<PAGE>
BIOMUNE SYSTEMS, INC.
2401 South Foothill Drive
Salt Lake City, Utah 84109-1405
(801) 466-3441
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 23, 1999
To the Shareholders:
Notice is hereby given that the Annual Meeting of the Shareholders of
BIOMUNE SYSTEMS, INC., a Nevada corporation (the "Company") will be held at the
Biomune corporate offices, 2401 South Foothill Drive, Salt Lake City, Utah
84101, on June 23, 1999, at 10:00 a.m., Mountain Time, for the following
purposes:
1) To elect five directors to serve as the Board of Directors
until the next annual meeting of shareholders or until
successors are duly elected and qualified;
2) To approve the Board of Directors' selection of Tanner +
Company, as the Company's independent public accountants to
audit the consolidated financial statements of the Company and
its subsidiaries for the fiscal year ending September 30,
1999;
3) To approve the adoption of the 1999 Stock Option Plan, which
will authorize an aggregate of 500,000 shares of common stock
to be used for awards to directors, management, employees and
consultants of the Company and its subsidiaries;
4) To authorize the Board of Directors to issue shares of common
stock upon conversion of the Company's Series F Preferred and
Series J Preferred based on a discount to the market price of
the Company's common stock at the time of conversion,
including, if necessary, shares in excess of 20% of the issued
and outstanding common stock of the Company;
5) To approve the adoption of articles of amendment to the
Company's Articles of Incorporation to change the name of the
Company to Optim Nutrition, Inc.; and
6) To consider and act upon any other matters that properly may
come before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 17, 1999
as the record date to determine the shareholders entitled to receive notice of,
and to vote at, the Annual Meeting of Shareholders and any adjournment thereof.
A list of such shareholders will be available for examination by the
shareholders for purposes germane to the meeting during ordinary business hours
at the offices of the Company at 2401 South Foothill Drive, Salt Lake City,
Utah, during the ten days prior to the meeting.
Please date, sign and return the enclosed proxy which is solicited by
the Board of Directors of the Company. Unless otherwise marked, the proxy will
be voted as indicated in the accompanying proxy statement and proxy. Your vote
is important. Return the enclosed proxy promptly in the enclosed return envelope
whether or not you expect to attend the meeting. Giving your proxy as requested
hereby will not affect your right to vote in person should you decide to attend
the Annual Meeting. The return envelope requires no postage if mailed in the
United States. If mailed elsewhere, sufficient postage must be affixed. Your
proxy is revocable at any time before the meeting.
By Order of the Board of Directors,
Michael G. Acton, President and CEO
Salt Lake City, Utah
May 17, 1999
<PAGE>
[LOGO]
BIOMUNE SYSTEMS, INC.
2401 South Foothill Drive
Salt Lake City, Utah 84109-1405
(801) 466-3441
------------------------------
PROXY STATEMENT
------------------------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 23, 1999
The enclosed proxy is solicited by and on behalf of the Board of
Directors of BIOMUNE SYSTEMS, INC. ("Biomune" or the "Company") for use in
voting at the Annual Meeting of Shareholders to be held at the Marriott Hotel,
75 South West Temple, Salt Lake City, Utah 84101, on June 23, 1999, at 10:00
a.m., Mountain Time, and at any postponement or adjournment thereof, for the
purposes set forth in the attached notice.
Record Date and Share Ownership
The close of business on May 17, 1999 (the "Record Date"), has been
fixed as the record date for determining the shareholders entitled to notice of,
and to vote at, the Annual Meeting. As of the Record Date there were 2,075,101
shares of the Company's common stock, par value $.0001 per share, outstanding
and entitled to vote. Also at the Record Date there were 40,035 shares of the
Company's Series A 10% Cumulative Convertible Preferred Stock ("Series A
Preferred") issued and outstanding. Shareholders holding at least a majority of
the outstanding shares of common stock and Series A Preferred represented in
person or by proxy, shall constitute a quorum for the transaction of business at
the Annual Meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person. An appointment of proxy is
revoked upon the death or incapacity of the shareholder if the Secretary or
other officer of the Company who is authorized to tabulate votes receives notice
of such death or incapacity before the proxy exercises his authority under the
appointment. For a description of the principal holders of such stock, see
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" below.
This Proxy Statement and the enclosed Proxy are being mailed to
shareholders on or about May 20, 1999.
<PAGE>
Voting and Solicitation
Each outstanding share of common stock as of the Record Date will be
entitled to one (1) vote on each matter submitted to a vote at the Annual
Meeting. Each outstanding share of Series A Preferred will be entitled to one
(1) vote for each whole share of common stock into which each such share of
Series A Preferred may be converted as of the Record Date on each matter
submitted to a vote at the Annual Meeting.
