SWEENEY & ASSOCIATES P.C.
ATTORNEYS AT LAW
7300 PENN AVENUE TELEPHONE (412) 731-1000
PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190
December 31, 1997
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Attention: Proxy Materials
RE: Biocontrol Technology, Inc.
Proxy Materials
SEC Commission File Number 0-10822
Ladies and Gentlemen:
Pursuant to your instructions, enclosed via EDGAR are the Proxy Card,
Proxy Materials and Report to Shareholders for the above-referenced registrant.
Becuase this Proxy does not involve an acquisition, no filing fee is enclosed.
Sincerely,
M. Kathryn Sweeney, Esq.
enclosures
cc: David E. Staudenmaier, Biocontrol Technology, Inc. (w/o enc.)
<PAGE>
BIOCONTROL TECHNOLOGY, INC. PROXY
Indian Springs Road THIS PROXY IS SOLICITED ON
Indiana, PA 15701 BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the Report to Shareholders, Notice of the
Special Meeting of Shareholders and the Biocontrol Technology, Inc. Proxy
Statement, hereby appoint(s) David E. Staudenmaier proxy of the undersigned
(with full power of substitution) to attend the above Special Meeting and all
adjournments thereof (the "Special Meeting") and there vote all shares of
Common Stock of Biocontrol Technology, Inc. (the "Company") that the
undersigned would be entitled to vote, if personally present with regard to all
matters which may come before the Special Meeting, including the items set
forth below. To cast a vote in connection with the following items, please
check the box next to the appropriate response.
1. Approval of an amendment to the Company's Articles of Incorporation
to increase the number of authorized shares of common stock to
300,000,000.
| | FOR | | AGAINST | | ABSTAIN
2. In his discretion upon the transaction of other business as may
properly come before the Special Meeting.
| | FOR | | AGAINST | | ABSTAIN
The undersigned hereby revokes all previous proxies for the Special
Meeting, acknowledges receipt of the Report to Shareholders, Notice of the
Special Meeting and Proxy Statement furnished therewith and ratifies all that
the said proxies may do by virtue hereof.
This proxy when properly executed will be voted in the manner specified
herein. If no specification is made, this proxy will be voted in favor of Item
1 and the authority provided by Item 2 will be deemed granted.
Please sign exactly as name appears below. Joint owners should each sign
personally. If signing in any fiduciary or representative capacity, give full
title as such. For shares held by a corporation, please affix corporate seal.
Date: ____________________________________
_________________________________________
Signature
_________________________________________
Sign, date and return this proxy immediately in
the enclosed envelope to Chase-Mellon Shareholder
Services
NOTE: ONLY BONA FIDE SHAREHOLDERS WILL BE ADMITTED TO THE SPECIAL SHAREHOLDERS
MEETING; PHOTO IDENTIFICATION AND PROOF OF OWNERSHIP AS OF THE RECORD DATE
WILL BE REQUIRED FOR ADMITTANCE.
PROXY CARD
<PAGE>
BIOCONTROL TECHNOLOGY, INC. 300 Indian Springs Road
Indiana, PA 15701 Telephone 412-349-1811
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
FEBRUARY 2, 1998
The Special Meeting (the "Special Meeting") of Stockholders of Biocontrol
Technology, Inc., a Pennsylvania corporation (the "Company"), will be held at
the Holiday Inn, Indiana, Pennsylvania, on February 2, 1998 at 9:00 a.m.,
local time, for the following purpose:
1. To amend the Company's Articles of Incorporation, as amended, to
increase the number of authorized shares to 300,000,000, as set
forth in the Proxy Statement.
By Order of the Board of Directors
___________________________________
David E. Staudenmaier, Secretary
Date: JANUARY 2,1998
PLEASE NOTE: ONLY BONA FIDE STOCKHOLDERS WILL BE ADMITTED TO THE SPECIAL
SHAREHOLDERS MEETING; PHOTO IDENTIFICATION AND PROOF OF OWNERSHIP AS OF
THE RECORD DATE WILL BE REQUIRED FOR ADMITTANCE.
Those stockholders who are unable to attend the Special Meeting in person are
respectfully urged to indicate their choices, execute and return the enclosed
proxy card at their earliest convenience to Proxy Tabulation Dept., Chase Mellon
Shareholder Services, 450 West 33rd Street, 15th Floor, New York, New York
10001. Promptness in returning the enclosed proxy card will be appreciated.
Proxies must be returned no later than January 30, 1998. Proxies may be
revoked by the Stockholder before it is voted at the Special Meeting by
either: written notice to the Secretary, by submission of a Proxy bearing a
later date, or by attending the Special Meeting and voting in person.
<PAGE>
BIOCONTROL TECHNOLOGY, INC.
The approximate mailing date of this Proxy Statement
is January 2, 1998
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS February 2, 1998
The accompanying proxy is furnished by Biocontrol Technology, Inc. (the
Company) in connection with the solicitation of proxies by the Board of
Directors on all matters and may be revoked by the Shareholder at any time
before it is voted by giving written notice to the Secretary of the Company or
by executing and delivering a proxy with a later date. The expense of this
solicitation is to be borne by the Company, and the Company will reimburse
persons holding stock in their name or in the names of their nominees for the
expenses incurred in sending proxies and proxy materials to their principals.
