1.44 "Life Expectancy" means the life expectancy and joint and last survivor
expectancy computed by use of the expected return multiples in Tables V and VI
of Treasury Regulation ss.1.72-9. Unless otherwise elected by the Participant
(or spouse, in the case of distributions described in Section 6.2(b)(ii)) by the
time distributions are required to begin, Life Expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Participant
(or spouse) and shall apply to all subsequent years. The Life Expectancy of a
nonspouse Beneficiary may not be recalculated.
1.45 "Matching Contributions" means the contributions described in Section 3.2.
1.46 "Net Profits" means the current and accumulated profits of the Employer
from the Business, as determined by the Employer, before deductions for federal,
state and local taxes on income and before contributions under the Plan or any
other Qualified Plan.
1.47 "Non-Highly Compensated Employee" means an Employee who is not a Highly
Compensated Employee.
1.48 "Normal Retirement Age" means age 65 or such other age as may be specified
in the Adoption Agreement. If the Employer or an Affiliate enforces a mandatory
retirement age, the Normal Retirement Age is the lower of that mandatory age or
the age determined pursuant to the preceding sentence.
1.49 "Normal Retirement Date" means the date on which the Participant involved
attains his Normal Retirement Age.
1.50 "Owner-Employee" means (a) the individual who is a sole proprietor, if the
Employer is a sole proprietorship, or (b) if the Employer is a partnership, a
partner owning more than 10% of either the capital interest or the profits
interest in the Employer; provided that where this Plan refers to an
Owner-Employee in the context of a trade or business other than the Business,
the term Owner-Employee means a person who would be an Owner-Employee as defined
above if that trade or business was the Employer.
1.51 "Participant" means each Employee who satisfies the requirements for
eligibility specified in Article II and, except for purposes of eligibility to
share in Employer Contributions, each Employee who is not otherwise a
Participant who makes a Rollover Contribution. If a Participant has become a
Former Participant, his Account until fully distributed shall continue to be
referred to in the Plan as an Account of the Participant as if his Participant
status was continuing.
1.52 "Participant's Benefit" means the balance in the Participant's Account as
of the last Valuation Date in the calendar year immediately preceding the
Distribution Calendar Year ("valuation calendar year") increased by the amount
of any contributions or forfeitures allocated to the Account as of dates in the
"valuation calendar year" after the valuation date and decreased by
distributions made in the "valuation calendar year" after the Valuation Date.
For purposes of this definition, if any portion of the minimum distribution
for the first Distribution Calendar Year is made in the second Distribution
Calendar Year on or before the Required Beginning Date, the amount of the
minimum distribution made in the second Distribution Calendar Year shall be
treated as if it had been made in the immediately preceding Distribution
Calendar Year.
1.53 "Plan" means the section 401(k) plan of the Employer in the form of this
Prototype Plan, including the provisions hereof which govern the Trust, and the
applicable Adoption Agreement executed by the Employer. The Plan shall have the
name specified in the Adoption Agreement.
1.54 "Plan Administrator" means the Employer, unless otherwise designated in the
Adoption Agreement.
1.55 "Plan Year" means the twelve consecutive month period ending on the date
specified in the Adoption Agreement. If the Plan Year is modified by an entry of
a new ending date on the Adoption Agreement, the term "Plan Year" means the Plan
Year in effect prior to the amendment, the short period commencing on the first
day in which the modification is effective and ending on the day before the
first day of the first Plan Year as so modified, and each twelve consecutive
month period thereafter ending on the date specified in the Adoption Agreement.
If a date that is not the last day of a calendar month is specified in the
Adoption Agreement, the Plan Year shall end on the last day of the month in
which the specified date falls.
1.56 "Profit-Sharing Contributions" means the contributions described in Section
3.3.
1.57 "Prototype Plan" means the Alliance Prototype 401(k) Plan set forth in this
document, as amended from time to time.
1.58 "Qualified Joint and Survivor Annuity" means an immediate annuity for the
life of the Participant with a survivor annuity continuing after the
Participant's death to the Participant's surviving spouse for the surviving
spouse's life in an amount which is 50% of the amount of the annuity payable
during the joint lives of the Participant and his surviving spouse and which is
the actuarial equivalent of a single life annuity which could be provided for
the Participant under an annuity contract purchased with the vested portion of
the Participant's Account (as defined in Section 7.1(i)) at the relevant
distribution date under Article VI.
1.59 "Qualified Plan" means any Defined Benefit Plan or Defined Contribution
Plan (including an employee stock ownership plan that satisfies the requirements
of Section 301(d) of the Tax Reduction Act of 1975) the trust or custodial
account forming part of which is qualified under section 401(a) of the Code and,
if applicable, section 401(d) of the Code.
1.60 "Qualified Preretirement Survivor Annuity" means an annuity for the life of
the surviving spouse of a Participant the actuarial equivalent of which is not
less than 50% of the vested portion of the Participant's Account as of the date
of the Participant's death.
1.61 "Required Beginning Date" means the first day of April of the calendar year
following the calendar year in which the Participant attains age 70 1/2.
The Required Beginning Date of a Participant who attained age 70 1/2 before
January 1, 1988, shall be determined in accordance with (i) or (ii) below:
(a) The Required Beginning Date of a Participant who is not a
5-percent owner is the first day of April of the calendar year following
the calendar year in which the later of retirement or attainment of age 70
1/2 occurs.
(b) The Required Beginning Date of a Participant who is a 5-percent
owner during any year beginning after December 31, 1979, is the first day
of April following the later of:
(i) the calendar year in which the Participant attains age 70
1/2, or
(ii) the earlier of the calendar year with or within which ends
the Plan Year in which the Participant become a 5-percent owner, or
the calendar year in which the Participant retires.
The Required Beginning Date of a Participant who is not a 5-percent owner
and attained age 70 1/2 during 1988 and who has not retired as of January 1,
1989, is April 1, 1990.
A Participant is treated as a 5-percent owner for purposes of this Section
1.61 if such Participant is a 5-percent owner as defined in section 416(i) of
the Code (determined in accordance with section 416 of the Code but without
regard to whether the Plan is top-heavy) at any time during the Plan Year ending
with or within the calendar year in which such owner attains age 66 1/2 or any
subsequent Plan Year. Once distributions have begun to a 5-percent owner under
Section 6.4(d), they must continue to be distributed, even if the Participant
ceases to be a 5-percent owner in a subsequent year.
1.62 "Rollover Contribution" means a contribution described in Section 3.6.
1.63 "Salary Deferral Contributions" means the contributions described in
Section 3.1. Following their distribution, Salary Deferral Contributions shall
not include any amounts properly distributed as Excess Amounts, as described in
Section 4.1(b).
1.64 "Section 401(k) Contributions" means Salary Deferral Contributions and
401(k) Bonus Contributions.
1.65 "Self-Employed Individual" means an individual who has Earned Income for
the Plan Year involved, or who would have had such Earned Income but for the
fact that the Business had no Net Profits for that Plan Year.
1.66 "Service" means with respect to a Plan for which the Adoption Agreement
provides that eligibility and/or vesting service determinations are to be made
under the elapsed-time method, the aggregate of the following (applied without
duplication and except for periods of service that may be disregarded under
Section 8.1(d)):
(a) Each period from an Employee's Date of Hire (or Reemployment Date) to
his next Severance Date; and
(b) If an Employee performs an Hour of Service within 12 months of a
Severance Date, the period from such Severance Date to such Hour of Service.
Service shall be credited for all periods whether the Employee is employed by an
Employer or an Affiliate.
Service shall be measured in whole years and fractions of a year in months.
For this purpose, (a) periods of less than a full year shall be aggregated on
the basis that 12 months or 365 days equals a year, and (b) in aggregating days
into months, 30 days shall be rounded up to the nearest whole month. For
purposes of determining Service, "Date of Hire" means the date on which an
Employee first completes an Hour of Service and "Reemployment Date" means the
date on which an Employee first completes an Hour of Service after a Severance
Date.
1.67 "Service Company" means Alliance Fund Services, Inc. or its successor
serving from time to time.
1.68 "Severance Date" means the earlier of:
(a) The date on which an Employee quits, retires, is discharged or dies; or
(b) The first anniversary of the first date of a period in which an
Employee remains continuously absent from service with an Employer or Affiliate
(with or without pay) for any reason other than quit, retirement, discharge or
death.
1.69 "Severance Period" means each period from an Employee's Severance Date to
his next Reemployment Date.
1.70 "Top-Heavy Plan" means this Plan in any Plan Year that this Plan is
described in Section 13.2.
1.71 "Trust" means the trust established under the Plan to which contributions
under the Plan are made and in which assets of the Plan are held, the name of
the Trust to be the same as that of the Plan followed by the word Trust.
1.72 "Trustee" means the Trustee named in the Adoption Agreement, who may be an
affiliate of Alliance and the Service Company, or its successor serving from
time to time.
1.73 "Trustee Transfer" means a direct transfer of assets from the trustee or
custodian of any other plan of the type defined in section 414(i) or (j) of the
Code (including an employee stock ownership plan that satisfies the requirements
of Section 301(d) of the Tax Reduction Act of 1975) the trust or custodial
account forming part of which is qualified under section 401(a) of the Code and,
if applicable, section 401(d) of the Code or from a qualified annuity plan
described in section 403(a) of the Code, other than a "direct transfer of an
eligible rollover distribution" as described in section 401(a)(31) of the Code.
1.74 "Trust Fund" means the assets of the Trust.
1.75 "Valuation Date" means the last business day of each Plan Year or such
other date, consistent with the operational cycles of the Service Company and
the Custodian as of which the last customer statement for a period ending within
the Plan Year is generated, and such other dates consistent with the operational
cycles of the Service Company and the Custodian as the Plan Administrator may
determine to be necessary for the practicable administration of the Plan,
generally used for valuing the Trust Fund as provided in Section 5.3.
1.76 "Year of Service" (a) means with respect to the hour counting method, an
"eligibility computation period" or a "vesting computation period" whichever is
applicable, during which an individual has completed 1,000 Hours of Service or
such lower number of Hours of Service as is specified in the Adoption Agreement.
An "eligibility computation period" shall mean the 12 consecutive month period
beginning with the day the individual involved first performs an Hour of Service
and anniversaries thereof ("Employment Anniversary Year"). A "vesting
computation period" shall mean the Plan Year, provided that in the event the
"vesting computation period" is changed, either through an amendment to change
the Plan Year or an amendment changing the definition of "vesting computation
period", the "vesting computation period" shall be determined in accordance with
United States Department of Labor regulations, 29 C.F.R. ss.2530.203-2(c), the
provisions of which are incorporated by this reference; provided further that if
the Adoption Agreement permits, the Employer may elect that the "vesting
computation period" be the Employment Anniversary Year.
(b) Means with respect to the elapsed time method, the Years of Service
determined in accordance with Section 1.66.
(c) The Employer may elect in the Adoption Agreement for purposes of
determining a Participant's vested interest to disregard Years of Service prior
to
(i) the time the Employer or any Affiliate maintained the Plan or any
predecessor plan; and
(ii) an Employee's attainment of a certain age not to exceed age 18.
(d) An Employee's Years of Service under this Plan may be determined using
the hour-counting method or the elapsed time method or both. Unless otherwise
specified in the Adoption Agreement, Years of Service shall be determined using
the hour-counting method on the basis of actual hours worked.
(e) If this Plan determines service for a given purpose on one basis and an
Employee transfers to Employment covered by this Plan from Employment covered by
another Qualified Plan which determines service for such purpose on the other
basis, and if the Employee's service for the period during which he was covered
by such other plan is required to be taken into consideration under this Plan
for that purpose, then the following rules shall apply:
(i) If such service was determined under the other plan using the
hour-counting method, then the period so taken into consideration through
the close of the computation period in which such transfer occurs shall be:
(A) the number of Years of Service credited to the Employee for
such purpose under such other plan as of the start of such computation
period, and
(B) for the computation period in which such transfer occurs, the
greater of:
(I) his service for such period as of the date of transfer
determined under the rules of such other plan, or
(II) his service for such period determined under the
elapsed time rules of this Plan.
Service after the close of that computation period shall be
determined for such purpose solely under the elapsed time rules of
this Plan.
(ii) If such service was determined under the other plan using the
elapsed time method, then the period taken into consideration shall be: (1)
the number of 1-year periods of service credited to the Employee under such
other plan as of the date of transfer, and (2) for the computation period
which includes the date of transfer, the Hours of Service equivalent to any
fractional part of a Year of Service credited to him under such other plan.
In determining such equivalency, the Employee shall be credited with 190
Hours of Service for each month or fraction thereof.
If this Plan is an amendment and continuation of another Qualified Plan or if
this Plan is amended and an effect of the amendment is to change the basis on
which Years of Service are determined, the foregoing rules shall be applied as
if each Employee had transferred Employment on the effective date of such
amendment.
ARTICLE II: PARTICIPATION
2.1 Initial Participation. Each Eligible Employee on the Effective Date who on
or before that date met the eligibility requirements specified in the Adoption
Agreement or the eligibility requirements for participation in an existing plan
referred to in the Adoption Agreement shall be a Participant on the Effective
Date. Each other Eligible Employee shall become a Participant on the Entry Date
coincident with or immediately following his satisfaction of the eligibility
requirements specified in the Adoption Agreement.
Except as otherwise provided in the Adoption Agreement, all Years of
Service will be counted for purposes of determining whether an individual has
satisfied the Plan's service eligibility requirement, if any. If an individual
has a Break in Service after satisfying the Plan's service eligibility
requirement, service before that Break in Service shall be reinstated as of the
date the individual is credited with an Hour of Service after incurring such
Break in Service.
2.2 Ineligible Employees and Employees Returning to Participation. In the event
an Employee who was not an Eligible Employee becomes an Eligible Employee, the
Employee will become a Participant immediately if the Employee has satisfied the
eligibility requirements specified in the Adoption Agreement, if any, and would
have otherwise previously become a Participant. A Participant, including a
Former Participant, who ceased to be an Eligible Employee, or terminated
Employment and who again becomes an Eligible Employee, shall again become a
Participant on the date he or she is subsequently credited with an Hour of
Service after again becoming an Eligible Employee.
2.3 Transferred and Reclassified Participants. If a Participant is transferred
to an ineligible class of Employees, or is otherwise reclassified as an
ineligible Employee, any contribution or allocation of forfeitures which would
otherwise be made for him hereunder for the Plan Year of such transfer or
reclassification shall be made. No contribution or allocation of forfeitures for
or by him shall be made, however, for any subsequent Plan Year prior to the Plan
Year in which he again becomes a Participant.
2.4 Limitations for Owner-Employees.
(a) If the Plan provides contributions or benefits for one or more Owner-
Employees who control both the Business and who also control as an
Owner-Employee or as Owner-Employees one or more other trades or businesses,
this Plan and the plan established for each such other trade or business must,
when looked at as a single plan, satisfy the requirements of sections 401(a) and
(d) of the Code with respect to the employees of this Business and all of such
other trades or businesses.
(b) If the Plan provides contributions or benefits for one or more Owner-
Employees who control as an Owner-Employee or as Owner-Employees one or more
other trades or businesses, the employees of the other trades or businesses must
be included in a plan which satisfies the requirements of sections 401(a) and
(d) of the Code and which provides contributions and benefits for the employees
of such other trades or businesses not less favorable than the contributions and
benefits provided for Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trades or businesses which are controlled must
be as favorable as those provided for him under the most favorable plan of the
trade or business which is not controlled.
(d) For purposes of subsections (a), (b) and (c) of this Section 2.4, an
Owner-Employee, or two or more Owner-Employees, will be considered to control a
trade or business if the Owner-Employee, or two or more Owner-Employees
together:
(i) own the entire interest in an unincorporated trade or business, or
(ii) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership. For
purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such
Owner-Employee, or such two or more Owner-Employees, are considered to
control within the meaning of the preceding sentence.
2.5 Omission of Eligible Employee. If in any Plan Year, any Employee who
should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution for the year
has been made, the omitted Employee shall be included in the next valuation. The
Employer shall make any additional contribution with respect to the omitted
Employee that may be deemed necessary. Such contribution shall be made
regardless of whether it is deductible in whole or in part in any taxable year
under applicable provisions of the Code. The Employee shall receive credit under
the terms of the Plan for any period during which he should have been included
as a Participant.
2.6 Inclusion of Ineligible Employee. If in any Plan Year, any person who should
not have been included as a Participant in the Plan is erroneously included and
discovery of such incorrect inclusion is not made until after a contribution for
the year has been made, the Employer shall not be entitled to recover the
contribution made with respect to the ineligible person regardless of whether or
not a deduction is allowable with respect to such contribution. In such event,
the amount contributed with respect to the ineligible person shall be removed
from the ineligible Employee's Account and treated as a forfeiture and allocated
in the manner prescribed by Section 3.8 for the Plan Year in which the discovery
is made.
ARTICLE III: CONTRIBUTIONS AND ALLOCATIONS
3.1 Salary Deferral Contributions.
(a) For any relevant period, the amount of Salary Deferral Contribution to
be made by the Employer for each Participant shall be equal to the amount by
which the Participant elects to reduce his Compensation in that period pursuant
to Compensation Reduction Agreements entered into in accordance with Section
3.1(b). Salary Deferral Contributions shall be credited to the Participant's
Salary Deferral Contribution subaccount.
(b) A Participant may make an election to reduce the Compensation otherwise
payable to him directly in cash by entering into a Compensation Reduction
Agreement. Such election shall be subject to such maximum limits as the Adoption
Agreement shall provide; provided that the Plan Administrator may, in its
discretion, set lower maximum limits, either for all Participants or for all or
a portion of the group of Eligible Employees who are or may be expected to be
Highly Compensated Employees. A Participant's Compensation Reduction Agreement
shall remain in effect until it is modified or terminated as provided for
herein. Subject to such limitations as to frequency of amendment as the Plan
Administrator may prescribe, (which limitations shall permit such amendments no
less frequently than annually) a Participant may amend his Compensation
Reduction Agreement (to increase or decrease his Compensation reduction election
within such limits), effective as of the first day of any subsequent payroll
period. Any election or amendment of election shall be made at least 30 days
before the beginning of the payroll period to which it relates. The Participant
may, by 30 days' written notice, suspend any previous election to reduce the
Compensation otherwise payable to him in cash, effective as of the beginning of
any payroll period. Such a Participant may resume such reduction as of the
beginning of any payroll period, subject to such rules with respect to minimum
periods of suspension (not in excess of one year) as the Plan Administrator may
provide, by filing a new Compensation Reduction Agreement at least 30 days
before the beginning of such payroll period. Notwithstanding the foregoing
provisions of this Subsection, the Plan Administrator may, on a uniform and
nondiscriminatory basis, establish such other election or notice periods as the
Plan Administrator deems advisable to provide for the efficient administration
of the Plan.
3.2 Matching Contributions. If the Adoption Agreement so provides, for each Plan
Year the Employer shall make Matching Contributions to the Plan for each
Participant who had a Compensation Reduction Agreement in effect during such
Plan Year on the basis specified in the Adoption Agreement with reference to
such Participant's Salary Deferral Contributions. Matching Contributions with
respect to a Plan Year may be paid after the end of each payroll period in which
they arose, monthly, quarterly or after the end of the Plan Year in the
Employer's discretion. Such Matching Contributions shall be credited to the
Participant's Matching Contribution subaccount.
3.3 Profit-Sharing Contributions and Reallocated Forfeitures.
(a) For any Plan Year, a Profit-Sharing Contribution may be made in an
amount determined by the Employer. The Profit-Sharing Contribution, and any
forfeitures of Profit-Sharing Contributions, for the Plan Year will be allocated
as of the last day of the Plan Year to the Profit-Sharing Contribution
subaccounts of Participants who are eligible to share in such allocation
pursuant to the Adoption Agreement.
(b) If the Adoption Agreement provides that Profit-Sharing Contributions
are not allocated using permitted disparity, Profit-Sharing Contributions, and
any forfeitures of Profit-Sharing Contributions, shall be allocated to each
eligible Participant's Account in the ratio that the Participant's total
Compensation bears to all eligible Participants' total Compensation.
(c) This Plan may not provide for permitted disparity under section 401(l)
of the Code if the Employer maintains any other plan that provides for permitted
disparity and benefits any of the same Participants.
(d) If the Adoption Agreement provides that Profit-Sharing Contributions
are allocated using permitted disparity and the Plan is not a Top-Heavy Plan,
Profit-Sharing Contributions, and any forfeitures of Profit-Sharing
Contributions, shall be allocated as follows:
(i) First, contributions and forfeitures will be allocated to each
eligible Participant's Profit-Sharing Contribution subaccount in the ratio
that the sum of the Participant's total Compensation and Compensation in
excess of the Integration Level bears to the sum of all eligible
Participants' total Compensation and Compensation in excess of the
Integration Level, but not in excess of the Profit-Sharing Maximum
Disparity Rate as computed below.
(ii) Next, any remaining contributions and forfeitures will be
allocated to each eligible Participant's Profit-Sharing Contribution
subaccount in the ratio that the Participant's total Compensation for the
Plan Year bears to all eligible Participants' total Compensation for that
year.
The Integration Level shall be equal to the Taxable Wage Base or such lesser
amount elected by the Employer in the Adoption Agreement. The Taxable Wage Base
is the contribution and benefit base in effect under section 230 of the Social
Security Act as of the beginning of the Plan Year.
The Profit-Sharing Maximum Disparity Rate is equal to the applicable percentage
determined in accordance with the table below:
the applicable
If the Integration Level is: percentage is:
equal to the
Taxable Wage Base 5.7%
but not
more than: more than:
$0 X* 5.7%
X* 80% of
Taxable
Wage Base 4.3%
80% of
Taxable
Wage Base Y** 5.4%
*X = the greater of $10,000 or 20 percent of the Taxable Wage Base
**Y = any amount more than 80% of the Taxable Wage Base but less than 100% of
the Taxable Wage Base.
(e) If the Adoption Agreement provides that Profit-Sharing Contributions
are allocated using permitted disparity and the Plan is a Top-Heavy Plan, before
Profit-Sharing Contributions, and any forfeitures of Profit-Sharing
Contributions, are allocated in the manner prescribed in subsection (d) above,
the following two allocations shall be performed:
(i) First, contributions and forfeitures will be allocated to each
eligible Participant's Profit-Sharing Contribution subaccount in the ratio
that the Participant's total Compensation bears to all eligible
Participants' total Compensation, but not in excess of 3% of each
Participant's Compensation.
(ii) Next, any contributions and forfeitures remaining will be
allocated to each eligible Participant's Profit-Sharing Contribution
subaccount in the ratio that the Participant's Compensation for the Plan
Year in excess of the Integration Level bears to the excess Compensation of
all eligible Participants, but not in excess of 3%.
Any remaining contributions and forfeitures shall be allocated pursuant to
subsection (d), provided that the Profit-Sharing Maximum Disparity Rate shall be
determined by subtracting 3% from the applicable disparity rate determined using
the table in subsection (d).
3.4 401(k) Bonus Contributions. The Employer may for any Plan Year declare
a 401(k) Bonus Contribution to be allocated among the accounts of all
Participants eligible to share in Profit-Sharing Contributions or only with
respect to such Participants who are Non-Highly Compensated Employees, as
specified in the Adoption Agreement; provided that if the Adoption Agreement
provides that no Profit- Sharing Contributions are to be made, any 401(k) Bonus
Contribution shall be allocated among the accounts of all Participants, or all
Participants who are Non-Highly Compensated Employees, as the case may be, who
have Compensation during the Plan Year. Unless another allocation method is
specified in the Adoption Agreement, the 401(k) Bonus Contribution shall be
allocated to each eligible Participant's 401(k) Bonus Contribution subaccount in
the ratio that the Participant's total Compensation bears to the total
Compensation of Participants eligible to share in the contribution. 401(k) Bonus
Contributions are intended to be "qualified nonelective contributions" or, to
the extent they are allocated in proportion to the Salary Deferral Contributions
of Participants, "qualified matching contributions", within the meaning of
Treasury Regulation 1.401(k)-1(g)(13), i.e., contributions that (a) Participants
may not elect to receive in cash until distributed from the Plan, (b) are
non-forfeitable when made and (c) are distributable only in accordance with the
distribution provisions applicable to Salary Deferral Contributions.
3.5 After-Tax Contributions by Participants.
(a) Unless otherwise provided in the Adoption Agreement, a Participant may
not make After-Tax Contributions to the Plan following the end of the Plan Year
in which the Effective Date occurs.
(b) If the Adoption Agreement so provides, a Participant may make After-
Tax Contributions to the Plan in an amount not to exceed 10 percent of his
aggregate Compensation since the date he first became a Participant in this Plan
and all other qualified plans of the Employer and its Affiliates. The maximum
permitted After-Tax Contributions may be subject to further limitation, as
provided in Article IV.
(i) If a Participant participates in any other qualified plan under
section 401 of the Code that is maintained by any Employer or Affiliate,
the aggregate amount of After-Tax Contributions by the Participant under
this Plan and all such other qualified plans shall not exceed the
limitation of Section 3.5(b).
(ii) A Participant's After-Tax Contributions may be made by regular
payroll deductions or in any other way approved by the Plan Administrator.
An election to make After-Tax Contributions may be revoked or modified by
written notice filed with the Plan Administrator. Any election, revocation
or modification of an election shall be effective as of the first day of
the month following its receipt by the Plan Administrator, or as of such
other date as the Plan Administrator may specify.
(c) After-Tax Contributions will be 100% vested and non-forfeitable at all
times.
(d) After-Tax Contributions shall be credited to the Participant's
After-Tax Contribution subaccount.
3.6 Rollover Contributions and Other Transfers.
(a) Each Employee, whether or not otherwise a Participant, may, with the
approval of the Plan Administrator, make a Rollover Contribution under the Plan.
A Rollover Contribution shall be in cash, or in other property acceptable to the
Trustee that is compatible with the Custodian's administrative and operational
requirements, and shall be a contribution attributable to (i) an "eligible
rollover distribution" from a plan that meets the requirements of section 401(a)
of the Code or under section 403(a) of the Code from an "employee annuity" as
referred to in that section, or (ii) a pay out or distribution referred to in
section 408(d)(3) of the Code from an "individual retirement account" or an
"individual retirement annuity" described, respectively, in section 408(a) or
section 408(b) of the Code. The Plan Administrator or the Custodian may
condition acceptance of a contribution intended to be a Rollover Contribution
upon receipt of such documents as either of them may require. In the event that
an Employee makes a contribution pursuant to this Section 3.6 intended to be a
Rollover Contribution but which the Plan Administrator later concludes did not
qualify as a Rollover Contribution, the Trustee shall, at the Plan
Administrator's direction, which shall be made as soon as practicable after that
conclusion is reached, distribute to the Employee the entire balance in the
Employee's Account deriving from such contribution.
(b) The Trustee may, with the approval of the Plan Administrator, accept a
Trustee Transfer, to be held for the benefit of any Participant to the full
extent permitted by the Code, provided that the Trustee Transfer shall be in
cash or other property acceptable to the Trustee and that is compatible with the
Custodian's administrative and operational requirements. Such transfer shall be
credited to the Participant's Trustee Transfer subaccount unless the amount is
being transferred directly from the trust under a profit-sharing plan maintained
by the Employer or an Affiliate under which amounts attributable to employer
contributions vest in accordance with the vesting schedule specified in the
Adoption Agreement for Profit-Sharing Contributions. In such event, the
transferred amounts shall be credited to the Participant's Profit-Sharing
Contribution and After-Tax Contribution subaccounts as appropriate and shall not
thereafter be distinguished from other amounts in those subaccounts for purposes
of the Plan.
3.7 Subaccounts. Separate Accounts shall be maintained for each Participant
which shall contain the following subaccounts:
a) A Salary Deferral Contribution subaccount;
b) A Matching Contribution subaccount;
c) A Profit-Sharing Contribution subaccount;
d) A 401(k) Bonus Contribution subaccount;
e) An After-Tax Contribution subaccount;
f) A Trustee Transfer subaccount; and
g) A Rollover Contribution subaccount.
To these respective subaccounts shall be credited assets transferred to the
Trust Fund from the corresponding accounts under any other Qualified Plan
amended and continued in the form of the Plan. Each contribution on behalf of or
by a Participant or transfer to a Participant's Account shall be credited to the
applicable subaccount as soon as practicable after the contribution is made and
the necessary payroll and other data received by the Plan Administrator from the
Employer is reconciled with the contribution amount received by the Trustee.
3.8 Application of Forfeitures. Amounts forfeited during a Plan Year pursuant to
Section 8.2(a) shall be allocated as follows: forfeitures attributable to
Profit-Sharing Contributions shall be reallocated at the end of the Plan Year in
which the forfeiture occurs in the manner prescribed by Section 3.3; unless
otherwise provided in the Adoption Agreement forfeitures attributable to
Matching Contributions shall be used to reduce the Employer's Matching
Contribution for the Plan Year in which they occur. If for any Plan Year the
amount of forfeitures of Matching Contributions exceeds the amount of the
Employer's Matching Contribution obligation for that year, the excess shall be
allocated in the same manner as Profit-Sharing Contributions. If the Adoption
Agreement provides that forfeitures of Matching Contributions are to be
reallocated to the Accounts of Participants, any forfeitures of Matching
Contributions which are forfeitures of Excess Aggregate Contributions shall be
allocated only to the Accounts of Participants who are Non-Highly Compensated
Employees.
3.9 Eligible Participants. A Participant shall be eligible to share in Employer
Contributions and forfeitures for a Plan Year only if he (a) received
Compensation in that Plan Year and (b) meets any other requirements specified in
the Adoption Agreement.
3.10 General Provisions. Except as contemplated in Section 3.6, no contribution
shall be made in property other than United States currency or checks payable in
United States currency or such other property as is acceptable to the Trustee
and is compatible with the Custodian's administrative and operational
requirements. All contributions, including After-Tax Contributions and Rollover
Contributions, shall be remitted by the Employer through the Plan Administrator
to the Trustee at such address as the Trustee shall provide for the purpose from
time to time. The Plan Administrator may commingle such contributions for
remittance, but the Plan Administrator shall maintain records as to the amount
of each contribution to be credited to a Participant's Account, and of the dates
the contributions are remitted. The Trustee and its agents shall not have any
responsibility for determining the correctness of the amount of any
contributions under the Plan or for the collection of such contributions.
If an Employer belonging to an "affiliated group" (as defined in Code
section 1504) cannot make the maximum contribution otherwise permitted under the
Plan because such contribution would exceed the deduction limits of Code section
404(a)(3), then any other member of such group may, to the extent it can deduct
such contribution, make all or part of such otherwise impermissible
non-deductible contribution on behalf of such Employer. (The provisions of Code
section 404(a)(3)(B) are intended to govern.)
ARTICLE IV: LIMITATIONS ON CONTRIBUTIONS,
AND TREATMENT OF EXCESS
4.1 Limitations on Allocations.
(a) As used in this Section 4.1 and elsewhere in this Prototype Plan with
reference to this Section 4.1, each of the following terms shall have the
meaning for that term set forth in this subsection (a):
(i) "Annual Additions" means for each Participant, the sum of the
following amounts credited to the Participant's account under Defined
Contribution Plans for the Limitation Year:
(A) Employer contributions;
(B) Employee contributions;
(C) forfeitures; and
(D) amounts allocated after March 31, 1984 to an Individual
Medical Account and amounts derived from contributions paid
or accrued after December 31, 1985, in taxable years ending
after that date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key
Employee (as defined in section 419A(d)(3) of the Code under
a Welfare Benefits Fund.
Any portion of any Excess Amount applied under Section 4.1(b)(iv) or
Section 4.1(c)(vi) in the Limitation Year to reduce Employer Contributions
will also be considered as part of the Annual Additions for such Limitation
Year.
(ii) "Compensation" means:
(A) For an Employee other than a Self-Employed Individual,
the Employee's "wages" as defined in Code section 3401(a) for the
purposes of income tax withholding at the source and all other
payments of compensation by the Employer to the Employee in the
course of the Employer's trade or business for which the Employer
is required to furnish the Employee a written statement under
sections 6041(d) and 6051(a)(3) of the Code but determined
without regard to any rules that limit the remuneration included
in wages based on the nature or location of the Employment or the
services performed (such as the exception for agricultural labor
in Code section 3401(a)(2)). For any Self-Employed Individual,
Compensation shall mean Earned Income.
(B) For Limitation Years beginning after December 31, 1991,
for purposes of this Section 4.1, an Employee's Compensation for
a Limitation Year is the amount thereof actually paid or
includible in the Employee's gross income for federal income tax
purposes for the Limitation Year, except that for a Self-Employed
Individual, his Compensation shall be his Earned Income for the
Limitation Year involved.
(C) Notwithstanding the foregoing provisions of this
Section, the compensation of a participant in a Defined
Contribution Plan other than this Plan who is "permanently and
totally disabled" (within the meaning of section 22(e)(3) of the
Code) is the compensation such participant would have received
for the Limitation Year involved if the participant had been paid
at the rate of compensation paid immediately before becoming so
"permanently and totally disabled", but such imputed compensation
for the disabled participant may be taken into account only if
the participant is not a highly compensated employee and
contributions made on behalf of such participant are
nonforfeitable when made.
(D) Notwithstanding any other provision of the Plan to the
contrary other than Section 1.13(d), if the Plan is an amendment
and restatement of a Qualified Plan, for Plan Years ending prior
to the plan year in which the amendment is adopted, compensation
shall have the meaning set forth in the Qualified Plan prior to
its amendment.
(iii) "Defined Benefit Fraction" means a fraction, the numerator of
which is the sum of the Projected Annual Benefit of the Participant
involved under all Defined Benefit Plans (whether or not terminated) as of
the close of the Limitation Year involved, and the denominator of which is
the lesser of 125 percent of the dollar limitation determined for the
Limitation Year under sections 415(b) and (d) of the Code or 140 percent of
the Participant's Highest Average Compensation including any adjustments
under section 415(b) of the Code. Notwithstanding the first sentence of
this clause (iii), if the Participant was a participant as of the first day
of the first Limitation Year beginning after December 31, 1986, in one or
more Defined Benefit Plans which were in existence on May 6, 1986, the
denominator of this fraction will not be less than 125 percent of the sum
of the annual benefits under such plans which the Participant had accrued
as of the close of the last Limitation Year beginning before January 1,
1987 disregarding any changes in the terms and conditions of the Plan after
May 5, 1986. The preceding sentence applies only if the Defined Benefit
Plans individually and in the aggregate satisfied the requirements of
section 415 of the Code for all Limitation Years beginning before January
1, 1987.
(iv) "Defined Contribution Dollar Limitation" means $30,000 or if
greater, one-fourth of the defined benefit dollar limitation set forth in
section 415(b)(1) of the Code as in effect for the Limitation Year.
(v) "Defined Contribution Fraction" means a fraction, the numerator of
which is the sum of the Annual Additions to the Participant's account or
accounts under all the Defined Contribution Plans (whether or not
terminated) for the current and all prior Limitation Years (including the
Annual Additions attributable to the Participant's nondeductible employee
contributions to Defined Benefit Plans, whether or not terminated, and the
Annual Additions attributable to all Welfare Benefits Funds and Individual
Medical Accounts), and the denominator of which is the sum of the "maximum
aggregate amounts" (as defined in the following sentence) for the current
and all prior Limitation Years of service with the Employer (regardless of
whether a Defined Contribution Plan was maintained by the Employer). The
"maximum aggregate amount" in any Limitation Year is the lesser of (A) 125
percent of the dollar limitation determined under sections 415(b) and (d)
of the Code in effect for that year under section 415(c)(1)(A) of the Code
or (B) 35 percent of the Participant's Compensation for such year.
If the Employee was a participant as of the end of the first day of the
first Limitation Year beginning after December 31, 1986, in one or more
Defined Contribution Plans which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the sum of this fraction and
the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of
this Plan. Under the adjustment, an amount equal to the product of (x) the
excess of the sum of the fractions over 1.0 times (y) the denominator of
this fraction will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning before January
1, 1987 and disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the limitation under section 415 of
the Code applicable to the first Limitation Year beginning on or after
January 1, 1987. The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all Employee
contributions as Annual Additions.
(vi) "Employer" means the Employer and each Affiliate.
(vii) "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year involved over the Maximum Permissible
Amount for that Limitation Year.
(viii) "Highest Average Compensation" means the average Compensation
of the Participant involved for that period of three consecutive Years of
Service with the Employer (or if the Participant has less than three such
Years of Service, the actual number thereof) that produces the highest
average.
(ix) "Individual Medical Account" means an account defined in section
415(l)(2) of the Code maintained by the Employer or an Affiliate.
(x) "Limitation Year" means unless otherwise specified in the Adoption
Agreement, the Plan Year. All Qualified Plans maintained by the Employer
must use the same Limitation Year. If the Limitation Year is amended to a
different twelve consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year in which the amendment is made.
(xi) "Master or Prototype Plan" means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue Service.
(xii) "Maximum Permissible Amount" means the maximum Annual Addition
that may be contributed or allocated to a Participant's account under all
Defined Contribution Plans for any Limitation Year. This amount shall not
exceed the lesser of: (a) the Defined Contribution Dollar Limitation or (b)
25 percent of the Participant's Compensation for the Limitation Year. The
Compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits (within the meaning of section 401(h) or
section 419A(f)(2) of the Code) which is otherwise treated as an Annual
Addition under section 415(l)(1) or 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different 12-consecutive month period, the Maximum
Permissible Amount will not exceed the Defined Contribution Dollar
Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
-----------------------------------------------
12.
(xiii) "Projected Annual Benefit" means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or
"qualified joint and survivor annuity" (as defined in section 417(b) of the
Code) to which the Participant would be entitled under the terms of the
plan assuming:
(A) the Participant continues in Employment with the Employer
until the Participant's "normal retirement age" under the plan within
the meaning of section 411(a)(8) of the Code (or the Participant's
current age, if later), and
(B) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine benefits under
the plan remain constant for all future Limitation Years.
(xiv) "Welfare Benefits Fund" means a fund defined in section 419(e)
of the Code maintained by the Employer or an Affiliate.
(b) The provisions of this subsection (b) apply with respect to a
Participant who does not participate in, and has never participated in, a
Qualified Plan or a Welfare Benefits Fund or an Individual Medical Account which
provide an Annual Addition, other than this Plan:
(i) The amount of Annual Additions which may be credited to the
Participant's Account for any Limitation Year will not exceed the lesser of
the Maximum Permissible Amount or any other limitation contained in this
Plan. If the Employer Contribution that would otherwise be contributed or
allocated to the Participant's Account would cause the Annual Additions on
behalf of the Participant for the Limitation Year to exceed the Maximum
Permissible Amount with respect to that Participant for the Limitation
Year, the amount contributed or allocated will be reduced so that the
Annual Additions on behalf of the Participant for the Limitation Year will
equal such Maximum Permissible Amount.
(ii) Prior to determining the Participant's actual Compensation for a
Limitation Year, the Employer may determine the Maximum Permissible Amount
for the Participant for the Limitation Year on the basis of a reasonable
estimation of the Participant's Compensation for that Limitation Year. Such
estimated Compensation shall be uniformly determined for all Participants
similarly situated.
(iii) As soon as is administratively feasible after the end of a
Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation
for the Limitation Year.
(iv) If pursuant to paragraph (iii), a reasonable error in determining
the amount of Salary Deferral Contributions that may be made with respect
to the Participant under the limitations of this Section or as the result
of the allocation of forfeitures, there is an Excess Amount with respect to
the Participant for a Limitation Year, the Excess Amount shall be disposed
of as follows:
(A) First, any After-Tax Contributions, to the extent that the
return thereof to the Participant would reduce the Excess Amount, will
be returned to the Participant;
(B) Next, any Salary Deferral Contributions, to the extent that
the return thereof would reduce the Excess Amount, will be returned to
the Participant; and
(C) If after the application of subsections (b)(iv)(A) and (B) of
this Section 4.1 an Excess Amount still exists, and the Participant is
covered by the Plan at the end of the Limitation Year, the remaining
Excess Amount in the Participant's Account will be used to reduce
Employer Contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year, and in each succeeding
Limitation Year, if necessary.
(D) If after the application of subsections (b)(iv)(A), (B) and
(C) of this Section 4.1 an Excess Amount still exists, and the
Participant is not covered by the Plan at the end of the Limitation
Year, the remaining Excess Amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce
future Employer Contributions for all remaining Participants in the
next Limitation Year, and in each succeeding Limitation Year, if
necessary.
(E) If a suspense account is in existence at any time during a
Limitation Year pursuant to subsection (b)(iv)(D) of this Section 4.1,
the Employer will be considered the Participant with respect thereto
for purposes of Section 5.2. The suspense account will not participate
in the allocation of investment gains and losses to or from any other
Account. If a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense account must
be allocated and reallocated to Participants' Accounts before any
Employer Contributions or any Employee Contributions may be made to
the Plan for that Limitation Year. Excess amounts may not be
distributed to Participants or Former Participants.
(c) The provisions of this subsection (c) apply with respect to a
Participant who, in addition to this Plan, is covered under one or more Defined
Contribution Plans which are Master or Prototype Plans or Welfare Benefits Funds
or an Individual Medical Account which provide an Annual Addition during any
Limitation Year:
(i) The Annual Additions which may be credited to a Participant's
Account under this Plan for any such Limitation Year will not exceed the
Maximum Permissible Amount reduced by the Annual Additions credited to the
Participant's account or accounts under the other plans and Welfare
Benefits Funds for the same Limitation Year. If the Annual Additions with
respect to the Participant under any one or more other such Defined
Contribution Plans or Welfare Benefits Funds are less than the Maximum
Permissible Amount and the Employer Contribution that would otherwise be
contributed or allocated to the Participant's Account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated shall be reduced so that
the Annual Additions under all such plans for the Limitation Year will
equal the Maximum Permissible Amount. If the Annual Additions with respect
to the Participant under such other Defined Contribution Plans and Welfare
Benefits Funds in the aggregate are equal to or greater than the Maximum
Permissible Amount, no amount will be contributed or allocated to the
Participant's Account under this Plan for the Limitation Year.
(ii) Prior to determining the Participant's actual Compensation for a
Limitation Year, the Maximum Permissible Amount for a Participant may be
determined in the manner described in subsection (b)(ii) of this Section
4.1.
(iii) As soon as is administratively feasible after the end of a
Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation
for the Limitation Year.
(iv) If, pursuant to subsection (c)(iii) of this Section 4.1, or as a
result of the allocation of forfeitures, a Participant's Annual Additions
under this Plan and the Participant's Annual Additions under such other
plans would result in an Excess Amount for a Limitation Year, the Excess
Amount will be deemed to consist of the Annual Additions last allocated,
except that any such Annual Additions attributable to a Welfare Benefits
Fund or Individual Medical Account will be deemed to have been allocated
first regardless of the actual allocation date.