Assuming a quorum is present, a plurality of votes cast at the meeting
in person or by proxy by the shares of common stock and the Series A Preferred
(as described above) entitled to vote in the election of directors will be
required to elect each director and to ratify the selection of independent
public accountants. On all other issues, a majority of the shares cast at the
meeting on the proposals will be sufficient to approve or defeat those
proposals. Broker non-votes and abstentions will be counted toward establishing
the presence of a quorum, but they will not affect the vote on any other issue
before the meeting.
The Company will bear the cost of solicitation of proxies pursuant to this
notice and proxy statement.
Matters to be Brought Before the Annual Meeting
The matters to be brought before the Annual Meeting include the
following:
o the election of a Board of Directors consisting of five
directors;
o ratification of the appointment of Tanner + Company,
independent public accountants, to audit the consolidated
financial statements of the Company for the fiscal year ending
September 30, 1999;
o approval of the 1999 Stock Option Plan, authorizing an
aggregate of 500,000 shares of common stock to be used for
awards to directors, management, employees and consultants of
the Company and its subsidiaries;
o authorization of the issuance of shares of common stock upon
conversion of the Company's Series F Preferred and Series J
Preferred in accordance with the rights and preferences of
each such series, even if the number of shares to be so issued
exceeds 20% of the issued and outstanding common stock of the
Company;
o amend the articles of incorporation of the Company to change
the name of the Company to Optim Nutrition, Inc.; and
o other matters that properly may come before the meeting or any
adjournment thereof.
Each proposal is described in more particular detail in the following
pages. You are encouraged to read this information carefully in voting your
shares. You may attend the meeting in person or you may vote by completing and
returning the enclosed proxy card to the Company.
2
<PAGE>
PROPOSAL 1 -- Election of Directors
The Company's Bylaws provide that the number of directors shall be
determined from time to time by the shareholders or the Board of Directors, but
that there shall be no less than three. Presently the Company's Board of
Directors consists of five members, all of whom are nominees for election at the
Annual Meeting. Each director elected at the Annual meeting will hold office
until his successor is elected and qualified, or until the director resigns, is
removed or becomes disqualified. A plurality of votes cast by the shares
entitled to vote in the election of directors will be required to elect each
director. Unless marked otherwise, proxies received will be voted for the
election of each of the nominees named below. If any such person is unable or
unwilling to serve as a director at the date of the Annual Meeting or any
postponement or adjournment thereof, the proxies will be voted for a substitute
nominee, designated by the proxy holders or by the present Board of Directors to
fill such vacancy, or for the balance of those nominees named without nomination
of a substitute, or the Board may be reduced accordingly. The Board of Directors
has no reason to believe that any of such nominees will be unwilling or unable
to serve if elected as a director. The nominees for consideration at the Annual
Meeting are as follows:
o Michael G. Acton
o Aaron Gold, D.D.
o Christopher D. Illick
o Thomas Q. Garvey III, M.D.
o Charles J. Quantz, Esq.
The Board of Directors recommends a vote FOR each nominee to the
Board of Directors.
Directors and Executive Officers
At April 14, 1999, the directors and executive officers of the Company
were as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Christopher D. Illick...............................58..............................Director, Chairman of the Board
Michael G. Acton....................................35.................Director, Chief Executive Officer, President
Thomas Q. Garvey III, M.D...........................55.....................................................Director
Aaron Gold, D.D.....................................70.....................................................Director
Charles J. Quantz, Esq..............................70.....................................................Director
</TABLE>
Christopher D. Illick joined the Company as a Director in February
1995. He has been a Director of Optim since May 1, 1996. In July 1998, Mr.
Illick was elected Chairman of the Board of Directors of the Company. Mr.
Illick is Sr. Vice President of Brean Murry & Co., Inc., an investment banking
firm. Since March 1995, Mr. Illick has been a limited partner in the investment
banking firm of Oaks Fitzwilliams & Co., L.P. in New York City, New York. 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, Ltd. of London, England, from 1973 to 1983. Mr. Illick
is also a member of the board of directors of National Transaction Network, Inc.
Michael G. Acton, C.P.A., has been Chief Executive Officer of the
Company since June 1998. Prior to that time, Mr. Acton was the Chief Financial
Officer since July 1997 and Controller of the Company since October 1994. He was
the President of Volu-Sol from March 15, 1996 until March 1997 and was Chief
Executive Officer and Chairman of Volu-Sol from March 1997 until its divestiture
in October 1997. 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. joined the Company as a Director in April
1994. He is also a member of the Company's scientific advisory board and a
scientific and regulatory consultant to the Company since November
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1992. Dr. Garvey has also served as a Director of Optim since May 1, 1996. Dr.