The Company had outstanding 138,583,978 shares of common stock, par value $.10
per share, as of December 8, 1997, the date for determining the security
holders of record entitled to vote at the meeting (the "Record Date"). Each
share of common stock is entitled to one vote in all matters brought before the
Shareholders, without cumulative voting.
Shareholders should note that this meeting is not the annual meeting of
shareholders, which will be scheduled after the Company's audited financial
statements for the year ended December 31, 1997 are completed.
INCORPORATION BY REFERENCE
The latest financial statements of the Company, as well as other information
regarding the Company may be found in other documents the Company has filed or
will file with the SEC. The following documents are incorporated herein by
reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997;
(3) The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997; and
(4) The Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997.
The Company undertakes to provide without charge to each person to whom these
Proxy Materials are delivered, upon written or oral request of such person, a
copy of and all information that has been incorporated by refernce. Such
requests should be made to: Investor Relations Department, Biocontrol
Technology, Inc., 2275 Swallow Hill Road, Building 2500, 2nd Floor, Pittsburgh,
PA 15220; by telephone at (412)429-0673 or by fax at (412)279-1367.
<PAGE>
DESCRIPTION OF SECURITIES
BICO's authorized capital currently consists of 150,000,000 shares of common
stock, par value $.10 per share and 500,000 shares of cumulative preferred
stock, par value $10.00 per share. As of December 8, 1997, there were
138,583,978 shares of common stock and zero shares of preferred stock
outstanding. In addition, there were $2,111,280 of the Company's 4%
Convertible Debentures outstanding as of December 8, 1997.
Preferred Stock
The Articles of Incorporation of BICO authorize the issuance of a maximum of
500,000 shares of non-voting cumulative convertible preferred stock, and
authorize the Board of Directors of BICO to divide such class of preferred
stock into series and to fix and determine the relative rights and preferences
of the shares.
As of December 8, 1997, the Company had no outstanding shares of Preferred
Stock.
Common Stock
All outstanding shares of the Company's common stock are fully paid and
nonassessable. All shares of common stock to be received by holders will be
fully paid and nonassessable. All the shares of common stock will be equal to
each other with respect to liquidation rights and dividend rights and there are
no preemptive rights to purchase any additional shares of common stock.
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of shareholders, but are not entitled to cumulate their
votes in the election of directors. Accordingly, the holders of over 50% of the
outstanding common stock voting for the election of directors, could elect the
entire slate of the Board of Directors of BICO, and the holders of the
remaining common stock would not be able to elect any member to the Board of
Directors. As of December 8, 1997, there were 138,583,978 shares of common
stock outstanding.
In the event of liquidation or dissolution of BICO, holders of the common stock
are entitled to receive on a pro rata basis all assets of BICO remaining after
satisfaction of all liabilities including liquidation preferences granted to
holders of the preferred stock of BICO.
Convertible Debentures
As of December 8, 1997, the Company had outstanding $2,111,280 in
Convertible Debentures, which are due between February 5, 1998 and
March 20, 1998.
Dividends
The Company has not paid cash dividends on its common stock or preferred stock
(with the exception of a cash dividend on its preferred stock in 1983, and a
common stock dividend on its preferred stock in 1988) since its inception, and
cash dividends are not presently contemplated at any time in the foreseeable
future. The Company anticipates that any excess funds generated from
operations in the foreseeable future will be used for working capital and for
investment in research and new product development, rather than to pay
dividends.
In accordance with the Company's Articles of Incorporation, cash dividends are
restricted under certain circumstances. Holders of common stock are entitled
to cash dividends only when and if declared by the Board of Directors out of
funds legally available for payment thereof. Any such dividends are subject to
the prior right of holders of the Company's preferred stock to receive any
accrued but unpaid dividends. Further, common stock dividends may be paid only
to the extent the net assets of BICO exceed the liquidation preference of any
outstanding preferred stock.
Employment Agreement Provisions Related to Changes in Control
BICO has entered into agreements (the "Agreements") with Fred E. Cooper, David
L. Purdy, Anthony J. Feola, Glenn Keeling, and two non-executive officer
employees. The Agreements provide that in the event of a "change of control"
of BICO, BICO is required to issue to Mr. Cooper and Mr. Purdy shares of common
stock equal to five percent (5%), to issue to Mr. Feola four percent (4%), to
issue Mr. Keeling three percent (3%), and to issue the two non-executive
officer employees two percent (2%) each of the outstanding shares of common
stock of the Company immediately after the change in control. In general, a
change of control is deemed to occur for purposes of the Agreement: (i) when
20% or more of BICO's outstanding voting stock is acquired by any person, (ii)
when one-third (1/3) or more of BICO's directors are not Continuing Directors
(as defined in the Agreements), or (iii) when a controlling influence over the
management or policies of BICO is exercised by any person or by persons acting
as a group within the meaning of Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
Warrants
As of December 8, 1997 there were outstanding warrants to purchase
5,856,162 shares of the Company's common stock at exercise prices of between
$0.25 and $4.03 per share. These warrants are held by members of the Company's
Scientific Advisory Board, certain employees, officers, directors, loan
guarantors, lenders and consultants.
The holders of warrants are not entitled to vote, to receive dividends or to
exercise any of the rights of the holders of shares of common stock for any
purpose until such warrants have been duly exercised and payment of the
exercise price has been made.
Voting Procedures
Each share of common stock outstanding as of the Record Date is entitled to one
vote on each matter submitted to the stockholders for a vote at the Special
Meeting. The matter submitted to a vote at the meeting will be decided by the
vote of a majority of all votes cast in person or by proxy at the meeting.