(v) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of
another such plan, the Excess Amount attributed to this Plan will be the
product of:
(A) the total Excess Amount allocated as of such date, times
(B) the ratio of (x) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this Plan to
(y) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this Plan and all of the other
plans referred to in the introductory clause of this subsection (c).
(vi) Any Excess Amount attributed to this Plan will be disposed of in
the manner described in Section 4.1(b)(iv).
(d) If a Participant is covered under one or more Defined Contribution
Plans, other than this Plan, which are not Master or Prototype Plans, Annual
Additions which may be credited to the Participant's Account under this Plan for
any Limitation Year shall be limited in accordance with the provisions of
subsections (c)(i) through (c)(vi) of this Section 4.1 as though each such other
plan was a Master or Prototype Plan, unless the Employer provides other
limitations in the Adoption Agreement.
(e) If the Employer maintains, or at any time maintained, a Defined Benefit
Plan covering any Participant in this Plan, the sum of the Participant's Defined
Benefit Plan Fraction and Defined Contribution Plan Fraction shall not exceed
1.0 in any Limitation Year. The Annual Additions which may be credited to the
Participant's Account under this Plan for any Limitation Year shall be limited
in accordance with the Adoption Agreement.
4.2 Limitations on Section 401(k) Contributions.
(a) Any other provision of this Plan to the contrary notwithstanding,
Section 401(k) Contributions for any Plan Year on behalf of a Participant who is
a Highly Compensated Employee shall be reduced if and to the extent necessary in
order that the "actual deferral percentage" (the "ADP") for Highly Compensated
Employees for that Plan Year not exceed the percentage determined under the
following table, based on the ADP for such year for all Participants who were
Non-Highly Compensated Employees:
Non-Highly Compensated Highly Compensated
Employees Employees
---------------------- ------------------
Less than 2% 2 times column 1
2% - 8% column 1 plus 2%
More than 8% 1.25 times column 1
The ADP for a group of Participants means the average of the Deferral
Percentages calculated separately with respect to each Participant in the group
for the Plan Year involved. Employees who would be Participants but for the
failure to make Salary Deferral Contributions shall be treated as Participants
on whose behalf no Salary Deferral Contributions have been made and shall be
included in the determination of the ADP. If this Plan and one or more other
plans which include cash or deferred arrangements are considered as one plan for
purposes of section 401(a)(4), 401(k) or 410(b) of the Code, the cash or
deferred arrangements included in such plans shall be treated as one arrangement
for purposes of this Section 4.2. For plan years beginning after December 31,
1989, plans may be aggregated in order to satisfy section 401(k) of the Code
only if they have the same plan year.
The Deferral Percentage taken into account under this Section 4.2 for any
Highly Compensated Employee who is a participant under two or more cash or
deferred arrangements, described in section 401(k) of the Code, of the Employer
or an Affiliate shall be determined as if all such cash or deferred arrangements
were treated as one cash or deferred arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements that have
different plan years, all such cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under regulations under section 401(k) of the Code.
For purposes of determining the ADP test, Section 401(k) Contributions must
be made before the last day of the twelve-month period immediately following the
Plan Year to which the contributions relate.
The Plan Administrator shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of 401(k) Bonus Contributions used
in such test.
The determination and treatment of the ADP amounts of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of the
Treasury.
(b) Notwithstanding any other provision of the Plan to the contrary,
"elective deferrals" (as defined in Code section 402(g)(3) to this Plan and all
other Qualified Plans maintained by the Employer on behalf of a Participant for
any calendar year may not exceed the dollar limitation in effect at the
beginning of such year under section 402(g) of the Code.
(c) If the Plan Administrator shall conclude that a reduction in the
Section 401(k) Contributions made for any Participant is or may be necessary or
advisable in order to comply with the limitations of Section 4.2(a) for any Plan
Year, the maximum percentage allowable for Salary Deferral Contributions shall
be reduced in accordance with the direction of the Plan Administrator.
(d) Any of the foregoing provisions to the contrary notwithstanding, a
Participant may, at such time and in such manner as the Plan Administrator may
prescribe, suspend or change the amount of reduction in Compensation provided
for under any applicable Compensation Reduction Agreement in order to avoid an
allocation of contributions to his Account which would violate the limitations
of Section 4.1, Section 4.2(a) or Section 4.2(b).
4.3 Limitations on After-Tax Contributions and Matching Contributions.
(a) Any other provision of this Plan to the contrary notwithstanding, the
After-Tax Contributions and ACP Matching Contributions for any Plan Year by or
on behalf of a Participant who is a Highly Compensated Employee shall be reduced
if and to the extent necessary in order that the "average contribution
percentage" (the "ACP") for Highly Compensated Employees for that Plan Year not
exceed the percentage determined under the following table, based on the ACP for
such year for all Participants who were Non-Highly Compensated Employees:
Non-Highly Compensated Highly Compensated
Employees Employees
---------------------- ------------------
Less than 2% 2 times column 1
2% - 8% column 1 plus 2%
More than 8% 1.25 times column 1
The ACP for a group of Participants means the average of the Contribution
Percentages calculated separately with respect to each Participant in the group
for the Plan Year involved. Participants who are eligible to make an After-Tax
Contribution or to receive an ACP Matching Contribution (including forfeitures)
regardless of whether such contributions have been made shall be included in the
determination of the ACP.
(b) The Contribution Percentage for any Participant who is a Highly
Compensated Employee and who is eligible to have Contribution Percentage Amounts
allocated to his account under two or more plans described in section 401(a) of
the Code, or arrangements described in section 401(k) of the Code that are
maintained by the Employer, shall be determined as if the total of such
Contribution Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more cash or deferred arrangement
that have different plan years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under regulations under section 401(m) of the Code.
(c) In the event that this Plan satisfies the requirements of sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then the Contribution
Percentages of Employees shall be determined as if all such plans were a single
plan. For plan years beginning after December 31, 1989, plans may be aggregated
in order to satisfy section 401(m) of the Code only if they have the same plan
year.
(d) For purposes of determining the ACP test, Employee Contributions are
considered to have been made in the Plan Year in which contributed. ACP Matching
Contributions will be considered made for a Plan Year if made no later than the
end of the twelve-month period beginning on the day after the close of the Plan
Year.
(e) If the sum of the ADP and ACP of Highly Compensated Employees exceeds
the Aggregate Limit, then the Contribution Percentages of the Highly Compensated
Employees will be reduced (beginning with such Highly Compensated Employee whose
Contribution Percentage is the highest) so that the limit is not exceeded. The
amount by which each Highly Compensated Employee's Contribution Percentage
Amounts is reduced shall be treated as an Excess Aggregate Contribution. The ADP
and ACP of the Highly Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. This Section 4.3(e) shall not apply if
either the ADP or ACP of the Highly Compensated Employees does not exceed 1.25
multiplied by the ADP and ACP of the Non-Highly Compensated Employees.
(f) The Plan Administrator shall maintain records sufficient to demonstrate
satisfaction of the ACP test.
(g) The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
4.4 Distribution Of Excess Deferral Amounts.
(a) A Participant may assign to this Plan any Excess Deferral Amounts made
during a taxable year of the Participant by notifying the Plan Administrator in
writing no later than March 1 of the subsequent year. A Participant is deemed to
notify the Plan Administrator of any Excess Deferral Amounts that arise by
taking into account only those Excess Deferral Amounts under this Plan and any
other Qualified Plan. The Participant's notice shall specify the Participant's
Excess Deferral Amount for the preceding taxable year of the Participant and
shall be accompanied by the Participant's written statement that if such Excess
Deferral Amount is not distributed, such amount, when added to amounts deferred
under other plans or arrangements described in section 401(k), 408(k), 403(b),
457 or 501(c)(18) of the Code, will exceed the limit imposed on the Participant
by section 402(g) of the Code for the year in which those deferrals occurred.
(b) Notwithstanding any other provision of the Plan to the contrary, Excess
Deferral Amounts and income and loss allocable thereto shall be distributed no
later than each April 15 to Participants who claim such Excess Deferral Amounts
for the preceding taxable year of the Participant.
(c) The Excess Deferral Amounts distributed to a Participant shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to the Excess Deferral Amounts shall be the sum of (i) the income
or loss allocable to the Participant's Salary Deferral Contribution subaccount
for the taxable year multiplied by a fraction, the numerator of which is the
Excess Deferral Amounts on behalf of the Participant for the year and the
denominator of which is the value of the Participant's Salary Deferral
Contribution subaccount as of the last day of the taxable year, reduced by any
gain allocable to such amounts for the taxable year and increased by any loss
allocable to such amounts for the taxable year; and (ii) ten percent of the
amount determined under (i) multiplied by the number of whole calendar months
between the end of the Participant's taxable year and the date of distribution,
counting the month of distribution if the distribution occurs after the 15th of
such month.
4.5 Distribution of Excess Contributions.
(a) Notwithstanding any other provision of the Plan to the contrary, Excess
Contributions and income or loss allocable thereto shall be distributed no later
than the last day of each Plan Year to Participants on whose behalf such Excess
Contributions were made for the preceding Plan Year. If such excess amounts are
distributed more than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a ten percent excise tax will be imposed on the
Employer with respect to such amounts. Such distributions shall be made to
Highly Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such employees. Excess
Contributions of Participants who are subject to the family member aggregation
rules of section 414(q)(6) of the Code shall be allocated among the family
members in proportion to the Deferral Percentage Amounts of each family member
that is combined to determine the combined ADP.
(b) Excess Contributions shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess Contributions shall
be the sum: of (i) the income or loss allocable to the Participant's Salary
Deferral Contribution subaccount (and, if applicable, 401(k) Bonus Contribution
subaccount) for the Plan Year multiplied by a fraction, the numerator of which
is the Excess Contributions on behalf of the Participant for the Plan Year and
the denominator of which is the value of the Participant's Salary Deferral
Contribution subaccount (and 401(k) Bonus Contribution subaccount if 401(k)
Bonus Contributions were Deferral Percentage Amounts included in the ADP test)
on the last day of the Plan Year, reduced by any gain allocable to such
subaccount for the Plan Year and increased by any loss allocable to such
subaccount for the Plan Year; and (ii) ten percent of the amount determined
under (i) multiplied by the number of whole calendar months between the end of
the Plan Year and the date of distribution, counting the month of the
distribution if the distribution occurs after the 15th of such month.
(c) If the Adoption Agreement provides that 401(k) Bonus Contributions for
the Plan Year are allocated to the Accounts of eligible Participants who elected
a Salary Deferral Contribution for the Plan Year and 401(k) Bonus Contributions
were made with respect to the Plan Year for which an Excess Contribution is
being distributed, Excess Contributions shall be distributed from a
Participant's Salary Deferral Contributions subaccount and 401(k) Bonus
subaccount (if applicable) in proportion to the Participant's Salary Deferral
Contributions and 401(k) Bonus Contributions (to the extent used in the ADP
test) for the Plan Year. Excess Contributions otherwise shall be distributed
first from the Participant's Salary Deferral Contribution subaccount and shall
be distributed from the Participant's 401(k) Bonus Contribution subaccount only
to the extent that such Excess Contributions exceed the balance in the
Participant's Salary Deferral Contribution subaccount.
(d) Excess Contributions shall be treated as Annual Additions under the
Plan.
4.6 Distribution of Excess Aggregate Contributions.
(a) Notwithstanding any other provision of the Plan to the contrary, Excess
Aggregate Contributions and income allocable thereto shall be forfeited, if
otherwise forfeitable under the terms of this Plan, or if not forfeitable,
distributed no later than the last day of each Plan Year to Participants to
whose Accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions of Participants who are
subject to the family member aggregation rules of section 414(q)(6) of the Code
shall be allocated among the family members in proportion to the Contribution
Percentage Amounts of each family member that is combined to determine the
combined ACP. If such Excess Aggregate Contributions are distributed more than 2
1/2 months after the last day of the Plan Year in which such excess amounts
arose, a ten percent excise tax will be imposed on the employer maintaining the
Plan with respect to those amounts. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan.
(b) Excess Aggregate Contributions shall be adjusted for any income or loss
up to the date of distribution. The income or loss allocable to Excess Aggregate
Contributions is the sum of: (i) income or loss allocable to the Participant's
After-Tax Contribution subaccount and Matching Contribution subaccount (and, if
applicable, Salary Deferral Contribution subaccount and 401(k) Bonus
Contribution subaccount) for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's Excess Aggregate Contributions for the
year and the denominator of which is the applicable Participant's subaccount
balance(s) attributable to Contribution Percentage Amounts as of the last day of
the Plan Year, reduced by any gain allocable to such amounts for the Plan Year
and increased by any loss allocable to such amounts for the Plan Year; and (ii)
ten percent of the amount determined under (i) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of such
month.
(c) Excess Aggregate Contributions shall be forfeited, if otherwise
forfeitable under the terms of the Plan (or, if not forfeitable, distributed),
on a pro rata basis from the Participant's After-Tax Contribution subaccount and
Matching Contribution subaccount (and, if applicable, the Participant's 401(k)
Bonus Contribution subaccount and Salary Deferral subaccount).
(d) Amounts forfeited by Highly Compensated Employees under this Section
4.6 shall be treated as Annual Additions and applied to reduce Matching
Contributions in the manner described in Section 3.8. ARTICLE V: INVESTMENTS,
VALUATIONS, 5.1 Investments. All contributions to and amounts held in the Trust
Fund shall, except as provided in Section 5.4 be invested and reinvested in the
manner provided in Article X.
ARTICLE V: INVESTMENTS, VALUATIONS,
LOANS AND WITHDRAWALS
5.1 Investments. All contributions to and amounts held in the Trust Fund
shall, except as provided in Section 5.4 be invested and reinvested in the
manner provided in Article X.
5.2 Investment Directions.
(a) Unless otherwise specified in the Adoption Agreement, each Participant
shall designate to the Plan Administrator the investments in which contributions
made on behalf of or by that Participant are to be invested. The Plan
Administrator shall transmit such instructions to the Trustee together with the
contributions to which they relate. If a Participant has the right to specify
the investments in which contributions made on behalf of or by that Participant
are to be invested, then that Participant may change his investment designation
from time to time with respect to all or the portion of the balance held in any
Account of that Participant by an appropriate designation to the Plan
Administrator which the Plan Administrator shall promptly transmit to the
Trustee. The Plan Administrator may prescribe such rules and forms with respect
to investment designations under this Section 5.2 as the Plan Administrator
deems appropriate and may establish reasonable limits with respect to the
frequency of investment designation changes. In transmitting investment
instructions to the Trustee, the Plan Administrator may aggregate instructions
of various Participants into a single instruction and may instruct the Trustee
to effectuate only the net investment transaction of offsetting Participant
instructions.
(b) To the extent the Adoption Agreement so provides, the Employer may
restrict the investments which may be made in accordance with Subsection (a) of
this Section 5.2 to specific investments or investments of a specific type,
provided, however, that nothing in the Adoption Agreement shall be construed to
give the Employer the authority to restrict investments in contravention of the
Treasury Regulations under Code section 401(a)(4). In such event, the Employer
may designate another person, persons or committee to discharge its investment
duties under the Plan and thereafter all references to the Employer in the
Adoption Agreement and the Prototype Plan, with respect to investment duties,
shall be construed as references to such person, persons or committee.
5.3 Determination of Value of Trust Fund and Allocation of Net Earnings or
Losses. The Plan Administrator shall value the Trust Fund at its fair market
value on each Valuation Date, based on information regarding asset values
available from the Custodian. As of each Valuation Date, the Plan Administrator
shall determine the net amount of the Trust Fund's income, expenses, gains and
losses (realized and unrealized) since the preceding Valuation Date ("net gain
or loss").
As of each Valuation Date the net gain or loss of the Trust Fund for the
period then ending shall be allocated to the Accounts (and subaccounts) of all
Participants (or Beneficiaries) in proportion to the value of their Accounts
(and subaccounts) on the preceding Valuation Date. The net gain or loss
specifically allocable to a Participant's subaccount shall be separately
identified and accounted for. As of each Valuation Date, appropriate adjustment
will be made for the allocation of contributions, forfeitures and withdrawals
and distributions since the preceding Valuation Date.
If as of any Valuation Date, other than the last day of the Plan Year, only
a portion of the Trust Fund is affected by a contribution, distribution,
withdrawal or investment reallocation, only the portion so affected need be
valued by the Plan Administrator and the preceding provisions of this Section
5.3 shall be applied separately with respect to such portion.
5.4 Loans.
(a) If permitted pursuant to the Adoption Agreement, a Participant may
apply, pursuant to the procedure established in accordance with subsection (d)
of this Section 5.4, for a loan from his Account. Loans shall be made available
to all Participants on a reasonably equivalent basis, subject to the following:
(i) Each loan shall be evidenced by a negotiable promissory note;
(ii) Each loan shall bear a reasonable rate of interest;
(iii) Each loan shall be secured by the Participant's Account.
(iv) If Article VII applies with respect to a Participant, the
Participant must obtain the consent of his spouse, if any, to use any part
of the Participant's Account as security for a loan to the Participant,
such consent to be obtained within the 90-day period before all or a part
of an Account is so used. The consent must be in writing, must acknowledge
the effect of the loan, and must be witnessed by a person approved for this
purpose by the Plan Administrator or a notary public. Such consent shall
thereafter be binding with respect to the consenting spouse or any
subsequent spouse with respect to that loan. A new consent shall be
required if the Account balance is used for renegotiation, extension,
renewal, or other revision of the loan. If a valid spousal consent has been
obtained then, notwithstanding any other provision of this Plan, the
portion of the Participant's vested account balance used as a security
interest held by the Plan by reason of a loan outstanding to the
Participant shall be taken into account for purposes of determining the
account balance payable at the time of death or distribution, but only if
the reduction is used as repayment of the loan. If less than 100% of the
Participant's vested Account balance excluding the portion of the
Participant's vested Account balance used as a security interest held by
the Plan by reason of a loan outstanding to the Participant is payable to
the surviving spouse, then the Account balance shall be adjusted by first
reducing the vested Account balance by the amount of the security used as
repayment of the loan, and then determining the benefit payable to the
surviving spouse;
(v) No loan to a Participant shall exceed the value of the vested
Account balance of the Participant at the time the loan is made;
(vi) No loan to any Participant can be made to the extent that such
loan when added to the outstanding balance of all other loans to the
Participant would exceed the lesser of (A) $50,000 reduced by the excess,
if any, of the highest outstanding balance of loans during the one-year
period ending on the day before the loan is made, over the outstanding
balance of loans from the Plan on the date the loan is made; or (B)
one-half the present value of the Participant's nonforfeitable accrued
benefit under the Plan; and for purposes of this clause (vi), all loans
from all Qualified Plans of the Employer or an Affiliate shall be
aggregated. An assignment or pledge of any portion of a Participant's
Account will be treated as a loan under this clause (vi);
(vii) Each loan must, by its terms, require that repayment of
principal and interest be amortized in level payments, not less frequently
than quarterly, over a period not extending beyond five years from the date
of the loan; provided that the repayment term may be extended beyond five
years if the loan is used to acquire a dwelling unit which within a
reasonable time (determined at the time the loan is made) will be used as
the principal residence of the Participant.
(viii) No loan, shall be made to an Owner-Employee or, if the Employer
or an Affiliate is a corporation, to any "shareholder-employee" of the
Employer or Affiliate. For this purpose, a "shareholder-employee" means an
employee or officer of an electing small business corporation, i.e., an "S
corporation" as defined in section 1361 of the Code, who owns (or is
considered as owning within the meaning of section 318(a)(1) of the Code),
on any day during the taxable year of such corporation, more than 5% of the
outstanding stock of the corporation; and
(ix) No loan, shall be made available to Highly Compensated Employees
in an amount greater than the amount made available to other Employees.
(b) If a Participant requests a loan, the funds to be loaned will be taken
from the subaccount or subaccounts specified by the Participant or, in the
absence of such a specification, from the subaccounts in the order specified in
subsection (f) of Section 5.5 pertaining to withdrawals. If specific assets of
the Trust Fund are allocable to individual Participants' Accounts, such assets
equal in value to the amount of the loan shall be sold at the direction of the
Participant to provide the funds to be loaned.
(c) The promissory note executed by the Participant shall be held by the
Plan Administrator, as agent for the Trustee, as an asset of the Account.
Principal and interest payments on a loan to a Participant shall be credited
directly to the subaccounts of the Participant's Account from which the funds
loaned were derived, in the same proportions that the funds had been attributed
to such subaccounts. Any loss caused by default on a Participant's loan
obligation shall be borne solely by that Account. Anything herein to the
contrary notwithstanding, in the event of such a default, foreclosure on the
promissory note and attachment of security will not occur until a distributable
event occurs under the Plan with respect to the Participant involved.
(d) The Employer shall prepare a written document setting forth the
following information regarding loans from the Plan and such other information
as the Employer deems relevant:
(i) The identity of the person or positions authorized to administer
the loan program;
(ii) A procedure for applying for loans;
(iii) The basis on which loans will be approved or denied;
(iv) Limitations (if any) on the types and amount of loans offered;
(v) The procedure under the program for determining a reasonable rate
of interest;
(vi) The events constituting default and the steps that will be taken
to preserve Plan assets in the event of such default; and
(vii) The minimum loan amount.
The provisions of that document are incorporated herein by this reference;
provided, however, that if any provision of that document conflicts with any
other provision of the Plan, the other Plan provision shall control.
(e) Following a Participant's death, the provisions of this Section 5.4,
other than subsection (a)(iv) hereof, shall apply to the Participant's
Beneficiary as if the Beneficiary were the Participant, but only if that
Beneficiary is a "party in interest" (as defined in section 3(14) of ERISA).
(f) The provisions of this Section 5.4 shall apply to a Former Participant
as if that Former Participant were a Participant, but only if that Former
Participant is a "party in interest" (as defined in section 3(14) of ERISA).
(g) Neither the Trustee nor the Custodian shall have any responsibility for
determining compliance with applicable United States Department of Labor
regulations regarding loans under this Section, for perfecting any security
interest in collateral securing any loan, or for enforcing payment or collection
of any loan. If a loan granted under this Section goes into default, the Plan
Administrator shall immediately notify the Trustee and provide instructions to
the Trustee as to the manner in which the loan is to be reflected on the
Trustee's records from that time forward.
5.5. Withdrawals
(a) A Participant may withdraw from his Account an amount not in excess of
the amount attributable to the Participant's After-Tax Contributions not
previously withdrawn or the value thereof as determined in accordance with
Section 6.7 at the time the withdrawal is effected, whichever is less. No amount
will be forfeited solely as a result of a Participant's withdrawal of an amount
pursuant to this Section 5.5(a). Notwithstanding the foregoing, if the Plan is
subject to the annuity requirements of Section 7.1, then the Participant's
spouse must consent to such withdrawals in the manner provided in Section
7.1(f).
(b) To the extent provided in the Adoption Agreement, a Participant may
make withdrawals from his Account prior to termination of Employment in
accordance with this Section 5.5(b). Notwithstanding the foregoing, if the Plan
is subject to the annuity requirements of Section 7.1, then the Participant's
spouse must consent to any such withdrawals in the manner provided for in
Section 7.1(f).
(i) A Participant may withdraw an amount attributable to Profit-
Sharing Contributions, Salary Deferral Contributions, 401(k) Bonus
Contributions, Matching Contributions, Rollover Contributions and Trustee
Transfers, not in excess of the vested portion of such contributions if the
withdrawal is made after the Participant attains age 59-1/2.
(ii) A Participant shall be permitted to make a hardship withdrawal of
an amount attributable to the vested portion of Salary Deferral
Contributions (and any earnings credited to a Participant's Account as of
the end of the last Plan Year ending before July 1, 1989), Profit-Sharing
Contributions, Matching Contributions, Rollover Contributions and Trustee
Transfers (without regard to attainment of age 59-1/2 or Disability) if the
Participant establishes that an immediate and heavy financial need exists
and the withdrawal is necessary to satisfy such financial need.
(A) An immediate and heavy financial need exists when the
hardship withdrawal will be used to pay any of the following:
(1) Expenses incurred or necessary for medical care (within
the meaning of section 213(d) of the Code) of the Participant,
the Participant's spouse or any dependent of the Participant;
(2) Down payment on the principal residence of the
Participant;
(3) Tuition and related educational fees for the next twelve
months of post-secondary education for the Participant or the
Participant's spouse, children or dependents; or
(4) To prevent eviction of the Participant from the
Participant's residence or foreclosure on the mortgage of the
Participant's principal residence.
(B) The withdrawal may be treated as necessary to satisfy an
immediate and heavy financial need if:
(1) The Employee has obtained all distributions other than
hardship distributions, and all nontaxable (at the time of the
loan) loans from the Plan and all other plans maintained by the
Employer;
(2) The Employee's Salary Deferral Contributions (and After-
Tax Contributions) under this Plan and all similar contributions
under all other plans maintained by the Employer will be
suspended for twelve months after the receipt of the hardship
distribution; and
(3) The Employee may not make Salary Deferral Contributions
under this Plan and all other plans maintained by the Employer
for the Employee's taxable year immediately following the taxable
year of the hardship distribution in excess of the applicable
limit under section 402(g) of the Code for such taxable year less
the amount of such employee's Salary Deferral Contributions for
the taxable year of the hardship distribution.
(C) The amount of any hardship withdrawal by a Participant shall
not exceed the amount required to meet the immediate and heavy
financial need created by the hardship (including amounts necessary to
pay any federal, state or local income taxes or penalties reasonably
anticipated to result from the distribution).
(c) If a withdrawal is made from a subaccount in which the Participant is
less than fully vested, the vested portion of the amount remaining in such
subaccount shall be determined by reference to Section 8.2(d).
(d) Any withdrawal by a Participant under the Plan shall be made only after
the Participant files a written request with the Plan Administrator specifying
the amount of funds requested to be withdrawn. In the case of a hardship
withdrawal, such written request must contain, or be accompanied by, information
necessary to establish that the request can be properly granted pursuant to the
criteria established by clause (i) of Section 5.5(b). Upon approving any
withdrawal, the Plan Administrator shall furnish the Trustee with written
instructions directing the Trustee to pay the withdrawal either (i) to the
Participant in a single-sum payment or (ii) in the form of a "direct transfer of
an eligible rollover distribution" as described in section 401(a)(31) of the
Code (in accordance with the provisions of Section 6.4(d)(i) and (iii), as
applicable). In making any withdrawal payment, the Trustee shall be fully
entitled to rely on the instructions furnished by the Plan Administrator, and
shall be under no duty to make any inquiry or investigation with respect
thereto.
(e) The Plan Administrator may prescribe uniform and nondiscriminatory
rules and procedures limiting the number of times a Participant may make a
withdrawal under the Plan during any Plan Year, and the minimum amount a
Participant may withdraw on any single occasion.
(f) Unless the Participant directs otherwise, withdrawals shall be made:
(i) First, from amounts attributable to After-Tax Contributions;
(ii) Second, from amounts attributable to Rollover Contributions;
(iii) Third, from amounts attributable to Trustee Transfers;
(iv) Fourth, from amounts attributable to Salary Deferral
Contributions;
(v) Fifth, from amounts attributable to 401(k) Bonus Contributions;
and
(vi) Sixth, from amounts attributable to vested Profit-Sharing
Contributions and Matching Contributions.
ARTICLE VI: DISTRIBUTIONS
6.1 Timing of Payment of Benefits upon Normal Termination of Service or by
Reason of Disability.
(a) When a Participant terminates from service with the Employer and each
Affiliate by retirement or otherwise, except by reason of the Participant's
death, or if a Participant incurs a Disability regardless of whether his service
terminates, distribution of the vested portion of the Participant's Account
shall commence, subject to subsections (b) and (c) of this Section 6.1 and to
Article VII, in the form, and from among the methods prescribed in Section
6.4(b), and as of the date elected by the Participant. Unless the Participant
elects otherwise, distributions to the Participant must commence not later than
the 60th day after the close of the Plan Year in which either (i) the
Participant reaches age 65 or his or her Normal Retirement Age, if earlier, or
(ii) the Participant terminates service with the Employer and each Affiliate,
whichever is later. Notwithstanding the foregoing, the failure of a Participant
to consent to a distribution while a benefit is Immediately Distributable shall
be deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy the foregoing sentence. Subject to subsections (b) and (c)
of this Section 6.1 and to Article VII, a Participant may revoke any election
made under this subsection (a) and make a new election under this subsection (a)
at any time before the distribution involved commences. Any election by the
Participant under this subsection (a) (or any revocation of such an election) is
to be set forth in a written statement describing the distribution involved and
the date on which the distribution is to commence (or was to have commenced in
the case of a revocation), which election, subject to Section 7.1(c), shall be
delivered to the Plan Administrator within such period of time prior to the date
the distribution is to commence as is acceptable to the Plan Administrator.
(b) Notwithstanding any other provision of this Article to the contrary,
distribution of the vested portion of the Account of any Participant must
commence by no later than the Required Beginning Date.
(c) If the value of the vested portion of a Participant's Account balance
exceeds, or at any time of any prior distribution exceeded, $3,500 and the
vested portion of the Account is Immediately Distributable, the Participant must
consent to any distribution of the vested portion of the Account. The consent of
the Participant shall be obtained in writing within the 90-day period ending on
the "annuity starting date". The "annuity starting date" is the first day of the
first period for which an amount is paid as an annuity or any other form. The
Plan Administrator shall notify the Participant of the right to defer any
distribution until the vested portion of the Participant's Account is no longer
Immediately Distributable. Such notification shall include a general description
of the material features and an explanation of the relative values of the
optional forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 7.1(e), and shall be provided no less
than 30 days and no more than 90 days prior to the "annuity starting date".
(d) The provisions of subsection (c) to the contrary notwithstanding, the
consent of the Participant shall not be required to the extent that a
distribution is required to satisfy section 401(a)(9) or section 415 of the
Code. In addition, upon termination of this Plan if the Plan does not offer an
annuity option purchased from a commercial provider, and if the Employer or any
Affiliate does not maintain another Defined Contribution Plan, other than an
employee stock ownership plan defined in section 4975(e)(7) of the Code, the
Participant's Account balance will, without the Participant's consent, be
distributed to the Participant. Notwithstanding the foregoing, if any Affiliate
maintains another Defined Contribution Plan, other than an employee stock
ownership plan defined in section 4975(e)(7) of the Code, then the Participant's
Account balance will be transferred, without the Participant's consent, to the
other plan if the Participant does not consent to an immediate distribution.
6.2 Distributions on Death. If a Participant dies before distribution of the
vested portion of the Participant's Account has been completed, the remaining
amount, as well as all assets subsequently credited to the Account, if any,
shall be distributed to the Participant's Beneficiary in the form, at the time
and from among the methods prescribed in Section 6.4(b)(i), (ii) or (iii) as
elected by the Participant or the Beneficiary in accordance with subsection (c)
of this Section 6.2; provided that:
(a) If distributions commenced to the Participant but were not completed
before the Participant's death, the remaining amount to be paid to the
Participant's Beneficiary may continue to be paid in the form and over the
period in which the distributions were being made, but in any event must
continue to be made at least as rapidly as under the method of distribution
being used prior to the Participant's death;
(b) If a Participant dies before distributions to the Participant have
commenced, distribution of the vested portion of the Participant's Account must
be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death except to the extent that an election is
made by the Participant or the designated Beneficiary involved to have
distributions made in accordance with the following clauses (i) or (ii):
(i) if any portion of the Participant's Account is payable to a
designated Beneficiary who is an individual, distributions may be made over
the life or over a period certain not greater than the life expectancy of
the designated Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Participant died; and
(ii) if the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance with
clause (i) of this subsection (b) shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the calendar
year in which the Participant died or (2) December 31 of the calendar year
in which the Participant would have attained age 70 1/2, provided that the
surviving spouse may elect to have distributions commence within the 90-day
period following the date of the Participant's death.
(c) If the Participant did not by the time of his death make an election
with respect to benefits payable pursuant to this Section 6.2 on a form
acceptable to the Plan Administrator, the Participant's designated Beneficiary
must elect the method of distribution no later than the earlier of (i) December
31 of the calendar year in which distributions would be required to begin under
this section, or (ii) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(d) For purposes of Section 6.2(c), if the surviving spouse dies after the
Participant, but before payments to such spouse begin, the provisions of Section
6.2(b), with the exception of paragraph (ii) therein, shall be applied as if the
surviving spouse were the Participant.
(e) For purposes of this Section 6.2, any amount paid to a child of the
Participant will be treated as if it had been paid to the Participant's
surviving spouse if the amount becomes payable to such surviving spouse when the
child reaches the age of majority.
(f) For purposes of this Section 6.2, distribution of a Participant's
interest is considered to begin on the Participant's Required Beginning Date
(or, if Section 6.2(d) is applicable, the date distribution is required to begin
to the surviving spouse pursuant to Section 6.2(c)). If distribution in the form
of an annuity irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
(g) Any election by a Beneficiary under this Section 6.2 is to be set forth
in a written statement describing the distribution involved and the date on
which the distribution is to be made or commence, which election shall be
delivered to the Plan Administrator within such period of time prior to the date
the distribution is to be made or commence as is acceptable to the Plan
Administrator. If no such timely election is received, the distribution shall be
made, if to a surviving spouse, in accordance with Section 7.1(c), and, if to
some other Beneficiary, to the Beneficiary in a single sum, the distribution to
be made in either case by a date such as to satisfy the requirements of this
Section 6.2.
6.3 Beneficiary.
(a) For purposes of the Plan, a Beneficiary is the person or persons
designated as such in accordance with section 401(a)(9) of the Code and the
proposed regulations thereunder by the Participant or by the Participant's
surviving spouse if the Participant's surviving spouse is entitled to receive
distributions under the Plan. Such a designation by the Participant's surviving
spouse, however, shall relate solely to the distributions to be made under the
Plan after the death of both the Participant and the surviving spouse. A
Beneficiary designation shall be on a form acceptable to the Plan Administrator
for use in connection with the Plan, signed by the designating person, and
subject to the last sentence of this subsection (a), filed with the Plan
Administrator in accordance with this Section 6.3 not later than 30 days after
the designating person's death. The form may name individuals, trusts or estates
to take upon the contingency of survival and may specify or limit the manner of
distribution thereto. Any beneficiary designation made and in effect under a
Qualified Plan immediately prior to that Plan's amendment and continuation in
the form of this Plan shall be deemed to be a valid beneficiary designation
filed under this Plan to the extent consistent with this Plan. In the event a
Participant or the Participant's surviving spouse, as the case may be, fails to
properly designate a Beneficiary (including, as improper, a designation to which
the Participant's surviving spouse did not properly consent) or in the event
that no properly designated Beneficiary survives the Participant or the
Participant's surviving spouse, as applicable, then the Beneficiary of such
person shall be his surviving spouse or, if none, his issue per stirpes or, if
no issue, his estate. The designation form last accepted by the Plan
Administrator during the designating person's lifetime before such distribution
is to commence shall be controlling and, whether or not fully dispositive of the
vested portion of the Account of the Participant involved, thereupon shall
revoke all such forms previously filed by that person.
(b) Notwithstanding subsection (a) of this Section 6.3, the designation
after December 31, 1984 by a married Participant of any Beneficiary other than
the Participant's spouse, or the change of any such Beneficiary to a new
Beneficiary other than the Participant's spouse, shall not be valid unless made
in writing and consented to by the Participant's spouse. The spouse's consent to
such designation must be made in the manner described in Section 7.1(g).
(c) Any beneficiary designation made and in effect under a Qualified Plan
immediately prior to that plan's amendment and continuation in the form of this
Plan shall be deemed to be a valid beneficiary designation filed under this Plan
to the extent consistent with this Plan. If such beneficiary designation was
made with respect to a Qualified Plan that permitted the Participant to
designate without spousal consent a beneficiary to receive any portion of the
Participant's Account balance in the event of the Participant's death, with
respect to such beneficiary designation under this Plan, Section 7.1(c) shall be
applied by application of the greater of (i) that portion of the Participant's
Account with respect to which the spouse has been designated the beneficiary or
(ii) 50% of the vested portion of the Participant's Account, toward the purchase
of a Qualified Preretirement Survivor Annuity and the balance of the
Participant's Account shall be paid to the designated beneficiary pursuant to
Section 6.3.
6.4 Commencement and Modes of Distribution.
(a) Subject to the foregoing Sections of this Article VI and to subsections
(b), (c) and (d) of this Section 6.4, and to Article VII, the Plan Administrator
shall direct the Trustee in writing as to the timing and manner of distributions
under this Article VI in accordance with the election of the Participant or
Beneficiary, as relevant.
(b) Upon receipt of a proper written order as required in subsection (a) of
this Section 6.4, the Trustee shall distribute the vested portion of a
Participant's Account to the Participant or the Participant's Beneficiary, as
the case may be, in one of the following ways as specified in the order:
(i) In a single-sum;
(ii) If permitted in the Adoption Agreement, in installment payments
over a period described in Section 6.4(c)(iii) or (iv);
(iii) Only to the extent required pursuant to Article VII, through the
purchase of a non-transferable annuity contract issued by an insurance
company providing periodic benefits, whether fixed or variable, or both;
(iv) In a "direct rollover" to an "eligible retirement plan", in
accordance with Section 6.4(d); or
(v) Subject to Section 6.4(d), in any combination of the foregoing
forms.
Each distribution shall be made in cash unless the order specifies that all or a
portion of the distribution is to be made in kind and the Custodian determines
that the assets directed to be distributed are capable of being distributed in
kind.
(c) Distributions under the Plan, if not made in a single-sum, as of the
first Distribution Calendar Year may only be made over one of the following
periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and a designated Beneficiary,
(iii) a period certain not extending beyond the Life Expectancy of the
Participant, or
(iv) a period certain not extending beyond the Life Expectancy of the
Participant and a designated Beneficiary.
(d) (i) Upon receiving directions from a Participant who is eligible
to receive a distribution from the Plan which constitutes an "eligible
rollover distribution," as defined in section 402(c)(4) of the Code, to
transfer all or any part of such distribution to an "eligible retirement
plan," as defined in section 402(c)(8)(B) of the Code, the Plan
Administrator shall cause the portion of the distribution which the
Participant has elected to so transfer to be transferred directly to such
"eligible retirement plan"; provided, however, that the Participant shall
be required to notify the Plan Administrator of the identity of the
eligible retirement plan at the time and in the manner that the Plan
Administrator shall prescribe and the Plan Administrator may require the
Participant or the eligible retirement plan to provide a statement that the
eligible retirement plan is intended to be qualified under section 401(a)
of the Code (if the plan is intended to be so qualified) or otherwise meets
the requirements necessary to be an "eligible retirement plan."
(ii) Upon receiving instructions from a Beneficiary who is the
Participant's spouse or the Participant's former spouse who is an alternate
payee under a "qualified domestic relations order" within the meaning of
section 414(p) of the Code and in either case who is eligible to receive a
distribution pursuant to the Plan that constitutes an "eligible rollover
distribution" as defined in section 402(c)(4) of the Code, to transfer all
or any part of such distribution to a plan that constitutes an "eligible
retirement plan" under Section 402(a)(5) of the Code with respect to that
distribution, the Plan Administrator shall cause the portion of the
distribution which such spouse or alternate payee has elected to so
transfer to the eligible retirement plan so designated; provided, however,
that the spouse or alternate payee shall be required to notify the Plan
Administrator of the identity of the eligible retirement plan at the time
and in the manner that the Plan Administrator shall prescribe.
(iii) The Plan Administrator may accomplish the direct transfer
described in subparagraph (i) or (ii), as applicable, by delivering a check
to the Participant, spouse or alternate payee who is the Participant's
former spouse (in each case, a "Distributee") which is payable to the
trustee, custodian or other appropriate fiduciary of the "eligible
retirement plan," or by such other means as the Plan Administrator may in
its discretion determine. The Plan Administrator may establish such rules
and procedures regarding minimum amounts which may be the subject of direct
transfers and other matters pertaining to direct transfers as it deems
necessary from time to time.
(e) If distribution of the vested portion of the Participant's Account is
to be made in other than a single-sum, the following minimum distribution rules
shall apply on or after the Required Beginning Date:
(i) If a Participant's Benefit is to be distributed over (1) a period
not extending beyond the Life Expectancy of the Participant or the Life
Expectancy of the Participant and the Participant's designated Beneficiary
or (2) a period not extending beyond the Life Expectancy of the designated
Beneficiary, the amount required to be distributed for each calendar year,
beginning with distributions for the first Distribution Calendar Year, must
at least equal the quotient obtained by dividing the Participant's Benefit
by the Applicable Life Expectancy.
(ii) For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present value of
the amount available for distribution is paid within the Life Expectancy of
the Participant.
(iii) For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for the first
Distribution Calendar Year shall not be less than the quotient obtained by
dividing the Participant's Benefit by the lesser of (1) the Applicable Life
Expectancy or (2) if the Participant's spouse is not the designated
Beneficiary, the applicable divisor determined from the table set forth in
Q&A-4 of proposed Treasury Regulation ss.1.401(a)(9)-2. Distributions after
the death of the Participant shall be distributed using the Applicable Life
Expectancy in subsection (d)(i) of this Section 6.4 as the relevant divisor
without regard to proposed Treasury Regulation Section ss.1.401(a)(9)-2.
(iv) The minimum distribution required for the Participant's first
Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar years,
including the minimum distribution for the Distribution Calendar Year in
which the Employee's Required Beginning Date occurs, must be made on or
before December 31 of that Distribution Calendar Year.
(f) An annuity contract referred to in subsection (b)(iii) of this Section
6.4 shall provide for payments satisfying the requirements of this Plan,
including specifically subsections (c) and (d) of this Section 6.4 as applicable
for annuity benefits under section 401(a)(9) of the Code and the proposed
regulations thereunder.
(g) Any other provision of the Plan to the contrary notwithstanding, if the
value of the vested portion of a Participant's Account balance payable to the
Participant or a Beneficiary of the Participant does not exceed, and at the time
of any prior distribution to the Participant or Beneficiary, as relevant, did
not exceed, $3,500, the value of the vested portion of the Participant's Account
shall be paid to the Participant or Beneficiary, as relevant, only in a single
sum as soon as practicable following the time the Participant's or Beneficiary's
right to receive payment arises.
6.5 Change in Form or Timing of Benefit Payments. Any person whose payments are
being deferred or who is receiving installment payments may request acceleration
or other modification of the form of benefit distribution, provided that any
necessary spousal consent to such change required pursuant to Section 7.1(g) is
obtained.