Garvey is 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 Cardio-Renal
Drug Products Center of Drug Evaluation at the FDA for approximately five years.
Prior to that time, he was in private practice with the Massachusetts General
Hospital in Boston, Massachusetts, and with the National Cancer Institute at the
National Institutes of Health. As a consultant to various pharmaceutical
companies, Dr. Garvey has developed, written and consulted on many new drug
applications and has assisted the Company in preparing its investigational new
drug applications and the development of protocols for clinical trials of the
Company's proposed drug products.
Aaron Gold, D.D. 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 and a Doctorate
in Philosophy from Columbia University.
Charles J. 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 twenty-six years prior to his retirement in 1981.
No family relationships exist between or among any of the Company's
officers and directors. In addition to the above executive officers and
directors, the following persons manage the operating subsidiaries of the
Company:
Randy Olshen. Mr. Olshen has been President of Optim since August 1998.
Prior to joining the Company, Mr. Olshen was director of sales and marketing at
Nellson Nutraceutical, where he directed all marketing and research and
development activities for the private label business of pharmaceutical,
clinical nutrition and medical food companies, worked on new product concept
development, coordinated state-by-state medical reimbursement programs, lobbied
for medical food bars to be included on state formularies, managed branded
disease specific products, and built customer business and marketing relations
with wholesalers, institutions, retailers, physicians, dieticians and patients.
Before joining Nellson, Mr. Olshen was employed as business manager for sales
and marketing at McGaw, Inc.
Ira E. Ritter. Mr. Ritter served briefly as President of the Company
from July 9, 1997 until January 1998. Prior to joining the Company, Mr. Ritter
was the Vice Chairman of Quality King Distributors, a wholesale distributor of
health and beauty care, grocery and pharmaceutical products. Since January
1997, Mr. Ritter has been the President of Rockwood and its predecessor
companies. Mr. Ritter provides his services to Rockwood on a part-time basis
and continues to be active in other business, community and personal pursuits.
For the past ten years, Mr. Ritter has been the Chief Executive Officer of
Andela Group, Inc., a California venture capital company. From 1983 to 1985,
Mr. Ritter was active in the publishing business, founder or co-founder of
several successful magazines and the executive publisher of best-selling books.
He has also been active in civic and political circles. Mr. Ritter attended
California State University at Northridge and founded his first successful
magazine, Environmental Quality Magazine at the age of 21.
Board of Directors Committees
The Board of Directors has a Compensation Committee and an Audit
Committee. The Board of Directors does not have and does not intend to establish
a Nominating Committee, as 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
4
<PAGE>
current members of the Compensation Committee are Michael G. Acton, Thomas Q.
Garvey III, and Christopher D. Illick. Mr. Acton abstains from all votes of the
Compensation Committee with respect to matters involving his compensation.
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 Michael G. Acton, Charles J. Quantz and Christopher
D. Illick.
The Company's Board of Directors took action at 5 duly noticed meetings
during fiscal year 1998. Each Director attended (or otherwise participated in)
at least 75% of all special and regular meetings of the Board of Directors.
Executive Compensation
The following table sets forth the annual and long-term compensation in
fiscal years 1998, 1997 and 1996 for services in all capacities to the Company
of any person serving as Chief Executive Officer during fiscal year 1998. No
other current or former executive officer of the Company received salary or
bonus compensation exceeding $100,000 in 1998. No options or long-term incentive
plan awards were granted or made to the referenced executive officers, except as
noted in the table below:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ---------------------------------------------------------------------------------------------------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Principal position Year(1) Salary Bonus Compensation Awards SARs(#) Payouts($) Compensation($)
- --------------------------- -------- ------ ----- ------------ ------ ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David G. Derrick,(3) 1998 $ 69,230 -0- -0- -0- 349,252(4) -0- -0-
CEO/President 1997 $200,000 -0- -0- -0- 31,000 -0- -0-
Chairman of the Board 1996 $203,000(5) -0- -0- -0- 6,000 -0- -0-
Michael G. Acton, 1998 $100,000(6) -- -0- -0- 0 -0- -0-
CFO 1997 80,000 -- -- -- 2,500 -- --
President/CEO 1996 60,000 -- -- 2,350 2,350 -- --
- -----------------------
</TABLE>
(1) Ended September 30th of each of the fiscal years indicated.
(2) Adjusted to reflect 1-for-10 reverse stock split effective November 10,
1997 and the 1-for-10 reverse split effective December 31, 1998.