Abstentions will be treated as shares present and entitled to vote for purposes
of determining the presence of a quorum, but will not be considered as votes
cast in determining whether a matter has been approved by the stockholders. If
a broker or other record holder or nominee indicates on a proxy that it does not
have authority as to certain shares to vote on a particular matter
(commonly referred to as "broker non-votes"), those shares will not be
considered as present and entitled to vote with respect to that matter.
Transfer Agent
Chase-Mellon Shareholder Services in New York, New York acts as the Company's
Registrar and Transfer Agent for its common and preferred stock. The Company
acts as its own warrant transfer agent.
DIRECTORS AND EXECUTIVE OFFICERS
Director
Name Age Since Position
_______________ ___ ________ ____________________________
David L. Purdy 69 1972 President, Chairman of the
Board, Treasurer, Director
Fred E. Cooper 52 1989 Chief Executive Officer,
Executive Vice President, Director
Anthony J. Feola 50 1990 Senior Vice President, Director
Glenn Keeling 47 1991 Vice President, Director
______________________________
DAVID L. PURDY, 69 is President, Chairman of the Board, Treasurer and a
director of the Company. Mr. Purdy has been a director and Chairman of the
Board since its organization in 1972 and is considered the organizer and
founder of the Company; he devotes 60% of his time to the business of the
Company, and 40% of his time to Diasense. He has also served as President of
the Company from 1972 through December 1990, with the exception of five months
in 1980, when he served as Chairman and full-time Program Director of the
Company's implantable medicine dispensing device program with St. Jude Medical,
Inc., and from October 1, 1987 through July 15, 1988, when he served as
Chairman and Director of Research and Development for the Company. Prior to
founding the Company, he was employed by various companies in the medical
technology field, including Arco Medical, Inc. Mr. Purdy is also an officer and
director of Diasense and Coraflex.
FRED E. COOPER, 52, is the Chief Executive Officer, Executive Vice President
and a director of the Company; he devotes approximately 60% of his time to the
business of the Company, and 40% to Diasense. Prior to joining the Company,
Mr. Cooper co-founded Equitable Financial Management, Inc. of Pittsburgh, PA, a
company in which he served as Executive Vice President until his resignation
and divestiture of ownership in August 1990. In 1972, Mr. Cooper founded
Cooper Leasing Corp., Pittsburgh, Pennsylvania, a company specializing in
equipment and venture financing. Mr. Cooper was appointed Chief Executive
Officer in January 1990. He is also an officer and director of Diasense and
Barnacle Ban, and a director of Petrol Rem and Coraflex.
ANTHONY J. FEOLA, 50, rejoined the Company as its Senior Vice President in
April, 1994, after serving as Diasense's Vice President of Marketing and Sales
from January, 1992 until April, 1994. Prior to January, 1992, he was the
Company's Vice President of Marketing and Sales. Prior to joining the Company
in November 1989, Mr. Feola was Vice President and Chief Operating Officer with
Gateway Broadcasting in Pittsburgh in 1989, and National Sales Manager for
Westinghouse Corporation, also in Pittsburgh, from 1980 until 1989. He was
elected a director of the Company in February 1990, and also serves as a
director of Diasense, Coraflex, Petrol Rem and Barnacle Ban.
GLENN KEELING, 47, joined the Board of Directors in April 1991. Mr. Keeling
currently is a full-time employee of BICO in the position of Vice President of
Marketing; his primary responsibilities during 1994 through 1997 have been the
management and operation of IDT's Whole-Body Extracorporeal Hyperthermia
project. From 1976 through 1991, he was a Vice President in charge of new
business development at Equitable Financial Management, Inc., a regional
equipment lessor. His responsibilities included initial contacts with banks and
investment firms to open new lines of business referrals in connection with
financing large equipment transactions. He is also President and a director of
IDT.
Pursuant to the disclosure requirements of Item 405 of Regulation S-K regarding
timely filings required by Section 16(a) of the Securities and Exchange Act,
the Company represents the following. Based solely on its review of copies of
forms received and written representations from certain reporting persons, the
Company believes that all of its officers, directors and greater than ten
percent beneficial owners complied with applicable filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and its affiliates share common officers and directors. In
addition, BICO and Diasense have entered into several intercompany agreements
including a Purchase Agreement, a Research and Development Agreement and a
Manufacturing Agreement, which are summarized herein. Management believes that
it was in the best interest of the Company to enter into such agreements and
that the transactions were based upon terms as fair as those which may have
been available in comparable transactions with third parties. However, no
unaffiliated third party was retained to determine independently the fairness
of such transactions. The Company's policy concerning related party
transactions requires the approval of a majority of the disinterested directors
of both the corporations involved, if applicable.
Employment Relationships
The Board of Directors of the Company approved employment agreements on
November 1, 1994 for its officers, David L. Purdy, Fred E. Cooper, Anthony J.
Feola and Glenn Keeling. (See "Employment Agreements").
David L. Purdy, President, Treasurer and a director of the Company, is a
director of Diasense and Coraflex. He is also the chairman
and Chief Scientist of Diasense, and the President and Treasurer of Coraflex.