6.6 Transitional Rule.
(a) Notwithstanding any provision of this Article VI to the contrary, but
subject to Section 7.1(b), distributions on behalf of any Participant, including
a "5- percent owner" (as defined in Section 1.61) may be made in accordance with
all of the following requirements (regardless of when such distribution
commences):
(i) The distribution is one which would not have disqualified the Plan
or a predecessor plan under section 401(a)(9) of the Code as in effect
prior to amendment of that section by the Deficit Reduction Act of 1984;
(ii) The distribution is in accordance with a method of distribution
designated by the Participant whose interest is being distributed or, if
the Participant is deceased, by a Beneficiary of that Participant;
(iii) Such designation was in writing, was signed by the Participant
or the Beneficiary, and was made before January 1, 1984;
(iv) The Participant had accrued a benefit under this Plan, or under a
Qualified Plan with respect to which this Plan is a continuation, as of
December 31, 1983;
(v) The method of distribution designated by the Participant or the
Beneficiary specifies the time at which distribution will commence, the
period over which distributions will be made, and in the case of any
distribution upon the Participant's death, the Beneficiaries of the
Participant listed in order of priority.
(b) A distribution upon death will not be covered by the rule set forth in
subsection (a) of this Section 6.6 unless the information in the designation
contains the required information described therein with respect to the
distributions to be made upon the death of the Participant. For any distribution
which commenced before January 1, 1984, but continued after December 31, 1983,
the Participant, or the Beneficiary, to whom such distribution is being made,
will be presumed to have designated the method of distribution under which the
distribution is being made if the method of distribution was specified in
writing and the distribution satisfies the requirements in clauses (i) and (v)
of subsection (a) of this Section 6.6. If a designation is revoked, any
subsequent distribution must satisfy the requirements of section 401(a)(9) of
the Code and the proposed regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin, the total amount not
yet distributed which would have been required to have been distributed to
satisfy section 401(a)(9) of the Code and the proposed regulations thereunder,
but for an election made pursuant to section 242(b)(2) of the Tax Equity and
Fiscal Responsibility Act of 1982, shall be distributed by the end of the
calendar year following the calendar year in which the revocation occurs. For
calendar years beginning after December 31, 1988, such distributions must meet
the minimum distribution incidental benefit requirements in proposed Treasury
Regulation ss.1.401(a)(9)-2.
Any changes in the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of another Beneficiary
(one not named in the designation) under the designation will not be considered
to be a revocation of the designation, so long as such substitution or addition
does not alter the period over which distributions are to be made under the
designation, directly or indirectly (for example by altering the relevant
measuring life). In the case in which an amount is transferred or rolled over
from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of proposed
Treasury Regulation ss.1.401(a)(9)-2 shall apply.
6.7 Valuation. For purposes of determining the amount of a distribution (or
withdrawal), the number of shares or units held in the Participant's Account to
be liquidated or distributed (or withdrawn), as relevant, shall be determined as
of the Valuation Date coinciding with or immediately preceding the date of the
distribution (or withdrawal).
6.8 Other Rules.
(a) Notwithstanding the preceding provisions of this Article VI, payment
may be delayed where the amount of a payment otherwise required to commence on
any date cannot be ascertained, or payment on such date cannot be made because
the Plan Administrator has been unable to locate the payee after making
reasonable efforts to do so. In either case, a payment, retroactive to the date
payment should have commenced, shall be made no later than 60 days after the
earliest date on which the amount of the payment can be ascertained or the payee
is located (whichever is applicable).
(b) In the event that the Plan Administrator cannot locate any payee to
whom a payment is due under the Plan, and no other payee has become entitled
thereto pursuant to any provision of the Plan, the benefit in respect of which
such payment is to be made shall be forfeited at such time as the Plan
Administrator shall determine in its sole discretion (but in all events prior to
the time such benefit would otherwise escheat under any applicable state law);
provided, that any benefit so forfeited shall be restored if such person
subsequently makes a valid claim for such benefit.
(c) All distributions required under this Article VI shall be determined
and made in accordance with the proposed regulations under Section 401(a)(9) of
the Code, including the minimum distribution incidental benefit requirement of
proposed Treasury Regulations ss.1.401(a)(9)-2.
(d) Any provision of the Plan to the contrary notwithstanding other than
the provisions of Article IV relating to distributions in connection with the
limitations of that Article, Salary Deferral Contributions and 401(k) Bonus
Contributions, and income allocable to each, are not distributable to a
Participant or his Beneficiary earlier than upon the Participant's separation
from service, death, or his incurring a Disability. Such amounts may also be
distributed upon:
(i) Termination of the Plan without the establishment of another
defined contribution plan other than an employee stock ownership plan, as
defined in Code sections 4975(e) or 409, or a simplified employee pension
plan, as defined in Code section 408(k);
(ii) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of section 409(d)(2) of
the Code) used in a trade or business of such corporation if such
corporation continues to maintain this plan after the disposition, but only
with respect to employees who continue employment with the corporation
acquiring such assets;
(iii) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of section
409(d)(3) of the Code) if such corporation continues to maintain this Plan,
but only with respect to employees who continue employment with such
subsidiary;
(iv) If permitted pursuant to the Adoption Agreement, a Participant's
attainment of age 59 1/2; or
(v) If permitted pursuant to the Adoption Agreement, a Participant's
satisfaction of the conditions set forth in Section 5.5(b) for the
withdrawal of amounts due to hardship.
If the Plan is subject to the annuity requirements of Section 7.1, then the
Participant's spouse must consent to the applicable distribution event set forth
above in the manner provided in Section 7.1(g). In addition, distributions after
March 31, 1988, that are triggered by any of the distribution events enumerated
in clauses (i), (ii) or (iii) above must be made in a lump sum.
ARTICLE VII: TRANSFEREE PLANS
7.1 Qualified Joint and Survivor Annuity Requirements.
(a) The provisions of this Article VII apply with respect to a Participant
only if it is determined that (i) the Plan is a direct or indirect transferee of
a defined benefit plan, a money purchase pension plan (including a target
benefit plan) or a stock bonus or profit-sharing plan which is subject to the
survivor annuity requirements of sections 401(a)(11) and 417 of the Code, and
(ii) the Participant (A) is credited with at least one Hour of Service on or
after August 23, 1984, or (B) had not commenced receiving the vested portion of
his Account under this Plan (or account or accounts under a plan of which this
Plan is a continuation) prior to August 23, 1984. The provisions of this Article
VII shall also apply with respect to a Participant if the Participant's Account
(reduced by any security interest held by the Plan by virtue of any loan
outstanding to the Participant under Section 5.4) is not payable in full, upon
the death of the Participant, to the Participant's surviving spouse (unless
another Beneficiary has been designated in accordance with Section 6.3(b)). This
Section 7.1 shall apply notwithstanding any other provision of this Plan to the
contrary.
(b) Unless some other permissible form of distribution is elected by the
Participant pursuant to a "qualified election" in accordance with subsection (g)
of this Section 7.1 within the 90-day period ending on the "annuity starting
date", distribution of the vested portion of the Participant's Account to whom
this Section 7.1 applies shall be made, if the Participant is married on that
date, in the form of a Qualified Joint and Survivor Annuity, and if the
Participant is not married on that date, in the form of an annuity for the life
of the Participant. The "annuity starting date" is the first day of the first
period for which an amount is paid as an annuity or any other form. The
Participant may elect to have such annuity distributed on the earliest date on
which the Participant could elect to receive retirement benefits under the Plan.
(c) Unless waived pursuant to a "qualified election" within the election
period, if a married Participant dies before his "annuity starting date" the
vested portion of the Participant's Account shall be applied toward the purchase
of a Qualified Preretirement Survivor Annuity. For purposes of this subsection
(c), the election period shall be the period beginning on the first day of the
Plan Year in which the Participant attains age 35 and ending on the date of the
Participant's death. If a Participant separates from service prior to the first
day of the Plan Year in which he attains age 35, the election period shall begin
on the date of separation. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death. A
Participant who will not yet attain age 35 as of the end of any current Plan
Year may make a special qualified election to waive the Qualified Preretirement
Survivor Annuity for the period beginning on the date of such election and
ending on the first day of the Plan Year in which the Participant will attain
age 35. Such election shall not be valid unless the Participant receives a
written explanation of the Qualified Preretirement Survivor Annuity in such
terms as are comparable to the explanation required under Section 7.1(e).
Qualified Preretirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the Participant attains
age 35. Any new waiver on or after such date shall be subject to the full
requirements of this Article. A surviving spouse entitled to have an annuity
purchased pursuant to this Section 7.1 may elect by written notice to the Plan
Administrator after the Participant's death to have distribution made instead in
some other form of benefit prescribed in Section 6.4(b)(i) or (ii), or in a
combination of those two forms.
(d) (i) If the value of the vested portion of a Participant's Account
balance exceeds, or at any time of any prior distribution exceeded, $3,500
and the vested portion of the Account is Immediately Distributable, the
Participant's spouse, if living, must also consent to any distribution of
the vested portion of the Account. The consent of the Participant's spouse
shall be obtained in writing within the 90-day period ending on the
"annuity starting date". The Plan Administrator shall notify the
Participant's spouse of the right to defer any distribution until the
vested portion of the Participant's Account is no longer Immediately
Distributable. Such notification shall include a general description of the
material features and an explanation of the relative values of the optional
forms of benefit available under the Plan in a manner that would satisfy
the notice requirements of section 417(a)(3) of the Code and shall be
provided no less than 30 days and no more than 90 days prior to the
"annuity starting date".
(ii) The provisions of subsection (c) to the contrary notwithstanding,
only the Participant need consent to the commencement of a distribution in
the form of a Qualified Joint and Survivor Annuity while the vested portion
of the Account is Immediately Distributable. The consent of the
Participant's spouse shall not be required to the extent that a
distribution is required to satisfy section 401(a)(9) or section 415 of the
Code. In addition, upon termination of this Plan if the Plan does not offer
an annuity option purchased from a commercial provider, and if the Employer
or any Affiliate does not maintain another Defined Contribution Plan, other
than an employee stock ownership plan defined in section 4975(e)(7) of the
Code, the Participant's Account balance will, without the Participant's
consent, be distributed to the Participant. Notwithstanding the foregoing,
if any Affiliate maintains another Defined Contribution Plan, other than an
employee stock ownership plan defined in section 4975(e)(7) of the Code,
then the Participant's Account balance will be transferred, without the
Participant's consent, to the other plan if the Participant does not
consent to an immediate distribution.
(e) The Plan Administrator shall no less than 30 days and no more than 90
days prior to the annuity starting date provide each Participant to whom this
Section 7.1 applies with a written explanation of: (i) the terms and conditions
of a Qualified Joint and Survivor Annuity or an annuity for the life of the
Participant, as applicable with respect to the Participant depending on whether
the Participant is married or unmarried; (ii) the Participant's right to make,
and the effect of, an election to waive the Qualified Joint and Survivor Annuity
or life annuity form of benefit, as the case may be; (iii) the rights under this
Section 7.1 of the Participant's spouse, if any; and (iv) the right to make, and
the effect of, a revocation of a previous election to waive a Qualified Joint
and Survivor Annuity or life annuity form of benefit, as the case may be. The
Plan Administrator may, on a uniform and nondiscriminatory basis, provide for
such other notices, information or election periods or take such other action as
the Plan Administrator considers necessary or appropriate so that this Section
7.1 is implemented in such a manner as to comply with sections 401(a)(11) and
417 of the Code.
(f) The Plan Administrator shall provide each Participant within the
"applicable period" for such Participant a written explanation of the Qualified
Preretirement Survivor Annuity in such terms and in such manner as would be
comparable to the explanation required under subsection (e) of this Section 7.1.
The "applicable period" is whichever of the following periods ends last: (i) the
period beginning with the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year preceding the Plan
Year in which the Participant attains age 35; (ii) "a reasonable period" ending
after the individual becomes a Participant; or (iii) "a reasonable period"
ending after this Section 7.1 first applies to the Participant. For purposes of
this subsection (f) "a reasonable period" is the end of the two-year period
beginning one year prior to the date the applicable event occurs, and ending one
year after that date. Notwithstanding the foregoing, in the case of a
Participant who separates from service before the Plan Year in which the
Participant attains age 35, notice shall be provided within the two-year period
beginning one year prior to separation and ending one year after separation. If
the Participant thereafter returns to Employment, the "applicable period" for
such Participant shall be redetermined.
(g) A "qualified election" for purposes of this Section 7.1 shall be a
waiver of the Qualified Joint and Survivor Annuity or life annuity form of
benefit otherwise applicable, or a Qualified Preretirement Survivor Annuity, and
shall not be effective unless:
(i) the Participant's spouse consents in writing to the election; (ii)
the election designates a specific Beneficiary, including any class of
Beneficiaries or any contingent Beneficiaries, which may not be changed
without spousal consent (or the spouse expressly permits designations by
the Participant without any further spousal consent); (iii) the spouses's
consent acknowledges the effect of the election; and (iv) the spouse's
consent is witnessed by a Plan representative or notary public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of
benefit payment which may not be changed without spousal consent (or the
spouse expressly permits designations by the Participant without any
further spousal consent). If it is established to the satisfaction of a
Plan representative that there is no spouse or that the spouse cannot be
located, a waiver will be deemed a "qualified election".
Any consent by a spouse obtained under this provision (or establishment
that the consent of a spouse may not be obtained) shall be effective only with
respect to such spouse. A consent that permits designations by the Participant
without any requirement of further consent by such spouse must acknowledge that
the spouse has the right to limit consent to a specific Beneficiary, and a
specific form of benefit where applicable, and that the spouse voluntarily
elects to relinquish either or both of such rights. A revocation of a prior
waiver may be made by a Participant without the consent of the spouse any time
before the commencement of benefits. The number of revocations shall not be
limited. No consent obtained under this provision shall be valid unless the
Participant has received notice as provided in subsection (d) or subsection (e)
of this Section 7.1.
(h) A former spouse of a Participant will be treated as the spouse or
surviving spouse of the Participant for purposes of the Plan to the extent
provided under a "qualified domestic relations order" (or a "domestic relations
order" treated as such) as referred to in Section 12.7.
(i) The vested portion of a Participant's Account is the aggregate value of
his vested Account balance derived from Employer and Employee contributions
(including Rollover Contributions and Trustee Transfers), whether vested before
or upon death. The provisions of this Section 7.1 shall apply to a Participant
who is vested in amounts attributable to Employer Contributions, After-Tax
Contributions or both at the time of death or distribution.
(j) (i) Any living Participant or Former Participant not receiving
distributions under a Qualified Plan (prior to its amendment and
restatement to take the form of this Plan) on August 23, 1984 who would
otherwise not receive the benefits prescribed by the previous subsections
of this Section 7.1 must be given the opportunity to elect to have such
subsections apply if the Participant is credited with at least one Hour of
Service under this Plan or a predecessor plan in a Plan Year beginning on
or after January 1, 1976 and the Participant had at least 10 Years of
Service when he terminated from service with the Employer and each
Affiliate.
(ii) Any living Participant or Former Participant not receiving
distributions under the Plan on August 23, 1984 who was credited with at
least one Hour of Service under this Plan or a predecessor plan on or after
September 2, 1974, and who is not otherwise credited with any Hour of
Service in a Plan Year beginning on or after January 1, 1976, must be given
the opportunity to have his benefits under this Plan paid in accordance
with clause (iv) of this subsection (j).
(iii) The respective election opportunities described in clauses (i)
and (ii) of this subsection (j) must be afforded to each appropriate
Participant or Former Participant during the period commencing on August
23, 1984 and ending on the date distribution of the vested portion of the
Participant's or Former Participant's Account would otherwise be made or
commence to the Participant or Former Participant.
(iv) Any Participant or Former Participant who has elected pursuant to
clause (ii) of this subsection (j) and any Participant or Former
Participant who does not elect under clause (i) of this subsection (j) or
who meets the requirements of said clause (i) except that such Participant
or Former Participant does not have at least 10 Years of Service when he
terminates from service with the Employer and each Affiliate, shall have
his benefits distributed in accordance with all of the following
requirements if his benefits would have been payable in the form of a life
annuity:
(A) If benefits in the form of a life annuity become payable to a
married Participant or Former Participant who:
(I) begins to receive payments under the Plan on or after
his Normal Retirement Age; or
(II) dies on or after his Normal Retirement Age while still
working for the Employer or an Affiliate; or
(III) begins to receive payments on or after his "qualified
early retirement age"; or
(IV) terminates from service on or after attaining his
Normal Retirement Age (or "qualified early retirement age") and
after satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning to
receive such benefits; then such benefits shall be received under
this Plan in the form of a Qualified Joint and Survivor Annuity,
unless the Participant or Former Participant has elected
otherwise during the "election period". This "election period"
must begin at least six months before the Participant attains his
"qualified early retirement age" and end not more than 90 days
before the commencement of benefits. Any election hereunder shall
be in writing and may be changed by the Participant or Former
Participant at any time during the "election period".
(B) A Participant or Former Participant who is employed by the
Employer or an Affiliate after attaining his "qualified early
retirement age" shall be given the opportunity to elect, during the
"election period", to have a survivor annuity payable on his death. If
the Participant or Former Participant elects the survivor annuity,
payments under such annuity must not be less than the payments which
would have been made to the Participant's or Former Participant's
spouse under a Qualified Joint and Survivor Annuity computed as if the
Participant or Former Participant had retired on the day before his
death. Any election under this provision shall be in writing and may
be changed by the Participant or Former Participant at any time,
during the "election period." The "election period" for this purpose
begins on the later of (i) the 90th day before the Participant or
Former Participant attains his "qualified early retirement age," and
(ii) the date on which he first becomes a Participant, and ends on the
date the Participant or Former Participant terminates service with the
Employer and each Affiliate. A Participant's or Former Participant's
"qualified early retirement age" is the latest of:
(I) the earliest date under the Plan on which he may elect
to receive retirement benefits,
(II) the first day of the 120th month beginning before he
reaches his Normal Retirement Age, and
(III) the date he first becomes a Participant.
ARTICLE VIII: VESTING AND FORFEITURES
8.1 Vesting.
(a) The portion of a Participant's Account attributable to Section 401(k)
Contributions, After-Tax Contributions, Rollover Contributions and Trustee
Transfers shall immediately become and at all times remain fully vested and
nonforfeitable.
(b) The portion of a Participant's Account attributable to Profit-Sharing
Contributions and Matching Contributions shall immediately become and at all
times remain fully vested and nonforfeitable upon the Participant's death,
Disability, attainment of Early Retirement Date or attainment of Normal
Retirement Age. In the absence of any of the preceding events, the Participant's
Account attributable to Profit- Sharing Contributions and Matching
Contributions, respectively, shall vest and become nonforfeitable in accordance
with the relevant vesting schedule specified in the Adoption Agreement.
(c) Except as provided in subsections (d) and (e) of this Section 8.1 or as
limited in the Adoption Agreement, for purposes of determining the vested and
nonforfeitable percentage of the Participant's Account attributable to
Profit-Sharing Contributions and Matching Contributions, all of the
Participant's Years of Service with the Employer or an Affiliate shall be taken
into account.
(d) In the case of a Participant who terminates Employment and incurs 5 or
more consecutive 1-year Breaks in Service, the Participant's pre-break service
will count in determining his vested and nonforfeitable percentage of the
portion of his Account derived from Profit-Sharing Contributions and Matching
Contributions only if either (i) such Participant had some nonforfeitable
interest in the portion of his Account derived from such contributions at the
time of his termination, or (ii) upon returning to service the number of
consecutive 1-year Breaks in Service is less than the number of his Years of
Service.
(e) If specified in the Adoption Agreement, Years of Service with a
predecessor employer may be treated as service with the Employer, provided,
however, if the Employer maintains the Plan of a predecessor employer, Years of
Service with such employer will be treated as service with the Employer without
regard to any election in the Adoption Agreement.
8.2 Forfeitures.
(a) Any portion of a Participant's Account that is not vested shall be
forfeited as of the last day of the Plan Year in which his fifth consecutive
Break in Service occurs. Any amounts thus forfeited shall be allocated as
provided in Section 3.8. The remaining portion of the Participant's Account will
be nonforfeitable. Notwithstanding the foregoing, the non-vested portion of the
Account of a Participant whose Employment has terminated and who has received a
distribution of the vested portion of his Account shall be forfeited prior to
the incurring of 5 consecutive 1-year Breaks in Service. For purposes of this
Section 8.2, if the value of a Participant's vested Account balance is zero, the
Participant shall be deemed to have received distribution of such vested Account
balance in the event that a forfeiture of the Account balance before 5
consecutive 1-year Breaks in Service has occurred.
(b) If a forfeiture of the Participant's Account occurs under the
circumstances described in Subsection (a) prior to the Participant's incurring 5
consecutive 1-year Breaks in Service and the Participant subsequently returns to
employment before incurring 5 consecutive 1-year Breaks in Service:
(i) unless otherwise provided in the Adoption Agreement, the
Participant's Account balance attributable to Employer
Contributions will be restored to the amount on the date of
distribution if the Participant repays to the Plan the full
amount of the distribution attributable to Employer Contributions
before the earlier of (A) 5 years after the first date on which
the Participant is subsequently re-employed by the Employer, or
(B) the date the Participant incurs 5 consecutive 1-year Breaks
in Service following the date of the distribution; or
(ii) if provided in the Adoption Agreement, the amount so forfeited
will be restored prior to application of forfeitures under
Section 3.8 out of forfeitures arising in the Plan Year in which
the restoration occurs, and to the extent necessary, out of
special Employer contributions which shall be made for that
purpose.
Regardless of whether the provisions of (i) or (ii) above are applicable, if a
Participant who is deemed to have received a distribution subsequently returns
to employment before incurring 5 consecutive 1-year Breaks in Service, the
amount so forfeited will be restored in the manner provided in (ii).
(c) In applying the provisions of Section 8.2(a) in Plan Years starting
before 1985, the phrase "5 consecutive 1-year Breaks in Service" shall be
replaced by the phrase "a 1-year Break in Service." In addition, if as of the
day before the first day of the first Plan Year starting after 1984 the
non-vested portion of the Participant's Account was irrevocably forfeited under
the Plan consistent with the applicable provisions of section 411(a) of the
Code, Section 8.2(a) shall not require such forfeiture to be restored.
(d) If a distribution is made at a time when a Participant has a vested
right to less than 100 percent of the value of the Participant's Account
attributable to Profit- Sharing Contributions or Matching Contributions and
forfeitures, as determined in accordance with the provisions of Section 8.1, and
the non-vested portion of the Participant's Account has not yet been forfeited
in accordance with subsection (a) of this Section 8.2 or if it has been restored
after forfeiture in accordance with Paragraph (b)(ii), at any relevant time the
Participant's vested portion of a subaccount from which a distribution was made
shall be determined by the following methodology:
(i) First, the amount of any previous deductions from the subaccount
shall be added to the value of the subaccount at the relevant
Valuation Date;
(ii) Second, the appropriate vested percentage determined in
accordance with Section 8.1 shall be applied to the hypothetical
subaccount balance determined under (i) to ascertain the
hypothetical vested amount; and
(iii) Third, the vested portion shall be the difference, if any,
between the hypothetical vested amount determined under (ii) and
the previous distributions added to the hypothetical subaccount
value in (i).
(e) If a Participant whose Employment has terminated receives distribution
of his entire vested interest in his Account at a time when he has a vested
right to less than 100 percent of his Account, the Plan Administrator may direct
that the remaining non-vested portion be transferred to a forfeiture account
under the Plan pending forfeiture as of the last day of the Plan Year in which
the distribution occurs. The forfeiture account shall be subject to the
investment control of the Employer or other Named Investment Fiduciary
designated in accordance with Section 10.2. No portion of the forfeiture account
may remain unallocated as of the first day of the subsequent Plan Year.
ARTICLE IX: ADMINISTRATION AND RELATED MATTERS
9.1 Plan Administrator's Authority and Responsibility. The Plan shall be
administered by the Plan Administrator who shall have the sole authority to
enforce the Plan on behalf of any and all persons having or claiming any
interest under the Plan and who shall be responsible for the operation of the
Plan in accordance with its terms. The Plan Administrator shall determine by
rules of uniform application all questions arising out of the administration,
interpretation and application of the Plan, which determinations, subject to
Section 9.8, shall be conclusive and binding on all persons. The Plan
Administrator shall be a "named fiduciary" of the Plan within the meaning of
section 402(a)(2) of ERISA and the agent for service of legal process with
respect to the Plan.
9.2 More Than One Person as Plan Administrator. If more than one person is named
as Plan Administrator, all such persons shall exercise their duties in concert,
but they may allocate their duties among themselves by written agreement
communicated to the Employer, or if the Employer is no longer in existence, to
the Trustee. In any event, the Trustee may rely, without having to make further
inquiry, upon instructions appearing to be genuine instructions from any person
serving as Plan Administrator, as being the will of all persons so serving as if
no allocation of duties had been made.
9.3 Persons Serving as Plan Administrator and Successors. The Trustee shall be
notified in writing by the Employer of the name of any person serving as Plan
Administrator and of any person authorized to act on behalf of the Plan
Administrator. The Trustee may conclusively assume that a person so designated
will continue to act in that capacity until the Trustee has been notified in
writing by the Employer to the contrary. If at any time no person designated by
the Employer as Plan Administrator is able and willing to serve as such, the
Employer shall then be Plan Administrator or designate a successor Plan
Administrator, but if the Employer has died if a sole proprietor, dissolved if a
corporation, or terminated if a partnership, a successor promptly shall be
designated in writing by a majority of the Participants for whom Accounts not
yet fully distributed are then held in the Trust. A majority of the legally
competent Beneficiaries of a deceased Participant then entitled to receive
benefits may exercise the deceased Participant's right to participate in that
designation and shall be considered for that purpose to be one Participant in
the Participant's place.
9.4 Resignation and Removal. A person serving as Plan Administrator may resign
by giving written notice to the Employer, or if the Employer is no longer in
existence, to the Trustee, not less than 30 days before the effective date of
the person's resignation. Upon 30 days prior written notice to the person being
removed, the Plan Administrator may be removed at any time, without cause, by
the Employer, or if the Employer is no longer in existence, by a majority of the
Participants and Beneficiaries following the approach referred to in the last
two sentences of Section 9.3. A notice period provided for in this Section 9.4
may be waived or reduced if acceptable to the persons involved. The Employer, if
in existence, shall be the successor to the position involved, or the Employer
may appoint a successor to a person who has resigned or been removed as Plan
Administrator, but if the Employer is no longer in existence, the appointment
shall be made by a majority of the Participants and Beneficiaries following the
approach referred to in the last two sentences of Section 9.3. When the Plan
Administrator's resignation or removal becomes effective, the Plan Administrator
shall perform all acts necessary to transfer all relevant records to its
successor. A successor Plan Administrator shall have all the rights and powers
and all of the duties and obligations of the original Plan Administrator but
shall have no responsibility for acts or omissions before the successor became
Plan Administrator.
9.5 Compensation and Expenses. Except as provided in Section 9.7, no
compensation shall be paid from the Plan to the Plan Administrator. Any expenses
properly incurred by the Plan Administrator with respect to the Plan shall be
paid or reimbursed by the Employer.
9.6 Advice. The Plan Administrator shall have the right to employ others,
including legal counsel who may, but need not, be counsel to the Employer, to
render advice regarding any questions which may arise with respect to its
rights, duties and responsibilities under the Plan, and may rely upon the
opinions or certificates of any such person.
9.7 Delegation of Responsibility, Appointment of Recordkeeper.
(a) The Plan Administrator may delegate in writing all or any part of the
Plan Administrator's responsibilities under the Plan to agents or others by
written agreement communicated to the delegate and to the Employer or, if the
Employer is no longer in existence, to the Trustee and, in the same manner, may
revoke any such delegation of responsibility. Any action of a delegate in the
exercise of such delegated responsibilities shall have the same force and effect
for all purposes as if such action had been taken by the Plan Administrator. The
delegate shall have the right, in such person's sole discretion, by written
instrument delivered to the Plan Administrator, to reject and refuse to exercise
any such delegated authority. The Trustee need not act on instructions of such a
delegate despite any knowledge of such delegation, but may require the Plan
Administrator to give the Trustee all instructions necessary under the Plan.
(b) Any provision of subsection (a) to the contrary notwithstanding, the
Plan Administrator shall appoint a recordkeeper, who may be the Service Company,
acceptable to the Custodian (the "Recordkeeper") who shall perform all of the
functions of the Plan Administrator as regards instructions to and all other
transactions with the Trustee, except that (i) any payment of benefits under the
Plan or any money loaned pursuant to Section 5.4 shall be made by mailing a
check for the amount thereof to the Plan Administrator unless otherwise directed
by the Recordkeeper and (ii) the Plan Administrator shall retain the right to
require an accounting pursuant to Section 10.6 and shall be the party defendant
in any action sought pursuant to Section 10.8. The Trustee may assume that the
Recordkeeper is acting in accordance with authority granted to it by the Plan
Administrator or Employer unless and until it is notified to the contrary in
writing by the Plan Administrator or Employer. Any proper fees and expenses of
the Recordkeeper shall to the extent not paid or reimbursed by the Employer be
considered an administrative expense of the Trust under Section 10.14.
9.8 Claims and Claims Review Procedure. If an Employee, Participant, Beneficiary
or any other person claims to be entitled to benefits under the Plan, and the
Plan Administrator denies that claim in whole or in part, the Plan Administrator
shall, in writing, notify the claimant that his claim has been denied in whole
or in part, setting forth the specific reason or reasons for the denial,
specific reference to pertinent Plan provisions upon which the denial is based,
a description of any additional material or information which may be needed to
clarify the claim, including an explanation of why such information is
necessary, and shall refer to the claims review procedure as set forth in this
Section 9.8. Within 30 days after the mailing or delivery by the Plan
Administrator of such notice, the claimant may request, by written notice to the
Employer, a review by the Employer of the decision denying the claim. The
claimant may examine documents pertinent to the review and may submit written
issues and comments to the Employer. If the claimant fails to request such a
hearing within such 30-day period, it shall be conclusively determined for all
purposes of this Plan that the denial of such claim is correct. If the claimant
requests a review within the 30-day period, the Employer shall designate a time,
which time shall be no less than 10 nor more than 45 days from the date of
receipt by the Employer of the claimant's notice to the Employer, and a place
for such hearing, and shall promptly notify such claimant of such time and
place. Within 45 days after the conclusion of the hearing, including any
extensions of the date thereof mutually agreed to by the claimant and the
Employer, the Employer shall communicate to the claimant the Employer's decision
in writing, and if the Employer confirms the denial, in whole or in part, the
communication shall set forth the specific reason or reasons for the decision
and specific reference to those Plan provisions upon which the decision is
based.
9.9 Action by Employer. Action by the Employer under the Plan shall be carried
out by the sole proprietor, if the Employer is a sole proprietorship, by a
general partner of the Employer, if the Employer is a partnership, or by the
board of directors or a duly authorized officer of the Employer, if the Employer
is a corporation. If the Employer is no longer in existence, and the Plan does
not specify the person to take an action, or otherwise serve in the place of the
Employer, in connection with the operation of the Plan, the Plan Administrator
shall so act or serve, but if there is no person serving as Plan Administrator,
such action shall be taken by a person selected following the approach referred
to in the last two sentences of Section 9.3. The Trustee shall have, and assume,
no responsibility for inquiring into the authority of any person purporting to
act on behalf of an Employer.
9.10 Cooperation and Information. The Employer and the Plan Administrator shall
cooperate with each other in all respects, including the provision to each other
of records and other information relating to the Plan, as may be necessary or
appropriate for the proper operation of the Plan or as may be required under the
Code or ERISA.
9.11 Responsibilities Limited. To the extent permitted by ERISA, except to the
extent expressly provided by a written agreement to the contrary to which the
person being charged with a breach of responsibility is a party, the Employer,
the Plan Administrator, the Service Company, the Custodian and the Trustee shall
be responsible solely for performance of those duties expressly assigned to that
person in the Plan and assume no responsibility as to duties assigned to anyone
else under the Plan or by operation of law.
ARTICLE X: POWERS, DUTIES AND OBLIGATIONS
OF THE TRUSTEE AND CUSTODIAN
10.1 No Investment Discretion. The Trustee shall have no investment management
responsibility with respect to the Trust or any other assets held under the Plan
and is authorized solely to make and hold investments only as directed pursuant
to Section 10.2.
10.2 Investment Directions.
(a) Responsibility for directing the Trustee with respect to the investment
of the Trust Fund shall be allocated to the Employer, or another named fiduciary
appointed by the Employer for that purpose (the "Named Investment Fiduciary"),
or the Participants, or any investment manager (an "Investment Manager") who
meets the requirements of section 3(38) of ERISA appointed by the Named
Investment Fiduciary to manage all or a portion of the Trust Fund, all as
provided in the Plan (including the Adoption Agreement). Unless otherwise
provided in the Adoption Agreement, each Participant shall have the
responsibility for directing the investment of the assets allocated to his
Account from among the investment options selected by the Named Investment
Fiduciary, one or more of which options may be pools of investments permitted by
Section 10.4 the investment of which is directed by an Investment Manager. To
the extent investment responsibility is allocated to the Participants, the
Beneficiary of a deceased Participant shall discharge the responsibility
subsequent to the Participant's death and any reference to the Participant in
any provision of the Plan pertaining to investment directions shall in such
event be construed as a reference to the Beneficiary. Notwithstanding the
foregoing, and regardless of a Participant's authority to direct the investment
of assets allocated to his Account, the Named Investment Fiduciary is authorized
and empowered to direct the Trustee to invest funds in short term investments
pending other investment instructions by the Plan Administrator.
(b) Investment directions shall be given in a manner and form prescribed by
the Trustee and shall be subject to such limitations, including limitations as
to the frequency with which any standing investment instructions may be changed
and funds may be moved among investment choices, as the Named Investment
Fiduciary shall prescribe. If investment responsibility is allocated to
Participants, to the extent permitted by the Trustee, investment directions may
be given directly to the Service Company in a manner and form prescribed by the
Service Company.
(c) Notwithstanding other provisions of the Plan to the contrary, if
another Qualified Plan is amended and restated in the form of this Plan, the
Named Investment Fiduciary shall have the power to prescribe rules regarding the
investment of the assets held under the other Qualified Plan until such time as
any resulting reconciliation of Participant Accounts is completed and the assets
may be reinvested in investments permitted under Section 10.4 of the Plan.
(d) Notwithstanding other provisions of the Plan to the contrary, if
securities issued by the Employer or any Affiliate are permissible investments
pursuant to Section 10.2, the Employer or Named Investment Fiduciary may prepare
a written document, the provisions of which shall be applicable only with
respect to officers and directors who are subject to the provisions of Section
16(b) of the Securities Exchange Act of 1934 with respect to their transactions
in such securities, setting forth such restrictions on and procedures applicable
to such persons' salary deferral elections, investment directions and
withdrawals as, in the Employer's or Named Investment Fiduciary's judgment, are
necessary or appropriate for the Plan and such transactions to meet the
conditions of an applicable exemption from the provisions of such Section 16(b),
the provisions of which written document are incorporated herein by this
reference.
10.3 Trustee's Authority.
(a) The Trustee is authorized and empowered to take any action set forth
below with respect to any asset of the Trust Fund:
(i) Pending investment instructions, to hold funds uninvested or to
invest the funds, (i) in U.S. Treasury bills, or commercial
paper, or such other short-term investments of similar character
as it may select, regardless of whether any such investment is
usual or approved or authorized by law for investments by
fiduciaries; or (ii) in a composite trust maintained by the
Trustee as a medium for the collective investment of eligible
employee benefit plans;
(ii) To cause any property of the Trust to be issued, held or
registered in the individual name of the Trustee, in the name of
its nominee, in a securities depository or in such other form as
may be required or permitted under applicable law (however, the
records of the Trustee shall indicate the true ownership of such
property);
(iii) To employ such agents and counsel, including legal counsel, as
the Trustee determines to be reasonably necessary in managing and
protecting the Trust assets, in handling controversies under
Section 10.8(h) or any other section of this Agreement or in
defending itself successfully against allegations of fiduciary
liability and to pay them reasonable compensation out of the
Trust Fund unless otherwise paid by the Employer; and
(iv) To do all other acts necessary or desirable for the proper
administration of the Trust assets.
(b) With respect to the investment of the Trust Fund, the persons
authorized to give investment directions pursuant to Section 10.2 may direct the
Trustee to, and solely in accordance with such directions given pursuant to
Section 10.2, the Trustee shall have the duty and authority to:
(i) Invest and reinvest the Trust Fund without regard to
diversification and without regard to whether any such investment
is authorized by the laws of any jurisdiction for fiduciary
investments;
(ii) Exercise or sell covered listed options, conversion privileges or
rights to subscribe for additional securities and to make
payments therefor;
(iii) Consent to or participate in dissolutions, reorganizations,
consolidations, mergers, sales, leases, mortgages, transfers or
other changes affecting securities and other assets held by the
Trustee;
(iv) Make, execute and deliver as Trustee any and all contracts,
waivers, releases or other instruments in writing necessary or
proper for the exercise of any of the foregoing powers; and
(v) Grant options to purchase securities held by the Trustee or to
repurchase options previously granted with respect to securities
held by the Trustee.
10.4 Permitted Investments.
(a) Subject to the following provisions of this Section 10.4, the Trust
Fund may be invested in shares of registered investment companies for which
Alliance serves as principal underwriter and such other investments as may be
offered by Alliance from time to time for investment under the Plan. The
Custodian, when serving as Trustee, or the person directing investment of Plan
assets pursuant to Section 10.2 may invest in the Custodian's deposits that bear
a reasonable interest rate. Investments in one or more collective trusts
maintained by the Custodian, or such other collective trusts or group trusts as
are acceptable to Alliance, are permitted, in which event the documents
governing any such collective trust or group trust are hereby incorporated into
this Plan by reference; provided that to the extent required by the trustee of
the collective trust or group trust to facilitate such an investment, the
Employer or another named fiduciary appointed by the Employer for the purpose
may enter into an ancillary trust agreement for the holding of assets of the
Plan, in which event the ancillary trust shall be treated as a separate trust
under the Plan and the trustee shall not be liable for the acts or omissions of
the trustee of the ancillary trust. Investment in securities issued by the
Employer or any Affiliate is permitted (up to 100% of Trust Fund assets);
provided that such investment shall be permitted only if (a) such securities are
publicly traded on a recognized exchange or on the Nasdaq National Market and
(b) the Employer provides the Custodian with evidence satisfactory to the
Custodian that any such investment will comply with all applicable Federal and
state securities laws. Investments in collectibles, within the meaning of Code
section 408(m) are not permitted. If another Qualified Plan is amended and
restated in the form of this Plan during a Plan Year, the investments acquired
under the other Qualified Plan shall be permitted investments under this Plan
until such time as such investments may be liquidated and the proceeds thereof
reinvested in investments that are permitted investments without regard to this
sentence.
(b) Any other provision of this Article X to the contrary notwithstanding,
the Trustee may acquire and hold any property as a permitted investment to the
extent permitted by written authorization of Alliance.
10.5 Direction of Voting and Other Rights. The voting and other rights in
securities or other assets held in the Trust shall be exercised by the Trustee
as directed by the Named Investment Fiduciary or other person who at the time
has the right as referred to in Section 10.2 hereof to direct the investment or
reinvestment of the security or other asset involved, provided that
notwithstanding any provision of the Plan to the contrary, (a) except as
provided in clause (b) of this Section, such voting and other rights in any such
security or other asset selected by the Employer or the Named Investment
Fiduciary shall be exercised by the Named Investment Fiduciary and (b) such
voting and other rights in any "employer security" with respect to the Plan
within the meaning of Section 407(d)(1) of ERISA which is held in an Account
over which a Participant or Beneficiary has control as to specific assets to be
held therein or which is held in an Account which consists solely or primarily
of "employer securities" shall be exercised by the Participants or Beneficiaries
having interests in that account. Notwithstanding any provision hereof or of the
Plan to the contrary, (i) in the event a Participant or Beneficiary or an
Investment Manager with the right to direct a voting or other decision with
respect to any security or other asset held in the Trust does not communicate
any decision on the matter to the Custodian or the Custodian's designee by the
time prescribed by the Custodian or the Custodian's designee for that purpose or
if the Custodian notifies the Named Investment Fiduciary either that it does not
have precise information as to the securities or other assets involved allocated
on the applicable record date to the accounts of all Participants and
Beneficiaries or that time constraints make it unlikely that Participant,
Beneficiary or Investment Manager direction, as the case may be, can be received
on a timely basis, the decision shall be the responsibility of the Named
Investment Fiduciary and shall be communicated to the Custodian on a timely
basis, and (ii) in the event the Named Investment Fiduciary with any right under
the Plan or hereunder to direct a voting or other decision with respect to any
security or other asset held in the Trust, including any such right under clause
(a) or clause (i) of this Section, does not communicate any decision on the
matter to the Custodian or the Custodian's designee by the time prescribed by
the Custodian for that purpose, the Custodian may, at the cost of the Plan
unless paid by the Employer, retain an Investment Manager with full discretion
to make the decision. Except as required by ERISA, the Custodian shall (a)
follow all directions above-referred to in this Section and (b) shall have no
duty to exercise voting or other rights relating to any such security or other
asset.
10.6 Valuation. The Plan Administrator shall value the assets of the Trust Fund
at fair market value as of the close of each Plan Year. For this purpose, the
Custodian shall provide such information regarding asset values, as may be
available to it.
10.7 Records and Reports. The Trustee shall keep, or arrange for the keeping of,
accurate records of all contributions, receipts, investments, distributions,
disbursements and all other transactions of the Trust Fund which shall be
available at all reasonable times for inspection by the Plan Administrator.
Within 120 days from the close of each Plan Year, and within 120 days from the
Trustee's resignation or removal, the Trustee shall file, or cause to be filed,
with the Plan Administrator a written report (which, may incorporate by
reference any copies of the Custodian's or Service Company's regularly issued
account statements) reflecting all transactions affecting the Trust Fund for the
period in question and including a statement of all assets in the Trust Fund;
provided that nothing in this Section 10.6 shall be construed to require the
Trustee to maintain records regarding the allocation of assets and liabilities
(including loans to Participants under Section 5.4) to individual Participants'
Accounts. If the Plan Administrator does not notify the Trustee in writing of
any claimed errors contained in the report within sixty days after the sending
thereof, the Plan Administrator will be considered to have approved the report
and released the Trustee from all responsibilities for matters covered by the
report. Only the Plan Administrator may require an accounting.