(3) Pursuant to a management agreement (the "Management Agreement") between
the Company and ADP Management Corporation ("ADP"), 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 (Mr. Derrick). The Management Agreement with
ADP was terminated on 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. The Management Agreement was replaced by
an Employment and Non-Competition Agreement, which terminated on
September 30, 1997. Mr. Derrick resigned as CEO, President and director
of the Company in July, 1998. Mr. Acton replaced Mr. Derrick at that
time. Amounts for Mr. Acton for periods prior to July, 1998 were paid
to Mr. Acton in his position as Chief Financial Officer of the Company.
See "Certain Relationships and Related Transactions. Mr. Derrick served
as the Company's President during fiscal year 1995 and to January 1996,
from April 1997 to July 1997, and resumed in that position effective
January 1998. During all of fiscal years 1995, 1996 and 1997, and
continuing to June 1998, he
5
<PAGE>
served as the Company's Chief Executive Officer and Chairman of the
Board of Directors.
(4) Includes (a) repricing of options for the purchase of 41,252 shares,
and (b) 308,000 shares covered by options held by Harrogate, a limited
liability company owned 100% by Mr. Derrick. Mr. Derrick disclaims
beneficial ownership of the Harrogate options, given the limitation
placed thereon by the Company that their exercise will be permitted if
and only to the extent that the ownership of shares acquired upon such
exercise, when aggregated with all other shares of the Company's common
stock beneficially owned by Mr. Derrick, will not exceed 4.9% of the
issued and outstanding common stock of the Company.
(5) Represents salary pursuant to the June 15, 1996 Employment and
Non-Competition 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.
(6) Mr. Acton was the chief accounting officer and, later, the chief
financial officer of the Company until June 1998. For a brief period of
time, from September 1997 until January 1998, Ira E. Ritter, President
of Rockwood, also served as President of the Company. He received no
compensation in such capacity and he resigned in January
1998.
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.
Stock Plans
In December 1992, July 1993, February 1995 and March, 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. The 1992 Stock Incentive Plan terminated December
31, 1997 and no additional options may be granted under it. As of September 30,
1998, 2370 shares of the Company's common stock were subject to options and
issuable upon exercise of options granted previously under the 1992 Stock
Incentive Plan. The 1993 Stock Incentive Plan has also terminated. A total of
12,438 shares of common stock were issuable upon exercise of options previously
granted and outstanding under the 1993 Stock Incentive Plan at September 30,
1998. No shares of common stock were available for additional grants under the
1995 Stock Incentive Plan, and 19,230 shares of common stock were issuable upon
exercise of outstanding options under the Plan at September 30, 1998. As of
September 30, 1998, a total of 20,271 shares were issuable upon exercise of
options granted under the 1996 Stock Incentive Plan. There are approximately
403,000 shares available for future grants under this plan. A 1999 Stock Option
Plan has been adopted by the Board of Directors and is presented to the
shareholders in the Annual Meeting for their approval. That plan will have
500,000 shares available for grants to directors, executive officers, employees
and consultants to the Company.
Option Grants in Fiscal Year 1998
The following table sets forth information concerning the grant of
stock options and stock appreciation rights (SARs) made under the Company's
plans during the fiscal year ended September 30, 1998 to the Chief Executive
Officer and President:
6
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/SARs
Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year ($/Share) Date 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David G. Derrick(1) 308,000 308,000 $2.00 9/30/2003 $30,800 $61,600
Michael G. Acton 0 0 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options granted Harrogate under a marketing services
agreement. Mr. Derrick is the sole beneficial owner of
Harrogate. However Mr. Derrick disclaims beneficial ownership
of such shares. See Summary Compensation Table above.
Aggregated Option Exercises and Fiscal Year-end Option Value
The following table sets forth information with respect to the exercise
of stock options by the Company's Chief Executive Officer and President during
the fiscal year ended September 30, 1998, as well as the aggregate number and
value of unexercised options held by such officer on September 30, 1998.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values
Number of securities
Underlying Value of Unexercised
Unexercised options In-the-Money Options at
At September 30, 1998(#) September 30, 1998 ($)
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise(#) Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
David G. Derrick 41,252 (1) $371,268(2) 349,252/-0- N/A/(3)/-0-
Michael G. Acton 0 (1) - 4,306/-0- N/A(3)/-0-
- -----------------------
</TABLE>
(1) All share amounts adjusted to reflect 1-for-10 reverse stock
split effective November 10, 1997, and the 1-for-10 reverse
split effective December 31, 1998. The exercise price was
$5.00 per share and the market price on the date of exercise
was $14.00 per share (also adjusted for the intervening
reverse stock split).
(2) Shares acquired upon exercise of this option have been pledged
as collateral security for the Company's obligation under a
loan agreement. See "Certain Relationships and Related
Transactions."