Mr. Purdy devotes 60% of his time to BICO, and 40% to Diasense. In addition to
his salary paid by BICO, Mr. Purdy was paid $100,000 by Diasense in 1996. Fred
E. Cooper, Chief Executive Officer, Executive Vice President and a director of
the Company, is a director of Diasense, Coraflex, Petrol Rem, and Barnacle
Ban. He is also the President of Diasense and Barnacle Ban. Mr.
Cooper devotes approximately 60% of his time to BICO and 40% to Diasense. In
addition to his salary and bonus paid by BICO, he was paid $150,000 by Diasense
in 1996. Anthony J. Feola, Senior Vice President and a director of the
Company, is also a director of Diasense, Coraflex, Petrol Rem, and
Barnacle Ban. Glenn Keeling, Vice President and a director of the
Company, was employed on January 1, 1992 as BICO's manager of product
development. Mr. Keeling is also the President and a director of IDT. C.
Terry Adkins, a director of the Company until March 1992, is currently a
director and Vice President of Diasense. He is paid an annual salary of
$95,000 by Diasense and has no employment contract with Diasense. Gary
Keeling, the brother of Glenn Keeling, resigned as an officer and director of
Diasense in August 1997.
Property
Four of the Company's current executive officers and/or directors and one
former director of the Company are members of the eight-member 300 Indian
Springs Road Real Estate Partnership (the "Partnership") which in July 1990,
purchased the Company's real estate in Indiana, Pennsylvania, and each has
personally guaranteed the payment of lease obligations to the bank providing
the funding. The business purpose of the real estate transaction was to raise
funds for the Company. The cost of the property to the Company was $1,084,852.
The property was sold to the Partnership subject to a leaseback provision and
outstanding liens for approximately $800,000; the Company received
approximately $403,000 in cash as a result of the sale-leaseback. The sale
price was determined by First West Virginia Bank. Each member of the
Partnership received warrants in consideration of their personal guarantees.
The five members of the Partnership who are also current or former officers
and/or directors of the Company, David L. Purdy, Fred E. Cooper, Glenn Keeling,
Jack H. Onorato and C. Terry Adkins, each received warrants on June 29, 1990 to
purchase 100,000 shares of the Company's common stock at an exercise price of
$.33 per share until June 29, 1995 (those warrants still outstanding as of the
original expiration date were extended until June 29, 1998). Mr. Adkins, who
was a director at the time of the transaction, resigned from the Board of
Directors on March 30, 1992. Mr. Keeling, who was not a director at the time
of the transaction, joined the Board of Directors on May 3, 1991; Mr. Onorato,
who was not a director at the time of the transaction, was a BICO director from
September 1992 until April 1994. On April 24, 1990, Equitable Financial
Management ("EFM") received warrants to purchase 200,000 shares of the
Company's common stock at $.25 per share until April 24, 1995, and $16,000 in
cash, representing a two percent (2%) fee for arranging the sale of the
Company's real estate. Warrants were also issued on April 24, 1990 to Charles
Dixon, the President of EFM, to purchase 200,000 shares of the Company's common
stock at $.25 per share until April 24, 1995 (those warrants still outstanding
as of the original expiration date were extended until June 29, 1998).
In all instances where warrants were issued in connection with the transactions
set forth above, the exercise price of the warrants was equal to or above the
current quoted market price of the Company's common stock on the date of
issuance.
In April 1992, Diasense purchased an office condominium located at the Bours
Office Park, Virginia Manor, Building 2500, Second Floor, Pittsburgh,
Pennsylvania 15220 for $190,000. The Company has entered into a lease with
Diasense and pays rent in the amount of $3,544 per month, plus one-half of the
utilities.
Warrants
The following paragraphs, along with the notes to the financial statements,
include disclosure of the warrants which were granted to executive officers
and directors of the Company from 1994 through September 30, 1997.
These warrants were accounted for in accordance with Accounting Principles
Board Opinion 25 (based on the spread, if any, between the exercise price and
the quoted market price of the stock on the date that the warrants were
granted). No value was recorded for these warrants since they were all granted
at exercise prices which were equal to or above the current quoted market price
of the stock on the date issued. In 1995, 1996 and 1997, the Company extended
warrants granted in 1990 through 1992, which were scheduled to expire in 1995
through 1997, until 1998-2000. Because the exercise price of the warrants,
which remained unchanged, was less than the market price of the common stock on
the dates of the extensions, charges were made against operations.
On August 25, 1994, the Board of Directors approved the granting of warrants to
purchase common stock at $2.75 per share until August 25, 1999 to Raymond Carr,
a director in return for his meritorious service.
On August 26, 1996, the Board of Directors approved the granting of warrants to
purchase 100,000 shares of common stock at $1.48 per share to Glenn Keeling, an
officer and director of the Company.
Loans
On October 1, 1990, the Board of Directors approved a $75,000 loan from the
Company to Fred E. Cooper. Mr. Cooper signed a Promissory Note promising to
pay the principal amount plus twelve percent (12%) simple interest. Mr. Cooper
repaid $66,500 of the $75,000 principal balance during 1991. During 1991, the
Company granted loans to Fred E. Cooper in the aggregate amount of $57,400.
Mr. Cooper signed Promissory Notes promising to pay the principal amounts upon
demand plus ten percent (10%) simple interest. In January 1992, "the Company"
granted a loan to Fred E. Cooper in the amount of $25,000; Mr. Cooper signed a
Promissory Note promising to pay the principal amount upon demand plus ten
percent (10%) simple interest. In January 1997, the Company granted a loan to
Fred E. Cooper in the amount of $83,000. Mr. Cooper signed a Promissory Note
promising to pay the principal amount upon demand plus 8.25% simple interest.