10.8 Right to Request Judicial Assistance. The Trustee shall have the right at
any time to apply to a court of competent jurisdiction for judicial settlement
of its accounts or for determination of any questions of construction which may
arise or for instructions. The only necessary party defendant to any such action
shall be the Plan Administrator, but the Trustee may, if it so elects, join in
as a party defendant any other person or persons. The cost, including attorneys'
fees, of any such accounting shall be charged to the Trust Fund as an
administration expense of the Plan.
10.9 Scope of Trustee's Duties. The Trustee shall have no duties except those
which are specifically set forth in the Plan. No implied covenant or obligation
shall be read into the Plan. Without limiting the generality of the foregoing:
(a) Except as otherwise provided in Section 10.3(a), the Trustee shall not
make or dispose of any investments except upon direction of the person
responsible for the direction of such investments pursuant to Section 10.2, or
in accordance with Section 10.11;
(b) The Trustee shall have no duty to question any instruction of the Plan
Administrator, the Employer, the Named Investment Fiduciary, any Participant or
any Investment Manager, to review any of the assets held in the Trust Fund, or
to make suggestions to the Employer, the Named Investment Fiduciary, any
Participant or any Investment Manager about investments, and shall be under no
duty to diversify or determine the prudence of any investment;
(c) Each contribution to and allocation under the Trust Fund shall be
deemed to be a certification by the Employer and the Plan Administrator, as
relevant, that the contribution or allocation is in accordance with the terms of
the Plan, and the Trustee shall have no duty to receive contributions or make
allocations except in accordance with such instructions as it receives from the
Plan Administrator or the Employer;
(d) The Trustee shall be fully protected in acting upon any oral
conversations with, or any instrument, certificate or paper believed by it to be
genuine and to be presented by, any person who the Trustee reasonably believes
to be authorized to act with respect to the subject matter of such conversation,
instrument, certificate or paper. The Trustee shall have no duty to investigate
or inquire about any statement contained in any such conversation or writing but
may accept it as accurate and true. The Trustee may, in its sole discretion,
require that any instruction to it be contained in a written instrument signed
by a duly authorized person or persons and may act as if no instruction had been
provided unless and until it receives such a written instrument;
(e) The Trustee may, to the extent required by law, withhold any taxes or
other amounts otherwise payable with respect to a Participant and deposit such
amounts with the proper governmental agency;
(f) Upon the written request of a Participant eligible to receive a
distribution from the Plan, the Trustee, upon receipt of the request transmitted
to it by the Plan Administrator, will pay all of the assets in the Participant's
Account to the qualified plan of another employer or to an individual retirement
account established by the Participant. The Trustee has no responsibility to
determine the validity of any payment it makes according to those instructions,
nor will it be liable for any tax or other consequences of following those
instructions;
(g) The Trustee will distribute benefits to Participants, their
beneficiaries and their "alternate payees" only as directed by the Plan
Administrator. The Trustee has no responsibility for determining whether a
person specified by the Plan Administrator is the proper recipient of the
payment involved. The Trustee has no liability for any distribution made
according to written directions from the Plan Administrator or for any failure
to make a distribution in the event a proper direction is not received. The
Trustee has no duty to determine whether any distributions are made in
accordance with the Plan, the Code or ERISA, including whether the amount or
form of any distribution is proper.
(h) In the event any controversy arises as to the person or persons to whom
any distribution or payment is to be made by the Trustee, or as to any other
matter arising in the administration of the Plan, the Trustee may retain the
amount in controversy pending resolution of the controversy. The Trustee shall
not be obliged to invest any amount so retained nor shall it be liable for the
payment of any interest or income on any such amount, except to the extent of
gains, if any, attributable to the investment of such amount.
10.10 Scope of Trustee's Liability. The Trustee shall not be liable for losses
of any kind which may result (a) by reason of any action taken by it in
accordance with the directions or instructions of the Employer, the Plan
Administrator, the Named Investment Fiduciary, a Participant or an Investment
Manager or otherwise taken in accordance with the Plan, including the Adoption
Agreement, or (b) by reason of any failure to act due to the absence of such
directions or instructions.
The Trustee has no duty to determine or advise Participants of the
investment, tax or other consequences resulting from the Participants' actions
or inactions involving their Accounts, neither is the Trustee responsible for
the investment, tax or other consequences of Participants' actions, its own
actions in following their directions or its failing to act in the absence of
their directions. The Trustee shall not in any way be liable for any inadequacy
of contributions under the Plan, or be responsible for the collection of any
contribution required under the Plan. The Trustee shall have no powers, duties
or responsibilities with regard to the administration of the Plan nor shall it
have any power, duty or responsibility to determine the rights or benefits of
any person having or claiming an interest under the Plan. Except as required by
ERISA, the Trustee shall not be required to give bond or security for the
performance of its duties.
The Trustee may from time to time consult with counsel (who may be counsel
for the Employer, Plan Administrator or the Service Company) and shall be fully
protected in acting upon the advice of counsel in such instance. The Employer
and, where the Trustee is following the directions or instructions of a
Participant or the Named Investment Fiduciary, such Participant, or the Named
Investment Fiduciary (as the case may be), shall at all times fully indemnify
and save harmless the Trustee from any liability which may arise in connection
with this Plan, except liability arising from the gross negligence or willful
misconduct of the Trustee. For purposes of this Section 10.10, "liability" shall
include, without limitation, taxes, expenses, claims, damages, actions, suits,
attorneys' fees, expenses of litigation or preparation for threatened
litigation, and any other charges. The Trustee shall be liable for its own gross
negligence or willful misconduct in the performance of the duties expressly
assumed by it under the Plan.
10.11 Liquidation of Assets. If the Trustee must liquidate assets in order to
make distributions, transfer assets, or pay fees, expenses or taxes assessed
against all or a part of the Trust Fund, and the Trustee is not instructed as to
the liquidation of such assets, assets will be liquidated in the order
prescribed by rules published by the Custodian from time to time, which rules
shall be formulated in a manner to eliminate the potential for exercise of
discretion by the Custodian in the liquidation of assets and shall be applied
consistently with respect to all similarly situated plans in the form of the
Prototype Plan; provided that, if a contribution is being made to an affected
subaccount as of the date the Trustee would otherwise be liquidating assets
pursuant to this Section 10.11, the Trustee may withdraw the necessary amount of
cash and invest the remainder of the contribution in investments in the same
proportion as would have resulted had the withdrawal not been made. The Trustee
is expressly authorized to liquidate assets in order to satisfy the Trust Fund's
obligation to pay the Trustee's compensation if such compensation is not paid on
a timely basis.
10.12 Resignation or Removal of Trustee. The Trustee may resign as Trustee
hereunder by mailing or actually delivering written notice to the Employer 60
days prior to the resignation. The Employer may remove the Trustee by mailing or
actually delivering written notice to the Trustee 60 days prior to removal. The
notice period may be waived by the party entitled to the notice.
Upon the resignation or removal of the Trustee, the Employer or Alliance
shall appoint a successor Trustee. The successor shall have all rights, powers,
privileges, liabilities and duties of the Trustee. Upon written acceptance of
appointment by the successor, the Trustee shall assign, transfer and deliver to
the successor all funds held in the Trust Fund and all records of the Trustee
pertaining thereto. The Trustee is authorized, however, to reserve such funds as
it deems advisable to provide for the payment of taxes, expenses and fees then
due or to be incurred in connection with the settlement of its account, and any
balance remaining after the settlement of its account shall be paid to the
successor. The Trustee shall execute, acknowledge and deliver all documents and
written instruments which are necessary to transfer the right, title and
interest in the Trust assets, and all related rights and privileges, to the
successor Trustee.
10.13 Resignation or Removal of Custodian.
(a) The Custodian may resign by mailing or actually delivering written
notice to the Employer, with a copy to Alliance, at least 60 days prior to the
effectiveness of the resignation. Alliance may remove the Custodian by mailing
or actually delivering written notice to the Custodian, with a copy to the
Employer, at least 60 days prior to removal. The notice period may be waived by
the person entitled to the notice. Upon the resignation or removal of the
Custodian under this subsection (a), Alliance may designate a successor. The
successor shall have all rights, powers, privileges, liabilities, and duties of
the Custodian. Upon receipt by the Custodian of the successor's written
acceptance of its appointment, the Custodian shall transfer and deliver to the
successor all funds previously held by the Custodian, and all records of the
Custodian pertaining thereto. If Alliance should fail to designate a successor
within thirty days of its resignation or removal, it will transfer to the
Trustee, or a person designated by the Trustee, all funds it previously held and
all records pertaining thereto.
(b) The Employer may remove the Custodian by mailing or actually delivering
written notice to the Custodian at least 60 days prior to the removal. The
notice period may be waived by the Custodian. Such removal shall constitute a
withdrawal of the Employer of its Plan from under the Prototype Plan and the
Employer's Plan shall thereupon be considered an "individually designed
retirement plan". Upon its removal, the Custodian will transfer to the Trustee,
or a person designated by the Trustee, all funds it previously held and all
records pertaining thereto.
10.14 Compensation, Taxes and Expenses. The Trustee and Custodian shall be
compensated in accordance with such fee schedule as they shall individually
determine from time to time; provided, however, that any person serving as
Trustee who already receives full-time pay from the Employer shall not receive
compensation for serving as such under the Plan. The expenses specified below
shall be charged to and paid from the Trust Fund as a whole. Notwithstanding the
foregoing, if any expenses are allocable to one or more but not all Accounts,
such obligations shall be paid from and charged solely to the Account or
Accounts involved, either on a specific or proportionate basis; such proportions
are to be determined on the basis of the portion of the Accounts giving rise to
such charge.
(a) Any taxes levied or assessed upon or in respect of the Trust or any
assets in it and any transfer taxes incurred in connection with the investment
and reinvestment of the assets of the Trust;
(b) All administrative expenses incurred by the Trustee in the performance
of his duties (including, without limitation, the Trustee's and Custodian's
fees, and any fees for legal services rendered to the Trustee, Custodian, or
Plan Administrator); and
(c) All brokerage and other transaction fees.
The Employer may pay or reimburse any expenses under paragraphs (a) and
(b), above, pursuant to such procedures as the Custodian shall prescribe.
10.15 Special Provisions Concerning the Custodian. Where separate persons are
serving as Trustee and Custodian, to the full extent permissible under ERISA,
the Code, any other applicable federal or state law, and the regulations, rules
and interpretations thereunder, and subject to any written instrument executed
by the Trustee and Custodian allocating responsibilities between them, all
ministerial functions assigned to the Trustee under the Plan shall be delegated
to the Custodian. These functions shall include in particular and not by way of
limitation, the authority to cause any property of the Trust to be issued, held
or registered in the individual name of the Trustee, in the name of its nominee,
in a securities depository or in any such form as may be required or permitted
under applicable law. All instructions required to be given, and all
contributions required to be made, to the Trustee under the Plan will be
effective if given or made to the Custodian in the manner prescribed by the
Custodian. To the extent the Custodian is performing a function assigned to the
Trustee under the Plan, the Custodian shall have the benefit of all of the
limitations of the scope of the Trustee's duties and liabilities, all rights of
indemnification granted to the Trustee and all other protections of any nature
afforded the Trustee under the Plan.
The Custodian may delegate any of its duties under the Plan to the Service
Company by written agreement between the Custodian and the Service Company and
all references to the "Custodian", including specifically and not by way of
limitation in this Section 10.15 and Section 10.16, shall be construed to be
references to the "Service Company" as necessary or appropriate to reflect such
further delegation.
It is understood and agreed that while the Custodian will perform
certain ministerial duties (such as custodial, reporting, recording, and
bookkeeping functions) with respect to Plan assets, such duties do not involve
the exercise of any discretionary authority or other authority to manage or
control Plan assets, and such duties will be performed in the normal course by
officers and other employees of the Custodian who are unfamiliar with investment
management. It is agreed that the Custodian is not undertaking any duty or
obligation, express or implied, to review and will not be deemed to have any
knowledge of or responsibility with respect to, or to have participated in, any
transaction involving the investment of the Plan assets as a result of the
performance of, or information received in the course of performing, such
ministerial duties. In the event that "knowledge" of the Custodian shall be a
prerequisite to imposing a duty upon, or determining liability of, the Custodian
under the Plan or any law regulating the conduct of the Custodian with respect
to Plan assets, as a result of any act or omission of any other person or as a
result of any transaction engaged in by the Employer, the Plan Administrator,
the Trustee, the Named Investment Fiduciary, a Participant, or an Investment
Manager, then the receipt and processing of investment orders or other documents
relating to Plan assets by an officer or other employee of the Custodian engaged
in the performance of purely ministerial functions referred to herein shall not
constitute "knowledge" of the Custodian. With respect to any transaction which
the Custodian is directed to engage in, the Employer, the Named Investment
Fiduciary, the Trustee and the person directing the transaction shall be
responsible for making sure that the transaction does not violate any applicable
provision of law or disqualify the Plan under the Code, and the Custodian shall
have no such responsibility therefor. If the Custodian is also the Trustee, the
Custodian's rights and protections under this Section 10.15 shall not be
diminished by reason of its also serving as Trustee.
10.16 Scope of Alliance's and Custodian's Liability. Neither Alliance nor the
Custodian shall be liable for losses or costs of any kind which may result (1)
by reason of any action taken by it in accordance with the directions or
instructions of the Employer, the Plan Administrator, the Trustee or a
Participant or otherwise required to be taken in accordance with the Plan,
including the Adoption Agreement, or (2) by reason of any failure to act due to
the absence of such directions or instructions. Neither Alliance nor the
Custodian has any duty to perform any action other than those specified in the
Plan.
Neither Alliance nor the Custodian has any duty to determine or advise
Participants of the investment, tax or other consequences resulting from the
Participants' actions or inactions involving their Accounts, nor is Alliance or
the Custodian responsible for the investment, tax or other consequences of
Participants' actions, its own actions in following their directions or its
failing to act in the absence of their directions. Neither Alliance nor the
Custodian shall in any way be liable for any inadequacy of the Trust Fund to pay
benefits under the Plan, or be responsible for the collection of any
contribution required under the Plan or the enforcement or the collection of any
loan made pursuant to Section 5.4. The Trustee shall have no powers, duties or
responsibilities with regard to the administration of the Plan nor shall it have
any power, duty or responsibility to determine the rights or benefits of any
person having or claiming an interest under the Plan. Except as required by
ERISA, neither Alliance nor the Custodian shall be required to give bond or
security for the performance of its duties.
The Employer and, where Alliance or the Custodian is following the
directions or instructions of a Participant, the Trustee, the Plan Administrator
or the Named Investment Fiduciary, such Participant, the Trustee, Plan
Administrator or the Named Investment Fiduciary (as the case may be), shall at
all times fully indemnify and save harmless Alliance and the Custodian from any
liability which may arise in connection with this Plan, except liability arising
from the gross negligence or willful misconduct of Alliance and the Custodian.
For purposes of this Section 10.14, "liability" shall include, without
limitation, taxes, expenses, claims, damages, actions, suits, attorneys' fees,
expenses of litigation or preparation for threatened litigation, and any other
charges. Alliance and the Custodian shall be liable for their own gross
negligence or willful misconduct in the performance of the duties expressly
assumed by it under the Plan.
It is agreed that any advice concerning investments provided by Alliance or
its employees or by any of its affiliates or their employees, shall not serve as
a primary basis for any investment decision of the Employer, any Participant, or
any Investment Manager.
If the Custodian is also the Trustee, the Custodian's rights and
protections under this Section 10.16 shall not be diminished by reason of any
action or inaction on the part of the Custodian while acting as Trustee.
ARTICLE XI: AMENDMENT AND TERMINATION
11.1 Amendments.
(a) The Employer delegates to Alliance the power to amend any part of this
Prototype Plan. Alliance may do so from time to time by an instrument in writing
executed by Alliance, but no amendment shall be effective unless a copy of such
amendment has been furnished to the Employer. In the event of any amendment by
Alliance, each Employer shall be deemed to have consented thereto unless its
dissent in writing is delivered to Alliance within 30 days after a copy of the
amendment shall have been furnished to the Employer. In the event that the
Employer dissents to any such amendment, such dissent shall constitute a
withdrawal by the Employer of its Plan from under the Prototype Plan and the
Employer's Plan shall thereupon be considered an "individually-designed
retirement plan". Except in the case of such dissent, upon the execution by
Alliance of an instrument setting forth the amendment, the Plan shall be deemed
to have been so amended, effective as of the date specified in the instrument,
which may be retroactive if therein so provided, and all Participants and other
persons claiming any interest under the Plan shall be bound thereby. Unless
required in order for a Plan to be a Qualified Plan or permitted for a Qualified
Plan, no amendment of the Prototype Plan or the Plan shall cause or permit any
property held subject to the terms of the Plan to be diverted to purposes other
than for the exclusive benefit of Participants and Beneficiaries or to revert to
or become the property of the Employer or deprive any Participant or Beneficiary
of any benefit to which he is entitled under the Plan.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when such
language is necessary to satisfy section 415 or section 416 of the Code because
of the required aggregation of multiple plans, and (3) add certain model
amendments published by the Internal Revenue Service which specifically provide
that their adoption will not cause the Plan to be treated as individually
designed. An employer that amends the Plan for any other reason, including a
waiver of the minimum funding requirement under section 412(d) of the Code, will
no longer participate in this master or prototype Plan and will be considered to
have an individually designed plan.
(c) If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage, or if the Plan is deemed amended by an automatic
change to a top-heavy vesting schedule, each Participant with at least three
Years of Service may elect, within a reasonable period after the adoption of the
amendment or change, to have the nonforfeitable percentage computed under the
Plan without regard to such amendment or change. For Participants who do not
have at least one Hour of Service in any Plan Year beginning after December 31,
1988, the preceding sentence shall be applied by substituting "five Years of
Service" for "three Years of Service" where such language appears. The period
during which the election may be made shall commence with the date the amendment
is adopted or deemed to be made and shall end on the latest of:
(i) 60 days after the amendment is adopted;
(ii) 60 days after the amendment becomes effective; or
(iii) 60 days after the Participant is issued written notice
of the amendment by the Employer or the Plan Administrator.
(d) No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's Account balance may be reduced to the extent
permitted under section 412(c)(8) of the Code. For purposes of this subsection
(d), a Plan amendment which has the effect of decreasing a Participant's Account
balance or eliminating an optional form of benefits attributable to service
before the amendment shall be treated as reducing an accrued benefit.
Furthermore, if the vesting schedule of a Plan is amended, in the case of an
Employee who is a Participant as of the later of the date such amendment is
adopted or the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such Employee's Employer-derived accrued benefit
will not be less than the percentage computed under the Plan without regard to
such amendment.
11.2 Employer Withdrawal. The Employer may withdraw the Plan from under this
Prototype Plan by dissenting to an amendment to the Prototype Plan as provided
in Section 11.1(a) or by delivering written notice of discontinuance of
participation under the Prototype Plan to the Trustee. In either case, the rules
and procedures of the Internal Revenue Service governing "individually-designed
retirement plans" will thereafter be applicable to the Employer's Plan. A
withdrawal from the Prototype Plan by the Employer shall not of itself
constitute a termination of the Plan. Upon such withdrawal, the Employer shall
succeed to Alliance's power as described in Section 11.1 to amend the Plan.
Also, if the Employer's Plan fails at any time to meet the requirements for
status as a Qualified Plan, the Plan will be considered withdrawn from the
Prototype Plan and will be considered an "individually-designed retirement
plan".
11.3 When Consent of the Trustee or Custodian to an Amendment is Necessary. No
amendment may increase the duties, obligations or responsibilities of the
Trustee or Custodian, or affect the fees of either of them for services under
the Plan, without the written consent of the person affected thereby.
11.4 Termination. The Plan will terminate when the Plan is terminated by the
Employer or when the Employer permanently discontinues its contributions under
the Plan. The Plan will also terminate (a) if the Employer is a sole
proprietorship, upon the death of the sole proprietor, (b) if the Employer is a
partnership, upon termination of the partnership, (c) if the Employer is
judicially declared bankrupt or insolvent, (d) upon the dissolution, merger,
consolidation or reorganization of the Employer, (e) upon the sale or other
disposition of all or substantially all of the assets of the Business, or (f)
upon any other termination of the Business, provided that in any such event, any
successor to a purchaser of the Employer's Business may continue the Plan, in
which case the successor or purchaser will thereafter be considered the Employer
for purposes of the Plan. The Employer shall notify the Plan Administrator and
the Trustee in writing of the termination of the Plan. Any other provision of
the Plan to the contrary notwithstanding, in the event of the termination or
partial termination of the Plan or in the event of a complete discontinuance of
contributions under the Plan, the Account balance of each Participant will
immediately become and at all times remain fully vested and non-forfeitable.
11.5 Distributions upon Plan Termination. Upon the termination of the Plan as
provided in Section 11.4, at the Employer's election, either the Trust Fund
shall continue to be held and distributed as if the Plan had not been terminated
or any and all assets remaining in the Trust Fund as of the date of such
termination, together with any earnings subsequently accruing thereon, shall be
distributed promptly by the Trustee to the Participants in accordance with the
Plan Administrator's instructions. Each such distribution shall be made in
accordance with the applicable provisions, including restrictions, of Sections
6.1(b), (c) and (d), 6.2, 6.4, 6.5, 6.6 and 7.1, as elected by the recipient
Participant or Beneficiary, as the case may be. The Trust Fund shall continue in
effect until all distributions therefrom are complete. Upon the completion of
such distributions, the Trustee shall be relieved from all further liability
with respect to all amounts so paid or distributed.
ARTICLE XII: MISCELLANEOUS
12.1 Status of Participants. Neither the establishment or operation of the Plan
and the Trust Fund, nor any amendment or other modification thereof, nor the
creation of any fund or account, nor the payment of any benefits shall be
construed as giving to any Participant or other person any legal or equitable
right against the Employer, the Plan Administrator, or the Trustee, except as
provided in the Plan or by law. The Plan is not a contract of Employment and in
no event shall the terms of Employment of any individual be modified or in any
way whatsoever be affected by the Plan.
12.2 Source of Benefits. It is a condition of the Plan, and each Participant by
participating in the Plan expressly agrees, that he and his Beneficiary shall
look solely to the Trust Fund for the payment of any benefit to which he is
entitled under the Plan.
12.3 Exclusive Benefit. Subject to Section 12.6, the corpus or income of the
Trust Fund may not be diverted to or used for other than the exclusive benefit
of Participants or their Beneficiaries and paying the reasonable expenses of the
Plan and Trust.
12.4 Plan Merger, Consolidation or Transfer. In the event of a merger or
consolidation of the Plan with, or transfer of assets to, any other plan, each
Participant will be entitled (if the Plan then terminated) to receive a benefit
immediately after the merger, consolidation or transfer which is at least equal
to the benefit the Participant would have been entitled to receive immediately
before the merger, consolidation or transfer (if the Plan had then terminated).
12.5 Non-Reversion of Contributions. The Plan is established for the exclusive
benefit of the Participants and their Beneficiaries, and under no circumstances
shall any of the assets of the Trust Fund established hereunder revert to the
Employer, except in connection with the distribution of benefits to Participants
or except as provided in Section 12.6.
12.6 Return of Employer Contributions under Special Circumstances.
Notwithstanding any provision of this Plan to the contrary, upon timely written
demand by the Employer or the Plan Administrator to the Trustee:
(a) Any contribution by the Employer to the Plan under a mistake of fact
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution.
(b) Any contribution made by the Employer conditional upon the
determination by the Commissioner of Internal Revenue that the Plan is initially
a Qualified Plan shall be returned to the Employer by the Trustee within one
year after notification from the Internal Revenue Service that the Plan is not
initially a Qualified Plan, but only if the application for the qualification is
made by the time prescribed by law for filing the Employer's return for the
taxable year in which the Plan is adopted, or such later date as the Secretary
of the Treasury may prescribe.
(c) Any contribution made by the Employer conditioned upon the
deductibility of the contribution under section 404 of the Code shall be
returned to the Employer within one year after a deduction for the contribution
under section 404 of the Code is disallowed by the Internal Revenue Service, but
only to the extent disallowed. Unless specifically provided to the contrary at
the time the contribution is made or otherwise required by another provision of
the Plan, all Employer Contributions are made on the condition that current tax
deductions are allowable for such contributions.
(d) Any amount contributed under the Plan by the Employer which cannot then
be allocated to Participants' Accounts due to the limitations of Code section
415 shall, upon termination of the Plan, revert to the Employer.
12.7 Inalienability of Benefits. No benefit or interest provided under the Plan
will be subject, either voluntarily or involuntarily, to assignment, alienation,
garnishment, attachment, execution or levy of any kind, and no attempt to cause
any such benefits to be so subjected shall be recognized. The preceding sentence
shall also apply to the creation, assignment or recognition of a right to any
benefit payable with respect to a Participant pursuant to a "domestic relations
order" (as defined in section 414(p) of the Code) unless such order is
determined by the Plan Administrator to be a "qualified domestic relations
order" (as defined in section 414(p) of the Code) or, in the case of a "domestic
relations order" entered before January 1, 1985, if either payment of benefits
pursuant to the order has commenced as of that date or the Plan Administrator
decides to treat such order as a "qualified domestic relations order" within the
meaning of section 414(p) of the Code) even if it does not otherwise qualify as
such.
12.8 Domestic Relations Orders. Any other provision of the Plan to the contrary
notwithstanding, the Plan Administrator shall have all powers necessary with
respect to the Plan for the proper operation of section 414(p) of the Code with
respect to "qualified domestic relations orders" (or "domestic relations orders"
treated as such) referred to in Section 12.7, including, but not limited to, the
power to establish all necessary or appropriate procedures, to authorize the
establishment of new accounts with such assets and subject to such investment
control by the Plan Administrator as the Plan Administrator may deem
appropriate, and the Plan Administrator may decide upon and to make direct
appropriate distributions therefrom. To the extent provided under any such
order, a former spouse will be treated as a spouse or surviving spouse, as
appropriate, under the Plan, and a current spouse will not be treated as a
spouse or surviving spouse.
12.9 Employer's and Trustee's Protective Clause. If the Plan Administrator or a
Participant directs that an investment be made in an annuity contract, neither
the Employer or the Trustee shall be responsible for the validity of the
contract or the failure of any insurance company to make payments provided by
any contract or for the action of any person which may delay payment or render a
contract null and void or unenforceable in whole or in part. Unless caused by
gross negligence or willful misconduct, the Trustee's failure to purchase any
contract or pay any premium when due does not give anyone a claim against the
Trustee.
12.10 Insurer's Protective Clause. Any insurer who issues an annuity contract,
shall have no responsibility for the validity, tax or legal aspects of this
Plan. The insurer shall be protected and held harmless in acting in accordance
with any written direction of the Plan Administrator or Trustee, and shall have
no duty to see to the application of any funds paid to the Trustee, nor be
required to question any actions directed by the Plan Administrator or Trustee.
Regardless of any provision of this Plan, the insurer shall not be required to
take or permit any action to allow any benefit or privilege contrary to the
terms of any contract.
12.11 Notices. Except where otherwise specifically required in the Plan, any
notice or other communication provided for in the Plan from the Employer, the
Plan Administrator or the Trustee to any person shall be effective if sent by
first class mail to such person at that person's last address in the sender's
records, provided, however, that any notice to Alliance, the Service Company,
the Trustee or the Custodian shall be effective if sent by first class mail to
the address last specified by that person as the address to which notices are to
be sent.
12.12 Applicable Plan Years. The provisions of this Prototype Plan are effective
with respect to a Plan for Plan Years commencing on or after January 1, 1987 or
such later date as is specified in the Adoption Agreement; provided, however,
that the provisions of this Plan required to conform to or to comply with the
provisions of the Tax Reform Act of 1986 effective for Plan Years beginning on
or after January 1, 1989 shall, unless otherwise specified, only become
effective for such Plan Years. To the extent the proviso in the preceding
sentence delays the effective date of any provision, the corresponding provision
of the Qualified Plan of an Employer which this Plan replaces shall continue to
be applicable until such delayed effective date. Notwithstanding the foregoing,
nothing in this Section 12.12 shall be construed to permit the retroactive
effectiveness of any Plan provision to the extent such retroactivity is not
otherwise permitted by law.
12.13 Governing Law and Plan Qualification. This Plan shall be construed,
interpreted, administered and enforced in accordance with the laws of the state
of incorporation of the Trustee (or, if the Trustee is not a corporation, the
State of New York) except to the extent preempted by the laws of the United
States of America. Any provision of the Plan in conflict with applicable federal
law shall survive to the extent permitted by that law. The Plan is intended to
be a Qualified Plan that is a profit-sharing plan and if any provision of the
Plan is subject to more than one construction, such ambiguity shall be resolved
in favor of that interpretation or construction which is consistent with that
intent. Alliance, the Service Company, the Trustee and the Custodian shall have
no responsibility as to whether or not such intentions are achieved through use
of the Plan.
12.14 Severability. If any provision of this Plan shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
of this Plan shall continue to be fully effective.
12.15 Articles and Section References. Titles of Articles and Sections of the
Plan are for convenience of reference only and are to be disregarded in applying
the provisions of the Plan. A reference in this Prototype Plan to an Article or
Section is to the Article or Section so specified of the Prototype Plan, unless
otherwise indicated.
12.16 Gender and Number. Whenever used in the Plan, masculine pronouns include
the feminine, the singular includes the plural, and the plural includes the
singular, unless qualified by the context. The use of the masculine pronoun
shall not be deemed to imply any preference for the masculine gender or any
subordination, disqualification or exclusion of the feminine.
ARTICLE XIII: TOP-HEAVY PROVISIONS
13.1 Top-Heavy Rules. In any Plan Year that this Plan is or becomes a
Top-Heavy Plan, the provisions of Sections 13.4 through 13.9 will automatically
supersede any conflicting provision of the Plan.
13.2 Top-Heavy Plan. For any Plan Year beginning after December 31, 1983, the
Plan will be a Top-Heavy Plan if:
(a) The Top-Heavy Ratio for this Plan exceeds 60 percent and this Plan is
not part of any Required Aggregation Group or Permissive Aggregation Group of
plans; or
(b) This Plan is part of a Required Aggregation Group of plans but not part
of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans
exceeds 60 percent; or
(c) This Plan is part of a Required Aggregation Group of plans and part of
a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60 percent.
If elected in the Adoption Agreement, the Plan will be a Top-Heavy Plan without
regard to the foregoing conditions being met.
13.3 Definitions. For purposes of this Article XIII, the following definitions
shall apply:
(a) Determination Date. For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan Year of a
plan, the last day of that year.
(b) Employee. Any employee of an Employer and any beneficiary of such an
employee.
(c) Employer. The Employer and any Affiliate.
(d) Key Employee. Any Employee or former Employee (and the Beneficiaries of
such Employee) who at any time during the determination period was an officer of
the Employer if such individual's Compensation exceeds 50% of the dollar
limitation under section 415(b)(1)(A) of the Code, an owner (or considered an
owner under Code section 318) of one of the ten largest interests in the
Employer if such individual's compensation exceeds 100% of the dollar limitation
under Section 415(c)(1)(A) of the Code, a 5-percent owner of the Employer, or a
1-percent owner of the Employer who has an annual compensation of more than
$150,000. Annual compensation means compensation as defined in section 415(c)(3)
of the Code, but including amounts contributed by the Employer pursuant to a
salary reduction agreement which are excludable from the Employee's gross income
under sections 125, 402(a)(8), 402(h) or 403(b) of the Code. The determination
period is the Plan Year containing the Determination Date and the 4 preceding
Plan Years. The determination of who is a Key Employee will be made in
accordance with Code section 416(i)(1) and the regulations thereunder.
(e) Permissive Aggregation Group. The Required Aggregation Group of plans
plus any other plan or plans of the Employer which, when considered as a group
with the Required Aggregation Group, would continue to satisfy the requirements
of Code sections 401(a)(4) and 410.
(f) Present Value. The Present Value of a benefit shall be determined using
the interest rate and mortality assumptions as specified in the Adoption
Agreement.
(g) Required Aggregation Group. (1) Each qualified plan of the Employer in
which at least one Key Employee participates or participated at any time during
the determination period regardless of whether the Plan has terminated, and (2)
any other qualified plan of the Employer which enables a plan described in (1)
to meet the requirements of sections 401(a)(4) or 410 of the Code.
(h) Top Heavy Ratio:
(1) If in addition to this Plan the Employer maintains one or more
other Defined Contribution Plans (including any simplified employee pension
plan) and the Employer has not maintained any Defined Benefit Plan which
during the 5-year period ending on the Determination Date has or has had
accrued benefits, the top-heavy ratio for this Plan alone or for the
Required Aggregation Group or Permissive Aggregation Group, as appropriate,
is a fraction, the numerator of which is the sum of the account balance of
all Key Employees as of the Determination Date (including any part of any
account balance distributed in the 5-year period ending on the
Determination Date), and the denominator of which is the sum of all account
balances (including any part of any account balance distributed in the
5-year period ending on the Determination Date), both computed in
accordance with Section 416 of the Code and the regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are increased to
reflect any contribution not actually made as of the Determination Date,
but which is required to be taken into account on that date under Section
416 of the Code and regulations thereunder.
(2) If in addition to this Plan the Employer maintains one or more
Defined Contributions Plans (including any simplified employee pension
plan) and the Employer maintains or has maintained one or more Defined
Benefit Plans which during the 5-year period ending on the Determination
Date has or has had any accrued benefits, the Top-Heavy Ratio for any
Required Aggregation Group or Permissive Aggregation Group, as appropriate,
is a fraction, the numerator of which is the sum of account balances under
the aggregate Defined Contribution Plans for all Key Employees, determined
in accordance with (1) above, and the Present Value of accrued benefits
under the aggregated Defined Benefit Plans for all Key Employees as of the
Determination Date, and the denominator of which is the sum of the account
balances under the aggregated Defined Benefit Plans for all participants as
of the Determination Date, all determined in accordance with Section 416 of
the Code and the regulations thereunder. The accrued benefits under the
Defined Benefit Plan in both the numerator and denominator of the Top-Heavy
Ratio are increased for any distribution of an accrued benefit made in the
5-year period ending on the Determination Date.
(3) For purposes of (1) and (2) above, the value of account balances
and the present value of accrued benefits will be determined as of the most
recent Valuation Date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Section 416 of the
Code and the regulations thereunder for the first and the second plan years
of a Defined Benefit Plan. The account balances and accrued benefits of a
participant (x) who is not a Key Employee but who was a Key Employee in the
prior year, or (y) who has not been credited with at least one hour of
service with any Employer maintaining the Plan at any time during the
5-year period ending on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance
with Section 416 of the Code and the regulations thereunder. Deductible
Employee contributions will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans the value of account
balances and accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall be
determined under (a) the method, if any, that uniformly applies for accrual
purposes under all Defined Benefit Plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the Fractional rule of Section 411(b)(1)(c)
of the Code.
(i) Valuation Date. The last day of the Plan Year, unless a different date
is specified in the Adoption Agreement.
13.4 Vesting Requirements. Subject to Section 11.1(c) and the last sentence of
this Section 13.4, in any Plan Year that the Plan is a Top-Heavy Plan and in all
Plan Years thereafter, the nonforfeitable percentage of amounts in a
Participant's account attributable to Employer Contributions shall be at least
the percentage determined in accordance with the Top-Heavy vesting schedule
Specified in the Adoption Agreement. The minimum vesting schedule applicable
under this Section 13.4 applies to all benefits within the meaning of Code
Section 411(a)(7) except those attributable to Section 401(k) Contributions and
After-Tax Contributions, including benefits accrued before the effective date of
Code Section 416 and benefits accrued before the Plan became a Top-Heavy Plan.
Further, no decrease in participant's nonforfeitable percentages may occur in
the event the Plan is no longer a Top-Heavy Plan for any Plan Year.
However, this Section 13.4 does not apply to the account balances of any
Employee who does not have and hour of service after the Plan has initially
become a Top-Heavy Plan, and such an Employee's account balance attributable to
Employer Contributions and forfeitures will be determined without regard to this
Section 13.4. The minimum vesting schedule applicable under this Section 13.4
shall cease to apply to a Participant when and if the Plan ceases to be a
Top-Heavy Plan only upon the adoption by the Employer of an amendment to the
vesting schedule, subject to the rules of Section 11.1(c) concerning such
amendments.
13.5 Minimum Benefit. For any Plan Year that the Plan is a Top-Heavy Plan, the
sum of the Profit-Sharing Contributions (and forfeitures attributable thereto)
and 401(k) Bonus Contributions allocated on behalf of any Participant who is not
a Key Employee shall not be less than the lesser of 3% of such Participant'
compensation, or in the case where the Employer has no Defined Benefit Plan
which designates this Plan to satisfy the requirements of Section 401 of the
Code, the largest percentage of Employer Contributions (and forfeitures
attributable thereto), as a percentage of the Key Employee's compensation,
allocated on behalf of any Key Employee for that year; provided, however, that
if the Adoption Agreement provides that 401(k) Bonus Contributions for a Plan
Year are allocated only to accounts of Participants who elected Salary Deferral
Contributions for the Plan Year, 401(k) Bonus Contributions shall not be taken
into consideration in determining whether the account of a Participant who is
not a Key Employee has received the required minimum allocation. The minimum
allocation is determined without regard to any Social Security contribution.
This minimum allocation shall be made even though, under other Plan provisions,
the Participant would not otherwise be entitled to receive an allocation, or
would have received a lesser allocation for the year because of (a) the
Participant's failure to complete 1,000 hours of service (or any equivalent
provided in the Plan), or (b) the Participants failure to make mandatory
employee contributions, or (c) Compensation less than a stated amount. The
provisions of this Section 13.5 shall not apply to any Participant who was not
employed by the Employer on the last day of the Plan Year, nor shall they apply
to any Participant to the extent the Participant is covered under any other plan
or plans the Employer and the Employer has provided in the Adoption Agreement
that the minimum allocation or benefit requirement applicable to Top-Heavy Plans
will be met in the other plan or plans. The minimum allocation required by this
Section 13.5 (to the extent required to be nonforfeitable under Code Section
416(b)) may not be forfeited under Code Section 411(a)(3)(B) or (D).
13.6 Limit on Includible Compensation. For any Plan Year commencing prior to
January 1, 1989, in which the Plan is a Top-Heavy Plan, only the first $200,000
of a Participant's Compensation (or such larger amount as may be prescribed by
the Secretary of Treasury or his delegate) shall be taken into account in
determining the allocation of Employer Contributions under the Plan.
13.7 Employees Covered by a Collective Bargaining Agreement. Sections 13.4, 13.5
and 13.6 shall not apply with respect to any Employee included in a unit of
employees covered by a collective bargaining agreement if there is evidence that
retirement benefits were the subject of good faith bargaining between the
employees' representative and the Employer. For this purpose, the term
"employee's representative" does not include any organization more than half of
whose members are employees who are owners, officers, or executives of the
Employer.
13.8 Simplified Employee Pensions. A simplified employee pension shall be
treated as a Defined Contribution Plan. The Employer may elect to determine
benefits under such a plan by taking into account aggregate Employer
contributions in lieu of the aggregate accounts of Employees.
13.9 Combined Limit on Contributions and Benefits for Key Employees. Except as
provided in (a) and (b) below, in any Plan Year in which the Plan is a Top-Heavy
Plan, the calculation of the denominators of the Defined Benefit Fraction and
the Defined Contribution Fraction, for purposes of determining the combined
limit in Section 4.1(e) for any Key Employee who participates in both a Defined
Benefit Plan and a Defined Contribution Plan of the Employer, shall be made
based on 100 percent of the dollar limitations in effect under Code section
415(b)(1)(A) and (c)(1)(A) (rather than 125 percent) for such Plan Year.
(a) The Employer may elect in the Adoption Agreement to have the combined
limit in Section 4.1(e) determined based on 125 percent of such dollar
limitations for any Plan Year in which the Plan would not be a Top-Heavy Plan if
"90 percent" were substituted for "60 percent" in each place it appears in
Section 13.2. If the Employer so elects, then for any such Plan Year "4%" shall
be substituted for "3%" everywhere it appears in Section 13.5, for purposes of
determining the minimum amount of contributions and forfeitures required to be
allocated on behalf of any Participant.
(b) The application of this Section 13.9 shall be suspended with respect to
any individual so long as there are no Employer Contributions, forfeitures or
After-Tax Contributions allocated to him, or accruals for him under the Defined
Benefit Plan.
EXHIBIT 10.100
FIRST AMENDMENT TO STOCK PURCHASE WARRANT
THIS FIRST AMENDMENT TO STOCK PURCHASE WARRANT (the "Agreement") is made as
of the 1st day of August 1996 by and between Biomune Systems, Inc.., a Nevada
corporation (the "Company"), and A.L. Sarroff, an individual (the "Registered
Holder"). The Company and the Registered Holder are sometimes referred to herein
collectively as the "Parties."
RECITALS:
A. WHEREAS, on January 31, 1995, pursuant to the terms of a Consulting
Agreement of even date therewith entered into between the Parties, the Company
granted the Registered Holder a Stock Purchase Warrant to purchase from the
Company a total of 125,000 shares of the Company's Common Stock, $0.0001 par
value per share (defined therein as the Warrant Stock), at an exercise price of
$4.00 per share (defined therein as the Exercise Price), as evidenced by
Certificate No. B-1000 ("Warrant B-1000"), a copy of which is attached hereto as
Exhibit "B";
B. WHEREAS, all capitalized terms used in this Amendment that are not
otherwise defined herein, shall be deemed to have the meanings ascribed to them
in Warrant B-1000;
C. WHEREAS, the Company and the Registered Holder deem it necessary and
appropriate to amend the Exercise Price of the Warrant Stock in Warrant B-1000;
D. WHEREAS, the Company and the Registered Holder further deem it necessary
and in their best interests to amend Warrant B-1000 to add a new Section 11 to
Warrant B-1000, which new Section shall be designated as Section 11 to Warrant
B-1000 and which Section 11 will state the terms and limits of a lockup of the
Registered Holder's right to exercise Warrant B-1000 and acquire the Warrant
Stock; and
F. WHEREAS, the Company is currently contemplating filing a registration
statement with the United States Securities and Exchange Commission (the "SEC")
on Form S-1 or Form S-3 to register certain shares of the Company's Common Stock
(the "Registration Statement"), which Registration Statement is currently
contemplated to be declared effective by the SEC by or about December 31, 1996.
NOW THEREFORE, in consideration of the foregoing Recitals, together with
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
1. Amendment of Warrant B-1000 Exercise Price. The Exercise Price for
Warrant B-1000 shall be amended to extend to August 1, 2001.
2. Addition of New Section 11. Warrant B-1000 shall be amended to add a new
Section 11 reading in its entirety as follows
"SECTION 11. Six Month Lock-Up. Notwithstanding any other provision of this
Warrant, the Registered Holder shall not exercise the purchase rights
represented by this Warrant until the later to occur of (a) six (6) months after
the SEC declares the Registration Statement effective or (b) January 31, 1997."