(3) At September 30, 1998, none of the options were in the money.
7
<PAGE>
Report on Repricing of Options
In December 1997, the Board of Directors adjusted the exercise price of
options previously granted under the Stock Option Plans to certain individuals,
including certain of the Named Executive Officers. The Compensation Committee of
the Board recommended the changes to bring the exercise prices closer to the
market price for the Company's Common Stock at the time of the repricing such
that the options continued to provide incentive for the persons who held them.
The new exercise price was based on the market price at the close of trading on
the date the repricing was adopted. The following table summarizes information
concerning the adjustments made to the exercise price of options held by all
executive officers of the Company during the past 10 fiscal years.
<TABLE>
<CAPTION>
Ten-Year Option Repricings
(a) (b) (c) (d) (e) (f) (g)
Number of Market
Securities Price Exercise Length of
Underlying Of Price Original
Options/ Stock at At Time Option Term
SARs Time of Of New Remaining at
Repriced or Repricing Repricing Exercise Date of
Amended Or Amendment Or Amend- Price Repricing or
Name and Position Date (#) ($) ment ($) ($) Amendment
- ---------------------------- --------------- ---------------- ----------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Michael G. Acton 10/23/96 1,600 $116 $250 $116 4 years
CFO, President, CEO 10/23/96 750 116 200 116 4 years
7/28/97 1,600 37 116 37 3 years
7/28/97 750 37 116 37 3 years
David G. Derrick (1) 10/23/96 4,000 116 200 116 4 years
Former President and CEO 10/23/96 1,400 116 200 116 4 years
10/23/96 6,000 116 200 116 4 years
7/28/97 4,000 37 116 37 3 years
7/28/97 1,400 37 116 37 3 years
7/28/97 6,000 37 116 37 3 years
7/28/97 1,000 37 116 37 4 years
12/15/97 4,000 5 37 5 2 years
12/15/97 1,400 5 37 5 2 years
12/15/97 6,000 5 37 5 2 years
12/15/97 1,000 5 37 5 3 years
James J. Dalton 10/23/96 1,200 116 200 116 4 years
Former Vice President 10/23/96 1,000 116 231 116 4 years
7/28/97 1,200 37 116 37 3 years
7/28/97 1,000 37 116 37 3 years
7/28/97 1,440 37 116 37 4 years
7/28/97 750 37 116 37 4 years
Milton G. Adair 10/23/96 750 116 234 116 4.5 years
Former CEO
</TABLE>
(1) Includes options held by ADP Management under a contract by which ADP
made Mr. Derrick's services available as President and CEO of the
Company.
8
<PAGE>
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 Securities Act or the 1934 Act
that might incorporate future filings, including, but not limited to, the
Company's 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 section discusses the Company's executive compensation policies
and the basis for the compensation paid to the Company's executive officers,
including its former Chief Executive Officer, David G. Derrick, and its current
Chief Executive Officer, Michael G. Acton, during the fiscal year ended
September 30, 1998.
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 consist of:
o base salary;
o incentive compensation in the form of annual bonus payments
and stock options awarded by the Company under the Company's
Stock Incentive Plans; and
o 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 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 historically has
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 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
benefitted 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.
9
<PAGE>
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. The Compensation Committee periodically reviews and
approves the base salary paid by the Company to its executive officers and
members of the senior management team. 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 are 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 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 benefitted 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.
Conclusion
The Compensation Committee believes that the concepts discussed above
further the shareholders' interests. At the same time, the Compensation
Committee believes that the program encourages responsible management of the
Company. 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:
Christopher D. Illick
Michael G. Acton
Thomas Q. Garvey III, M.D.
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<PAGE>
Stock Performance Graph
The following graph compares the yearly cumulative total returns from
the Company's common stock during the five fiscal years ended September 30,
1998, 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, 1993 in the Company's common
stock and in the common stock of the companies in the referenced Indexes and
further assumes reinvestment of dividends. [GRAPHIC OMITTED]
[LINE GRAPH APPEARS HERE]
ASSUMES $100 INVESTED ON OCT. 01, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING SEPT. 30, 1998
<TABLE>
<CAPTION>
Fiscal Year Ending Seotember 30,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Biomune Systems, Inc. 100 284.43 187.43 117.96 22.46 2.46
Commercial Physical Research 100 74.10 116.82 111.03 133.28 107.45
Media General Composite 100 104.92 125.75 149.50 203.79 209.69
</TABLE>
11
<PAGE>
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 they attend or
participate in, in addition to having their expenses in connection with such
attendance or participation. No stock options were issued during fiscal year
1998 to any such Directors for their service on the board.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 1998 with all Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than 10% beneficial
owners.