The aggregate balance of the loans as of September 30, 1997, including accrued
interest, was $235,961.
In December 1991, the Company granted a loan to Glenn Keeling in the amount of
$5,000. Mr. Keeling signed a Promissory Note promising to pay the principal
amount upon demand plus ten percent (10%) simple interest. In December 1996,
the Company granted a loan to Glenn Keeling in the amount of $50,000. Mr.
Keeling signed a Promissory Note promising to pay the principal amounts upon
demand plus 8.25% simple interest. The balance of the loans as of September 30,
1997, including accrued interest, was $61,263.
In September 1995, the Company granted a loan in the amount of $250,000 to
Allegheny Food Services in the form of a one-year renewable note bearing
interest at prime rate as reported by the Wall Street Journal plus one percent
(1%). Interest payments have been made on the note, and as of September 30,
1997, the balance was $250,000. Joseph Kondisko, a former director of
Diasense, is a principal owner of Allegheny Food Services.
During 1995, the Company granted loans to HemoCleanse, an Indiana Corporation,
aggregating $1,050,000 in the form of one-year notes accruing interest at prime
rate as reported by the Wall Street Journal. The notes were converted, at the
Company's option, into shares of HemoCleanse common stock at $3.50 per share
during 1996.
Each of the loans made to officers or directors and their affiliates was made
for a bona fide business purpose. All future loans to officers, directors and
their affiliates will be made for bona fide business purposes only.
Intercompany Agreements
Management of the Company believes that the agreements between BICO and
Diasense, which are summarized below, were based upon terms which were as
favorable as those which may have been available in comparable transactions
with third parties. However no unaffiliated third party was retained to
determine independently the fairness of such transactions.
License and Marketing Agreement. Diasense acquired the exclusive marketing
rights for the Noninvasive Glucose Sensor and related products and services
from BICO in August 1989 in exchange for 8,000,000 shares of its common stock.
That agreement was canceled pursuant to a Cancellation Agreement dated November
18, 1991, and superseded by a Purchase Agreement dated November 18, 1991. The
Cancellation Agreement provides that BICO will retain the 8,000,000 shares of
Diasense common stock which BICO received pursuant to the License and Marketing
Agreement.
Purchase Agreement. BICO and Diasense entered into a Purchase Agreement dated
November 18, 1991 whereby BICO conveyed to Diasense its entire right, title and
interest in the Noninvasive Glucose Sensor and its development, including its
extensive knowledge, technology and proprietary information. Such conveyance
includes BICO's patent received in December 1991.
In consideration of the conveyance of its entire right in the Noninvasive
Glucose Sensor and its development, BICO received $2,000,000. In addition,
Diasense may endeavor, at its own expense, to obtain patents on other
inventions relating to the Noninvasive Glucose Sensor. Diasense also
guaranteed BICO the right to use such patented technology in the development of
BICO's proposed implantable closed-loop system, a related system in the early
stages of development.
In December 1992, BICO and Diasense executed an amendment to the Purchase
Agreement which clarified terms of the Purchase Agreement. The amendment
defines "Sensors" to include all devices for the noninvasive detection of
analytes in mammals or in other biological materials. In addition, the
amendment provides for a royalty to be paid to Diasense in connection with any
sales by BICO of its proposed closed-loop system.
Research and Development ("R&D") Agreement. Diasense and BICO entered into an
agreement dated January 20, 1992 in connection with the research and
development of the Noninvasive Glucose Sensor. Pursuant to the agreement, BICO
will continue the development of the Noninvasive Glucose Sensor, including the
fabrication of prototypes, the performance of clinical trials, and the
submission to the FDA of all necessary applications in order to obtain market
approval for the Noninvasive Glucose Sensor. BICO will also manufacture the
models of the Noninvasive Glucose Sensor to be delivered to Diasense for sale
(See, "Manufacturing Agreement"). Upon the delivery of the completed models,
the research and development phase of the Noninvasive Glucose Sensor will be
deemed complete.
Diasense has agreed to pay BICO $100,000 per month for indirect costs beginning
April 1, 1992, during the 15 year term of the agreement, plus all direct costs,
including labor. BICO also received a first right of refusal for any program
undertaken to develop, refine or improve the Noninvasive Glucose Sensor, and
for the development of other related products. In July 1995, BICO and Diasense
agreed to suspend billings, accruals of amounts due and payments pursuant to
the R&D Agreement pending the FDA's review of the Sensor.
Manufacturing Agreement. BICO and Diasense entered into an agreement dated
January 20, 1992, whereby BICO will act as the exclusive manufacturer of the
Noninvasive Glucose Sensor and other related products. Diasense will provide
BICO with purchase orders for the products and will endeavor to provide
projections of future quantities needed. The original Manufacturing Agreement
called for the products to be manufactured and sold at a price to be determined
in accordance with the following formula: Cost of Goods (including actual or
275% of overhead, whichever is lower) plus a fee of 30% of Cost of Goods. In
July 1994, the formula was amended to be as follows: Costs of Goods Sold
(defined as BICO's aggregate cost of materials, labor and associated
manufacturing overhead) + a fee equal to one third (1/3) of the difference
between the Cost of Goods Sold and Diasense's sales price of each Sensor.