3. No Other Amendments. Except as provided in this Amendment, Warrant
B-1000 shall not be deemed to be amended or altered and shall remain in full
force and effect as originally executed. This Amendment shall be deemed to be
effective as of the date first set forth above and shall not be modified or
altered except by a writing signed by the Parties. The above Recitals shall be
deemed to be incorporated herein by this reference.
DATED August 1, 1996.
THE COMPANY:
BIOMUNE SYSTEMS, INC., a Nevada corporation
By: /s/ David G. Derrick
--------------------------
David G. Derrick
Its: Chief Executive Officer
REGISTERED HOLDER:
-----------------------------
/s/ A.L. Sarroff
A.L. Sarroff
Exhibit "B" consists of a Stock Purchase Warrant dated January 31, 1995
EXHIBIT 10.101
FIRST AMENDMENT TO STOCK PURCHASE WARRANT
THIS FIRST AMENDMENT TO STOCK PURCHASE WARRANT (the "Agreement") is made as
of the 1st day of August 1996 by and between Biomune Systems, Inc.., a Nevada
corporation (the "Company"), and A.L. Sarroff, an individual (the "Registered
Holder"). The Company and the Registered Holder are sometimes referred to herein
collectively as the "Parties."
RECITALS:
A. WHEREAS, on January 31, 1995, pursuant to the terms of a Consulting
Agreement of even date therewith entered into between the Parties, the Company
granted the Registered Holder a Stock Purchase Warrant to purchase from the
Company a total of 125,000 shares of the Company's Common Stock, $0.0001 par
value per share (defined therein as the Warrant Stock), at an exercise price of
$6.00 per share (defined therein as the Exercise Price), as evidenced by
Certificate No. C-1000 ("Warrant C-1000"), a copy of which is attached hereto as
Exhibit "C";
B. WHEREAS, all capitalized terms used in this Amendment that are not
otherwise defined herein, shall be deemed to have the meanings ascribed to them
in Warrant C-1000;
C. WHEREAS, the Company and the Registered Holder deem it necessary and
appropriate to amend the Exercise Price of the Warrant Stock in Warrant C-1000;
D. WHEREAS, the Company and the Registered Holder further deem it necessary
and in their best interests to amend Warrant C-1000 to add a new Section 11 to
Warrant C-1000, which new Section shall be designated as Section 11 to Warrant
C-1000 and which Section 11 will state the terms and limits of a lock-up of the
Registered Holder's right to exercise Warrant C-1000 and acquire the Warrant
Stock; and
F. WHEREAS, the Company is currently contemplating filing a registration
statement with the United States Securities and Exchange Commission (the "SEC")
on Form S-1 or Form S-3 to register certain shares of the Company's Common Stock
(the "Registration Statement"), which Registration Statement is currently
contemplated to be declared effective by the SEC by or about December 31, 1996.
NOW THEREFORE, in consideration of the foregoing Recitals, together with
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
1. Amendment of Warrant C-1000 Exercise Price. The Exercise Price for
Warrant C-1000 shall be amended to extend to August 1, 2001.
2. Addition of New Section 11. Warrant C-1000 shall be amended to add a new
Section 11 reading in its entirety as follow:
"SECTION 11. Six Month Lock-Up. Notwithstanding any other provision of
this Warrant, the Registered Holder shall not exercise the purchase rights
represented by this Warrant until the later to occur of (a) six (6) months
after the SEC declares the Registration Statement effective or (b) January
31, 1997."
3. No Other Amendments. Except as provided in this Amendment, Warrant
C-1000 shall not be deemed to be amended or altered and shall remain in full
force and effect as originally executed. This Amendment shall be deemed to be
effective as of the date first set forth above and shall not be modified or
altered except by a writing signed by the Parties. The above Recitals shall be
deemed to be incorporated herein by this reference.
DATED August 1, 1996.
THE COMPANY:
BIOMUNE SYSTEMS, INC., a Nevada corporation
By: /s/ David G. Derrick
--------------------------
David G. Derrick
Its: Chief Executive Officer
REGISTERED HOLDER:
/s/ A.L. Sarroff
--------------------------
A.L. Sarroff
Exhibit "C" consists of a Stock Purchase Warrant dated January 31, 1995.
EXHIBIT 10.102
COMMERCIAL AND INDUSTRIAL LEASE
THIS LEASE made and entered into this 12th day of April 1996, by and
between RJF Companies, Ltd. hereinafter called "Landlord," and Biomune
Systems, Inc. hereinafter called "Tenant."
WITNESSETH:
In consideration of the covenants and promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed by the parties hereto as follows:
I. DEMISED PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord all
those certain premises hereinafter more fullv described, together with the
buildings and other improvements thereon, for the term and upon the rental
herein set forth. Said demised premises consist more particularly of a certain
building containing approximately 3,810 square feet, known as, located at 5103
West 2100 South in West Valley City, State of Utah.
Tenant shall have the right to use the common and Parking areas jointly
with any other tenants of the building but shall not be less than (2) stalls.
II. TERM:
TO HAVE AND TO HOLD said premises unto Tenant for a term of five years (5)
years beginning on the 1st day of June 1996, and ending on the 30th day of May
2001.
If Landlord fails to deliver possession of premises ready for occupancy at
the commencement of the lease term for any reason beyond Landlord's control,
Landlord shall not be liable for any damage caused therebv, nor shall this lease
become void or voidable, nor shall the lease term be extended, but in such event
no rental shall be payable by Tenant to Landlord for any portion of the lease
term until Landlord can deliver possession of premises to Tenant ready for
occupancy by Tenant. However, in the event the demised premises are not
completed and ready for occupancy by June 1996, the Tenant herein, at his
option, may cancel this lease without damage.
III. TERMS AND CONDITIONS OF LEASE
This lease is made on the following terms and conditions, which are
expressly agreed to by Landlord and Tenant:
1. RENT: The Tenant agrees to pay as rental to Landlord, at the address
specified in this Lease or at such other place Landlord may from time to time
designate in writing, the sum of Eighty thousand seven hundred sixty
($80,760.00) DOLLARS said sum to be lawful money of the United States payable as
follows:
$2,692.00 shall be paid upon the execution of this Lease of which
$1,346.00 represents the security deposit and $1,346.00 represents
the June 1st, 1996, base rent payment. Then on or before July 1st,
1996, the Tenant shall pay $1,346.00 to the Landlord on the first day
of each and every month until May 30, 1998. Effective June 1st, 1998,
the monthly rental payment shall be adjusted by the amount equal to
the change for the previous two year period in the Consumer Price
Index for Urban Wage Earners and Clerical Workers, All Items,
published by the U.S. Department of Labor, Bureau of Labor
Statistics, but in no event will the payment be less than the
preceding period. The rental payment will in no event be adjusted
more than four (4%) per cent per annum, nor less than two (2%) per
cent per annum.
(a) LATE CHARGES: In the event Tenant fails to pay said rental (including
any additional rental due hereunder) on the due date or within ten (10) days
thereafter, a late charge of two percent (2%) per month of the delinquent rental
shall be added to said rental and paid to Landlord together therewith.
(b) SECURITY DEPOSIT: Tenant contemporaneously with the execution of this
Lease, has deposited with Landlord the sum of $1,346.00 receipt of which is
hereby acknowledged by Landlord, said deposit being given to secure the faithful
performance by the Tenant of all of the terms, covenants and conditions of this
Lease by the Tenant to be kept and performed during the term hereof. The Tenant
agrees that if the Tenant shall fail to pay the rent herein reserved, promptly
when due, said deposit may, at the opinion of the Landlord (but Landlord shall
not be required to), be applied to any rent due and unpaid, and if the Tenant
violates any of the other terms, covenants and conditions of this lease, said
deposit shall be applied to any damages suffered by Landlord as a result of
Tenant's default to the extent of the amount of the damages suffered.
Nothing contained in this paragraph shall in any way diminish or be
construed as waiving any of the Landlord's other remedies as provided herein, or
by law. If the security deposit is applied by Landlord for the payment of over
due rent or other sums due and payable to Landlord by Tenant hereunder, then
Tenant shall, on the written demand of Landlord, forthwith remit to Landlord a
sufficient amount in cash to restore said security deposit to its original
amount, and Tenant's failure to do so within fifteen days after receipt of such
demand, shall constitute a breech of this lease. Should Tenant comply with all
of the terms, covenants and conditions of this Lease and promptly pay all of the
rental herein provided for as it falls due, and all other sums payable by Tenant
to Landlord hereunder, said security deposit shall be returned in full to Tenant
at the end of the term of this lease, or upon the earlier termination of this
lease pursuant to the provisions hereof, except in the event that the demised
premises are sold as a result of the exercise of any power of sale under any
mortgage or deed of trust, in which event the lease shall be automatically
amended to delete any reference to this paragraph, and Tenant shall be entitled
to immediate reimbursement of its security deposit from the party then holding
said deposit.
2. AUTHORIZED USE: Tenant shall use the leased premises for the following
purpose, and for no other purpose whatsoever, without the written consent of
Landlord first had and obtained: mixing of medical dye products and related
business.
Tenant shall not commit or knowingly permit any waste of the leased
premises or use the same for any unlawful purpose. The Tenant will comply with
all applicable federal, state and local laws, ordinances and regulations
relating to the leased premises and its use and operation by the Tenant.
Tenant agrees not to keep, use or permit to be kept or used on the Leased
Premises any, explosives or any "hazardous substance," "solid waste," or
"hazardous waste" as said terms are defined in 42 U.S.C. 9601(14), and 40 C.F.R.
261.1 et seq. without the prior written permission of Landlord, which permission
shall not be unreasonable withheld.
3. PAYMENT OF TAXES AND OTHER ASSESSMENTS: Tenant shall pay its
proportionate share when they are due of all property taxes, license fees and
assessments levied or imposed against the premises or measured by the rent
payable hereunder during the term of this Lease or any extension thereof, by
Federal, state, municipal or other governmental authority provided, however,
that no law or practice postponing the payment of such taxes, assessments or
charges until after the termination of this Lease shall relieve Tenant of the
obligation to make such payments. Payment of such taxes shall be made by Tenant
to Landlord not later than thirty (30) days following the date on which Landlord
provides Tenant with written evidence of such taxes in the form of a copy of the
tax return or notice. If Tenant fails to pay any of such taxes, charges or other
impositions when due, Landlord may pay the same under the provisions of'
paragraph 19, hereinafter set forth. Anything herein to the contrary
notwithstanding, if Tenant deems excessive or illegal any such tax or
assessment, Tenant may defer payment thereof so long as the validity or the
amount thereof is contested by Tenant in good faith, in which case tenant shall
furnish to Landlord a bond, in form reasonably satisfactory to Landlord, in an
amount equal to the amount of taxes or assessments so contested, which bond
shall guarantee the payment thereof with interest and penalties thereon.
4. CONDITION OF THE PREMISES: Tenant accepts the leased premises in the
condition they are in at the time of its taking possession to said premises.
Tenant agrees, if, during the term of this Lease, Tenant shall change the usual
method of conducting Tenant's business on the leased premises, or should Tenant
install thereon or therein any new facilities, Tenant will, at the sole cost and
expense of Tenant, make alterations or improvements in or to the demised
premises which may be required by reason of any Federal or state law, or by any
municipal ordinance, or regulation applicable thereto. Landlord warrants that
the building, on date of occupancy, meets all currently applicable Federal,
state and municipal laws and ordinances.
5. TENANT TO INSURE BUILDINGS: Tenant shall insure and keep insured the
premises of Landlord hereby leased against the perils of fire, the "Extended
Coverages," vandalism and malicious mischief, and all risks to the ( premises
with the "Special Causes of Loss" form, and Tenant shall carry insurance against
the risk of business interruption and loss of income and loss of rents to
Landlord resulting from fire or other hazards. The later described policy must
provide coverage for six months estimated income from the leased premises. Such
insurance shall carry a "Full Replacement Cost Endorsement" with a provision for
automatic adjustment of such cost for inflation and shall pertain to all
improvements on the leased premises. Such policy shall have a deductible of no
more than $5,000.00 and shall be made payable to Landlord as the primary insured
and to Mortgagee (if any) as a lender as their interests may appear. Tenant
shall be responsible for any damage to premises as a result of forced entry into
his space or burglary thereof. Such insurance provided for hereunder shall be in
a company or companies acceptable to Landlord and shall be procured and paid for
by Tenant, and said policy or policies will be delivered to Landlord. Such
insurance may, at Tenant's election, be carried under any General Blanket
Insurance Policy of Tenant, provided, however, that a satisfactory Certificate
of Insurance, together with proof of payment of the premium, shall be deposited
with Landlord. Landlord shall be given 30 days notice prior to cancellation or
termination of said insurance policy. If Landlord wishes to obtain insurance
against earthquake, Landlord may require such coverage, if available, to be
covered by Tenant's casualty insurance policy, but Landlord shall pay the
premium related to the earthquake coverage.
6. REPAIR AND CARE OF BUILDING AND PAYMENT OF UTILITIES BY TENANT: Tenant
agrees to keep the interior and exterior of the building and the improvements on
the premises outside the building and grounds in good condition and repair and
agrees to pay its proportionate share for all labor, materials and other repairs
to the electrical wiring, plumbing, air-conditioning, and heating systems
(including spring and fall servicing, and replacement of filters as recommended
by the manufacturers); the mowing of grass, care of shrubs, general landscaping,
if any, and to clean and paint the interior and exterior of the leased premises
as the same may or might be necessary in order to maintain said premises in a
clean, attractive and sanitary condition, Tenant shall keep the driveways,
parking lots and sidewalks, if any, reasonably free from snow and ice.
Tenant shall pay all charges, including but not limited to charges for
water, heat, gas, electricity and other public utilities used on the leased
premises, including all replacements of light bulbs, tubes, ballasts and
starters within a reasonable time after they burn out.
7. REPAIR OF BUILDING BY LANDLORD: Landlord agrees for the term of this
Lease, to maintain roof in good condition and repair, and any latent defects in
the exterior wall, floor, joists, and foundations, and to repair any defects in
the plumbing, electrical, heating and air-conditioning systems for one year
after date of occupancy as well as any damage that might result from acts of
Landlord or Landlord's representatives. Landlord shall not, however, be
obligated to repair any such damage until written notice of the need of repair
shall have been given to Landlord by Tenant and, after such notice is so given,
Landlord shall have a reasonable time to which to make such repairs.
8. ALTERATIONS OF BUILDING AND INSTALLATION OF FIXTURES AND OTHER
APPURTENANCES: Tenant may. with written consent of Landlord, which consent shall
not be unreasonably withheld or delayed, but at Tenant's sole cost and expense
in a good and workmanlike manner, make such alterations and repairs to the
leased premises as Tenant may require for the conduct of its business without,
however, materially altering the basic character of the building or
improvements, or weakening any structure on the demised premises. Tenant shall
have the right, with the written permission of Landlord, to erect, at Tenant's
sole cost and expense, such temporary partitions, including office partitions,
as may be necessary to facilitate the handling of Tenant's business and to
install telephone and telephone equipment and wiring, and electrical fixtures,
additional lights and wiring and other trade appliances. Any alterations or
improvements to the leased premises, including partitions, all electrical
fixtures, lights and wiring shall, at the option of Landlord, become the
property of Landlord, at the expiration or sooner termination of this Lease
excluding tenant's gas fire suppression system. Should Landlord request Tenant
to remove all or any part of the above mentioned items, Tenant shall do so prior
to the expiration of this Lease and repair the premises as described below.
Temporary shelves, bins, and machinery installed by Tenant shall remain the
property of Tenant and may be removed by Tenant at any time; provided, however,
that all covenants, including rent due hereunder to Landlord shall have been
complied with and paid. At the expiration or sooner termination of this Lease,
or any extension thereof, Tenant shall remove said shelves, bins and machinery
and repair, in a good workmanlike manner, all damage done to the leased promises
by such removal.
9. ERECTION AND REMOVAL OF SIGNS: Tenant may, if building policy permits,
place suitable signs on the leased premises for the purpose of indicating the
nature of the business carried on by Tenant in said premises, provided, however
that such signs shall be in keeping with other signs in the district where the
leased premises arc located, and provided, further, that the location and size
of such signs shall be approved by Landlord prior to their erection. Signs shall
be removed prior to the expiration of this lease and any damage to the leased
premises caused by installation or removal of signs shall be repaired at
expenses of the Tenant. All work shall be completed in a good workmanlike
manner.
10. GLASS: Tenant agrees to immediately replace all glass in the demised
premises if broken or damaged during the term of this Lease with glass with
glass of the same quality as that broken or damaged.
11. RIGHT OF ENTRY BT LANDLORD: Tenant, shall permit inspection of the
demised premises during reasonable business hours by Landlord or Landlord's
agents or representatives for the purpose of ascertaining the condition of the
demised premises and in order that Landlord may make such repairs as may be
required to be made by Landlord under the terms of this Lease. Sixty (60) days
prior to the expiration of this Lease, Landlord may post suitable notice on the
demised premises that the same are "For Rent" and may show the premises to
prospective tenants at reasonable times. Landlord may not, however, thereby
unnecessarily interfere with the use of demised premises by Tenant.
12. ASSIGNMENT AND SUBLETTING: Neither this Lease nor any interest herein
may be assigned by Tenant voluntarily or involuntarily, by operation of law, and
neither all nor any part of the leased premises shall be sublet by Tenant
without the written consent of Landlord first hand or otherwise obtained,
however, Landlord agrees not to withhold its consent unreasonably for Tenant to
sublet the demised premises. In the event the premises should be sublet, as
herein provided, at an increased rental, fifty (50%) percent of said increase
shall be paid to Landlord by Tenant as additional rental.
13. DAMAGE OR DESTRUCTION: If the demised premises or any part thereof
shall be damaged or destroyed by fire or other casualty, Landlord shall promptly
repair all such damage and restore the demised premises without expense to
Tenant, subject to delays due to adjustment of insurance claims, strikes and
other causes beyond Landlord's Control. If such damage or destruction shall
render the premises untenable in whole or in part, the rent shall be abated in
proportion to the loss of usage of the demised premises by Tenant until the
damage shall be repaired and the premises restored. If the damage or destruction
shall be so extensive as to require the expenditure of fifty (50%) percent or
more of the replacement cost of the building or buildings on the demised
premises, Landlord may elect to terminate this Lease by written notice to the
other given within thirty (30) days after the occurrence of such damage or
destruction if Landlord shall not commence reconstruction of the premises within
sixty (60) days after the loss, Tenant may give Landlord notice of its intent to
terminate the Lease, and if Landlord shall not commence such reconstruction
within fifteen (15) days after receipt of Tenant's notice, Tenant may terminate
this Lease. Landlord and Tenant hereby release each other from responsibility
for loss or damage occurring on or to the leased premises or the premises of
which they are a part or to the contents of either thereof, caused fire or other
hazards actually covered by the fire and extended coverage insurance policy
Tenant is required to provide under Section 5 above, and each waives all rights
or recovery against the other for such loss or damage. Willful misconduct
lawfully attributable to either party, whether in whole or in part a
contributing cause of the casualty giving rise to the loss or damage, shall not
be excused under the foregoing release and waiver.
14. INJURIES AND PROPERTY DAMAGE: Tenant agrees to indemnify and hold
harmless Landlord of and from any and all claims of any kind or nature arising
from Tenant's use of the demised premises during the term hereof, and Tenant
hereby waives all claims against Landlord for damage to goods, ware, merchandise
or for injury to persons in and upon the premises from any cause whatsoever,
except such as might result from the negligence of' Landlord or Landlord's
representatives or from failure of Landlord to perform its obligation hereunder
within a reasonable time after notice in writing by Tenant requiring such
performance by Landlord. Tenant shall at all times during the term hereof keep
in effect in responsible companies liability insurance in the names of and for
the benefit of Tenant with limits as follows:
Bodily Injury, $1,000,000.00 each occurrence:
Property Damage, $500,000.00; or in lieu thereof, a
combined limit of bodily injury and property damage
liability of not less than $1,000,000.00.
Such insurance may, at Tenant's election, be carried under any general
blanket coverage of Tenant. A renewal policy shall be procured not less than ten
(10) days prior to the expiration of any policy. Each original policy or a
certified copy thereof, or a satisfactory certificate of the insurer evidencing
insurance carried with proof of payment of the premium shall be deposited with
Landlord. Tenant shall have the right to settle and adjust all liability claims
and all other claims against the insuring companies, but without subjecting
Landlord to any liability or obligation.
15. SURRENDER OF PREMISES: Tenant agrees to surrender the leased premises
at the expiration, or sooner termination, of the term of this Lease, or any
extension thereof, in the same condition as when said premises were delivered to
Tenant, or as altered, pursuant to the provisions of this Lease, ordinary wear,
tear and damage by the elements excepted, and Tenant shall remove all of its
personal property. Tenant agrees to pay a reasonable cleaning charge should it
be necessary for Landlord to restore or cause to be restored the premises to the
same condition as when said premises were delivered to Tenant.
16. HOLDOVER: Should the Landlord permit Tenant to holdover the leased
premises or any part thereof, after the expiration of the term of this Lease,
then and unless otherwise agreed in writing, such holding over shall constitute
a tenancy from month-to-month only, and shall in no event be construed as a
renewal of this Lease and all provisions of this Lease not inconsistent with a
tenancy from month-to-month shall remain in full force and effect. During the
month-to-month tenancy, Tenant agrees to give Landlord thirty (30) days prior
written notice of its intent to vacate premises. Tenant agrees to vacate the
premises upon thirty (30) days prior written notice from Landlord. The rental
for the month-to-month tenancy shall be set by the Landlord within IO days after
Landlord receives notice from Tenant of its intention to continue to occupy
premises.
17. QUIET ENJOYMENT: If and so long as Tenant pays the rents reserved by
this Lease and observes all the covenants and provisions hereof, Tenant shall
quietly enjoy the demised premises, subject, however, to the terms of the Lease,
and Landlord will warrant and defend Tenant in the enjoyment and peaceful
possession of the demised premises throughout the terms of this Lease.
18. WAIVER OF COVENANTS: The failure of any party to enforce the provisions
of this Lease shall not constitute a waiver unless specifically stated in
writing, signed by the party whose rights are deemed waived, regardless of a
party's knowledge of a breach hereunder.
19. DEFAULT: If Tenant shall make default in the fulfillment of any of the
covenants and conditions hereof except default in payment of rent, Landlord may,
at its option, after fifteen (15) days prior notice to Tenant, make performance
for Tenant and for the purpose advance such amounts as may be necessary. Any
amounts so advanced, or any expense incurred, or sum of money paid by Landlord
by reason of the failure of Tenant to comply with any covenant agreement,
obligation or provision of this Lease, or in defending any action to which
Landlord may be subjected by reason of any such failure for any reason of this
Lease, shall be deemed to be additional rent for the leased premises and shall
be due and payable to Landlord on demand. The acceptance by Landlord of any
installment of fixes rent, or of any additional rent due under this or any other
paragraph of this lease, shall not be a waiver of any other rent then due nor of
the right to demand the performance of any other obligation of the Tenant under
this Lease. Interest shall be paid to Landlord on all sums advanced by Landlord
at an annual interest rate of 2% over the prime rate charged by First Security
Bank of Utah.
If Tenant shall make default in Fulfillment of any of the covenants or
conditions of this Lease (other than the covenants for the payment of rent or
other amounts) and any such default shall continue for a period of fifteen (15)
days after notice, then Landlord may, at its option, terminate this Lease by
giving Tenant written notice of such termination and, thereupon, this Lease
shall expire as fully and completely as if that day were the date definitely
fixed for the expiration of the term of this Lease and Tenant shall quit and
surrender the leased premises.
20. DEFAULT IN RENT, INSOLVENCY OF TENANT: If Tenant shall default in the
payment of the rent reserved hereunder, or any part thereof, or in making any
other payment herein provided for, and any such default shall continue for a
period of ten (10) days after written notice to Tenant, or if the leased
premises or any part thereof shall be abandoned or vacated, or if Tenant shall
file a voluntary petition in bankruptcy or if Tenant shall file any petition or
institute any proceedings under any insolvency or Bankruptcy Act or any
amendment thereto hereafter made, seeking to effect its reorganization or a
composition with its creditors, or if any proceedings based on the insolvency of
Tenant or relating to bankruptcy proceedings, a receiver or trustee shall be
appointed for Tenant or if any proceedings shall be commenced for the
reorganization of Tenant or if Tenant shall admit in writing its inability to
pay its obligations generally as they become due, then Landlord, in addition to
any other rights or remedies it may have, shall have the immediate right of
re-entry and may remove all persons and property from the premises. Such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. Landlord may elect to re-enter, as herein
provided, or Landlord may take possession pursuant to this Lease and relet said
premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Landlord in the exercise of Landlord's sole
discretion may deem advisable with the right to make repairs to said premises.
Upon each reletting, Tenant shall be immediately liable for and shall pay to
Landlord, in addition to any indebtedness due hereunder, the costs and expenses
of such reletting including advertising costs, brokerages fees, any reasonable
attorney's fees incurred and the cost of such repairs incurred by Landlord, and
the amount, if any, by which the rent reserved in this Lease for the period of
such reletting (up to but not beyond the term of this Lease) exceeds the amount
agreed to be paid as rent for the premises for said period by such reletting
and; provided, however, that such reletting is made in good faith and or an
arm's-length basis. If Tenant has been credited with any rent to be received by
such reletting and such rents shall not be promptly paid to Landlord by the new
Tenant such deficiency shall be calculated and promptly paid to Landlord by the
new Tenant such deficiency shall be construed as an electrition by Landlord to
terminate this Lease unless the termination thereof be decreed by a court of
competent jurisdiction or stated specifically by the Landlord in writing
addressed to Tenant. Should Landlord at any time terminate this Lease for any
breach, in addition to any other remedy Landlord may have, Landlord may recover
from Tenant all damages Landlord may incur by reason of such breach, including
the cost of recovering the premises including reasonable attorney's fees, court
costs, and storage charges. In no event, shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
21. ENFORCEMENT: In the event either party shall enforce the terms of this
Lease by suit or otherwise, the party at fault shall pay the costs and expenses
incident thereto, including a reasonable attorney's fee.
22. MEDIATION AND ARBITRATION: If any dispute or claim in law or equity
arises out of this Lease, Tenant and Landlord agree in good faith to attempt to
settle such dispute or claim by mediation under the Commercial Mediation rules
of the American Arbitration Association. If such mediation is not successful in
resolving such dispute or claim, then such dispute or claim shall be decided by
neutral binding arbitration before a single arbitrator in accordance with the
Commercial Arbitration rules of the American Arbitration Association. Judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. However, this paragraph does not apply to disputes or
claims arising under Section 78, Chapter 36, of the Utah Code.
23. FAILURE TO PERFORM COVENANT: Any failure on the part of either party to
this Lease to perform any obligations hereunder, other than Tenant's obligation
to pay rent, and any delay in doing any act required hereby shall be excused if
such failure or delay is caused by any strike, lockout, governmental restriction
or any similar cause beyond the control of the party so failing to perform, to
the extent and for the period that such continues.
24. RIGHTS OF SUCCESSORS AND ASSIGNS: The covenants and agreements
contained in this Lease will apply to, insure to the benefit of, and be binding
upon the parties hereto, their heirs, distributees, executors, administrators,
legal representatives, assigns, and upon their respective successors in interest
except as expressly otherwise hereinabove provided.
25. TIME: Times if of the essence of this Lease and every term, covenant
and condition herein contained.
26. LIENS: Tenant agrees not to permit any lien for monies owing by Tenant
to remain against the leased premises for a period of more than thirty (30) days
following discovery of the same by Tenant; provided, however, that nothing
herein contained shall prevent Tenant, in good faith and for good cause from
contesting the claim or claims of any person, firm or corporation growing out of
Tenant's operation of the demised premises or costs of improvements by Tenant on
the said premises, and the postponement of payment of such claim or claims,
until such contest shall finally be decided shall not be a violation of this
Lease or any covenant thereof. Should any such lien be filed and not released or
discharged or action not commenced to declare the same invalid within thirty
(30) days after discovery of the same by Tenant, Landlord may at Landlord's
option (but without any obligation so to do) pay and discharge such lien and may
likewise pay and discharge any taxes, assessments or other charges against the
leased premise which Tenant is obligated hereunder to pay and which may or might
become a lien on said premises. Tenant agrees to repay any sum so paid by
Landlord upon demand therefor, as provided for in paragraph 19 herein.
27. CONSTRUCTION OF LEASE: Words of any gender used in this Lease shall be
held to include any other gender, and words in the singular number shall be held
to include the plural when the sense requires.
28. PARAGRAPH HEADINGS: The paragraph headings as to the contents of
particular paragraphs herein, are inserted only for convenience and are in no
way to be construed as part of such paragraph or as a limitation on the scope of
the particular paragraph to which they refer.
29. NOTICES: It is agreed that all notices required or permitted to be
given hereunder, or for purposes of billing process, correspondence, and any
other legal purposes whatsoever, shall be deemed sufficient if given by a
communication in writing by United States mail, postage prepaid and certified
and addressed as follows:
If to Landlord, at the following address:
RJF Companies, Inc.
5125 West 2100 South
West Valley City, Utah 84120
If to Tenant, at the following address:
Biomune Systems, Inc.
540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108
30. COMMISSIONS: None
31. GOVERNING LAW: The terms of this Agreement shall be governed by and
construed in accordance with Utah law.
32. DOCUMENTATION: The parties hereto agree to execute such additional
documentation as may be necessary or desirable to carry out the intent of this
Agreement.
33. CONTINGENCY REGARDING USE: This Lease is contingent upon there being no
restrictions, covenants, agreements, laws, ordinances, rules or regulations,
which would prohibit Tenant from using the above described premises for the
purposes described herein.
34. INDEMNIFICATION BY TENANT AND LANDLORD: Each of Tenant and Landlord
shall indemnify the other and save the other harmless from and against any and
all suits, actions, damages, claims, liability and expenses in connection with
the loss of life, bodily or personal injury, or property damage arising from or
out of any occurrence in, on, at or from the leased premises, which is
occasioned, wholly or in part, by an act or omission of the indemnified party or
agents, contractors, employees, servants, licensees or representatives.
35. EMINENT DOMAIN: If at any time during the term of this Lease the entire
premises or any part thereof shall be taken as a result of the exercise of the
power of eminent domain or by an agreement in lieu thereof, this Lease shall
terminate as to the part so taken as of the date possession is taken by the
condemning authority. If all or any substantial portion of the premises shall be
taken, Landlord may terminate this Lease at its option, by giving Tenant written
notice of such termination within thirty (30) days of such taking. If all or a
portion of the premises taken are so substantial that Tenant's use of the
premises is substantially impaired, Tenant may terminate this Lease pursuant to
this Article. Otherwise, this Lease shall remain in full force and effect,
except that the rent payable by Tenant hereunder shall be reduced in the
proportion that the area of the premises so taken bears to the total premises.
Landlord shall be entitled to and Tenant hereby assigns to Landlord the entire
amount of any award in connection with such taking. Nothing in this Article
shall give Landlord any interest in or preclude Tenant from seeking, on its own
account, any award attributable to the taking of personal property or trade
fixtures belonging to Tenant, or for the interruption of Tenant's business.
36. REPRESENTATION REGARDING AUTHORITY: The persons who have executed this
Lease represent and warrant that they are duly authorized to execute this Lease
in their individual or representative capacity as indicated.
37. ENTIRE AGREEMENT: This Lease Agreement constitutes the entire agreement
and understanding between the parties hereto and supersedes all prior
discussions, understandings and agreements. This Lease may not be altered or
amended except by a subsequent written agreement executed by all of the parties
hereto.
38. ESTOPPEL CERTIFICATE: Tenant shall, at any time and from time to time
upon not less than ten (10) days prior written notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing (i) certifying that
this Lease is unmodified and in full force and effect (or, if modified stating
the nature of such modification and certifying that this Lease as so modified,
is in full force and effect) and the dates to which the rental and other charges
are paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrancer of all or any portion of the
real property of which the premises are a part. Tenant's failure to deliver such
statement within such time shall be conclusive upon Tenant (1) that this Lease
is in full force and effect, without modification except as may be represented
by Landlord, (ii) that there are no uncured defaults in Landlord's performance,
and (iii) that not more than one month's rental has been paid in advance.
39. REVIEW OF DOCUMENTS: The parties hereto represent that they have read
and understand the terms of this Lease, and that they have sought legal counsel
to the extent deemed necessary in order to protect their respective interests.
40. KEYS & LOCKS: The Tenant shall not change locks or install other locks
on doors without the prior written consent of the Landlord which consent shall
not be unreasonably withheld. Tenant upon the termination of the Tenancy shall
deliver to the Landlord all the keys to the offices, rooms and toilet rooms
which have been furnished to the Tenant.
41. AUCTION, FIRE OR BANKRUPTCY SALE: Tenant shall not conduct any auction
nor permit any fire or bankruptcy sale to be held on the premises.
42. CARPETING DAMAGE AND CHAIRMATS: Tenant agrees to be responsible for the
replacement of carpeting in the dismissed premises if same shall be damaged by
burning, or stains resulting from spilling anything on said carpet, reasonable
wear and tear excepted. Tenant further agrees to use "chairmat" under all chairs
used with desks.
43. OPTION TO RENEW: The Tenant shall have the right to renew this Lease
for one additional five year period under the same terms and conditions as the
original Lease except the following: changes in the lease payments as adjusted
by the CPI index change noted in paragraph I shall be applicable for the first
three years of the renewal period only (e.g. years four and five of the renewal
period will have no adjustment but will be the same as year three of the renewal
period). Tenant must give Landlord no less than one hundred twenty (120) days
written notice of intent to exercise this option.
44. EARLY OCCUPANCY: The Tenant shall have the right to early occupancy
beginning upon the execution of the Lease after the Tenant has paid to the
Landlord the security deposit and first months rent has complied with the
insurance provisions of the Lease.
45. CONTINGENCY: This Lease is contingent on Tenant obtaining all necessary
approvals and/or permits from the West Valley City Fire Department.
46. AGENCY DISCLOSURE: Landlord and Tenant confirm that this Agreement
disclosure provides that neither party is represented by an agent.
47. ACCEPTANCE: This lease must be accepted by all parties on or before
24th day of April 1996.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed as of the day and year first above written.
TENANT: LANDLORD:
BIOMUNE SYSTEMS, INC. RJF COMPANIES, LTD.
/s/ Michael G. Acton /s/ Robert A. Furstenau
Chief Financial Officer General Partner
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Lease is made and executed as of the 6th day of June
1996 by and between RJF Company, Ltd. hereinafter called "Landlord", and Biomune
Systems, Inc. hereinafter called "Tenant", pertaining to the Leased Premises at
5103 West 2100 South, West Valley City, Utah.
RECITALS:
A. The Landlord and Tenant entered into a Lease Agreement on the 12th day of
April 1996.
B. The Landlord and Tenant desire to amend the Lease Agreement to reflect the
addition of a five-ton mounted air conditioning unit.
NOW, THEREFORE, the Landlord and Tenant hereby amend paragraph III(1) to reflect
changes in the base rent as follows:
RENT: The Tenant agrees to pay as rental to Landlord, at the address
specified in this lease or at such other place Landlord may from time
to time designate in writing, the sum of NINETY EIGHT THOUSAND FORTY
($98,040.00) DOLLARS, and sum to be lawful money to the United States
payable as follows:
$2,692.00 was paid with the execution of the Lease of which $1,346.00
represents the security deposit and $1,346 represents a partial payment
of the June 1, 1996, base rent payment. $288.00 shall be paid upon
execution of this Amendment which represents the balance of the June 1,
1996, base rent payment. Then on or before July 1, 1996, the Tenant
shall pay $1,634.00 to the Landlord on the first day of each and every
month until May 31, 1998.
All other terms and conditions of the Lease shall remain the same.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed
as of the day and year first above written.
TENANT: LANDLORD:
BIOMUNE SYSTEMS, INC. RJF COMPANY, LTD.
/s/ Michael G. Acton /s/ Robert A. Furstenau
Chief Financial Officer General Partner
EHIBIT 10.103
[BIOMUNE SYSTEMS, INC. LETTERHEAD]
Addendum A
Stock Option Agreement
This Agreement is made this 12 day of September, 1996 by and between Biomune
Systems Inc, a Nevada corporation ("Corporation") and Landon Barretto ("Option
Holder").
1. Grant of Option. The Corporation has granted to the Option Holder an option
to purchase 50,000 shares of its common stock (the "Stock") at the purchase
price of $2 3/8 per share, and 50,000 shares of its common stock at the purchase
price of $3 3/8 in the manner and subject to the conditions hereinafter
provided. Subject to the provisions of section 4, the option will expire on
March 12, 1997. The option was granted pursuant to the following plan or
arrangement:
Consulting agreement with Barretto Pacific Corporation dated September 12,
1996.
A copy of the plan as described above is attached herewith. To the extent
applicable, the provisions of the plan shall be deemed as part of this
Agreement.
2. Time of Exercise of Option. Subject to the provisions of Section 4 regarding
termination of the option, the options granted may be exercised at any time
after the date indicated:
Shares which
Date May be Exercised
September 12, 1996 50,000
January 12, 1996 50,000
3. Method of Exercise. The option shall be exercised by written notice directed
to the transfer agent of the Corporation, accompanied by a check in payment of
the option price for a fraction or in whole for the number of shares specified,
up to 100,000 shares. The transfer agent shall make immediate delivery of such
shares, provided that if any law or regulation requires the Corporation to take
any action with respect to the shares specified in such notice before the
issuance thereof, then the date of delivery of such shares shall be extended for
the period necessary to take such action. The price of an exercised option, or
portion thereof, may be paid:
(i) in the form of a cashiers check, money order, brokerage draft made
payable to the Corporation; or
(ii) bank wire transfer
4. Termination of Option. Except as herein otherwise stated, the option to the
extent not previously exercised, shall terminate upon the expiration of the
option as provided in Section 1. In the event that the Company cancels its
agreement with you pursuant to the terms of its consulting agreement with you,
any shares that you are due prior to termination will be valid and available for
exercise.
5. Reclassification, Consolidation or Merger. If and to the extent that the
number of issued shares of common stock of the Corporation shall be increased or
reduced by change in par value, split up, reclassification, distribution of a
dividend payable in stock, or the like, the number of shares subject to the
option and the option price per share shall be proportionately adjusted. If the
Corporation is reorganized or consolidated or merged with another corporation,
the Option Holder shall be entitled to receive options covering shares of such
reorganized, consolidated or merged company in the same proportion, at an
equivalent price, and subject to the same conditions as the options granted
pursuant to this Agreement. For purposes of the preceding sentence, the excess
of the aggregate Fair Market Value of the shares subject to the option over the
aggregate option price of such shares immediately after the reorganization,
consolidation or merger shall not be more than the option price of such shares
immediately before such reorganization, consolidation or merger, and the new
option or assumption of the old option shall not give the Option Holder
additional benefits which were not provided under the old option, or deprive the
Option Holder of benefits which were available under the old option.
6. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first above written.
Biomune Systems, Inc.
/s/ Milton G. Adair By /s/ David Derrick
Witness David Derrick
Chief Executive Officer
/s/ Ronald R. Agiole By /s/ Landon Barretto
Witness Landon Barretto
Option Holder
[BIOMUNE SYSTEMS, INC.'S LETTERHEAD]
September 12, 1996
Mr. Landon Barretto
224-1152 Mainland Street
Vancouver, B.C. V6B4X2
Dear Mr. Barretto:
This letter agreement (the "Agreement") will confirm the terms and conditions of
your engagement by Biomune Systems, Inc. (the 'Company"), for the purpose of
disseminating information regarding the Company, its business and affairs, to
members of the public in the United States of America with a view to encouraging
investment in the Company and its securities.
We agree, each with the other, as follows:
1. The term of this Agreement shall be six months commencing on September 12,
1996 and expiring on March 12, 1997 (the "Term"). The term may be extended for
such periods of time and upon such terms and conditions as may be mutually
agreed upon, in writing, by the parties; and may be canceled in writing by
either party at the conclusion of the third month of the term.
2. In consideration of the fee and the covenants herein contained, you shall
provide services (the "Services") to the Company which shall consist of the
following:
(a) The dissemination of information which we provide to you about the
Company, its business and affairs, in the United states of America in
jurisdictions where the company's securities are recognized for manual
exemption in Standard & Poors Corporation Manual and other exempt
jurisdictions as well as dissemination through print and electronic
media outlets, as well as to your existing base of clients and
business associations;
(b) Communication on an ongoing basis with members of the brokerage
and investment community in jurisdictions within the United States of
America where the company's securities are recognized for manual
exemption in Standard & Poors Corporation Manual and in other exempt
jurisdictions, directing any such persons to registered brokers and
dealers (including those specifically referred by the Company).
Anything to the contrary herein notwithstanding, it is agreed that
your services will not include any services that consitute the
rendering of legal opinions or performance of services in the ordinary
purview of a registered broker or dealer.
(c) Providing the Company bi-weekly with a written record of the
results in consequence of your efforts hereunder during the preceding
two week period.
(d) Providing introductions to brokerages, fund managers, trust
companies, media personnel and other investment professionals who are
likely to have interest in the Company's business and affairs;
3. You shall receive as your full compensation for your services as an
independent contractor hereunder a fee of $90,000 (Ninety Thousand Dollars)
which sum shall be payable on the following dates indicated below. You will
invoice the company for each payment three business days prior to each due date.
Date Amount
September 21, 1996 $45,000
January 21, 1997 45,000
4. The fee payable to you hereunder shall be your sole entitlement against the
Company for compensation for services rendered hereunder, with the exception of
an incentive bonus payable to Landon Barretto as outlined in "Addendum A", and
you shall not be entitled to claim recompense for any of the expenses, out of
pocket or otherwise, that you incur in the course of carrying out your duties
hereunder. Without limiting the generality of the foregoing, the Company agrees
that your services hereunder are not intended to include the printing and
mailing of any documentary material on behalf of the Company and that any
expenses that you may incur in that respect, with our authority, shall be
separately compensated by the Company.
5. You shall only engage in promotion of the Company regarding its business and
affairs. The Company reserves the right to contract other firms to provide
similar services and expressly acknowledges that, subject to the following
proviso, you shall be entitled to provide similar services as provided hereunder
to other public companies. PROVIDED that it is expressly agreed that in no event
shall you represent a public company during the term which is engaged in the
business of whey protein.