Security Ownership of Certain Beneficial Owners and Management
To the Company's knowledge, the following table sets forth information
regarding ownership of the Company's outstanding common stock on January 4, 1999
by beneficial owners of more than 5% of the outstanding shares of common stock;
each director and each executive officer; and all directors and executive
officers as a group. Except as otherwise indicated below and subject to
applicable community property laws, each owner has sole voting and sole
investment powers with respect to the stock listed.
<TABLE>
<CAPTION>
Shares of Common stock
Name and Address Beneficially Owned (2)
of Beneficial Owner (1) Number Percentage of Class
- ------------------------------------------------------ -------------------------------------------
<S> <C> <C>
5% Beneficial Owners
Directors/Officers
Michael G. Acton (3) (Executive Officer/Director) 9,057 *
Aaron Gold, D.D. (4) (Director) 2,046 *
4373 Sheldon Drive
La Mesa, CA 92401
Charles J. Quantz. (5) (Director) 872 *
Post Office Box 8186
Emeryville, CA 94663
Thomas Q. Garvey, III, M.D. (6) (Director) 1,050 *
10125 Gary Road
Potomac, MD 20854
Christopher D. Illick (7) (Director) 17,520 1.3%
22 Mountain Avenue
Princeton, N.J. 08450
All executive officers and
directors as a group (persons) (8) 30,545 2.3%
- ------------------------------
</TABLE>
* Less than 1%
[Footnotes continued on next page.]
12
<PAGE>
(1) Unless otherwise indicated, such person's address is the same as
the Company's address.
(2) A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the
date on which beneficial ownership is calculated, upon the
exercise of options or warrants or otherwise. Each beneficial
owner's percentage of ownership is determined by assuming that
options, warrants, or other rights to acquire shares, held by
such person (but not those held by any other person) and
exercisable within sixty (60) days from the date hereof have
been fully exercised. Percentages are calculated based on
1,316,662 shares of common stock outstanding as of January 4,
1999 (as adjusted for shares deemed to be beneficially owned
by such shareholder).
(3) Mr. Acton owns 4,752 shares of common stock directly and
options to purchase 4,306 shares of common stock.
(4) Dr. Gold owns 696 shares of common stock directly and options
to purchase 1,350 shares of common stock.
(5) Mr. Quantz owns 122 shares of common stock directly and
options to purchase 750 shares of common stock.
(6) Dr. Garvey owns 53 shares of common stock directly and options
to purchase 997 shares of common stock.
(7) Mr. Illick owns 16,470 shares of common stock directly and
options to purchase 1,050 shares of common stock.
(8) Based on a total of 1,325,115 shares of common stock, assuming
the exercise of all options held by such person and
exercisable within 60 days of the date of this statement.
Approximately 2.3% 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.
Certain Relationships and Related Transactions
David Derrick
ADP. 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 June 15, 1996, which expired September 30,
1997. Mr. Derrick continued that position under a modified agreement until
July 1998.
MK Financial, Inc. In fiscal year 1998, the Company entered into an
investment banking arrangement with MK Financial, Inc., an entity owned by David
G. Derrick. Under this arrangement, the Company paid $150,000 to MK Financial
for fees and commissions related to investment banking services performed during
fiscal year 1998.
Harrogate Marketing LLC. The Company has an agreement with Harrogate
under which Harrogate provides marketing and management services and is paid a
fee equal to 45% of the gross revenues from the sale of nutrition and medical
food products. Harrogate is owned by David Derrick. The Company also granted
Harrogate an option to purchase 308,000 shares of common stock at a price of
$2.00 per share. Harrogate agreed to assume the expense (including legal fees
and costs) of pending litigation and all marketing costs.
Rockwood Transaction. Mr. Derrick personally guaranteed certain
obligations of the Company in connection with the Rockwood purchase. The
Company agreed to indemnify Mr. Derrick in connection with such guarantee. In
addition, certain obligations of Cypress Springs LLC, the minority owner of
Rockwood, relating to the assumption of the negative net worth of Rockwood at
September 30, 1998, were guaranteed by Mr. Derrick. In January 1999, Mr.
Derrick satisfied this note to Rockwood through a contribution of assets.
Calvin Black Trust Loan. The Company borrowed $600,000 from the Calvin
Black Trust. The trustee of the Trust is Phil B. Acton, the brother of the
Company's President and CEO, Michael G. Acton. The loan to the Company is
secured by assets, including accounts receivable and inventory. The obligation
is guaranteed personally by Mr. Derrick, whose guarantee is further secured by
the pledge of 60,000 shares of common stock of the Company beneficially owned by
Mr. Derrick. The note is due February 28, 1999.