Diasense's sales price of each Sensor is defined as the price paid by any
purchaser, whether retail or wholesale, directly to Diasense for each Sensor.
Subject to certain restrictions, BICO may assign its manufacturing rights to a
subcontractor with Diasense's written approval. The term of the agreement is
fifteen years.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1996, 1995 and 1994, of those persons who were, at December
31, 1996 (i) the Chief Executive Officer, and (ii) the other most highly
compensated executive officers of the Company whose remuneration exceeded
$100,000 (the "Named Executives").
<TABLE>
SUMMARY COMPENSATION TABLE
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994-96
<CAPTION>
Annual Compensation (1)Long Term Compensation
_________________________________________________________________
Name and Year Salary ($) Bonus ($) (2) Other Awards (2) All Other
Principal ($) Securities Compensation
Position Underlying
Warrants(#)
_____________ ____ __________ _________ _________ ___________ _____________
<S> <C> <C> <C> <C> <C> <C>
David L. 1996 $300,000 $ 0 $ 0 -0- $ 0
Purdy,
President, 1995 $300,000 $ 0 $ 0 820,000 (3) $ 0
Treasurer (4)
1994 $250,000 $ 0 $ 0 -0- $ 0
_______________________________________________________________________________
Fred E. 1996 $442,000 $ 0 $ 0 -0- $ 0
Cooper,
CEO (5) 1995 $330,000 $ 0 $ 0 575,000 (3) $ 0
1994 $260,000 $ 0 $ 0 -0- $ 0
_______________________________________________________________________________
Anthony J. 1996 $300,000 $ 0 $ 0 350,000 (3) $ 0
Feola,
Sr. Vice 1995 $250,000 $93,125 $ 0 200,000 (3) $ 0
Pres.(6)
1994 $133,333 $ 0 $ 0 -0- $ 0
_______________________________________________________________________________
Glenn 1996 $200,000 $ 0 $ 0 100,000 (8) $ 0
Keeling, VP
(7) 1995 $175,000 $ 0 $ 0 -0- $ 0
1994 $150,000 $ 0 $ 0 -0- $ 0
______________________________________________________________________________
</TABLE>
(1) The Company does not currently have a Long-Term Incentive Plan ("LTIP"),
and no payouts were made pursuant to any LTIP during the years 1996, 1995,
or 1994. The Company did not award any restricted stock to the
Named Executives during any year, including the years 1996, 1995, or 1994.
The Company did not award any warrants, options or Stock
Appreciation Rights ("SARs") to the Named Executives during the years
ended December 31, 1996, 1995 or 1994; however, the Company did extend
warrants owned by the Named Executives, which would have expired during
1995 and 1996 (See Note 3, below). The Company has no retirement, pension
or profit-sharing programs for the benefit of its directors, officers or
other employees. The Company currently has key-man life insurance for
David L. Purdy and Fred E. Cooper in the amount of $1,000,000 each.
(2) During the year ended December 31, 1996, the Named Executives received
medical benefits under the Company's group insurance policy, including
disability and life insurance benefits. The aggregate amount of all
perquisite compensation was less than 10% of the total annual salary and
bonus reported for each Named Executive.
(3) During 1995 and 1996, the Company extended warrants previously issued to
the Named Executives which would have otherwise expired. Although the
extensions were in connection with warrants already held by the Named
Executives, they are shown in the table set forth above as "awards" for
executive compensation disclosure purposes because at the time of the
extension, the exercise price of the warrants (which remained unchanged)
was less than the "market price" of the common stock (See,
"Option/Warrant/SAR Grants in Last Fiscal Year" Table).
(4) In November, 1994, Mr. Purdy's employment agreement was renegotiated to
provide for an annual salary of $250,000 effective November 1, 1994
through October 31, 1999. All other terms of the contract remained
substantially the same (See, "Employment Agreements"). During 1995, Mr.
Purdy's salary was increased by $50,000. In 1996, 1995 and 1994, Mr.
Purdy was paid $100,000, $100,000 and $72,727 by Diasense.
(5) In November, 1994, Mr. Cooper's employment agreement was renegotiated to
provide for an annual salary of $250,000 effective November 1, 1994
through October 31, 1999. All other terms of the contract remained
substantially the same (See, "Employment Agreements"). In addition, in
1996, 1995 and 1994, Mr. Cooper was paid $96,000, $40,000 and $30,000,
respectively by both Petrol Rem and IDT, both of which are subsidiaries of
BICO. In 1996, 1995, and 1994, Mr. Cooper was paid $150,000, $150,000, and
$130,454 in salary and bonuses by Diasense, respectively.
(6) In April, 1994, Mr. Feola's employment agreement with Diasense was
assigned to BICO when he left Diasense to rejoin BICO as its Senior Vice
President. In November, 1994, Mr. Feola's employment agreement was
renegotiated, provides for an annual salary of $200,000 and is effective
November 1, 1994 through October 31, 1999. All other terms of the
contract remained substantially the same (See, "Employment Agreements").
During 1996 and 1995, Mr. Feola's salary was increased by $50,000 per year.
In 1994 Mr.Feola was paid $116,667 by Diasense.
(7) In November, 1994, Mr. Keeling entered into an employment agreement with
the Company which provides for an annual salary of $150,000 effective
November 1, 1994 through October 31, 1999 (See, "Employment Agreements").
During 1996 and 1995, Mr. Keeling's salary was increased by $25,000 per
year.