6. All payments hereunder will be made to your company as an independent
contractor, and your firm will be solely responsible for federal, state, and
city tax filings and remittances;
7. You represent and warrant that the services will be performed in a competent
and efficient manner and that they will at all times be performed in compliance
with all applicable laws and legal requirements.
8. You shall use your bona fide efforts to promote the interests of the Company
and shall, during the term of the Agreement, devote as much time, attention and
ability to the promotion of the business of the Company as is necessary to
provide effective promotion of the Company and its affairs;
9. You are not hereby created an agent of the Company, and will have no
authority, express or implied, to commit or otherwise obligate the Company in
any manner whatsoever except to the extent specifically provided herein or to
the extent expressly authorized by the Company;
10. Notwithstanding anything herein to the contrary, it is acknowledged and
agreed that the relationship between us is not and will not become that of
employer-employee, joint venturers nor partnership and, furthermore, that the
relationship that exists0 between us is solely that of independent contractors;
11. You shall not, either during the term of the Agreement or at any time
thereafter, directly or indirectly, divulge, publish or disclose any information
regarding the affairs or business of the company or its affiliates other than
that which is expressly authorized and provided byt he Company without the prior
consent of the Company, and you shall not use for your own purposes, or any
purposes other than those of the Company, any information you may acquire with
respect to its affairs, business, or projects. Upon the termination of this
Agreement for any reason, you shall promptly deliver all documents and other
property of the Company to the Company, including but not limited to all such
promotional aids, correspondence and, contracts and all such documents and other
property shall be delivered in accordance with the direction of the Company;
12. The Company hereby represents that the information as to its capital
structure and business affairs as set forth in its 1995 annual report and 1996
SEC filings are accurate and complete.
13. Any notice required or permitted to be given by this Agreement shall be in
writing and may be given by personal delivery or postage prepaid, registered or
certified mail. Such notices shall be addressed to the receiving party at our
respective addresses set forth above or at such other addresses as either of us
may, by notice, designate. Notices personally given shall be deemed to be given
as of the date of delivery and mailed notices shall be deemed to be given as of
the date of actual receipt.
14. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns, as the case may
be;
15. Each provision and paragraph of this Agreement is declared to constitute a
separate and distinct covenant and to be severable from all other such separate
and distinct covenants under this Agreement. If any covenant or provision herein
contained is determined to be void or unenforceable, in whole or in part, such
determination shall not affect or impair the validity or enforcability of any
other covenant or provision contained in this Agreement and the remaining
provisions of this Agreement shall be valid and enforceable to the fullest
extent provided by law;
16. This Agreement may not be assigned;
17. This Agreement replaces, supersedes, and cancels all prior Agreements,
representations, and understandings between the company and yourselves in
respect of the subject matter of this Agreement;
18. The provisions of this Agreement and the relationship between the parties
shall be construed in accordance with and governed by the laws of the State of
Washington. The parties hereby attorn to the jurisdiction of the courts of the
State of Washington;
19. No amendment or waiver of any provision of this Agreement shall be binding
upon a party unless made in writing and signed by such party;
20. The parties will execute and deliver all such further documents and
instruments and do all such further acts and things as may be required to carry
out the full intent and meaning of this Agreement.
If the foregoing meets your approval, please sign a copy of this letter
agreement and return a copy thereof to us.
Yours truly, Agreed to by:
/s/ David Derrick /s/ Landon Barretto
David Derrick Landon Barretto
Biomune Systems, Inc. President & CEO
EXHIBIT 10.104
PURCHASE AGREEMENT
This agreement, dated as of September 3, 1996, [the agreement] is made between
Optim Nutrition Inc. [the Company] and ADUN & Company Ltd.[the Purchaser] in
order to establish a pricing schedule for the purchase of Optimune [the
Product], a nutraceutical.
AGREEMENT TERM: The term of this agreement will be from December 1, 1996 to
December 31, 1997. The agreement may be renewed, extended or amended by mutual
consent, prior to the expiration of this agreement.
PRODUCT: The Company will provide the Purchaser with its nutraceutical,
Optimune, on a semi-exclusive basis.
TERRITORY EXCLUSIVITY: The Company will grant the Purchaser a semi-
exclusive distributorship for the territory. Semi-exclusive is defined as: the
Company will not sell to another distributor in the territory as long as the
Purchaser meets or exceeds it yearly agreement.
a. The minimum yearly quantity required in 1997 to maintain semi-
exclusivity is 24,000 cases [an average of 2000 cases per month].
b. The company reserves the right to negotiate new yearly minimums should
the Agreement be extended past 1997.
TERRITORY: The Company grants the distributor the semi-exclusive rights to
Nigeria and Zambia.
a. The Company will consider granting other African countries to the
Purchaser's territory based on the Purchaser's performance within
Nigeria and Zambia.
[1] The Company will not unreasonably withhold its approval of
additional territory, providing the Purchaser meets the condition
of this section of the agreement.
PRICING: The price to the Purchaser shall be $42.00 per case [ three 300 gram
bottles] net, providing the order is a minimum of 2000 cases. This price will be
guaranteed to the Purchaser until December 31, 1997. This agreement will allow
the Company to adjust the price: [1] if the Purchaser fails to meet the agreed
to monthly minimum quantities.
a. The price DOES NOT INCLUDE FREIGHT outside of Utah.
ORDER SIZE: All orders will be a minimum of 2000 cases [ 6000 300 gm bottles],
shipped at one time to one location. The customer may increase the quantity, per
shipment, by notifying the company 90 days prior to the shipping date.
HOW TO ORDER: The company will require: [1] an confirming order 90 days
prior to shipment; [2] an updated 90 day forecast, which cannot be altered by
the Purchaser. However, the Company will give its best efforts to meet ANY
INCREASE requirements by the Purchaser on orders received within the 90 day
window. Once a forecast is given to the Company by the Purchaser, the Purchaser
MAY NOT reduce the ordered quantity.
PAYMENT: All orders will be billed to and paid by the Purchaser, to the
Company, prior to the shipment. The minimum order size of 2000 cases, a cost to
the Purchaser of $42.00 per case, shall be $84,000.00 per shipment. The payment
will be made by Cash Wire Transfer to Optim account or Certified Check, drawn on
an American, British or Swiss bank PRIOR to the shipment of the Product.
a. The first payment, of $84,000, will be due and payable on September
15, 1996.
PAYMENT TERMS: All terms are NET and the payment is due prior to shipment.
FREIGHT: All freight between Salt Lake City, Utah and the specified destination
given to the Company by the Purchaser, will be the sole responsibility of the
Purchaser. The Company, at its discretion and with prior knowledge and agreement
before the shipment, will prepay and charge the freight to the Purchaser. The
price of the freight will be added to the cost of the Product and will be due
and payable at the same time as the payment for the Product. Unless otherwise
specified or instructed by the Purchaser, the Company will assume that the
Purchaser as arranged for shipment.
a. The company will not ship any product C.O.D., nor will it ship freight
collect.
The Company and the Purchaser agree to the conditions of this agreement as of
this date, September 3, 1996.
For: Optim Nutrition For: ADUN & Company Ltd.
/s/ Milton G. Adair /s/ A. T. Audifferen
Milton G. Adair A.T. Audifferen
Its: President Its:
Date: September 3, 1996 Date:
EXHIBIT 10.105
AGREEMENT
THIS AGREEMENT is made and entered into this 8th day of January, 1996,
by and between the CLINIMETRICS RESEARCH ASSOCIATES, INC., a California
corporation with offices located at 2025 Gateway Place, Suite 410, San Jose, CA
95110 (hereinafter "CRA") and BIOMUNE SYSTEMS, INC. with offices located at 540
Arapeen Drive, Suite 202, Salt Lake City, UT 84108 (hereinafter "CLIENT").
RECITALS
WHEREAS, CRA is the business of providing clinical research development and
other related services; and
WHEREAS, CLIENT is in the business of developing thereapeutic agents which
utilizes services such as those offered by CRA.
NOW THEREFORE, the parties agree as follows:
AGREEMENTS
Services Performed
1. In consideration of the compensation hereinafter provided for, CRA shall
perform the following services for Client: clinical trial design and
implementation, clinical trial monitoring, site management, data analysis and
reporting, and other related services as requested by Client.
It is expected that CRA will perform services at its place of business and
at Client's place of business, as necessary. CRA will comply with Client's
Standard Operating Procedures and work under the direction of Client's
personnel.
Compensation
2. For performing the above-stated services CRA shall be compensated by
Client as follows (refer to APPENDIX A for cost estimates):
a) Client shall pay an hourly rate of $65 per hour for protocol
development, case report form design, site recruitment and management
services.
b) Site monitoring services performed by, if travel of more than 50
miles from CRA's place of business is required, shall be paid by Client to
CRA at the per diem rate of $520 per day plus expenses as set forth in
paragraph 7 hereinunder. If travel requires transit of greater than or
equal to 1,000 miles, CRA shall be compensated one full travel day by
Client at the per diem rate of $520. Only one travel day will be paid per
contiguous trip. For the purposes of this section per diem will be defined
as any services performed on any given calendar date regardless of the
number of hours.
c) Client shall pay an hourly rate of $35 per hour for data entry and
data management services.
d) Client shall pay an hourly rate of $80 per hour for database
development and programming services.
e) Client shall pay an hourly rate of $125 per hour for statistical
analysis and reporting services.
f) Client shall reimburse CRA for the cost of producing case report
forms and study manuals.
g) Client shall make all payments to CRA in accordance with paragraphs
(a), (b), (c), (d), (e), and (f) within thirty days of receipt of an
invoice from CRA itemizing the number of work days or a fractional part
thereof on which services were rendered and associated expenses. All
payments are to be made to CRA in Santa Clara County, California, or as
directed by CRA.
Hiring of CRA's Employees
3. In the event Client hires any of CRA's employees without the prior
written approval of CRA, Client shall pay to CRA a sum equivalent to one third
of such employee's annual salary at the time of his/her termination of
employment at CRA.
Indemnification
4. CRA shall perform its services in accordance with Client's standard
operating procedures and under the direction of Client's personnel services.
Therefore, Client shall indemnify and hold CRA harmless from any and all
liability which may result to Client and third parties as a direct result of the
performance of services by CRA for Client under the terms of this Agreement.
Inventions
5. To the extent that CRA is not precluded from doing so by a preexisting
contract, and if , during any period of CRA's service or as a result of such
service, CRA conceives, makes, or develops any inventions relating in any way to
Client's business or that of its subsidiaries or affiliates, CRA will (a) give
notice thereof to Client; (b) assign to Client all of CRA's rights therein; and
(c) execute any necessary papers and otherwise reasonably cooperate with Client
in securing of patents on such inventions.
Confidentiality/Non-Disclosure
6. CRA shall, both during and subsequent to CRA's services, keep
confidential any technical or other information of a confidential nature,
including knowledge of our projects and general activities and any information
not publicly disclosed relating to business which CRA may acquire through CRA's
consulting activities or otherwise. CRA will not disclose such information in
any matter without Client's express written permission. Title to all property
involved shall remain exclusively in Client. Upon termination of services, or
upon request at any time, CRA shall account for, and return to Client all papers
containing any such confidential information.
Travel Expenses
7. Client shall reimburse CRA for reasonable travel and living expenses for
its employees incurred in connection with work performed by CRA in accordance
with this Agreement. Reimbursements shall include but are not limited to
airfare, lodging, meals, tips, car rental, telephone, postage and automobile
mileage.
Limitation of Authority
8. CRA and Client are, and shall at all times be, independent contractors.
Neither party is a partner, employer, co-venturer or employee of the other, and
neither shall represent to any third party anything to the contrary.
a) Without limiting the foregoing, neither party shall have the
authority whatsoever to execute any agreement on behalf of the other party, nor
shall either party have any authority to negotiate any such agreement except as
the other party may expressly direct in writing. Each party shall be responsible
for meeting the tax requirements and Worker's Compensation for its own
employees.
b) It is agreed that CRA is to have complete freedom of action to the
details, methods, and means of performing these services. It is further
understood that CRA is retained and has contracted with Client only for the
purposes and to the extent set forth in this Agreement, and CRA's relation to
Client and any of its subsidiary companies shall, during the period of CRA's
retainer and services, be that of an independent contractor, and CRA shall be
free to dispose of such portion of CRA's entire time, energy, and skill as CRA
is not obligated to devote to Client and its subsidiaries, in such manner as CRA
sees fit and to such persons, firms, or corporations as CRA deems advisable so
long as same does not create a conflict of interest between Client and such
other persons, firms or corporations.
Term and Termination
9. a) The term of this Agreement shall commence upon the date set forth
above and shall continue hereafter for a renewable period of one (1) year unless
and may be renewed for additional one year periods by either party upon issuance
of thirty (30) days prior written notice to the other party. In addition, either
party hereto shall, without further notice have the immediate right to terminate
this Agreement if any of the following events or conditions occur:
i) A petition for bankruptcy is filed by or against either party
hereto which is not discharged within sixty (60) days;
ii) A default by the other party hereto in the performance of any
of the material obligations under the terms of this Agreement is not
cured within thirty (30) days of such parties receipt of written
notice of such default;
iii) Upon assignment of this Agreement to a third party by
Client;
b) Notice of continuation of the Agreement for additional one-year
(twelve-month) periods shall be given by Client to CRA at least two (2) months
prior to the end of the current one-year period. Compensation may be modified or
additional consideration given by mutual agreement of the parties.
Attorney's Fees
10. In the event of any litigation or arbitration between the parties
arising from this Agreement, the prevailing party shall be entitled to recover,
in addition to any other relief granted or awarded, its reasonable costs and
expenses (including attorney's fees) incurred.
Governing Law
11. This Agreement shall be governed and interpreted in accordance with the
laws of the State of California. The parties agree that any litigation for
injunctive relief shall be resolved in the state or federal courts within Santa
Clara County, California.
Force Majeure
12. Neither party shall be deemed in default of this Agreement to the
extent that performance of their obligations or attempts to cure any breach are
delayed or prevented by reason of any act of God, fire, natural disaster,
accident, act of government, shortages of material or supplies or any other
cause beyond the control of such party ("Force Majeure"), provided that such
party gives the other party written notice thereof promptly, and, in any event,
within fifteen (15) days of discovery thereof and uses its best effort to cure
the breach. In the event of such a Force Majeure, the time for performance of
cure shall be extended for a period equal to the duration of the Force Majeure
but not in excess of two (2) months.
Severability
13. Should any provision of this Agreement be held void, invalid or
inoperative, the remaining provision of this Agreement shall not be affected and
shall continue in effect as though such provisions were deleted.
Notice
14. Any notice required or permitted to be sent hereunder shall be in
writing and shall be sent to either party at the address listed above for such
party, or such other addresses which either party may so notify the other. In
the event notice is sent pursuant to the terms set forth hereinabove, then such
notice shall be deemed delivered if hand delivered or if mailed postage prepaid
by registered or certified mail return receipt requested. All other notices
shall be deemed delivered if mailed postage prepaid by first class mail.
Entire Agreement
15. This Agreement states the entire Agreement between the parties with
respect to the subject hereof and supersedes all prior negotiations,
understanding, and agreements between the parties hereto concerning the subject
matter hereof. No amendment or modification of this Agreement shall be made
except by an instrument in writing signed by both parties.
CLINIMETRICS RESEARCH ASSOCIATES, INC.
By: /s/ [illegible]
Title: President
Date: January 8, 1996
Federal Tax I.D. No.: 77-0272046
BIOMUNE SYSTEMS, INC.
By: /s/ David G. Derrick
Title: Chief Executive Officer
As agent for Optim Nutrition, Inc.
APPENDIX A
HOURS $/HOUR TOTAL
LABOR
Protocol Development 60 65 3,900
Case Report Form Design 40 65 2,600
Site Recruitment/Mgnt. 20 65 1,300
Site Monitoring 96 65 6,240
Data Management/Entry 260 35 9,100
Programming 80 80 6,400
Analysis 100 125 12,500
Labor Sub-Total 42.040
DAYS $/DAY TOTAL
TRAVEL
Site Visits 10 400 4,000
Development Meetings 1 800 800
Travel Sub-Total $4,800
QUANTITY $/UNIT TOTAL
STUDY SUPPLIES
Case Report Forms 50 30/ea 1,500
Study Manuals 10 20/ea 200
S/E Sub-Total $1,700
Subtotal 48,540
Administrative Fee (10%) 4,854
TOTAL $53,394
EXHIBIT 10.106
Biomune Systems, Inc.
NON-QUALIFIED STOCK OPTION AGREEMENT
Biomune Systems, Inc., a Nevada corporation (the "Company"), hereby grants
this 20th day of December, 1995, to David G. Derrick, an individual (the
"Optionee"), an option to purchase a maximum of six hundred thousand (600,000)
shares of the Company's Common Stock, $0.0001 par value per share, at the price
of $2.00 per share, on the following terms and conditions:
1. Grant Under 1995 Stock Incentive Plan and 1996 Stock Incentive Plan.
This option is granted pursuant to and is governed by the Company's 1995 Stock
Incentive Plan and 1996 Stock Incentive Plan (collectively, the "Plan") and,
unless the context requires otherwise, terms used herein shall have the same
meaning as set forth in the Plan. Determinations made in connection with this
option pursuant to the Plan shall be governed by the Plan as it exists on the
date hereof.
2. Grant as Non-Qualified Option; Other Options. This option shall be
treated for Federal income tax purposes as a Non-Qualified Option (rather than
as an ISO), and the Committee (as that term is defined in the Plan) or the Board
(as that term is defined in the Plan) will take appropriate action, if
necessary, to achieve this result. This option is in addition to any other
options heretofore or hereafter granted to the Optionee by the Company. A
duplicate original of this instrument shall not effect the grant of another
option to the Optionee.
3. Extent of Option if Business Relationship Continues. If the Optionee
continues to serve the Company or any Related Corporation (as defined in the
Plan) in the capacity of an employee, officer, director or consultant (such
service is described herein as maintaining or being involved in a "Business
Relationship" with the Company), the Optionee may exercise this option for a
maximum of six hundred thousand (600,000) shares of the Company's Common Stock,
which option may be exercised up to and including the date that is five (5)
years from the date this option is granted. The foregoing rights are cumulative
and, while the Optionee continues to maintain a Business Relationship with the
Company, may be exercised up to and including the date that is five (5) years
from the date this option is granted. All of the foregoing rights are subject to
Sections 4 and 5 below, as appropriate, if the Optionee ceases to maintain a
Business Relationship with the Company or dies, becomes disabled while involved
in a Business Relationship with the Company.
4. Termination of Business Relationship. If the Optionee ceases to maintain
a Business Relationship with the Company, other than by reason of death or
disability (as those terms are defined in Section 5 below), no further
installments of this option shall become exercisable and this option shall
terminate upon the passage of ninety (90) days from the date the Business
Relationship ceases, but in no event later that the scheduled expiration date of
this option. In such a case, the Optionee's only rights hereunder shall be those
that are properly exercised before the termination of this option.
5. Death; Disability; Dissolution. If the Optionee is a natural person who
dies while involved in a Business Relationship with the Company, this option may
be exercised, to the extent of the number of shares with respect to which the
Optionee could have exercised on the date of the Optionee's death, by the
Optionee's estate, personal representative or beneficiary to whom this option
any time, CRA shall account for, and return to Client all papers containing any
such confidential information below, at any time within one (1) year after the
date of death, but not later than the scheduled expiration date of this option.
If the Optionee is a natural person whose Business Relationship with the Company
is terminated by reason of Optionee's disability (as that term is defined in the
Plan), this option may be exercised, to the extent of the number of shares with
respect to which the Optionee could have exercised this option on the date the
Business Relationship was terminated, at any time within one (1) year after such
termination, but not later than the scheduled expiration date of this option. At
the expiration of such one year period or the scheduled expiration date,
whichever is the earlier, this option shall terminate and the only rights
hereunder shall be those as to which the option was properly exercised before
such termination. If the Optionee is a corporation, partnership, trust or other
entity that is dissolved, liquidated, becomes insolvent or enters into a merger
or acquisition with respect to which such Optionee is not the surviving entity
at the time when such entity is involved in a Business Relationship with the
Company, this option shall immediately terminate as of the date of such event,
and the only rights hereunder shall be those as to which this option was
properly exercised before such dissolution or other event.
6. Partial Exercise. The exercise of this option up to the extent
above-stated may be made in part at any time and from time-to-time within the
above limits, except that this option may not be exercised for a fraction of a
share unless such exercise is with respect to the final installment of stock
subject to this option and a fractional share (or cash in lieu thereof) must be
issued to permit the Optionee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option cannot be
exercised because of the limitation contained in the preceding sentence shall
remain subject to this option and shall be available for later purchase by the
Optionee in accordance with the terms hereof.
7. Payment of Option Price. The option price is payable as follows:
(a) in United States dollars in cash or by check, or any combination
of the foregoing, equal in amount to the option price, or (b) in the discretion
of the Committee or the Board in cash, by check, by delivery of shares of the
Company's Common Stock (as provided in Section 7(b) below), or by any
combination of the foregoing, equal in amount to the option price or (c) in the
discretion of the Committee or the Board, by delivery of the Optionee's personal
recourse promissory note bearing interest payable not less than annually at no
less than one hundred percent (100%) of the lowest applicable Federal rate (as
defined in Section 1274(d) of the Code), or by any combination of the foregoing,
equal in amount to the option price.
(b) As provided by Section 7(a) above, payment of such purchase price
or any portion thereof may be made with shares of stock of the same class as the
shares then subject to this option, if shares of that class are then Publicly
Traded (as that term is defined in Section 20 below), such shares to be credited
toward such purchase price on the valuation basis set forth below, in which
event the stock certificate(s) evidencing the share to be so used shall
accompany the notice of exercise and shall be duly endorsed or accompanied by a
duly executed stock power(s) to transfer the same to the Company; provided,
however, that such payment in stock instead of cash shall not be effective and
shall be rejected by the Company if (i) the Company is then prohibited from
purchasing or acquiring shares of the class of its stock tendered to it or (ii)
the right or power of the individual or entity exercising the option to deliver
such shares in payment of said purchase price is subject to the prior interests
of any other individual (excepting the Company as indicated by legends upon the
certificate(s) or as known to the Company). For purposes of this Section 7(c):
(a) "Publicly Traded" shares are those that are listed or admitted to unlisted
trading privileges on a national securities exchange or as to which sales or bid
and offer quotations are reported by the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system, operated by the National
Association of Securities Dealers, Inc. ("NASD") and (b) for credit toward the
purchase price , shares so surrendered shall be valued as of the day immediately
preceding the delivery to the Company of the certificate(s) evidencing such
shares (or, if such day is not a trading day in the United States securities
markets, on the nearest preceding trading day), on the basis of the closing
price of stock of that class as reported with respect to the market (or the
composite of the markets, if more than one exists) in which such shares are then
traded, or if no such closing prices are reported, that lowest independent offer
quotation reported, therefore in Level 2 of NASDAQ, or if no such quotations are
reported on the basis of the most nearly comparable valuation method acceptable
to the Company. If the Company rejects the payment in stock, the tendered notice
of exercise shall not be effective hereunder unless promptly after being
notified of such rejection the individual exercising the option pays the
purchase price in acceptable form. If and while payment of the purchase price
with stock is permitted in accordance with the foregoing provisions, the
individual then entitled to exercise this option may, in lieu of using
previously outstanding shares therefor, use some of the shares as to which this
option is then being exercised, in which case the notice of exercise need not be
accompanied by any stock certificate(s) but shall include a statement directing
the Company to withhold so many of the shares that would otherwise have ben
delivered upon that exercise of this option as equals the number of shares that
would have been transferred to the Company if the purchase price had been paid
with previously issued stock.
If the Optionee delivers shares of Common Stock held by the Optionee ("Old
Stock") to the Company in full or partial payment of the option price, and the
Old Stock so delivered is subject to restrictions or limitations imposed by
agreement between the Optionee and the Company, the Common Stock received by the
Optionee upon the exercise of this option shall be subject to all restrictions
and limitations applicable to the Old Stock to the extent that the Optionee paid
for such shares of Common Stock by delivering Old Stock to the Company, in
addition to any restrictions or limitations imposed by this option.
No individual or entity shall be entitled to the privileges of stock
ownership in respect of any shares of Common Stock issuable upon exercise of
this option, unless and until such shares of Common Stock have been issued to
such individual or entity as fully paid shares.
No certificated(s) for shares of stock purchased upon the exercise of this
option shall be issued and delivered prior to the admission of such shares to
listing on any stock exchange on which shares of that class are then listed, nor
unless and until, in the opinion of counsel for the Company, such securities may
be issued and delivered without causing the Company to be in violation of or to
incur any liability under any federal, state or other securities law, rule or
regulation, any requirement of any securities exchange listing agreement to
which the Company may be a party or any other requirement of law or of any
regulatory agency or body having jurisdiction over the Company or its
securities.
Notwithstanding the foregoing, the Optionee may not pay any part of the
exercise price hereof by transferring Common Stock to the Company if such Common
Stock is both (a) subject to a substantial risk of forfeiture and (b) not
transferable within the meaning of Section 83 of the Code.
8. Agreement to Purchase for Investment. By acceptance of this option, the
Optionee agrees that a purchase of shares under this option will not be made
with a view to their distribution (as that term is used in the Securities Act of
1933, as amended (the "1993 Act")), unless in the opinion of counsel to the
Company such distribution is in compliance with or exempt from the registration
and prospectus requirements of the 1933 Act, and the Optionee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate(s) for the shares of the Company's Common Stock so purchased may
be inscribed with a legend to ensure compliance with the requirements of the
1933 Act. The Optionee has had access to all information required by the
Optionee to make an investment decision and the Optionee has had an opportunity
to ask questions of and received answers from the Company pertaining to the
Company, its business, this option and they underlying shares of the Company's
Common Stock.
9. Method of Exercising Option. Subject to the terms and conditions set
forth herein, this option may be exercised by written notice to the Company at
the principal executive office of the Company, or to such transfer agent as the
Company shall designate. Such notice shall state the election to exercise this
option and the number of shares of the Company's Common Stock in respect of
which this option is being exercised and shall be signed by the individual(s)
exercising this option. Such notice shall be accompanied by payment of the full
purchase price of such shares as soon as practicable after the notice shall be
received. The certificate(s) for the shares as to which this option shall have
been so exercised shall be registered in the name of the individual(s) so
exercising this option (or, if this option shall be exercised by the Optionee
and if the Optionee shall so request in the notice of exercise, shall be
registered in the name of the Optionee and another individual jointly, with full
rights of survivorship) and shall be delivered as provided above to or upon the
written order of the individual(s) exercising this option. In the event this
option shall be exercised, pursuant to Section 5 above, by any individual(s)
other than the Optionee, such notice of exercise shall be accompanied by
appropriate proof of the right of such individual(s) to exercise this option.
All shares of the Company's Common Stock that shall be purchased upon the
exercise of this option as provided herein shall be fully paid and
non-assessable.
10. Option Not Transferable. This option is not transferable or assignable
except by will or by the law of descent and distribution or except as permitted
by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act"). The Optionee can exercise this option only during the
Optionee's lifetime.
11. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise this option.
12. No Obligation to Continue Business Relationship. The Company and any
Related Corporation (as that term is defined in the Plan) are not, pursuant to
the Plan or this option, obligated to continue to maintain a Business
Relationship with Optionee.
13. No Rights as Stockholder Until Option Exercised. The Optionee shall
have no rights as a stockholder with respect to shares of the Company's Common
Stock subject to this option until a stock certificate(s) therefor has been
issued to the Optionee and is fully paid for. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the Company,
no adjustment shall be made for dividends or similar rights for which the record
date is prior to the date a stock certificate is issued.
14. Capital Changes and Business Successions. Subject to Section 19 below,
the Plan contains provisions regarding the treatment of options in a number of
contingencies such as stock splits and mergers. Provisions in the Plan for
adjustment with respect to shares of the Company's Common Stock subject to
options and the related provisions with respect to successors to the business of
the Company and are hereby made applicable hereunder and are incorporated herein
by reference. In general, the Optionee should not assume that options
necessarily would survive the acquisition of the Company. In particular, without
affecting the generality of the foregoing, it is understood that for the
purposes of Sections 3 through 5 above, employment by the Company includes
employment by a Related Corporation.
15. Withholding Taxes. The Optionee hereby agrees that the Company may
withhold from the Optionee's wages or other renumeration the appropriate amount
of federal, state and local taxes attributable to the Optionee's exercise of any
installment of this option. At the Company's discretion, the amount required to
be withheld may be withheld in cash from such wages or other renumeration, or in
kind from the Common Stock otherwise deliverable to the Optionee upon the
exercise of this option. The Optionee further agrees that, if the Company does
not withhold an amount from the Optionee's wages or other renumeration
sufficient to satisfy the Company's withholding obligation, the Optionee will
reimburse the Company upon demand, in cash, for the amount underwithheld.
16. Company's Right of First Refusal.
(a) Exercise of Right. If the Optionee desires to sell all or any part
of the shares acquired under this option (including any securities received in
respect thereof pursuant to any stock dividend, stock split, reclassification,
reorganization, recapitalization or the like), and an offeror (the "Offeror")
has made an offer therefor, which offer the Optionee desires to accept, the
Optionee shall: (i) obtain in writing an irrevocable and unconditional bona fide
offer (a "Bona Fide Offer") for the purchase thereof from the Offeror and (ii)
give written notice (the "Option Notice") to the Company setting forth the
Optionee's desire to sell such shares, which Option Notice shall be accompanied
by a photocopy of the original executed Bona Fide Offer and shall set forth at
least the name and address of the Offeror and the price and terms of the Bona
Fide Offer. Upon receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the "Option Shares")
specified in the Option Notice, such option to be exercisable by giving, within
thirty (30) days after receipt of the Option Notice, a written counter-notice to
the Optionee. If the Company elects to purchase any or all of such Option
Shares, it shall be obligated to purchase, and the Optionee shall be obligated
to sell to the Company, such Option Shares at the price and terms indicated in
the Bona Fide Offer within sixty (6) days from the date of receipt by the
Company of the Option Notice.
(b) Sale of Option Shares to Offerer. The Optionee may sell, pursuant
to the terms of the Bona Fide Offer, any or all of such Option Shares not
purchased or agreed to be purchased by the Company during the period that is
sixty (60) days after the expiration of the thirty (30) day period during which
the Company may give the aforesaid counter-notice; provided, however, that the
Optionee shall not sell such Option Shares to the Offeror if the Offeror is a
competitor of the Company and the Company gives written notice to the Optionee,
within thirty (30) days of its receipt of the Option Notice, stating that the
Optionee shall not sell the Option Shares to the Offeror; provided, further,
that prior to the sale of such Option Shares to the Offeror, the Offeror shall
execute an agreement with the Company pursuant to which the Offeror agrees to be
subject to the restrictions set forth in this Section 16. If any or all of such
Option Shares are not sold pursuant to a Bona Fide Offer within the time
permitted above, the unsold Option Shares shall remain subject to the terms of
this Section 16.
(c) Adjustments for Changes in Capital Structure. If there shall be
any change in the Company's Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination or
exchange of shares or the like, the restrictions contained in this Section 16
shall apply with equal force to additional and/or substitute securities, if any,
received by the Optionee in exchange for, or by virtue of his or her ownership
of, Option Shares.
(d) Failure to Deliver Option Shares. In the event the Optionee fails
or refuses to deliver on a timely basis a duly endorsed certificate(s)
representing the Option Shares to be sold to the Company pursuant to this
Section 16, the Company shall have the right to deposit the purchase price for
the Option Shares in a special account with any bank or trust company in the
State of Utah, giving notice of such deposit to the Optionee, whereupon such
Option Shares shall be deemed to have been purchased by the Company. All such
monies shall be held by the bank or trust company for the benefit of the
Optionee. All monies deposited with the bank or trust company but remaining
unclaimed for two (2) years after the date of deposit shall be repaid by the
bank or trust company tot he Company on demand and the Optionee shall thereafter
look only to the Company for payment. The Company may place a legend on any
stock certificate(s) delivered to the Optionee reflecting the restrictions on
transfer set forth in this Section 16.
17. No Exercise of Option if Business Relationship is Terminated for
Misconduct. If the Business Relationship of the Optionee is terminated for
"Misconduct," this option shall terminate on the date of such termination of the
Business Relationship and all unvested or unexercised options shall thereupon no
longer be exercisable to any extent whatsoever. For purposes of this Section 17,
"Misconduct" is conduct, as determined by the board, involving one or more of
the following: (i) the substantial and continuing failure of the Optionee to
render services to the Company in accordance with the terms or requirements of
the Business Relationship; (ii) a determination by two-thirds (2/3) of the
members of the Board that the Optionee has inadequately performed the
requirements of the Business Relationship; (iii) disloyalty, gross negligence,
dishonesty or breach of a fiduciary duty owed to the Company; (iv) the
commission of an act of embezzlement, fraud, disloyalty, dishonesty or
deliberate disregard of rules or policies of the Company that results in loss,
damage or injury to the Company, whether directly or indirectly; (v) the
unauthorized disclosure of any trade secret or confidential information owned by
the Company; or (vi) the commission of an act that constitutes unfair
competition with the Company or that induces any customer or client of the
Company to break a contract or agreement with the Company. In making such
determination, the Board shall act fairly and in utmost good faith and shall
give the Optionee an opportunity to appear and be heard at a hearing before the
Board or the Committee and to present evidence on the Optionee's behalf. For
purposes of the Section 18, termination of the Business Relationship shall be
deemed to occur when the Optionee receives notice that the Business Relationship
is terminated.
18. Company's Right of Repurchase.
(a) Right of Repurchase. If any of the events specified in Section
18(b) below occur, then:
(i) with respect to shares acquired upon exercise of this option
prior to the occurrence of such event, within sixty (60) days after
the Company receives actual knowledge of the event, and
(ii) with respect to shares acquired upon exercise of this option
after the occurrence of such event, within sixty (60) days following
the later of the date of such exercise or the date the Company
receives actual knowledge of such event,
(in either case, the "Repurchase Period"), the Company shall have the option,
but not the obligation, to repurchase all, but not less than all, of the shares
from the Optionee or the Optionee's legal representatives, as the case may be
(the "Repurchase Option"). The Repurchase Option shall be exercised by the
Company by giving the Optionee, or the Optionee's legal representative, written
notice of its intention to exercise the Repurchase Option on or before the last
day of the Repurchase Period, and, together with such notice, tendering to the
Optionee or the Optionee's legal representative, an amount equal to the higher
of the option price or the fair market value of the shares. The Company may, in
exercising the Repurchase Option, designate one or more nominees to purchase the
shares either within or without the Company. Upon timely exercise of the
Repurchase Option in the manner provided in the Section 18(a), the Optionee or
Optionee's legal representative shall deliver to the Company the stock
certificate(s) representing the shares being repurchased, duly endorsed and free
and clear of any and all liens, charges and encumbrances.
If shares are not purchased under the Repurchase Option, the Optionee
and the Optionee's successor in interest, if any, will hold any such shares in
his or her possession subject to all of the provisions of this option.
(b) Company's Right to Exercise Repurchase Option. The Company shall
have the Repurchase Option in the event any of the following events occurs:
(i) The termination of the Optionee's Business Relationship with
the Company or any Related Corporation, voluntarily or involuntarily,
for any reason whatsoever, including death or permanent disability,
prior to the time this option shall be fully vested as provided in
Section 3 above;
(ii) The receivership, bankruptcy or other creditor's proceedings
regarding the Optionee or the taking of any of the Optionee's shares
acquired upon exercise of this option by legal process, such as a levy
of execution;
(iii) Distribution of shares held by the Optionee to the
Optionee's spouse as such spouse's joint or community property
interest pursuant to a decree of dissolution, divorce, property
settlement agreement, operation of law or for any other reason, except
as may be otherwise permitted by the Company; or
(iv) The termination of the Optionee's Business Relationship by
the Company for Misconduct (as that term is defined in Section 17
above).
(c) Determination of Fair Market Value. The fair market value of the
shares subject to this option shall be, for purposes of the Section 18, an
amount per share determined on the basis of the price at which shares of the
Common Stock could reasonably be expected to be sold in an arms-length
transaction for cash, other than on an installment basis, to a person not
employed by, controlled by, in control of or under common control with the
Company. Fair market value shall be determined by the Board, giving due
consideration to recent grants of ISOs for shares of Common Stock, recent
transactions involving shares of the Common Stock, if any, earnings of the
Company to the date of such determination, projected earnings of the Company,
the effect of the transfer restrictions to which the public market for the
Common Stock and such other matters as the Board deems pertinent. The
determination by the Board of the fair market value shall be conclusive and
binding. The fair market value of the shares shall be determined as of the day
on which the event occurs.
19. Changes in Control. Notwithstanding any other provision hereof, this
option shall accelerate so that the Optionee shall have the right, at all times
until the expiration or earlier termination of the option, to exercise the
unexercised portions of this option, including the portions thereof that would,
but for this Section 19, not yet be exercisable, from and after any Involuntary
Termination (as that term is defined below) within twenty-four (24) months after
a Change in Control (as that term is defined below) that occurs while the
Optionee is an employee of the Company or any Related Corporation. For purposes
of this Section 19: (a) an "Involuntary Termination" is any termination of the
Optionee's employment with the Company or with any Related Corporation for
reasons other than (i) the Optionee's death, (ii) the Optionee's total
disability (as that term is defined in the Plan), (iii) the Optionee's
retirement under circumstances that entitle the Optionee to full benefits under
one or another of his employer's retirement or pension plans or programs
generally applicable to salaried employees or (iv) termination for Misconduct
(as that term is defined in Section 18 above); and (b) a "Change in Control"
means any of the following events if they occur after the date of grant of this
option and after the class of stock then subject to this option becomes Publicly
Traded (as that term is defined in Section 7(c) above):
the direct or indirect beneficial ownership (within the meaning of Section
13(d) of the 1934 Act and Regulations 13D through G thereunder) of thirty
percent (30%) or more of the class of securities then subject to this
option is acquired or becomes held by any person or group of persons
(within the meaning of Section 13(d)(3) of the 1934 Act), or the sale,
mortgage, lease or other transfer in one or more transactions not in the
ordinary course of the Company's business or assets or earning power
constituting more than fifty percent (50%) of the assets or earning power
of the Company and its Related Corporations (taken as a whole) to any such
person or group of persons.
20. Governing Law. This option shall be governed by and interpreted in
accordance with the laws of the State of Utah.
21. Holding Period. The Optionee acknowledges that if the shares acquires
upon exercise of this option are not held for at least six (6) months following
the date of grant, the grant of this option will be deemed a purchase that may
be matched against any sale of the Company's securities occurring within six (6)
months of the grant and may create liability for the Optionee pursuant to
Section 16(b) of the 1934 Act.
IN WITNESS WHEREOF the Company and the Optionee have caused this option to
be executed, and the Optionee whose signature appears below acknowledges receipt
of a copy of the Plan and of an original copy of this option.
THE OPTIONEE:
/s/ David G. Derrick
Signature
David G. Derrick
THE COMPANY:
BIOMUNE SYSTEMS, INC., a Nevada corporation
By: /s/ Michael G. Acton
Michael G. Acton
Its: Chief Financial Officer
EXHIBIT 10.107
[COMMERCE PROPERTIES, INC. LETTERHEAD]
Standard Form
COMMERCIAL AND INDUSTRIAL LEASE
THIS LEASE made and entered into this 16th day of October 1995, by and
between RJF Companies, Ltd. hereinafter called "Landlord," and Biomune
Systems, Inc. hereinafter called "Tenant."
WITNESSETH:
In consideration of the covenants and promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed by the parties hereto as follows:
I. DEMISED PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord all
those certain premises hereinafter more fully described, together with the
buildings and other improvements thereon, for the term and upon the rental
herein set forth. Said demised premises consist more particularly of a certain
building containing approximately 11,500 square feet, known as, located at 5095
West 2100 South in West Valley City, State of Utah.
Tenant shall have the right to use the common and Parking areas jointly
with any other tenants of the building but shall not be less than (11) stalls.
II. TERM:
TO HAVE AND TO HOLD said premises unto Tenant for a term of five years (5)
years beginning on the 1st day of December 1995, and ending on the 30th day of
November 2000.
If Landlord fails to deliver possession of premises ready for occupancy at
the commencement of the lease term for any reason beyond Landlord's control,
Landlord shall not be liable for any damage caused thereby, nor shall this lease
become void or voidable, nor shall the lease term be extended, but in such event
no rental shall be payable by Tenant to Landlord for any portion of the lease
term until Landlord can deliver possession of premises to Tenant ready for
occupancy by Tenant. However, in the event the demised premises are not
completed and ready for occupancy by December 1, 1996, the Tenant herein, at his
option, may cancel this lease without damage.
III. TERMS AND CONDITIONS OF LEASE
This lease is made on the following terms and conditions, which are
expressly agreed to by Landlord and Tenant:
1. RENT: The Tenant agrees to pay as rental to Landlord, at the
address specified in this Lease or at such other place Landlord may from time to
time designate in writing, the sum of Tow Hundred Sixty Thousand Eight Hundred
Twenty ($260,820.00) Dollars said sum to be lawful money of the United States
payable as follows:
$8,694.00 shall be paid upon the execution of this Lease of which
$4,347.00 represents the security deposit and $4,347.00 represents
the December 1, 1995, base rent payment. Then on or before January 1,
1996, the Tenant shall pay $4,347.00 to the Landlord on the first day
of each and every month until November 30 1997. Effective December 1,
1997, the monthly rental payment shall be adjusted by the amount
equal to the change for the previous two year period in the Consumer
Price Index for Urban Wage Earners and Clerical Workers, All Items,
published by the U.S. Department of Labor, Bureau of Labor
Statistics, but in no event will the payment be less than the
preceding period. Effective December 1, 1998 and every year
thereafter, the monthly rental payment shall be adjusted by the
amount equal to the change for the previous one year period in the
same aforementioned CPI Index, but in no event will the payment be
less than the preceding period. The rental payment will in no event
be adjusted more than four (4%) per cent per annum, nor less than two
(2%) per cent per annum.
(a) LATE CHARGES: In the event Tenant fails to pay said rental
(including any additional rental due hereunder) on the due date or within ten
(10) days thereafter, a late charge of two percent (2%) per month of the
delinquent rental shall be added to said rental and paid to Landlord together
therewith.
(b) SECURITY DEPOSIT: Tenant contemporaneously with the execution of
this Lease, has deposited with Landlord the sum of $4,347.00 receipt of which is
hereby acknowledged by Landlord, said deposit being given to secure the faithful
performance by the Tenant of all of the terms, covenants and conditions of this
Lease by the Tenant to be kept and performed during the term hereof. The Tenant
agrees that if the Tenant shall fail to pay the rent herein reserved, promptly
when due, said deposit may, at the opinion of the Landlord (but Landlord shall
not be required to), be applied to any rent due and unpaid, and if the Tenant
violates any of the other terms, covenants and conditions of this lease, said
deposit shall be applied to any damages suffered by Landlord as a result of
Tenant's default to the extent of the amount of the damages suffered.