James J. Dalton
13
<PAGE>
Consulting Agreement. The Company has a consulting agreement (the
"Consulting Agreement") with James J. Dalton, a former director of the Company.
Pursuant to the Consulting Agreement, the Company pay Mr. Dalton a fee of $5,000
and 600 shares of common stock each month (for a total of 7,200 shares). Mr.
Dalton was also granted a five year warrant exercisable for 10,000 shares of the
Company's common stock. During fiscal year 1997, the Company issued to Mr.
Dalton options to purchase 49,400 shares of the Company's common stock at $3.70
per share.
Loans. During fiscal year 1995 and fiscal year 1994, the Company made
loans aggregating $175,000 and $90,000, respectively, to Mr. Dalton. These loans
were unsecured, bore interest at an annual rate of 12% and were due on demand.
During fiscal year 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 (a former subsidiary of the Company), if any, for three
years after the expiration of his agreement with the Company (or any extension
thereof).
Christopher D. Illick
The Company has a Consulting Agreement with Christopher D. Illick, one
of the Company's directors and a member of its Compensation and Audit
Committees. 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 issues Mr. Illick
225 shares of common stock each month.
PROPOSAL 2 - Ratification of Independent Public Accountants
The Board of Directors of the Company has selected Tanner + Company as
the independent public accountants for the Company to audit its consolidated
financial statements for the fiscal year ending September 30, 1999. Tanner +
Company also served as the Company's independent public accountants for the
fiscal year ended September 30, 1998.
At the Annual Meeting, shareholders will be asked to ratify the
selection by the Board of Directors of Tanner + Company as the Company's
independent public accountants. The vote of a majority of the shares cast at the
Annual Meeting will ratify this selection.
The Board of Directors recommends a vote FOR ratification of
the selection of independent public accountants.
Representatives of Tanner + Company are expected to attend the Annual
Meeting and will have an opportunity to make a statement if they desire, and
they will be available to respond to appropriate questions from shareholders.
PROPOSAL 3 - Adoption of 1999 Stock Option Plan
The Board of Directors of the Company has adopted a new stock option
plan, the 1999 Stock Option Plan. Under the 1999 Plan, the Company may grant
options to eligible participants for the purchase of up to an aggregate of
500,000 shares of common stock.
Key provisions of the 1999 Plan include the following:
o The definition of persons eligible to participate in the 1999
Plan includes employees, officers and directors of the
Company, as well as consultants and other persons who
contribute to the business of the Company as selected at the
discretion of the committee administering the plan
("Committee").
o The Committee will be comprised of two or more directors of
the Company, selected by the Board of Directors. If no
Committee is established, then the Board will administer the
plan. The Committee has broad authority to select persons to
receive awards under the plan and to establish the terms and
conditions applicable to the exercise of such awards and the
duration of the awards.
14
<PAGE>
o Total number of shares issuable upon exercise of grants under
the 1999 Plan is 500,000 shares of common stock.
o Awards under the plan will be made in the form of options to
purchase common stock of the Company at prices and on terms
consistent with the terms of the plan, as established by the
Committee.
The Board of Directors believes that the 1999 Plan will provide the Company with
greater flexibility in compensating persons who contribute in the future to the
successful operation and growth of the Company.
The Board of Directors recommends a vote FOR the ratification of the
adoption of the 1999 Plan.
PROPOSAL 4 - Issuance of Shares Upon Conversion
of Certain Shares of Preferred Stock
The Company has issued shares of preferred stock in several series.
Under the designation of rights and preferences of such series of preferred
stock, conversion of such shares is limited. Among other things, the total
number of shares of common stock issuable under the Series F and Series J
Preferred cannot exceed 20% of the total issued and outstanding common shares of
the Company. This limitation is intended to comply with the rules of the Nasdaq
SmallCap Stock Market, where the Company's common stock is listed for trading.
To the extent that the conversion price of such preferred series would
result in issuance of a number of shares of common stock in excess of the 20%
limitation, the Company may be required to redeem the preferred shares that may
not be converted. Because the number of shares issuable upon conversion of these
series of preferred stock increases as the price of the Company's common stock
declines, if there were a significant decline in the market price of the
Company's common stock and if the Company were permitted to issue an unlimited
number of shares of common stock upon conversion of such shares of preferred
stock, the issuance could result in a change of control of the Company. Even if
such issuance did not result in a change of control, the issuance of a
significant number of shares of common stock upon conversion of preferred stock
will result in immediate and substantial dilution of the existing shareholders.