(8) On August 26, 1996, Mr. Keeling was granted warrants to purchase 100,000
shares of the Company's common stock at a price of $1.48 per share (the
market price as of that date) until August 26, 2001.
<TABLE>
SUMMARY COMPENSATION TABLE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
The following table sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company for the nine months
ended September 30, 1997, of those persons who were, at September 30, 1997: (i)
the Chief Executive Officer, and (ii) the other most highly compensated
executive officers of the Company whose remuneration exceeded $100,000 (the
Named Executives). Named Executive David L. Purdy voluntarily reduced his
salary from $300,000 per year to $100,000 per year beginning May 1, 1997.
<CAPTION>
Compensation (1)Long Term Compensation
_________________________________________________________________
Name and Nine Salary ($) Bonus ($) (2) Other Awards (2) All Other
Principal Month ($) Securities Compensation
Position Period Underlying
Warrants(#)
_____________ ____ __________ _________ _________ ___________ ____________
<S> <C> <C> <C> <C> <C> <C>
David L. 9/30 $129,167 $ 0 $ 0 -0- $ 0
Purdy, 1997
President,
Treasurer (3)
_______________________________________________________________________________
Fred E. 9/30 $331,500 $ 0 $ 0 -0- $ 0
Cooper, 1997
CEO (4)
_______________________________________________________________________________
Anthony J. 9/30
Feola, 1997 $225,000 $ 0 $ 0 -0- $ 0
Sr. Vice
Pres.(5)
_______________________________________________________________________________
Glenn 9/30 $150,000 $ 0 $ 0 -0- $ 0
Keeling, 1997
VP (6)
_______________________________________________________________________________
</TABLE>
(1) The Company does not currently have a Long-Term Incentive Plan ("LTIP"),
and no payouts were made pursuant to any LTIP during the nine months ended
September 30, 1997. The Company did not award any restricted stock to the
Named Executives during the nine months ended September 30, 1997. The
Company did not award any warrants, options or Stock Appreciation Rights
("SARs") to the Named Executives during the nine months ended September
30, 1997. The Company has no retirement, pension or profit-sharing
programs for the benefit of its directors, officers or other employees.
The Company currently has key-man life insurance for David L. Purdy and
Fred E. Cooper in the amount of $1,000,000 each.
(2) During the nine months ended September 30, 1997, the Named Executives
received medical benefits under the Company's group insurance policy,
including disability and life insurance benefits. The aggregate amount of
all perquisite compensation was less than 10% of the total annual salary
and bonus reported for each Named Executive.
(3) In November, 1994, Mr. Purdy's employment agreement was renegotiated to
provide for an annual salary of $250,000 effective November 1, 1994
through October 31, 1999. All other terms of the contract remained
substantially the same (See, "Employment Agreements"). During 1995, Mr.
Purdy's salary was increased by $50,000. During the nine months ended
September 30, 1997, Mr. Purdy was paid $62,500 by Diasense. In May,
1997, Mr. Purdy voluntarily reduced his BICO salary from $300,000 per year
to $100,000 per year.
(4) In November, 1994, Mr. Cooper's employment agreement was renegotiated to
provide for an annual salary of $250,000 effective November 1, 1994
through October 31, 1999. All other terms of the contract remained
substantially the same (See, "Employment Agreements"). In addition,
during the nine months ended September 30, 1997, Mr. Cooper was paid
$72,000, by both Petrol Rem and IDT, both of which are subsidiaries of
BICO. During the nine months ended September 30, 1997, Mr Cooper was paid
$112,500 by Diasense.
(5) In April, 1994, Mr. Feola's employment agreement with Diasense was
assigned to BICO when he left Diasense to rejoin BICO as its Senior Vice
President. In November, 1994, Mr. Feola's employment agreement was
renegotiated, provides for an annual salary of $200,000 and is effective
November 1, 1994 through October 31, 1999. All other terms of the
contract remained substantially the same (See, "Employment Agreements").
Mr. Feola's salary was increased by $50,000 during both 1995 and 1996.
(6) In November, 1994, Mr. Keeling entered into an employment agreement with
the Company which provides for an annual salary of $150,000 effective
November 1, 1994 through October 31, 1999 (See, "Employment Agreements").
Mr. Keeling's salary was increased by $25,000 during both 1995 and 1996.
<TABLE>
Option/Warrant/SAR Grants in Last Fiscal Year
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
<CAPTION> PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
____________________________________________________________________________________________________________________
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARS Employees in Base Price Expiration
Name Granted (#) Fiscal Year (2) ($/Sh) Date 5% ($) 10%($) 0%($)
_______________ ____________ _______________ ___________ __________ __________ __________ __________
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Feola 350,000 (1) 53.7% $0.50 10/11/99 $ 724,150 $ 858,550 $ 601,650
(3) (3) (3)
__________________________________________________________________________________________________________________
Glenn Keeling 100,000 (4) 15.3% $1.48 8/26/01 $ 40,900 $ 90,300 $ 0
(5) (5) (5)
_________________________________________________________________________________________________________________
</TABLE>
_____________________________
(1) The warrants set forth in this row represent the warrants already held
by the Named Executive which were extended by the Company during 1996.
These warrants to purchase the Company's common stock were originally
granted to the Named Executive in 1991 (See, "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS"). Although the warrants were not
actually awarded during 1996, they are included in this Executive
Compensation disclosure section because the exercise price of the
warrants, which was not changed at the time of the extension, was less
than the "market price" of the common stock at the time of the extension.