Nothing contained in this paragraph shall in any way diminish or be
construed as waiving any of the Landlord's other remedies as provided herein, or
by law. If the security deposit is applied by Landlord for the payment of over
due rent or other sums due and payable to Landlord by Tenant hereunder, then
Tenant shall, on the written demand of Landlord, forthwith remit to Landlord a
sufficient amount in cash to restore said security deposit to its original
amount, and Tenant's failure to do so within fifteen days after receipt of such
demand, shall constitute a breech of this lease. Should Tenant comply with all
of the terms, covenants and conditions of this Lease and promptly pay all of the
rental herein provided for as it falls due, and all other sums payable by Tenant
to Landlord hereunder, said security deposit shall be returned in full to Tenant
at the end of the term of this lease, or upon the earlier termination of this
lease pursuant to the provisions hereof, except in the event that the demised
premises are sold as a result of the exercise of any power of sale under any
mortgage or deed of trust, in which event the lease shall be automatically
amended to delete any reference to this paragraph, and Tenant shall be entitled
to immediate reimbursement of its security deposit from the party then holding
said deposit.
2. AUTHORIZED USE: Tenant shall use the leased premises for the
following purpose, and for no other purpose whatsoever, without the written
consent of Landlord first had and obtained: mixing of medical dye products and
related business.
Tenant shall not commit or knowingly permit any waste of the leased
premises or use the same for any unlawful purpose. The Tenant will comply with
all applicable federal, state and local laws, ordinances and regulations
relating to the leased premises and its use and operation by the Tenant.
Tenant agrees not to keep, use or permit to be kept or used on the
Leased Premises any, explosives or any "hazardous substance," "solid waste," or
"hazardous waste" as said terms are defined in 42 U.S.C. 9601(14), and 40 C.F.R.
261.1 et seq. without the prior written permission of Landlord, except as listed
on Addendum "A" attached hereto, which permission shall not be unreasonably
withheld.
3. PAYMENT OF TAXES AND OTHER ASSESSMENTS: Tenant shall pay its
proportionate share when they are due of all property taxes, license fees and
assessments levied or imposed against the premises or measured by the rent
payable hereunder during the term of this Lease or any extension thereof, by
Federal, state, municipal or other governmental authority provided, however,
that no law or practice postponing the payment of such taxes, assessments or
charges until after the termination of this Lease shall relieve Tenant of the
obligation to make such payments. Payment of such taxes shall be made by Tenant
to Landlord not later than thirty (30) days following the date on which Landlord
provides Tenant with written evidence of such taxes in the form of a copy of the
tax return or notice. If Tenant fails to pay any of such taxes, charges or other
impositions when due, Landlord may pay the same under the provisions of'
paragraph 19, hereinafter set forth. Anything herein to the contrary
notwithstanding, if Tenant deems excessive or illegal any such tax or
assessment, Tenant may defer payment thereof so long as the validity or the
amount thereof is contested by Tenant in good faith, in which case Tenant shall
furnish to Landlord a bond, in form reasonably satisfactory to Landlord, in an
amount equal to the amount of taxes or assessments so contested, which bond
shall guarantee the payment thereof with interest and penalties thereon.
4. CONDITION OF THE PREMISES: Tenant accepts the leased premises in
the condition they are in at the time of its taking possession to said premises.
Tenant agrees, if, during the term of this Lease, Tenant shall change the usual
method of conducting Tenant's business on the leased premises, or should Tenant
install thereon or therein any new facilities, Tenant will, at the sole cost and
expense of Tenant, make alterations or improvements in or to the demised
premises which may be required by reason of any Federal or state law, or by any
municipal ordinance, or regulation applicable thereto. Landlord warrants that
the building, on date of occupancy, meets all currently applicable Federal,
state and municipal laws and ordinances.
5. TENANT TO INSURE BUILDINGS: Tenant shall insure and keep insured
the premises of Landlord hereby leased against the perils of fire, the "Extended
Coverages," vandalism and malicious mischief, and all risks to the ( premises
with the "Special Causes of Loss" form, and Tenant shall carry insurance against
the risk of business interruption and loss of income and loss of rents to
Landlord resulting from fire or other hazards. The later described policy must
provide coverage for six months estimated income from the leased premises. Such
insurance shall carry a "Full Replacement Cost Endorsement" with a provision for
automatic adjustment of such cost for inflation and shall pertain to all
improvements on the leased premises. Such policy shall have a deductible of no
more than $5,000.00 and shall be made payable to Landlord as the primary insured
and to Mortgagee (if any) as a lender as their interests may appear. Tenant
shall be responsible for any damage to premises as a result of forced entry into
his space or burglary thereof. Such insurance provided for hereunder shall be in
a company or companies acceptable to Landlord and shall be procured and paid for
by Tenant, and said policy or policies will be delivered to Landlord. Such
insurance may, at Tenant's election, be carried under any General Blanket
Insurance Policy of Tenant, provided, however, that a satisfactory Certificate
of Insurance, together with proof of payment of the premium, shall be deposited
with Landlord. Landlord shall be given 30 days notice prior to cancellation or
termination of said insurance policy. If Landlord wishes to obtain insurance
against earthquake, Landlord may require such coverage, if available, to be
covered by Tenant's casualty insurance policy, but Landlord shall pay the
premium related to the earthquake coverage.
6. REPAIR AND CARE OF BUILDING AND PAYMENT OF UTILITIES BY TENANT:
Tenant agrees to keep the interior and exterior of the building and the
improvements on the premises outside the building and grounds in good condition
and repair and agrees to pay its proportionate share for all labor, materials
and other repairs to the electrical wiring, plumbing, air-conditioning, and
heating systems (including spring and fall servicing, and replacement of filters
as recommended by the manufacturers); the mowing of grass, care of shrubs,
general landscaping, if any, and to clean and paint the interior and exterior of
the leased premises as the same may or might be necessary in order to maintain
said premises in a clean, attractive and sanitary condition, Tenant shall keep
the driveways, parking lots and sidewalks, if any, reasonably free from snow and
ice.
Tenant shall pay all charges, including but not limited to charges for
water, heat, gas, electricity and other public utilities used on the leased
premises, including all replacements of light bulbs, tubes, ballasts and
starters within a reasonable time after they burn out.
7. REPAIR OF BUILDING BY LANDLORD: Landlord agrees for the term of
this Lease, to maintain roof in good condition and repair, and any latent
defects in the exterior wall, floor, joists, and foundations, and to repair any
defects in the plumbing, electrical, heating and air-conditioning systems for
one year after date of occupancy as well as any damage that might result from
acts of Landlord or Landlord's representatives. Landlord shall not, however, be
obligated to repair any such damage until written notice of the need of repair
shall have been given to Landlord by Tenant and, after such notice is so given,
Landlord shall have a reasonable time to which to make such repairs.
8. ALTERATIONS OF BUILDING AND INSTALLATION OF FIXTURES AND OTHER
APPURTENANCES: Tenant may. with written consent of Landlord, which consent shall
not be unreasonably withheld or delayed, but at Tenant's sole cost and expense
in a good and workmanlike manner, make such alterations and repairs to the
leased premises as Tenant may require for the conduct of its business without,
however, materially altering the basic character of the building or
improvements, or weakening any structure on the demised premises. Tenant shall
have the right, with the written permission of Landlord, to erect, at Tenant's
sole cost and expense, such temporary partitions, including office partitions,
as may be necessary to facilitate the handling of Tenant's business and to
install telephone and telephone equipment and wiring, and electrical fixtures,
additional lights and wiring and other trade appliances. Any alterations or
improvements to the leased premises, including partitions, all electrical
fixtures, lights and wiring shall, at the option of Landlord, become the
property of Landlord, at the expiration or sooner termination of this Lease
excluding Tenant's gas fire suppression system. Should Landlord request Tenant
to remove all or any part of the above mentioned items, Tenant shall do so prior
to the expiration of this Lease and repair the premises as described below.
Temporary shelves, bins, and machinery installed by Tenant shall remain the
property of Tenant and may be removed by Tenant at any time; provided, however,
that all covenants, including rent due hereunder to Landlord shall have been
complied with and paid. At the expiration or sooner termination of this Lease,
or any extension thereof, Tenant shall remove said shelves, bins and machinery
and repair, in a good workmanlike manner, all damage done to the leased promises
by such removal.
9. ERECTION AND REMOVAL OF SIGNS: Tenant may, if building policy
permits, place suitable signs on the leased premises for the purpose of
indicating the nature of the business carried on by Tenant in said premises,
provided, however that such signs shall be in keeping with other signs in the
district where the leased premises arc located, and provided, further, that the
location and size of such signs shall be approved by Landlord prior to their
erection. Signs shall be removed prior to the expiration of this lease and any
damage to the leased premises caused by installation or removal of signs shall
be repaired at expenses of the Tenant. All work shall be completed in a good
workmanlike manner.
10. GLASS: Tenant agrees to immediately replace all glass in the
demised premises if broken or damaged during the term of this Lease with glass
with glass of the same quality as that broken or damaged.
11. RIGHT OF ENTRY BT LANDLORD: Tenant, shall permit inspection of the
demised premises during reasonable business hours by Landlord or Landlord's
agents or representatives for the purpose of ascertaining the condition of the
demised premises and in order that Landlord may make such repairs as may be
required to be made by Landlord under the terms of this Lease. Sixty (60) days
prior to the expiration of this Lease, Landlord may post suitable notice on the
demised premises that the same are "For Rent" and may show the premises to
prospective tenants at reasonable times. Landlord may not, however, thereby
unnecessarily interfere with the use of demised premises by Tenant.
12. ASSIGNMENT AND SUBLETTING: Neither this Lease nor any interest
herein may be assigned by Tenant voluntarily or involuntarily, by operation of
law, and neither all nor any part of the leased premises shall be sublet by
Tenant without the written consent of Landlord first hand or otherwise obtained,
however, Landlord agrees not to withhold its consent unreasonably for Tenant to
sublet the demised premises. In the event the premises should be sublet, as
herein provided, at an increased rental, fifty (50%) percent of said increase
shall be paid to Landlord by Tenant as additional rental.
13. DAMAGE OR DESTRUCTION: If the demised premises or any part thereof
shall be damaged or destroyed by fire or other casualty, Landlord shall promptly
repair all such damage and restore the demised premises without expense to
Tenant, subject to delays due to adjustment of insurance claims, strikes and
other causes beyond Landlord's Control. If such damage or destruction shall
render the premises untenable in whole or in part, the rent shall be abated in
proportion to the loss of usage of the demised premises by Tenant until the
damage shall be repaired and the premises restored. If the damage or destruction
shall be so extensive as to require the expenditure of fifty (50%) percent or
more of the replacement cost of the building or buildings on the demised
premises, Landlord may elect to terminate this Lease by written notice to the
other given within thirty (30) days after the occurrence of such damage or
destruction if Landlord shall not commence reconstruction of the premises within
sixty (60) days after the loss, Tenant may give Landlord notice of its intent to
terminate the Lease, and if Landlord shall not commence such reconstruction
within fifteen (15) days after receipt of Tenant's notice, Tenant may terminate
this Lease. Landlord and Tenant hereby release each other from responsibility
for loss or damage occurring on or to the leased premises or the premises of
which they are a part or to the contents of either thereof, caused fire or other
hazards actually covered by the fire and extended coverage insurance policy
Tenant is required to provide under Section 5 above, and each waives all rights
or recovery against the other for such loss or damage. Willful misconduct
lawfully attributable to either party, whether in whole or in part a
contributing cause of the casualty giving rise to the loss or damage, shall not
be excused under the foregoing release and waiver.
14. INJURIES AND PROPERTY DAMAGE: Tenant agrees to indemnify and hold
harmless Landlord of and from any and all claims of any kind or nature arising
from Tenant's use of the demised premises during the term hereof, and Tenant
hereby waives all claims against Landlord for damage to goods, ware, merchandise
or for injury to persons in and upon the premises from any cause whatsoever,
except such as might result from the negligence of' Landlord or Landlord's
representatives or from failure of Landlord to perform its obligation hereunder
within a reasonable time after notice in writing by Tenant requiring such
performance by Landlord. Tenant shall at all times during the term hereof keep
in effect in responsible companies liability insurance in the names of and for
the benefit of Tenant with limits as follows:
Bodily Injury, $1,000,000.00 each occurrence:
Property Damage, $500,000.00; or in lieu thereof, a
combined limit of bodily injury and property damage
liability of not less than $1,000,000.00.
Such insurance may, at Tenant's election, be carried under any general
blanket coverage of Tenant. A renewal policy shall be procured not less than ten
(10) days prior to the expiration of any policy. Each original policy or a
certified copy thereof, or a satisfactory certificate of the insurer evidencing
insurance carried with proof of payment of the premium shall be deposited with
Landlord. Tenant shall have the right to settle and adjust all liability claims
and all other claims against the insuring companies, but without subjecting
Landlord to any liability or obligation.
15. SURRENDER OF PREMISES: Tenant agrees to surrender the leased
premises at the expiration, or sooner termination, of the term of this Lease, or
any extension thereof, in the same condition as when said premises were
delivered to Tenant, or as altered, pursuant to the provisions of this Lease,
ordinary wear, tear and damage by the elements excepted, and Tenant shall remove
all of its personal property. Tenant agrees to pay a reasonable cleaning charge
should it be necessary for Landlord to restore or cause to be restored the
premises to the same condition as when said premises were delivered to Tenant.
16. HOLDOVER: Should the Landlord permit Tenant to holdover the leased
premises or any part thereof, after the expiration of the term of this Lease,
then and unless otherwise agreed in writing, such holding over shall constitute
a tenancy from month-to-month only, and shall in no event be construed as a
renewal of this Lease and all provisions of this Lease not inconsistent with a
tenancy from month-to-month shall remain in full force and effect. During the
month-to-month tenancy, Tenant agrees to give Landlord thirty (30) days prior
written notice of its intent to vacate premises. Tenant agrees to vacate the
premises upon thirty (30) days prior written notice from Landlord. The rental
for the month-to-month tenancy shall be set by the Landlord within IO days after
Landlord receives notice from Tenant of its intention to continue to occupy
premises.
17. QUIET ENJOYMENT: If and so long as Tenant pays the rents reserved
by this Lease and observes all the covenants and provisions hereof, Tenant shall
quietly enjoy the demised premises, subject, however, to the terms of the Lease,
and Landlord will warrant and defend Tenant in the enjoyment and peaceful
possession of the demised premises throughout the terms of this Lease.
18. WAIVER OF COVENANTS: The failure of any party to enforce the
provisions of this Lease shall not constitute a waiver unless specifically
stated in writing, signed by the party whose rights are deemed waived,
regardless of a party's knowledge of a breach hereunder.
19. DEFAULT: If Tenant shall make default in the fulfillment of any of
the covenants and conditions hereof except default in payment of rent, Landlord
may, at its option, after fifteen (15) days prior notice to Tenant, make
performance for Tenant and for the purpose advance such amounts as may be
necessary. Any amounts so advanced, or any expense incurred, or sum of money
paid by Landlord by reason of the failure of Tenant to comply with any covenant
agreement, obligation or provision of this Lease, or in defending any action to
which Landlord may be subjected by reason of any such failure for any reason of
this Lease, shall be deemed to be additional rent for the leased premises and
shall be due and payable to Landlord on demand. The acceptance by Landlord of
any installment of fixes rent, or of any additional rent due under this or any
other paragraph of this lease, shall not be a waiver of any other rent then due
nor of the right to demand the performance of any other obligation of the Tenant
under this Lease. Interest shall be paid to Landlord on all sums advanced by
Landlord at an annual interest rate of 2% over the prime rate charged by First
Security Bank of Utah.
If Tenant shall make default in Fulfillment of any of the covenants or
conditions of this Lease (other than the covenants for the payment of rent or
other amounts) and any such default shall continue for a period of fifteen (15)
days after notice, then Landlord may, at its option, terminate this Lease by
giving Tenant written notice of such termination and, thereupon, this Lease
shall expire as fully and completely as if that day were the date definitely
fixed for the expiration of the term of this Lease and Tenant shall quit and
surrender the leased premises.
20. DEFAULT IN RENT, INSOLVENCY OF TENANT: If Tenant shall default in
the payment of the rent reserved hereunder, or any part thereof, or in making
any other payment herein provided for, and any such default shall continue for a
period of ten (10) days after written notice to Tenant, or if the leased
premises or any part thereof shall be abandoned or vacated, or if Tenant shall
file a voluntary petition in bankruptcy or if Tenant shall file any petition or
institute any proceedings under any insolvency or Bankruptcy Act or any
amendment thereto hereafter made, seeking to effect its reorganization or a
composition with its creditors, or if any proceedings based on the insolvency of
Tenant or relating to bankruptcy proceedings, a receiver or trustee shall be
appointed for Tenant or if any proceedings shall be commenced for the
reorganization of Tenant or if Tenant shall admit in writing its inability to
pay its obligations generally as they become due, then Landlord, in addition to
any other rights or remedies it may have, shall have the immediate right of
re-entry and may remove all persons and property from the premises. Such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. Landlord may elect to re-enter, as herein
provided, or Landlord may take possession pursuant to this Lease and relet said
premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Landlord in the exercise of Landlord's sole
discretion may deem advisable with the right to make repairs to said premises.
Upon each reletting, Tenant shall be immediately liable for and shall pay to
Landlord, in addition to any indebtedness due hereunder, the costs and expenses
of such reletting including advertising costs, brokerages fees, any reasonable
attorney's fees incurred and the cost of such repairs incurred by Landlord, and
the amount, if any, by which the rent reserved in this Lease for the period of
such reletting (up to but not beyond the term of this Lease) exceeds the amount
agreed to be paid as rent for the premises for said period by such reletting
and; provided, however, that such reletting is made in good faith and or an
arm's-length basis. If Tenant has been credited with any rent to be received by
such reletting and such rents shall not be promptly paid to Landlord by the new
Tenant, such deficiency shall be calculated and promptly paid monthly by Tenant.
No such re-entry or taking possession of the premises by Landlord shall be
construed as an election by Landlord to terminate this Lease unless the
termination thereof be decreed by a court of competent jurisdiction or stated
specifically by the Landlord in writing addressed to Tenant. Should Landlord at
any time terminate this Lease for any breach, in addition to any other remedy
Landlord may have, Landlord may recover from Tenant all damages Landlord may
incur by reason of such breach, including the cost of recovering the premises
including reasonable attorney's fees, court costs, and storage charges. In no
event, shall this Lease or any rights or privileges hereunder be an asset of
Tenant under any bankruptcy, insolvency or reorganization proceedings.
21. ENFORCEMENT: In the event either party shall enforce the terms of
this Lease by suit or otherwise, the party at fault shall pay the costs and
expenses incident thereto, including a reasonable attorney's fee.
22. MEDIATION AND ARBITRATION: If any dispute or claim in law or
equity arises out of this Lease, Tenant and Landlord agree in good faith to
attempt to settle such dispute or claim by mediation under the Commercial
Mediation rules of the American Arbitration Association. If such mediation is
not successful in resolving such dispute or claim, then such dispute or claim
shall be decided by neutral binding arbitration before a single arbitrator in
accordance with the Commercial Arbitration rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. However, this paragraph does not apply
to disputes or claims arising under Section 78, Chapter 36, of the Utah Code.
23. FAILURE TO PERFORM COVENANT: Any failure on the part of either
party to this Lease to perform any obligations hereunder, other than Tenant's
obligation to pay rent, and any delay in doing any act required hereby shall be
excused if such failure or delay is caused by any strike, lockout, governmental
restriction or any similar cause beyond the control of the party so failing to
perform, to the extent and for the period that such continues.
24. RIGHTS OF SUCCESSORS AND ASSIGNS: The covenants and agreements
contained in this Lease will apply to, insure to the benefit of, and be binding
upon the parties hereto, their heirs, distributees, executors, administrators,
legal representatives, assigns, and upon their respective successors in interest
except as expressly otherwise hereinabove provided.
25. TIME: Times if of the essence of this Lease and every term,
covenant and condition herein contained.
26. LIENS: Tenant agrees not to permit any lien for monies owing by
Tenant to remain against the leased premises for a period of more than thirty
(30) days following discovery of the same by Tenant; provided, however, that
nothing herein contained shall prevent Tenant, in good faith and for good cause
from contesting the claim or claims of any person, firm or corporation growing
out of Tenant's operation of the demised premises or costs of improvements by
Tenant on the said premises, and the postponement of payment of such claim or
claims, until such contest shall finally be decided shall not be a violation of
this Lease or any covenant thereof. Should any such lien be filed and not
released or discharged or action not commenced to declare the same invalid
within thirty (30) days after discovery of the same by Tenant, Landlord may at
Landlord's option (but without any obligation so to do) pay and discharge such
lien and may likewise pay and discharge any taxes, assessments or other charges
against the leased premise which Tenant is obligated hereunder to pay and which
may or might become a lien on said premises. Tenant agrees to repay any sum so
paid by Landlord upon demand therefor, as provided for in paragraph 19 herein.
27. CONSTRUCTION OF LEASE: Words of any gender used in this Lease
shall be held to include any other gender, and words in the singular number
shall be held to include the plural when the sense requires.
28. PARAGRAPH HEADINGS: The paragraph headings as to the contents of
particular paragraphs herein, are inserted only for convenience and are in no
way to be construed as part of such paragraph or as a limitation on the scope of
the particular paragraph to which they refer.
29. NOTICES: It is agreed that all notices required or permitted to be
given hereunder, or for purposes of billing process, correspondence, and any
other legal purposes whatsoever, shall be deemed sufficient if given by a
communication in writing by United States mail, postage prepaid and certified
and addressed as follows:
If to Landlord, at the following address:
RJF Companies, Inc.
5125 West 2100 South
West Valley City, Utah 84120
If to Tenant, at the following address:
Biomune Systems, Inc.
2401 Foothill Drive
Salt Lake City, Utah 84109
30. COMMISSIONS: Landlord acknowledges the services of COMMERCE
PROPERTIES, INC., as Real Estate Broker in this transaction and in consideration
of the effort of said Broker in obtaining Landlord herein, does hereby agree to
pay to said broker for services rendered, commissions on the rental of the
demised premises at the rate specified and in accordance with Exhibit "D"
annexed to Landlord's copy of this Lease and made a part hereof. Said Broker
shall be entitled to his commission regardless of whether or not the premises
are taken as a result of the exercise of the power of eminent domain or by an
agreement in lieu thereof.
31. GOVERNING LAW: The terms of this Agreement shall be governed by
and construed in accordance with Utah law.
32. DOCUMENTATION: The parties hereto agree to execute such additional
documentation as may be necessary or desirable to carry out the intent of this
Agreement.
33. CONTINGENCY REGARDING USE: This Lease is contingent upon there
being no restrictions, covenants, agreements, laws, ordinances, rules or
regulations, which would prohibit Tenant from using the above described premises
for the purposes described herein.
34. INDEMNIFICATION BY TENANT AND LANDLORD: Each of Tenant and
Landlord shall indemnify the other and save the other harmless from and against
any and all suits, actions, damages, claims, liability and expenses in
connection with the loss of life, bodily or personal injury, or property damage
arising from or out of any occurrence in, on, at or from the leased premises,
which is occasioned, wholly or in part, by an act or omission of the indemnified
party or agents, contractors, employees, servants, licensees or representatives.
35. EMINENT DOMAIN: If at any time during the term of this Lease the
entire premises or any part thereof shall be taken as a result of the exercise
of the power of eminent domain or by an agreement in lieu thereof, this Lease
shall terminate as to the part so taken as of the date possession is taken by
the condemning authority. If all or any substantial portion of the premises
shall be taken, Landlord may terminate this Lease at its option, by giving
Tenant written notice of such termination within thirty (30) days of such
taking. If all or a portion of the premises taken are so substantial that
Tenant's use of the premises is substantially impaired, Tenant may terminate
this Lease pursuant to this Article. Otherwise, this Lease shall remain in full
force and effect, except that the rent payable by Tenant hereunder shall be
reduced in the proportion that the area of the premises so taken bears to the
total premises. Landlord shall be entitled to and Tenant hereby assigns to
Landlord the entire amount of any award in connection with such taking. Nothing
in this Article shall give Landlord any interest in or preclude Tenant from
seeking, on its own account, any award attributable to the taking of personal
property or trade fixtures belonging to Tenant, or for the interruption of
Tenant's business.
36. REPRESENTATION REGARDING AUTHORITY: The persons who have executed
this Lease represent and warrant that they are duly authorized to execute this
Lease in their individual or representative capacity as indicated.
37. ENTIRE AGREEMENT: This Lease Agreement constitutes the entire
agreement and understanding between the parties hereto and supersedes all prior
discussions, understandings and agreements. This Lease may not be altered or
amended except by a subsequent written agreement executed by all of the parties
hereto.
38. ESTOPPEL CERTIFICATE: Tenant shall, at any time and from time to
time upon not less than ten (10) days prior written notice from Landlord,
execute, acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified stating the nature of such modification and certifying that this Lease
as so modified, is in full force and effect) and the dates to which the rental
and other charges are paid in advance, if any, and (ii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the real property of which the premises are a part. Tenant's failure
to deliver such statement within such time shall be conclusive upon Tenant (1)
that this Lease is in full force and effect, without modification except as may
be represented by Landlord, (ii) that there are no uncured defaults in
Landlord's performance, and (iii) that not more than one month's rental has been
paid in advance.
39. REVIEW OF DOCUMENTS: The parties hereto represent that they have
read and understand the terms of this Lease, and that they have sought legal
counsel to the extent deemed necessary in order to protect their respective
interests.
40. KEYS & LOCKS: The Tenant shall not change locks or install other
locks on doors without the prior written consent of the Landlord which consent
shall not be unreasonably withheld. Tenant upon the termination of the Tenancy
shall deliver to the Landlord all the keys to the offices, rooms and toilet
rooms which have been furnished to the Tenant.
41. AUCTION, FIRE OR BANKRUPTCY SALE: Tenant shall not conduct any
auction nor permit any fire or bankruptcy sale to be held on the premises.
42. CARPETING DAMAGE AND CHAIRMAT: Tenant agrees to be responsible for
the replacement of carpeting in the dismissed premises if same shall be damaged
by burning, or stains resulting from spilling anything on said carpet,
reasonable wear and tear excepted. Tenant further agrees to use "chairmat" under
all chairs used with desks.
43. OPTION TO RENEW: The Tenant shall have the right to renew this
Lease for one additional five year period under the same terms and conditions as
the original Lease except the following: changes in the lease payments as
adjusted by the CPI index change noted in paragraph I shall be applicable for
the first three years of the renewal period only (e.g. years four and five of
the renewal period will have no adjustment but will be the same as year three of
the renewal period). Tenant must give Landlord no less than one hundred twenty
(120) days written notice of intent to exercise this option.
44. EARLY OCCUPANCY: The Tenant shall have the right to early
occupancy beginning upon the execution of the Lease after the Tenant has paid to
the Landlord the security deposit and first months rent has complied with the
insurance provisions of the Lease.
45. CONTINGENCY: This Lease is contingent on Tenant obtaining all
necessary approvals and/or permits from the West Valley City Fire Department on
or before November 15, 1995.
46. AGENCY DISCLOSURE: At the signing of this Agreement the listing
agent, John Gurr/CPMC, represent Landlord, and the selling agent, Michael
Jeppesen/CB Commercial, represents Tenant. Landlord and Tenant confirm that
prior to signing this Agreement written disclosure of the agency relationship(s)
was provided to him/her.
[ ] Landlord's initials
47. ACCEPTANCE: This lease must be accepted by all parties on or
before October 17, 1995.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed as of the day and year first above written.
TENANT: LANDLORD:
BIOMUNE SYSTEMS, INC. RJF COMPANIES, LTD.
/s/ Michael G. Acton /s/ Robert A. Furstenau
Chief Financial Officer General Partner
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Lease is made and executed as of the 3rd day of
November 1995 and between RJF Company, Ltd. hereinafter called "Landlord", and
Biomune Systems, Inc. hereinafter called "Tenant", pertaining to the Leased
Premises at 5095 West 2100 South, West Valley City, Utah.
RECITALS:
A. The Landlord and Tenant entered into a Lease Agreement on the 16th day of
October 1995.
B. The Landlord and Tenant desire to amend the Lease Agreement to reflect
changes by the Tenant to the floor plan resulting in the addition of 940 square
feet of the office area, or 2,447 square feet of total office area.
NOW, THEREFORE, the Landlord and Tenant hereby amend paragraph III(1) to reflect
changes in the base rent as follows:
RENT: The Tenant agrees to pay as rental to Landlord, at the address
specified in this lease or at such other place Landlord may from time
to time designate in writing, the sum of TWO HUNDRED SEVENTY-SEVEN
THOUSAND TWO HUNDRED ($277,200.00) DOLLARS, and sum to be lawful money
to the United States payable as follows:
$8,694.00 was paid with the execution of the Lease of which $4,347.00
represents the security deposit and $4,347.00 represents a partial
payment of the December 1, 1995 base rent payment, $273.00 shall be
paid upon execution of this Amendment which represents the balance of
the December 1, 1995 base rent payment. Then on or before January 1,
1996, the Tenant shall pay $4,620.00 to the Landlord on the first day
of each and every month until November 30, 1977.
All other terms and conditions of the Lease shall remain the same.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed
as of the day and year first above written.
TENANT: LANDLORD:
BIOMUNE SYSTEMS, INC. RJF COMPANY, LTD.
/s/ Michael G. Acton /s/ Robert A. Furstenau
Chief Financial Officer General Partner
EXHIBIT 10.108
LICENSE AGREEMENT
THIS AGREEMENT is made as of the 6th day of May, 1996 by and between
BIOMUNE SYSTEMS, INC., a Nevada corporation ("Licensor"), and BIOMED PATENT
DEVELOPMENT L.L.C., a New York limited liability company ("Licensee").
RECITALS:
A. Licensor owns a 90% interest in certain technology relating to the
sterilization and decontamination of medical devices and waste, as further
described on Exhibit "A" attached hereto and incorporated herein.
B. Licensee desires to obtain from Licensor and Licensor is willing to
grant to Licensee a license which will enable Licensee to manufacture, market
and sell products incorporating Licensor's technology.
C. The parties desire to enter into this agreement in order to set forth
the terms and conditions of such license.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and promises set forth herein, together with other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Gross Sales" means the gross revenues actually received by
Licensee from the sale of Products and Services.
1.2 "Improvements" means all technology, inventions,
developments, know-how, trade secrets, engineering data and similar information,
whether subject to patent, copyright or other protection, which is based upon
the Technology and which is acquired, created or invented for use in conjunction
with the Products and/or the Services by Licensor, Licensee or its sublicensees,
if any, subsequent to the effective date of this Agreement.
1.3 "Licensed Technology" means the Technology and the
Improvements.
1.4 "Products" means those medical devices which are manufactured
and sold by Licensee, and/or its sublicensees, and which use and incorporate the
Licensed Technology.
1.5 "Services" means services related to the prevention,
treatment, or cure of disease in humans, sterilization of medical devices,
medical waste and water, which are performed by Licensee, and/or its
sublicensees, and utilize the Licensed Technology.
1.6 "Technology" means the trade secrets and unpatented
technology described on Exhibit "A," as well as all other trade secrets,
know-how, designs, data, notebooks, engineering information and similar
confidential and proprietary information, of Licensor, whether subject to
patent, copyright or other protection, which may be necessary or helpful to
enable Licensee to develop, manufacture and sell Products and Services.
2. Grant of License.
2.1 Licensor hereby grants to Licensee an exclusive, worldwide,
royalty-bearing License in and to the Licensed Technology, pursuant to which
Licensee shall have the right to use, and to grant sublicenses to others to use,
the Licensed Technology for the purpose of manufacturing, marketing and selling
the Products and providing the Services.
2.2 Licensor shall deliver to Licensee, promptly upon execution
of this Agreement, or as soon as they may thereafter come to hand, such
technical information, engineering data, processes, know-how, trade secrets,
confidential information, documents and reports possessed or obtained by
Licensor which relate to the Licensed Technology and which shall be required or
necessary to enable Licensee to utilize the Licensed Technology to manufacture,
market and sell the Products and Services.
2.3 Licensee shall have the right to grant sublicenses to the
Licensed Technology or to assign this Agreement to Bioxide Corporation, a Nevada
corporation, without Licensor's approval, and to other persons, firms or
entities approved by Licensor, for the sole purpose of enabling such
sublicensees to market and sell Products. Licensor shall not unreasonable
withhold its approval of any proposed sublicensee.
2.4 No sublicense shall lessen or in any way diminish the
obligations of Licensee hereunder, or reduce the royalties to which Licensor is
entitled regardless of whether sales are made by Licensee or a sublicensee. As a
condition to any sublicense, the sublicensee must agree to be bound to the terms
hereof (and Licensee shall be responsible to Licensor for the performance of the
sublicensee).
3. Improvements.
If, during the term of this Agreement, either party develops or
otherwise acquires an Improvement, that party shall promptly disclose the
Improvement to the other party. Each Improvement, together with all know-how,
trade secrets and other intellectual property associated with it, shall be and
shall remain property of Licensor, but Licensee shall have the right to
incorporate the Improvement into Products and use it in connection with the
Services, and all such Products and Services which are sold by Licensee shall be
subject to the provisions of this Agreement.
4. Royalty Payments to Licensor.
4.1 In consideration of the license granted in paragraph 2 above,
Licensee shall pay Licensor a royalty (the "Royalty") as follows:
(a) For the first year: The greater of (i) seven and
one-half percent (7.5%) of Licensee's Gross Sales, or (ii) Forty-Five Thousand
Dollars ($45,000), which shall be payable within one hundred eighty (180) days
from the date of this Agreement.
If, in the first year of this Agreement, the accrued 7.5%
Royalty exceeds $45,000, further Royalty payments shall be made as provided in
subparagraph 4.2 below.
(b) For subsequent years: Licensee shall pay Licensor a
Royalty equal to the greater of (i) nine-tenths percent (.9%) of Gross Sales or
(ii) Ninety Thousand Dollars ($90,000), which royalty payments shall continue
for as long as this Agreement is in effect. Such payments shall be made in
accordance with the provisions of paragraph 4.2 below. If the .9% Royalty is
less than $90,000 for any year, then the licensee shall pay the difference
between such percentage Royalty and $90,000 with its last quarterly payment.
4.2 Licensee shall submit to Licensor within thirty (30) days
after the close of each calendar quarter during which Gross Sales have been
generated from the Licensed Technology a report showing the amount of Gross
Sales for each such calendar quarter. Such quarterly reports shall be
accompanied by the payment of the applicable Royalty due from Licensee.
4.3 Licensee shall keep and maintain accurate books and records
concerning its sales of Products and Services (including purchase orders,
shipping invoices, records of returned goods and records detailing the costs
incurred by Licensee in making such sales) and of all payments received by
Licensee as a result of its sale of Products and Services. Such books and
records shall be sufficiently detailed to enable Licensee to calculate the Gross
Sales received by Licensee and to determine the amount of the Royalty. Licensor
shall have access to and the right upon reasonable notice to inspect and audit
such books and records in order to verify the correctness of any Royalty paid by
Licensee.
4.4 If Licensor causes the books and records of Licensee to be
audited, and such audit establishes that Licensee did not pay the full amount of
the Royalty actually due Licensor for the period in question, Licensee shall
immediately pay Licensor all additional amounts due, plus interest thereon at
the rate of 1.5 percent per month or major portion thereof. Technology a report
showing the amount of Gross Sales for each such calendar quarter. Such quarterly
reports shall be accompanied by the payment of the applicable Royalty due from
Licensee.
4.5 If, during the term of this Agreement, Licensee discovers
that Licensor does not own the Licensed Technology, then, in addition to any
other remedies available to Licensee, Licensee shall not be required to pay the
Royalty for subsequent years described in paragraph 4.1(b) hereof.
5. Governmental Approval of the Products.
Licensee shall not market, sell or distribute any Product or perform
any services in the United States, or in any foreign country, until all required
registrations, authorizations and approvals necessary for the marketing, sale or
distribution of such Product have been obtained from all appropriate
governmental agencies, if necessary. It shall be the obligation and duty of
Licensee, at its sole cost and expense, to diligently seek and obtain all
governmental registrations, authorizations and approvals, if any, required for
the manufacture, marketing, distribution and sale of the Products or Services.
Licensor shall cooperate with and assist Licensee in its efforts to obtain such
registrations, authorizations, and approvals.
6. Infringement Claims.
6.1 If either party learns that any claim or suit has been made
or brought for infringement as a result of Licensee's use of the Licensed
Technology in accordance with this Agreement, such party shall promptly notify
the other party of the Claim (a "Claim"). If reasonable investigation of such
Claim by the parties indicates that the utilization of Licensed Technology by
Licensee, in accordance with this Agreement, does not form the basis for such
Claim, then Licensee shall have no obligation or responsibility to Licensor in
connection with or as a result of the Claim. If, however, the investigation of
the Claim reveals that the use by Licensee of the Licensed Technology does form
the basis for the Claim, Licensee shall have the first right, but not the
obligation, to defend and control, at its expense, the defense of the Claim.
Licensor will assist Licensee, without cost to Licensee, in the defense of the
Claim by providing information and fact witnesses as needed. Licensor shall have
the right to be represented in any proceeding involving the Claim by its own
legal counsel, at Licensor's own expense, provided that such legal counsel will
act only in an advisory capacity. If Licensee initially elects not to defend
the Claim, it shall promptly so notify Licensor in writing, and Licensor shall,
thereafter, have the right and option, but not the obligation, to defend and
control the defense of such suit and may recover from Licensee the costs and
expenses of such defense. If Licensor elects to so defend the Claim, Licensee
will assist Licensor, without cost to Licensor, in such defense by providing
information and fact witnesses as needed. Licensee shall also have the right to
be represented in any proceeding involving the Claim by its own legal counsel,
at Licensee's expense, provided that such legal counsel will act only in an
advisory capacity. If Licensor elects for any reason not to defend the Claim, it
shall promptly so notify Licensee in writing, and Licensee shall again have the
right and option, but not the obligation to assume and control the defense of
such lawsuit. If Licensee so elects to defend the lawsuit, Licensee shall bear
the costs of such defense and Licensor shall provide Licensee with assistance,
and shall have the right to be represented by counsel, as though Licensee had
exercised its first right to assume the defense of the Claim. No Claim referred
to in this paragraph shall be settled without the written consent of Licensor,
which consent shall not be unreasonably withheld or delayed. Any and all costs
and expenses incurred by Licensee in connection with the defense of a Claim
shall offset and reduce, on a dollar for dollar basis, one-half of any Royalty
then due or which thereafter becomes due and owing to Licensor under this
Agreement.
6.2 (a) If either party learns of any infringement of the
Licensed Technology by a third party, or of an other improper or illegal use of
the Licensed Technology(an "Infringement"), such party shall promptly notify the
other of the Infringement. Licensee shall have the first right to settle with or
to institute legal action against the alleged infringer, subject to Licensor's
approval, which will not be unreasonably withheld. Any monies or other benefits
which are recovered through such settlement or legal action shall first be used
by Licensee to reimburse it for all of its expenses incurred in connection with
such settlement or legal action, with any remaining balance to be divided
equally between the parties.
(b) If Licensee does not initiate settlement or legal action
within 60 days after its receipt of notice of the Infringement, then Licensor
shall have the right to settle with or to institute legal action against the
alleged infringer. All monies or other benefits which are recovered through such
settlement or legal action shall be retained by Licensor.
(c) The parties shall keep one another fully informed as to
the progress of any legal action or settlement discussions or other proceedings
undertaken pursuant to this paragraph 6.2 and shall fully cooperate with one
another in the pursuit of an infringer and their defense of an alleged
Infringement. Such cooperation shall include a party permitting itself to be
joined in a suit and the furnishing by a party of all pertinent data and
evidence in its possession which may be helpful in any settlement discussion or
legal proceeding.
7. Term. The term of this Agreement, unless sooner terminated pursuant
to paragraph 8 hereof, shall commence upon the effective date hereof and shall
continue until the expiration of fifteen (15) years from the effective date
hereof.
8. Termination.
8.1 Licensee may, at its option, terminate this Agreement prior
to the expiration of its term for any of the following reasons:
(a) If Licensor shall be in material breach of any of the
provisions of this Agreement, which breach shall continue uncured for a period
of thirty (30) days after written notice thereof by Licensee; or
(b) If Licensor shall be adjudicated bankrupt or insolvent
by any court of competent jurisdiction or shall make an assignment for the
benefit of creditors or shall consent to the appointment of a receiver,
liquidator or trustee for itself or for a major part of its assets, or shall
file any pleading, petition or other instrument in any court seeking protection
from its creditors under any bankruptcy or insolvency act, or shall admit in
writing its inability to pay its debts as they mature.
8.2 Licensor may, at its option, terminate this Agreement prior
to the expiration of its term for any of the following reasons:
(a) If Licensee shall be in material breach of any of the
provisions of this Agreement, including its obligations to pay the Royalty in
accordance with paragraph 4 hereof, which breach shall continue uncured for a
period of thirty (30) days after written notice thereof by Licensor; or
(b) If Licensee shall be adjudicated bankrupt or insolvent
by any court of competent jurisdiction or shall be voluntarily or involuntarily
placed in reorganization under any bankruptcy laws or shall make an assignment
for the benefit of creditors or shall consent to the appointment of a receiver,
liquidator or trustee for itself in any court whatsoever, seeding to take
advantage of any bankruptcy or insolvency act, or shall admit in writing its
inability to pay its debts as they mature; or
(c) If Licensee fails to pay defense costs as required by
paragraph 6.1, which failure continues for thirty (30) days after demand for
payment thereof.
8.3 The expiration or termination of this Agreement for any
reason shall not release either party from any obligation matured prior to the
effective date of such expiration or termination, and the continuing covenants
of the parties, including the confidentiality obligations of paragraph 13
hereof, shall continue.
9. Representations and Warranties of Licensor. Licensor hereby
represents and warrants to Licensee as follows:
9.1 Licensor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada, and has the full
legal right and corporate power and authority to enter into this Agreement and
to perform all of its obligations under this Agreement.
9.2 Except for the sale of a 10% interest in the Licensed
Technology to SZTP Technologies, a Canadian corporation, Licensor has made no
assignments, grants, licenses, encumbrances, obligations or agreements covering
or concerning the Licensed Technology which are inconsistent with this
Agreement.