Notwithstanding this risk of substantial dilution, the Board of Directors
believes that this limitation may result in the Company being required to obtain
financing from outside sources in order to have sufficient cash to redeem such
shares. Management believes it is important that the Company be permitted to
conserve its cash and to use it for further development of its business.
If the shareholders do not approve waiving the 20% limitation on the
Series F Preferred and the Series J Preferred, based on a market price of $2.21
at April 14, 1999, and if the maximum number of the issued and outstanding
shares of Series F Preferred and Series J Preferred were converted on such date,
there would be a total of 250,000 shares of common stock issued upon conversion
of the Series F Preferred and 250,000 shares of common stock upon conversion of
Series J Preferred. The Company would be required to redeem the remaining Series
F Preferred Shares and Series J Preferred Shares at a cost of $475,266 and
$885,112, respectively. If the waiver of the 20% limitation is approved, and
assuming conversion of all of the outstanding shares of both Series F Preferred
and Series J Preferred at the market price of the common stock on April 14,
1999, a total of 448,028 shares of common stock would be issued in connection
with the conversion of the Series F Preferred and a total of 582,000 shares of
common stock would be issuable in connection with the conversion of the Series J
Preferred. This would represent 22% and 29%, respectively, of the total issued
and outstanding common shares of the Company prior to conversion and 15% and 19%
of the issued and outstanding common shares immediately following conversion. No
shares of Series F Preferred or Series J Preferred are owned by executive
officers or directors of the Company. A former director and executive officer of
the Company and a significant shareholder of the Company, is the beneficial
owner of 693 shares of Series J Preferred and 1,367,415 shares of Series F
Preferred acquired in a private transaction. If this amendment to the rights and
preferences of these series of preferred stock is approved, and all of these of
preferred stock were converted at the price indicated above, a total of 801,485
shares of common stock (approximately 26.2% of the total issued and outstanding
common shares) would be issuable to this former director and officer.
The change would be accomplished by an amendment to the Designation of
Rights and Preferences of the
15
<PAGE>
Series F Preferred and the Series J Preferred to delete reference to the 20%
limitation. A copy of the proposed amendment is attached to this Proxy Statement
as an exhibit.
The Board of Directors believes the acceptance of this proposal will
give the Company greater flexibility in its business dealings with the holders
of these preferred shares. By removing the limitation on conversion, the Company
will be able to conserve its cash for purposes other than the redemption of
shares from the holders of the Series F Preferred and the Series J Preferred.
Such purposes may include, among other things, acquisition of additional
products or product lines, and general corporate purposes. In addition, to raise
the capital that will be required to make the redemption of the Series F and
Series J Preferred (should the shareholders not approve the removal of the
limitation on conversion), the Company will likely be required to sell
additional shares of its equity securities, including, for example, shares of
its common stock or shares of other securities convertible into common stock,
such as future series of preferred stock. This would result in further dilution
of the Company's shareholders, perhaps in amounts that approximate or even
exceed the additional incremental dilution they may experience by permitting the
Series F Preferred and Series J Preferred to be converted without regard to the
current limitation on conversion. This may have the effect of reducing the price
of the Company's common stock.
The Board of Directors recommends a vote FOR
the approval of Proposal #4.
PROPOSAL 5 - Change of Corporate Name
The Board of Directors has approved and recommends that the
shareholders approve an amendment to the Articles of Incorporation of the
Company to change the name of the Company from Biomune Systems, Inc. to Optim
Nutrition, Inc. Management believes this name, which is the same as the name of
the Company's operating subsidiary, more correctly reflects the business
direction of the Company. The Company is marketing nutritional products,
including medical food bars and energy bars under the Optim trade name.
Additional products are expected to be added to the line in calendar 1999. A
change of the corporate name will identify the Company more closely with its
marketing and sales efforts and its products.
Under Nevada law, the vote of a majority of the issued and outstanding
stock of each class entitled to vote on the amendment is required to approve the
amendment to the Company's Articles of Incorporation. A copy of the form of the
proposed amendment is attached as an exhibit to this Proxy Statement. If
approved, the amendment will be filed at such time following the meeting as
management in its discretion shall determine appropriate.
The Board of Directors recommends a vote FOR
the approval of Proposal #5.
Other Matters
Management knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is
intended that the persons named in the enclosed form of Proxy will vote such
Proxy in accordance with their judgment.
Annual Report
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998, as filed with the SEC, may be obtained by shareholders
without charge by written request to Michael G. Acton, Chief Executive Officer,
Biomune Systems, Inc., 2401 South Foothill Drive, Salt Lake City, Utah
84109-1405.
By Order of the Board of Directors
Michael G. Acton, President and CEO
Dated: May 12, 1999
16
