SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 27, 1997
BIOMUNE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Commission File Number:
0-11472
Nevada 87-0380088
(State of Incorporation) (I.R.S. Employer
Identification No.)
2401 South Foothill Drive, Salt Lake City, UT 84109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 466-3441
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 27, 1997, with an effective date of October 1, 1997, Biomune
Systems, Inc. (the "Company" or the "Registrant") exercised its option and
entered into a binding agreement (the "Purchase Agreement") by which it agreed
to purchase all of the issued and outstanding capital stock of Rockwood
Investments, Inc., a California corporation doing business as Rockwood
Investments, Inc. ("Rockwood"). Rockwood is owned by Ira E. Ritter, who
became the President of Biomune in July at the time he sold the Company the
option to acquire Rockwood.
The total purchase price for Rockwood is $5,960,000, payable in cash, together
with interest thereon at the rate of five percent (5%) per annum from October
1, 1997 through the date final payment of the Purchase Price is made (the
"Settlement Date"), as follows:
1. All payments made to Ritter under the Option Agreement totaling
$210,000, made prior to October 27, 1997 (the "Closing Date") were credited
against the Purchase Price;
2. The operating profits of Rockwood for the months October, November and
December 1997 and January 1998, projected to be $450,000 in the aggregate, are
to be paid to Ritter as part of the Purchase Price;
3. The sum of $150,000 was paid on the Closing Date; and
4. The balance to be paid on January 5, 1998, provided, however, that
Biomune may extend the Settlement Date up to and including March 31, 1998 upon
written notice to Ritter. If the Settlement Date is extended by Biomune
hereunder, the Purchase Price will be increased by an amount equal to but not
exceeding the operating profits of Rockwood for the calendar month in which
the Settlement Date occurs and for the intervening months between January 1,
1998 and the Settlement Date. If the Settlement Date is extended by Biomune
hereunder, Biomune will make an installment payment of $105,000 cash on
January 5, 1998 and will make available on favorable terms a line of credit
for the use of Rockwood in the principal amount of $250,000.
As additional consideration, at the Settlement Date, Ritter will receive
Warrants to purchase stock which become exercisable upon achieving certain
sales volumes in Biomune (on a consolidated basis) as follows: (i) 2,000,000
shares of Common Stock at $1.50 per share, when the Company realizes revenues
of $7,500,000 per year, (ii) 2,000,000 shares exercisable at $2.50 per share
when sales reach $10,000,000 per year, (iii) 2,000,000 shares at $3.50 per
share when sales reach $15,000,000 per year; and (iv) 2,000,000 shares at
$4.50 per share when sales reach $20,000,0000 per year.
Mr. Ritter will also be named to the Company's Board of Directors and will
have the right to nominate up to 2 additional members, of an expanded
nine-member Board of Directors.
Also in connection with the acquisition of Rockwood, Rockwood and Biomune will
continue to pay Ritter or his assign a royalty on certain products or
distribution arrangements for a period of five years following the Closing
Date. The royalty may be up to 10% of gross revenues from such products or
arrangements, provided certain minimum net profits (after accrual for any such
royalty and bonuses payable to Mr. Ritter under his employment agreement) are
realized by the Company.
The Company also entered into a consulting agreement with Andela Group, Inc.,
a California corporation owned by Mr. Ritter ("Andela"), for consulting
services to be provided through Mr. Ritter until the final installment of the
purchase price is paid by the Company. Under the consulting agreement, Andela
receives a monthly consulting fee of $15,000. When the final installment is
paid by the Company, Mr. Ritter (who will continue to serve as the President
of Biomune) will become an employee and continue to serve as President of the
Company at an annual salary of $200,000 and will receive annual bonus and
other incentive payments based on a percentage of the increase in net sales,
as well as options to acquire 6,000,000 shares of the Company's common stock
at a price of $.40 per share. Mr. Ritter will also receive a one-time bonus
of $300,000 when annualized sales of the combined entities reach $10,000,000.
Rockwood was formed in 1993 by Mr. Ritter. Rockwood has developed and now
markets more than 300 products to the health, beauty and nutrition markets.
These products are distributed through large specialty retail and wholesale
distribution companies. Marketing of the products by Rockwood is
characterized by use of celebrity endorsements and advertising. As part of
the purchase transaction, the Company will obtain audited financial statements
for Rockwood prior to payment of the final installment of the purchase price.
Those audits are currently being conducted and will be filed by an amendment
to the Current Report when they have been completed. The Company also intends
to file pro forma consolidated financial statements as required by Regulation
S-X at the time the audited financial statements are filed.
The Company intends to fund the purchase of Rockwood by the sale of
securities. There can be no assurance that such financing will be obtained or
that it will be made available to the Company on terms that are acceptable to
the Company. If the financing cannot be obtained by March 31, 1998, then the
Company may breach its agreement to acquire Rockwood. If a breach occurs,
Ritter will retain all amounts paid through the date of the breach as
liquidated damages and the transaction will be reversed.
Item 7. Financial Statements and Exhibits:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The financial
statements of Rockwood will be filed by amendment to this Report within 60
days.
(b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial
information will be filed by amendment to this Report.
(c) EXHIBITS
10.1 Purchase Agreement between Biomune Systems, Inc. and Ira E. Ritter
and Rockwood Investments, Inc.
10.2 Amended Consulting Agreement between Biomune Systems, Inc. and
Andela Group, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOMUNE SYSTEMS, INC.
(Registrant)
/s/ Michael G. Acton
By ________________________________
Date: November 10, 1997 Michael G. Acton
Chief Financial Officer
(Principal financial and accounting
officer)