9.3 This Agreement, when executed and delivered by Licensor,
shall constitute the valid and binding legal obligation of Licensor.
9.4 Licensor owns the licensed Technology and the Licensed
Technology does not infringe any patent rights, copyrights, mask work rights,
trade secret rights or other proprietary rights of others.
9.5 Except for the foregoing, Licensor makes no representations
or warranties with respect to the Licensed Technology.
10. Representations and Warranties of Licensee. Licensee hereby
represents and warrants to Licensor as follows:
10.1 Licensee is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of New York,
and has the full legal right, power and authority to enter into this Agreement
and to perform all its obligations under this Agreement.
10.2 Licensee has taken all action which is necessary, required
or appropriate to authorize or enable it to enter into and perform this
Agreement.
10.3 This Agreement, when executed and delivered by Licensee,
shall constitute the valid and binding legal obligation of Licensee.
11. Survival of Representations and Warranties. The representations
and warranties of Licensor, as set forth in paragraph 9 hereof, and the
representations and warranties of Licensee, as set forth in paragraph 10 hereof,
shall be true and accurate as of the effective date of this Agreement, and shall
survive the execution of this Agreement for one year.
12. Relationship of the Parties. This Agreement shall not be deemed or
construed to create between Licensor and Licensee the relationship of principal
and agent, joint venturers, co-partners, employer or employee, master or
servant, or any other similar relationship. Neither party shall have the right
or authority to bind or to act for or on behalf of the other.
13. Confidentiality.
13.1 Licensee specifically acknowledges and agrees that the
Licensed Technology, together with all financial data and reports, business
plans, product development plans, marketing plans and manufacturing data and
information concerning Licensor and its business, constitute the confidential
and proprietary property of Licensor ("Licensor Confidential Information").
Licensee shall maintain Licensor Confidential Information in the strictest of
confidence and shall not disclose Licensor Confidential Information (either
during or after the term of this Agreement) to any person, firm or entity, for
any purpose whatsoever, except as specifically permitted by this Agreement, or
as specifically authorized by Licensor in writing. Licensee may disclose
Licensor Confidential Information to tits permitted sublicensees and assigns.
Every detail of Licensor Confidential Information shall be deemed confidential
unless and until Licensee can show it has become "public information" which
shall mean:
(a) Public disclosure as required by law,
(b) Any such detail becomes a matter of public knowledge
without the fault of Licensee, or
(c) Disclosure is made by Licensor or by a third party not
under any obligation of confidentiality.
13.2 Licensor specifically acknowledges and agrees that all
financial data and reports, business plans, product development plans, marketing
plans and other information concerning the business of Licensee constitute the
confidential and proprietary property of Licensee ("Licensee Confidential
Information"). Licensor shall maintain Licensee Confidential Information in the
strictest of confidence and shall not disclose Licensee Confidential Information
(either during or after the term of this Agreement) to any person, firm or
entity, for any purpose whatsoever, except as specifically permitted by this
Agreement, or as specifically authorized by Licensee in writing. Every detail of
Licensee Confidential Information shall be deemed confidential unless and until
Licensor can show it has become "public information" which shall mean:
(a) Public disclosure as required by law,
(b) Any such detail becomes a matter of public knowledge
without the fault of Licensor, or
(c) Disclosure is made by Licensee or by a third party not
under any obligation of confidentiality.
13.3 The obligations of confidentiality set forth in this
paragraph 13 shall survive the expiration or termination of this Agreement.
Licensee hereby acknowledges that Licensor may be required to disclose certain
Licensee Confidential Information in connection with an initial public offering
of Licensor's securities (an "IPO"), which is anticipated to occur prior to
termination of this Agreement. Any such disclosure shall not violate the
provisions of this paragraph 13. Licensor shall use its best efforts to limit
such disclosures and to protect the licensee Confidential Information to the
extent possible in connection with an IPO.
14. Notices. All notices, requests, consents, approvals and other
communications given pursuant to this Agreement shall be in writing and shall be
deemed to have been given only when delivered either personally or by United
States Mail, with postage prepaid and return receipt requested to the
appropriate party as set forth below:
If to Licensor: Biomune Systems, Inc.
540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108-1202
Attn: President
If to Licensee: Biomed Patent Development L.L.C.
99 West Hawthorne Street
Suite L-8, Valley Stream
New York, New York 11580
Attn: Victor Krasan
Either party may change its address by giving notice of such change in
the manner set forth herein. Any notice given to either party by mail shall be
deemed delivered two days after the date it is deposited in the United States
Mail.
15. Remedies. In the event there is a dispute between the parties
which they cannot resolve through negotiation, such dispute shall be resolved
through binding arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association before a single arbitrator who has
experience in intellectual property law and the licensing of medical devices.
Such arbitration shall be held in Salt Lake City, Utah. The arbitrator shall
have the right to grant such relief as he or she deems appropriate, including
awarding legal and other costs of the proceeding. The award of the arbitrator
shall be final and binding upon all the parties, and may be enforced in any
court having jurisdiction over the parties. In addition to the right to seek
arbitration, either party shall be entitled to obtain an injunction from any
court having jurisdiction, compelling the party to perform in accordance with
terms of this Agreement.
16. Miscellaneous.
16.1 Waiver. Any waiver by either party of a breach of any term
or condition of this Agreement shall not constitute a waiver of any subsequent
breach of the same or any other term or condition of this Agreement.
16.2 Governing Law. This entire Agreement and its validity,
construction and performance shall be governed in all respects by the internal
laws of the State of Utah, without giving effect to principles of conflict of
laws.
16.3 Assignment. This Agreement shall not be assigned by either
party hereto without the prior written consent of the other party.
Notwithstanding the foregoing, however, it is specifically agreed that Licensee
may assign this Agreement to Bioxide Corporation, a Nevada corporation, and that
either party may assign this Agreement to any person, partnership, corporation
or other entity which succeeds to its business, or which purchases all or
substantially all of its assets, subject to a written undertaking by such
person, partnership, corporation or other entity to carry out and be bound by
the terms of this Agreement.
16.4 Saving Clause. Should any part or provision of this
Agreement be rendered or declared invalid by reason of any state or federal law,
or by decree of any court of competent jurisdiction, the invalidation of such
part or provision of this Agreement shall not invalidate the remaining portions
hereof and the remaining parts and provisions of this Agreement shall remain in
full force and effect.
16.5 Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto in regard to the subject matter hereof, and
this Agreement shall not be modified or amended orally, but only by an
agreement, in writing, executed by both of the parties hereto.
16.6 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their successors and permitted
assigns.
16.7 Recordation. Licensee may record the grant of the license
provided for in this Agreement with the United States Patent Office, and
Licensor will execute any documents necessary to effect such recordation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
LICENSOR:
BIOMUNE SYSTEMS, INC.
By: /s/ David G. Derrick
Its: Chairman/CEO
LICENSEE:
BIOMED PATENT DEVELOPMENT L.L.C.
By: /s/ Victor Krasan
Its: President
Exhibit A
Description of Technology
The technology is broke down into three areas as described below:
I. Sterilization of Infectious Medical Waste.
Sterilization of infectious waste and decontamination of hazardous waste is
accomplished by the use of a special chamber that uses a gas combined with
intense energy waves. (The two agents employed work better together than
each does alone). The microbes are killed or inactivated while many of the
chemicals are broken down to harmless by-products. These final products can
safely be sent to ordinary landfill sites. This technology is further
described in the patent pending attached hereto as Schedule I evidenced by
a Disclosure Notice dated December 10, 1992 on file at the US Patent
Office.
EXHIBIT 10.109
Aurora Consultants, LLC
425 Park Avenue - 5th Floor
New York, NY 10022-3506
(p) (212) 832-1540
(f) (212) 754-6262
(e-mail) [email protected]
Jeff Eliot Margolis
President
December 14, 1995
Mr. David G. Derrick
President and Chief Executive Officer
Biomune Systems, Inc.
540 Arapeen Drive - Suite 202
Salt Lake City, Utah 84108
ENGAGEMENT LETTER
Aurora Consultants, LLC ("Aurora"), a New York limited liability company of
which Jeff Eliot Margolis ("Margolis") is the President and Managing Member and
Biomune Systems, Inc. ("Biomune" or the "Company"), a Nevada corporation, of
which Mr. David G. Derrick is the President and Chief Executive Officer, agree
effective January 1, 1996 ("Effective Date"), that Aurora shall be engaged as
consultant and shall provide the services of Margolis (and/or Aurora as may be
appropriate) as described below and subject to the understandings stated herein.
Nature of Services to be provided by Margolis and/or Aurora
Margolis and/or Aurora shall consult to Biomune on certain financial and
operational matters in respect of Biomune. Such financial and operational
matters shall include, but not be limited to:
- being sufficiently knowledgeable of the financial, operational and
scientific matters relevant to Biomune, its strategic plans, its budgets and
forecasts, its prospects and risks, to be able to serve as one of its key
spokesmen when dealing with current shareholders, prospective investors,
underwriters, securities brokers ("sell side") and institutional investors ("buy
side"), financial research analysts, NASDAQ, the press and others
- creating and implementing a new financial public relations strategy.
Improve press kit/investor relations information kit; develop single two-sided,
glossy corporate information sheet (to succinctly convey what the Company is and
which represents a quick and easy reference source for securities brokers and
other users) - reviewing, commenting upon and suggesting improvements in current
capital structure - reviewing, commenting upon, and suggesting improvements in
current accounting and reporting systems - reviewing, commenting upon and, to
the extent requested, assisting in the negotiation of new financial and
operational agreements
- interfacing with accountants, investment bankers, attorneys,
consultants and other professionals currently providing services to the Company
- interfacing with financial and administrative personnel employed by
the Company
- other similar matters as requested by Mr. Derrick or the Board of
Directors.
The provision of the above services and participation in the above
activities is an obligation of Margolis and Aurora.
Reporting Lines
In planning, implementing and reporting results of the above activities,
Margolis and/or Aurora shall report to Mr. Derrick and/or the Board of
Directors, directly and not through any intermediaries. Margolis and Aurora
acknowledge that many of the activities contemplated in this engagement require
coordination with others. Ensuring direct access to Mr. Derrick and/or the Board
of Directors shall be an obligation of Biomune.
Travel and Expenses
It is further anticipated that the above activities shall require that
Margolis travel to Salt Lake City, Utah on at least several occasions and
possibly to other locations. Biomune agrees to pay Margolis or Aurora as
appropriate, the costs of such travel (in advance when reasonably predictable or
substantial in amount, otherwise to reimburse on a timely basis) as well as
other reasonable out-of-pocket expenses. Such other reasonable out-of-pocket
expenses shall include, but not be limited to local travel, meals when related
to activities contemplated herein, photocopy, printing, fax mail, the costs of
holding or attending meetings, possibly the cost of installing one or more
telephone lines in New York, specific to these activities, and similar costs.
Margolis and Aurora agree that expenses reasonably anticipated to be greater
than $1,000 in amount shall be approved by the Company in advance. Reimbursement
of such costs shall be an obligation of Biomune.
Time Commitment by Margolis and Aurora
Biomune accepts Margolis' and Aurora's estimate that the above activities
represent a commitment of approximately one and at time two business days per
week (roughly 8-12 hours per week on average), but that it may occasionally
represent somewhat more or somewhat less time. Committing an appropriate amount
of time to the above activities is an obligation of Margolis and Aurora.
Access to Information and Cooperation
Margolis and/or Aurora shall, at all reasonable times, have access to all
information requested including that information that may be considered
sensitive or confidential, but exclusive of information that may be confidential
in respect of scientific efforts, clinical trials or client/attorney privilege.
At no time shall Margolis or Aurora disclose or act upon information that may be
deemed "insider information" where such disclosure or action would be a
violation of securities laws, rules or regulations. Furthermore, Margolis and/or
Aurora shall receive the reasonable cooperation of all company employees,
advisors, consultants, professional service providers and similar parties.
Margolis and Aurora acknowledge that Margolis and Aurora have entered into a
written Understanding of Confidentiality effective January 1, 1996 with Biomune.
Ensuring the access to information and the cooperation of personnel, advisors
and others shall be deemed an obligation of Biomune.
Indemnification
Biomune ("Indemnitor") agrees to indemnify and hold harmless, Margolis and
Aurora and his and its successors, assigns, personal representatives and
affiliates against any and all claims, damages, expenses or liabilities, joint
or several (which shall, for purposes of this Engagement Letter, include, but
not be limited to, all expenses whatsoever, and any and all amounts paid in
settlement of any claim or litigation and all reasonable attorney's fees
(collectively referred to as "Losses")) to which Margolis or Aurora
(individually, an "Indemnitee" and collectively "Indemnitees") may become
subject, insofar as such Losses (Or action in respect thereof) relate to the
performance of the Indemnitees (except for gross negligence or malfeasance)
under this Engagement Letter on behalf of Biomune, its successors, assigns or
affiliates, from and including the Effective Date.
In any litigation, action, suit, claim, demand or other proceeding
(including any governmental, regulatory or quasi-regulatory proceeding), shall
be commenced or asserted against either Indemnitee or the Indemnitees in
connection with this Engagement Letter, the Indemnitor shall be notified of such
in writing by the Indemnitee with reasonable promptness after same if commenced
or asserted. Notwithstanding the foregoing, the failure to so notify the
Indemnitor shall not relieve the Indemnitor from any liability which it may have
under these indemnification paragraphs of this Engagement Letter, except to the
extent that the Indemnitor has been prejudiced in any material respect by such
failure nor relieve Indemnitor of any liability which it otherwise may have. In
case such action is commenced, asserted or brought against the Indemnitee or
Indemnitees and he, it or they notify the Indemnitor of the commencement
thereof, the Indemnitee or Indemnitees shall control the defense with counsel of
Indemnitees' choosing (subject to approval by Indemnitor which approval shall
not be unreasonably withheld) and Indemnitor shall assume the cost of such
defense. Indemnitee and Indemnitees agree not to enter into any settlement
arrangements without the consent of Indemnitor, which consent shall not be
unreasonably withheld.
Fees
Margolis or Aurora shall be entitled to the following fees in addition to
expense reimbursements described above:
Cash fees - $5,000 per month payable in advance. First payment due
upon signing of this Engagement Letter. The second payment if due February 1,
1996. Each payment thereafter is due on the first of each month.
Warrant - Warrant ("Warrant"), to purchase 30,000 shares of Biomune
common stock at an exercise price equal to the closing price on January 2, 1996
(January 1, 1996 not being a business day). The Warrant shall expire on the
seventh anniversary of its issuance. The Warrant shall be issued on and as of
the close of business on January 2, 1996. Margolis and/or Aurora may request
that the Warrant be issued in part or assigned in part to other members of
Aurora. The shares underlying the Warrant shall be registrable on any
registration statement filed with the Securities and Exchange Commission ("SEC")
(except Form S-8) that registers shares that are currently outstanding, but not
yet registered. The holder(s) of the Warrant registered in the event a
registration statement is filed with the SEC in respect of newly issued shares
(subject to standard pro rate underwriter cutback).
Term
The term of this Engagement Letter shall commence on the Effective Date and
shall terminate at the close of business on December 31, 1996 unless earlier
terminated due to a breach by any of the parties hereto or by agreement in
writing by the parties. This agreement may be earlier terminated by any party at
its discretion upon written notification forty-five (45) in advance of the
earlier termination date. The term of this Engagement Letter shall be extended
for successive twelve month periods unless one party notifies (within 45 days of
an extension date) the others or its intent not to extend such term.
Governing Law and Dispute Resolution
Except as otherwise explicitly noted, this Engagement Letter shall be
governed by and construed in accordance with the laws of the State of New York
(without giving effect to conflicts of law).
Should any dispute arise hereunder, then any of Biomune, Margolis or Aurora
(individually, a "Party" and collectively, "Parties") shall have the obligation
to submit the dispute to final and binding arbitration. Such arbitration shall
take place in New York, New York, and shall be governed by the Commercial
Arbitration Rules of the American Arbitration Association by a single
arbitrator. At the request of any Party, the arbitrator shall compel, and the
other Parties shall consent to disclosure of all books and records of the other
Party or Parties with respect to such dispute, claim or controversy. Judgment
upon the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. During any dispute, claim or controversy and pending any
decision or report by the Parties' representatives or as a result of any
arbitration, the Parties shall proceed diligently with their respective
responsibilities under this Engagement Letter.
With respect to any suit, action or proceeding relating to this Engagement
Letter other than a dispute which is submitted to arbitration as provided herein
(each, a "Proceeding"), each Party hereto irrevocably: (a) submits to the
exclusive jurisdiction of the courts of the State of New York located in the
County of New York and the United States District Court for the Southern
District located in the County of New York; and (b) waives any objection which
it may have at any time to the laying of venue of any Proceeding brought in any
such court, waives any claim that any such Proceeding has been brought in an
inconvenient forum and further waives the right to object, with respect to such
proceeding, that such court does not have jurisdiction over such Party. Each
Party further agrees and consents that, in addition to any methods of service or
process provided for under any applicable law, all service of process in any
Proceeding in any New York State or United States court sitting in the City, and
County of New York, may be made by certified or registered mail, return receipt
requested, directed to the appropriate Party at the address set forth in this
Engagement Letter (in respect of Margolis, the address shall be: Jeff Eliot
Margolis, c/o Aurora Consultants, LLC, 425 Park Avenue - 5th Floor, New York, NY
10022-3506), and service so made shall be complete upon receipt; provided,
however, that if a party shall refuse to accept delivery, service shall be
deemed complete as of the date of such refusal to accept delivery.
If the above is acceptable, please indicate so by signing below and
returning one original copy with a check payable to Aurora Consultants, LLC in
the amount of $5,000. I look forward to working with you.
Sincerely, Agreed and accepted:
Aurora Consultants, LLC Biomune Systems, Inc.
/s/ Jeff Eliot Margolis /s/ David G. Derrick
Jeff Eliot Margolis David G. Derrick
President and Managing Member President and Chief Executive Officer
Aurora Consultants, LLC
425 Park Avenue - 5th Floor
New York, NY 10022-3506
(p) (212) 832-1540
(f) (212) 754-6262
(e-mail) [email protected]
Jeff Eliot Margolis
President
December 14, 1995
Mr. David G. Derrick
President and Chief Executive Officer
Biomune Systems, Inc.
540 Arapeen Drive - Suite 202
Salt Lake City, Utah 84108
UNDERSTANDING OF CONFIDENTIALITY
This understanding of confidentiality, effective January 1, 1996
("Effective Date"), is in respect of confidential information about Biomune
Systems, Inc. ("Biomune" or the "Company") to be provided to Aurora Consultants,
LLC ("Aurora" or a recipient) and its managing member, Jeff Eliot Margolis
("Margolis" or a recipient) in respect of an Engagement Letter effective January
1, 1996 between Aurora and Biomune. Such Engagement Letter is incorporated
herein by reference. The Company is a public reporting company under the
Securities and Exchange Acts and its common stock is quoted on the NASDAQ
Small-Cap market utilizing the ticker symbol, BIME. By accepting this
information, the recipient, its advisors, officers, directors, partners, members
and/or affiliates, agree to keep the entirety of such information ("Confidential
Material"), including any information furnished after the date of this
understanding of confidentiality, confidential except as set forth below. Each
of Biomune, Aurora and Margolis, acknowledge that one or more of the services to
be provided by Aurora and/or Margolis involves disclosure or presentation of
information to current and prospective investors, underwriters, securities
brokers, institutional investors, financial research analysts, the press and
others. To the extent any of such information considered for disclosure or
presentation is deemed Confidential Material under the terms of this
understanding of confidentiality, Aurora and/or Margolis, as appropriate, shall
seek permission from the Company before disclosure or presentation. Aurora and
Margolis acknowledge that the Engagement Letter addresses the obligation of
Aurora and Margolis not to disclose or act upon information that may be deemed
to be "insider information" under US securities laws, rules, or regulations.
Confidential Material does not include information which (i) is or becomes
generally available to the public other than as a result of a breach by any
party of its obligations hereunder, (ii) was in the possession of the recipient,
its advisors, officers, directors, partners and/or affiliates prior to the date
of this understanding of confidentiality, (iii) was received from a third party
before or after the date of this understanding of confidentiality, so long as
such information was not disclosed by such third party directly or indirectly in
violation of any confidentiality agreement or understanding.
The Confidential Material will be used by the recipient solely for the
described in the Engagement Letter referred to herein and incorporated herein by
reference.
The recipient may disclose the Confidential Material to those of its
representatives and agents who in its judgment need to have access to it for the
purpose of assisting the recipient in its efforts as described in the preceding
paragraph.
In the event the recipient or its representatives are requested or required
(by oral questions, interrogatories, request for information, subpoena or
similar process) to disclose any Confidential Material supplied to such
recipient, such party shall provide Biomune c/o Mr. David G. Derrick, President
and Chief Executive Officer, prompt notice of such requests so that the Company
may seek an appropriate protective order and/or waive compliance with this
understanding of confidentiality. If in the absence of a protective order or the
receipt of a waiver, upon the advice of counsel of its own choosing, the
recipient determines that it or its representative or agents are compelled to
disclose any Confidential Material under penalty of contempt or liability, the
recipient may disclose such material without liability hereunder.
The recipient agrees to return all Confidential Material to the extent that
recipient determines that possession of such Confidential material is no longer
necessary in respect of its efforts under the Engagement Letter, is not required
to be maintained in due diligence files, or is not required to be retained in
recipients sole judgment. To the extent Confidential material is not returned,
recipient agrees to keep such Confidential Material in a safe, confidential
location throughout the term of this understanding of confidentiality. The
recipient further agrees to notify Biomune c/o Mr. David G. Derrick, President
and Chief Executive Officer, of any misappropriation, misuse or disclosure of
any of the Confidential Material, and of any violation of any provision of this
understanding of confidentiality that comes to the attention of the recipient.
It is understood and agreed that no failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
It is further understood and agreed that money damages would not be a
sufficient remedy for any breach of this understanding of confidentiality and
that Biomune, and its officers or directors, shall be entitled to seek specific
performance as a remedy of any breach by the recipient, its advisors, officers,
directors, partners and/or affiliates. Such remedy shall not be deemed to be the
exclusive remedy for any breach of this understanding of confidentiality which
shall be in addition to all other remedies available by law or equity.
This understanding shall be governed by and construed in accordance with
the laws of the State of New York without reference to its choice of law rules.
Neither this understanding, nor anything contained in the Confidential
Material, nor the receipt thereof, shall constitute any obligations not
explicitly stated in the Engagement Letter.
Very truly yours,
Aurora Consultants, LLC
/s/ Jeff Eliot Margolis
By: Jeff Eliot Margolis
Title: President and Managing
Member
The Above Understanding of Confidentiality is Acceptable
Biomune Systems, Inc.
/s/ David G. Derrick
By: Mr. David G. Derrick
Title: President and Chief Executive Officer
EXHIBIT 10.110
Aurora Capital Corp.
425 Park Avenue - 5th Floor
New York, NY 10022-3506
(p) (212) 832-1540
(f) (212) 754-6262
(e-mail [email protected]
March 28, 1996
Mr. David D. Derrick
Chairman and CEO
Biomune Systems, Inc.
540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108
Dear David:
This letter and its related term sheet and Initial Prospective Investor
List shall supersede our prior letter and the related term sheet, both of which
were dated March 21, 1996.
Enclosed is a draft proposed term sheet for "Reg D" private placement that
I believe would be the most appropriate form of financing for Biomune at this
time.
The size is approximately $6 - $7.5 million (gross) which should be
sufficient to give the Company adequate assets to qualify for NASDAQ-NMS
(national market), assuming other qualifying tests are met. The estimated
pricing would be approximately 20% below some average market value of the
publicly traded common stock for some period of time immediately prior to each
closing. If the average market price was $2 13/16, this offering would be priced
at $2.25. The shares purchased in this offering would not be immediately liquid
in the public markets. The Company would use its best efforts to file a
registration statement within 90 days after the final closing.
The proposed timing calls for completion before June 15, 1996, which should
provide supplemental funding for the nutraceutical marketing and distribution
launch, for expanded phase II clinical trials, for inception of phase I clinical
trials for some level of warrant redemptions (to be determined) and for other
purposes.
The proposed structure, which calls for a substantially institutional
placement, should put the Company in a strong negotiating position as the
offering approaches a first closing with respect to certain warrant holders'
registration rights.
Such an offering would establish a strong institutional base of investors,
something that you have expressed as being desirable. Such an institutional
investor base may attract sell-side research, new market makers and cause more
buy-side and sell-side parties to "watch" Biomune's stock. In effect, the
Company would be on more radar screens.
Aurora Capital Corp. would serve as the exclusive placement agent, unless,
as described in the enclosed term sheet, Allen & Co. agrees to serve as
co-exclusive placement agent and Aurora Capital Corp. would be happy, subject to
its discretion, to permit other firms to participate as selected dealers (the
private placement equivalent of selling group members). Upon signing below,
Biomune agrees to work exclusively with Aurora Capital Corp. in respect of any
equity, debt, or similar offering from the date first noted above through June
15, 1996. Any agreement in effect a of the date first noted above, with Flurina
Development, S.A. or an affiliate shall not represent a violation of this
exclusivity. However, Biomune agrees to consult with Aurora before accepting any
funding under such agreement or agreements. Furthermore, Aurora shall have a
right of first refusal on future exempt private placement commencing ont he date
of the First Closing and which right of first refusal shall expire on December
31, 1996.
The draft proposed term sheet shall serve as the basic structure under
which both Biomune and Aurora are prepared to work together. However, both
Aurora and Biomune recognize that as Confidential Private Placement Memorandum
drafting and due diligence proceed and as marketing advances, factors may come
to the attention of either of us that would cause us in good faith, to propose
changes to this working structure. Both parties agree to work in good faith with
one another to reach agreement in respect of any changes that cannot be
anticipated at this time. Both Aurora and Biomune understand that a
significantly more detailed sales agency agreement shall be entered into at the
time of the First Closing and that such sales agency agreement shall include
appropriate representations and warranties and indemnifications.
If the above is satisfactory, please indicate so by signing below as soon
as possible. The proposed time frame is very tight considering a confidential
private placement memorandum has not as yet been written. Although a substantial
amount of due diligence has already been completed there is additional and
on-going due diligence to do.
Thank you for your consideration of the above.
I look forward to working with you and your team on this exciting project.
Sincerely,
Aurora Capital Corp.
/s/ Jeff Elliot Margolis
Jeff Elliot Margolis
President and CEO
The above is acceptable and in accordance with our understanding.
BIOMUNE SYSTEMS, INC.
By: /s/ David G. Derrick
Signature
Title: Chairman
David G. Derrick
Print Name
Date: April 1, 1996
EXHIBIT 10.111
TERMINATION AND MUTUAL RELEASE AGREEMENT
THIS TERMINATION AND MUTUAL RELEASE AGREEMENT (the "Agreement") is entered
into effective as of this 1st day of September, 1996, by and between Biomune
Systems, Inc., a Nevada corporation (the "Company"), on the one hand, and Aurora
Capital Corp., a New York corporation ("Aurora Capital"), and Aurora
Consultants, L.L.C., a New York limited liability company ("Aurora
Consultants"), on the other hand. The Company, Aurora Capital and Aurora
Consultants are referred to herein, collectively, as the "Parties".
Recitals:
A. WHEREAS, the Company and Aurora Consultants entered into an Engagement
Letter dated December 14, 1995 (the "Consulting Agreement"), pursuant to which
Aurora Consultants agreed to provide the Company with certain consulting
services;
B. WHEREAS, in connection with the Consulting Agreement, the Company and
Aurora Consultants entered into an Understanding of Confidentiality also dated
December 14, 1995 (the "Confidentiality Agreement"), pursuant to which Aurora
Consultants agreed, for and on behalf of itself and its advisors, officers,
directors, partners, members and affiliates, to keep all information furnished
by the Company after the date thereof confidential;
C. WHEREAS, the Company and Aurora Capital entered into a Letter Agreement
dated March 28, 1996 (the "Letter Agreement"), which Letter Agreement had
attached thereto a Proposed Term Sheet also dated March 28, 1996 (the "March 28,
1996 Term Sheet"), both of which related to a proposed private placement
financing transaction by the Company for which Aurora Capital was to have acted
as the placement agent (the "Private Placement");
D. WHEREAS, subsequent to entering into the Letter Agreement and the March
28, 1996 Term Sheet, the Company and Aurora Capital negotiated a Proposed Term
Sheet dated May 9, 1996 (the "May 9, 1996 Term Sheet"), which May 9, 1996 Term
Sheet superseded in its entirety the March 28, 1996 Term Sheet;
E. WHEREAS, the Letter Agreement and the May 9, 1996 Term Sheet together
reflect the proposed terms of the Private Placement and together are referred to
in this Agreement as the "Placement Agreement";
F. WHEREAS, by letter to Aurora Capital dated September 5, 1996, the
Company notified Aurora Capital that it was terminating the Placement Agent, the
Private Placement and Aurora Capital as the placement agent thereof effective
immediately;
G. WHEREAS, the Company and Aurora Capital desire to enter into this
Agreement in order to formerly terminate their relationship and the Placement
Agreement;
H. WHEREAS, pursuant to the March 28, 1996 Term Sheet, the Company and
Aurora Capital agreed that Aurora Consultants would suspend its consulting
activities under the Consulting Agreement and that the Company would suspend its
payment obligations thereunder from March 28, 1996 through the final closing of
the Private Placement;
I. WHEREAS, pursuant to the May 9, 1996 Term Sheet, the Company and Aurora
Capital further agreed that Aurora Consultants would suspend its consulting
activities under the Consulting Agreement and that the Company would suspend its
payment obligations thereunder from May 9, 1996 through the final closing of the
Private Placement; and
J. WHEREAS, the Company and Aurora Consultants now desire to reinstate the
Consulting Agreement effective as of October 1, 1996.
NOW, THEREFORE, in consideration of the mutual premises and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Release of Aurora Capital by the Company. The Company does hereby
forever release, discharge, cancel and waive, for itself and its heirs,
executors, administrators and assigns, Aurora Capital and its successors,
assigns, officers, directors, shareholders, agents and representatives of and
from any and all rights, claims, demands, causes of action, obligations,
damages, penalties, costs, expenses and liability (collectively, "Claims") of
any nature whatsoever, fixed or contingent, that the Company now has, may have
or may hereafter have against Aurora Capital or any of its successors, assigns,
officers, directors, shareholders, agents or representatives arising out of, or
by reason of, any cause, matter or thing whatsoever existing as of the effective
date of this Agreement, including, but not limited to, any claims, demands or
causes of action arising out of or relating in any manner whatsoever to the
Private Placement or any other document, instrument, agreement or action
associated with the Private Placement (collectively, the "Private Placement
Documents"). The Company further covenants and agrees not to institute or cause
to be instituted any legal proceeding or administrative action against Aurora
Capital or any of its successors, assigns, officers, directors, shareholders,
agents or representatives based upon the Private Placement or any of the Private
Placement Documents under any federal, state or local law, rule, statute or
regulation premised upon any legal theory or claim whatsoever, including, but
not limited to, breach of contract, tort, personal injury, fraud or deceit,
including any rights or claims the Company may have based on a violation or
breach of any of the Private Placement Documents, express or implied.
2. Release of the Company by Aurora Capital. Aurora Capital does
hereby forever release, discharge, cancel and waive, for itself and its heirs,
executors, administrators and assigns, the Company and its successors, assigns,
officers, directors, shareholders, agents and representatives of and from any
and all Claims of any nature whatsoever, fixed or contingent, that Aurora
Capital now has, may have or may hereafter have against the Company or any of
its successors, assigns, officers, directors, shareholders, agents or
representatives arising out of, or by reason of, any cause, matter or thing
whatsoever existing as of the effective date of this Agreement, including, but
not limited to, any claims, demands or causes of action arising out of or
relating in any manner whatsoever to the Private Placement or the Letter
Agreement, the March 28, 1996 Term Sheet, the May 9, 1996 Term Sheet, the
Confidential Private Placement Memorandum related to the Private Placement or
the Private Placement Documents. Aurora Capital further covenants and agrees not
to institute or cause to be instituted any legal proceeding or administrative
action against the Company or any of its successors, assigns, officers,
directors, shareholders, agents or representatives based upon the Private
Placement or any of the Private Placement Documents under any federal, state or
local law, rule, statute or regulation premised upon any legal theory or claim
whatsoever, including, but not limited to, breach of contract, tort, personal
injury, fraud or deceit, including any rights or claims Aurora Capital may have
based on a violation or breach of any of the Private Placement Documents,
express or implied.
3. Settlement of Private Placement Expenses. As of the date of this
Agreement, the Company has paid to Aurora Capital and/or its counsel, Todtman,
Young, Tunick, Nachamie, Hendler & Spizz, P.C., in connection with the necessary
due diligence on the Company and the preparation of the Confidential Private
Placement Memorandum related to the Private Placement, amounts totaling in
excess of $100,000. In consideration for Aurora Capital's execution of this
Agreement, the Company herewith relinquishes all rights and claims to all
amounts previously paid or advanced to Aurora Capital and/or its counsel in
connection with the Private Placement or pursuant to the Private Placement
Documents. Accordingly, the Company and Aurora Capital agree that the Company
will not be obligated to pay any additional costs or expenses incurred by Aurora
Capital, its counsel or any other person or entity in connection with the
Private Placement Documents, the Private Placement or the offering of shares of
the Company's Common Stock pursuant to the Confidential Private Placement
Memorandum that have not heretofore been paid by the Company, and the Company
and Aurora Capital further agree that Aurora Capital shall solely be responsible
for all of such costs and expenses except for $3540.65 of direct out-of-pocket
expenses incurred by Aurora Capital Corporation which the Company hereby agrees
to reimburse upon presentation of receipts in like amount. The Company and
Aurora Capital Corporation acknowledge that the escrow agent has waived any fees
associated with the escrow agreement. The Company acknowledges that it has paid
all amounts due in respect of this printing of the documents associated with the
terminated offering and that such payments were and directly to the printer.
Aurora Capital agrees not to seek or make any claims against the Company for any
additional compensation, costs, expenses, interest, fees, commissions,
assessments or lost fees or commissions.
4. Reinstatement of Consulting Agreement. In the March 28, 1996 Term
Sheet, the Company and Aurora Capital agreed that Aurora Consultants (which is
an affiliate of Aurora Capital) would suspend its consulting activities under
the Consulting Agreement and that the Company would suspend its payment
obligations thereunder from March 28, 1996 through the final closing of the
Private Placement. Accordingly, as of March 28, 1996, Aurora suspended its
consulting activities under the Consulting Agreement and the Company suspended
its payment obligations thereunder. Aurora Consultants and the Company hereby
agree that the Consulting Agreement has been suspended for a total of six (6)
months (i.e., April 1996 through September 30, 1996) pursuant to the March 28,
1996 Term Sheet and, therefore, that the Consulting Agreement shall be extended
by six (6) months (i.e., through June 30, 1997). Thus, Aurora Consultants agrees
to resume performing consulting services for the Company pursuant to the
Consulting Agreement as of September 6, 1996 and the Company agrees to resume
paying Aurora Consultants $5,000 per month beginning October 1, 1996 except as
to a pro-rated amount for September 1996. Other than the six (6) month extension
provided by the March 28, 1996 Term Sheet, the Consulting Agreement shall
otherwise remain in full force and effect as originally executed. A copy of the
Consulting Agreement is attached hereto as Exhibit "A". Aurora Consultants
hereby understands that as special consulting and financial projects become
necessary on which the Company deems the services and expertise of Aurora
Consultants (or any of its affiliates) will be of value or use, the Company may,
in its discretion, solicit the assistance and services of Aurora Consultants (or
its affiliate), in which event a separate written contract for such services
will be entered into between the Company and Aurora Consultants (or its
affiliate), thus potentially giving Aurora Consultants the ability to increase
its consulting income from the amount set forth above. Aurora Consultants and
the Company hereby acknowledge that Aurora Consultants was previously issued the
30,000 warrants referenced in the Consulting Agreement and, accordingly, will
not be entitled to any additional warrants for shares of the Company's Common
Stock.
5. Severability; Entire Agreement. If any provision of this Agreement
is held by a court or tribunal of competent jurisdiction to be invalid, void or
unenforceable for any reason whatsoever, the remaining provisions not so
declared shall nevertheless continue in full force and effect without being
impaired in any manner. This Agreement constitutes the sole and entire agreement
between the Parties and supersedes any and all understandings and agreements
made prior thereto. This Agreement specifically terminates the Private Placement
Documents in their entirety. There are no collateral understandings,
representations or agreements between the parties hereto other than those
contained herein.
6. Jurisdiction and Governing Law. With respect to any suit, action or
proceeding relating to this Agreement, the Confidentiality Agreement or the
Consulting Agreement, the Parties irrevocably agree that any such proceeding
shall be submitted to the exclusive jurisdiction of the courts of the State of
Utah located in the County of Salt Lake and the United States District Court for
the District of Utah and that any and all objections that any of the Parties may
have at any time to the laying of venue of any such proceeding brought in any
such court, is hereby waived, including but not limited to, the objections that
such proceeding has been brought in an inconvenient forum or that the court
lacks jurisdiction.
7. Miscellaneous. The above Recitals and all Exhibits attached hereto
are deemed to be incorporated in this Agreement by reference. After the
effective date of this Agreement, none of the Parties shall take any action
related to the Private Placement, including, but not limited to, the making of
any oral or written statement, that damages the reputation of any of the other
Parties. Both the Confidentiality Agreement and the Consulting Agreement shall
continue in full force and effect as originally executed except as specifically
modified by this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day and year first above written.
THE COMPANY: AURORA CAPITAL:
BIOMUNE SYSTEMS, INC., a AURORA CAPITAL CORP., a New York
Nevada corporation corporation
By: /s/ David G. Derrick By: /s/ Jeff Eliot Margolis
-------------------------- --------------------------
David G. Derrick Jeff Eliot Margolis
Its: Chief Executive Officer Its: Chief Executive Officer
AURORA CONSULTANTS:
AURORA CONSULTANTS, L.L.C., a
New York limited liability company
By: /s/ Jeff Eliot Margolis
Jeff Eliot Margolis
Its: President and Managing
Member
ATTACHED EXHIBIT:
- Exhibit "A" -- Consulting Agreement
EXHIBIT 10.112
FIRST AMENDMENT TO AMENDED LICENSE AGREEMENT
THIS FIRST AMENDMENT TO AMENDED LICENSE AGREEMENT (the "Amendment") is
entered into effective as of this 1st day of September, 1996, by and between
Protein Technology, Inc., a Delaware corporation (the "Licensor"), and Biomune
Systems, Inc., a Nevada corporation (the "Licensee"). The Licensor and the
Licensee are sometimes collectively referred to herein as the "parties."
Capitalized terms used in this Amendment but not defined herein shall be deemed
to have the definitions ascribed in the Amended License Agreement (as that term
is defined below).
Recitals:
A. WHEREAS, the Licensor and the Licensee entered into a License Agreement
effective as of May 21, 1991 (the "Original License Agreement") regarding the
grant by the Licensor to the Licensee of the exclusive right and license to
utilize certain technology owned by the Licensor;
B. WHEREAS, the Licensor and the Licensee subsequently entered into an
Amended License Agreement effective as of December 15, 1995 (the "Amended
License Agreement"), which Amended License Agreement amended and restated in its
entirety the Original License Agreement and the grant by the Licensor to the
Licensee of the exclusive right and license to utilize Technology (as that term
is defined in the Amended License Agreement) in connection with the marketing
and sale of pharmaceutical and nutraceutical products for human applications;
C. WHEREAS, the Original License Agreement and the Amended License
Agreement are sometimes referred to herein collectively as the "License
Agreement";
D. WHEREAS, a copy of the Amended License Agreement is attached hereto as
Exhibit "A"; and
E. WHEREAS, the Licensor and the Licensee desire to amend paragraph 1(o) of
the Amended License Agreement, as set forth below.
NOW, THEREFORE, in consideration of the mutual premises and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Amendment to Paragraph 1(o) of the Amended License Agreement.
Paragraph 1(o) of the Amended License Agreement is amended in its entirety as
follows:
"(o) Territory: Territory means the following countries and areas and
their respective territories and possessions: (i) the United
States of America; (ii) Canada; (iii) Kenya; iv) the Ivory Coast;
(v) Zimbabwe; (vi) Ghana; (vii) Zambia; (viii) Nigeria; and (ix)
any other countries and areas of the world that may be included
by way of mutual agreement of the parties pursuant to paragraph
3(b) infra."
2. Entire Amendment. This Amendment constitutes the sole and entire
agreement between the parties regarding the matters set forth herein. There are
no collateral understandings, representations or agreements between the parties
other than those contained herein and in the Amended License Agreement, as the
same is amended and modified by this Amendment. The Amended License Agreement
shall continue in full force and effect as originally executed except as
specifically amended and modified by this Amendment. This Amendment adds
territory prior to Licensee achieving the minimum amount of gross receipts for
the preceding twelve month period as required under paragraph 3(b) of the
Amended License Agreement. Licensor's waiver of that requirement for the
additional territory added by this Amendement shall not be deemed a waiver of
any of the requirements under said paragraph 3(b) for future additions of
territory or otherwise.
3. Miscellaneous. The above Recitals and all Exhibits attached hereto
are deemed to be incorporated in this Amendment by reference.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
THE LICENSEE: THE LICENSOR:
BIOMUNE SYSTEMS, INC., a PROTEIN TECHNOLOGY, INC., a Delaware
Nevada corporation corporation
By: /s/ David G. Derrick By: /s/ James F. Hepburn
David G. Derrick James F. Hepburn
Its: Chief Executive Officer Its: President
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated November 5, 1996 included in this Annual Report on Form 10-K, into
the Company's previously filed Registration Statements on Form S-8, File Nos.
33-68886; 33-69056; 33-92148; 33-95146; 33-80345; and 333-3794.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE AUDITED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,192,868
<SECURITIES> 0
<RECEIVABLES> 74,784
<ALLOWANCES> 13,200
<INVENTORY> 556,742
<CURRENT-ASSETS> 8,339,394
<PP&E> 546,914
<DEPRECIATION> 112,709
<TOTAL-ASSETS> 9,272,002
<CURRENT-LIABILITIES> 625,477
<BONDS> 0
0
4,987,536
<COMMON> 1,988
<OTHER-SE> 3,657,001
<TOTAL-LIABILITY-AND-EQUITY> 9,272,002
<SALES> 436,691
<TOTAL-REVENUES> 708,381
<CGS> 357,471
<TOTAL-COSTS> 7,061,956
<OTHER-EXPENSES> 69,045
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,422,620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,422,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,422,620)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> 0
</TABLE>