(2) For purposes of calculating these percentages, the total number of
warrants granted or extended during 1996 was 651,482 which included
300,000 new grants in 1996, and extensions of 351,482 warrants originally
granted in 1991.
(3) Potential realizable values reflect the difference between the warrant
exercise price at the end of 1996 and the fair value of the Company's
common stock price from the date of the extension until the expiration of
the warrant. The 5% and 10% appreciation rates, compounded annually, are
assumed pursuant to the rules promulgated by the SEC and do not reflect
actual historical or projected rates of appreciation of the common stock.
Assuming such appreciation, the following illustrates the per share value
on the dates set forth (the expiration dates for the warrants), assuming
the values set forth (the closing bid price on the date of the extension
as reported by Nasdaq):
STOCK PRICE ON EXPIRATION
DATE OF EXTENSION DATE 5% 10%
_________________ __________ ______ _______
10/11/96: $2.219 10/11/99 $2.569 $2.953
The foregoing values do not reflect appreciation actually realized by the
Named Executive (See, "Option/Warrant/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/Warrant/SAR Value" Table, Below).
(4) Warrants to purchase 100,000 shares of common stock at $1.48 per share
until August 26, 2001 were granted to the Named Executive on August 26,
1996
(5) Potential realizable values reflect the difference between the warrant
exercise price at the end of 1996 and the fair value of the Company's
common stock price from the date of the grant until the expiration of
the warrant. The 5% and 10% appreciation rates, compounded annually, are
assumed pursuant to the rules promulgated by the SEC and do not reflect
actual historical or projected rates of appreciation of the common stock.
Assuming such appreciation, the following illustrates the per share value
on the dates set forth (the expiration dates for the warrants), assuming
the values set forth (the closing bid price on the date of the extension as
reported by Nasdaq):
STOCK PRICE ON EXPIRATION
GRANT DATE DATE 5% 10%
_______________ __________ ______ ______
08/26/96: $1.48 08/26/01 $1.889 $2.383
The foregoing values do not reflect appreciation actually realized by the
Named Executive (See, "Option/Warrant/SAR Exercises In Last Fiscal Year"
Table, Below).
Option/Warrant/SAR Grants During the Nine Months Ended September 30, 1997
No options, warrants or SARs were granted to any Named Executive during
the nine months ended September 30, 1997.
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
Number of Securities Value of
Underlying Unexercised In-the-
Unexercised Money
Options/SARs at FY- Options/SARs at
End (#) FY-End ($)
Shares Value Exercisable/ Exercisable/
Acquired on Realized ($) Unexercisable (3) Unexercisable (4)
Exercise (2)
Name (#)(1)
_______ ___________ ___________ _________________ _________________
David L. 0 $0 820,000 $557,350
Purdy (5)
Fred E. 100,000 $206,250 400,000 $275,000
Cooper (6) (7) (8)
Anthony J. 0 $0 550,000 $290,625
Feola (9)
Glenn 0 $0 100,000 ($54,250)
Keeling (10)
__________________
(1) This figure represents the number of shares of common stock acquired by
each named executive officer upon the exercise of warrants.
(2) The value realized of the warrants exercised was computed by determining
the spread between the market value of the underlying securities at the
time of exercise minus the exercise price of the warrant.
(3) All warrants held by the Named Executives are currently exercisable.
(4) The value of unexercised warrants was computed by subtracting the exercise
price of the outstanding warrants from the closing sales price of the
Company's common stock on December 31, 1996 as reported by Nasdaq ($.9375).
(5) Includes warrants to purchase: 240,000 shares of common stock at $.25 per
share until April 24, 1995 (extended until April 24, 1998); 500,000 shares
of common stock at $.25 per share until May 1, 1995 (extended until May 1,
1998); and 80,000 shares of common stock at $.33 per share until June 29,
1995 (extended until June 29, 1998) (See, "Warrants").
(6) During the year ended December 31, 1996, Mr. Cooper exercised warrants to
purchase 100,000 shares of common stock at $.25 per share.
(7) The closing sales price as reported by Nasdaq on April 23, 1996, the date
of the warrant exercise set forth in note (6), was $2.3125.
(8) Includes warrants to purchase: 400,000 shares of common stock at $.25 per
share until May 1, 1995 (extended until May 1, 1998) (See, "Warrants").
(9) Includes warrants to purchase: 100,000 shares of common stock at $.25 per
share until May 1, 1995 (extended until May 1, 1998); 100,000 shares of
common stock at $.25 per share until November 26, 1995 (extended until
November 26, 1998); and 350,000 shares of common stock at $.50 per share
until October 11, 1996 (extended until October 11, 1999) (See, "Warrants").
(10) Includes warrants to purchase: 100,000 shares of common stock at $1.48 per
share until August 26, 2001.
AGGREGATED OPTION/WARRANT/SAR EXERCISES
DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 9/30/97 OPTION/WARRANT/SAR VALUE TABLE
Number of Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options/SARs at Options/SARs at
9/30/97 (#) 9/30/97 ($)
Shares Value Exercisable/ Exercisable/
Acquired on Realized ($) Unexercisable (3) Unexercisable (4)
Exercise (2)
Name (#)(1)
David L. 52,800 $ 8,239 767,200 $ 101,008
Purdy (5) (6) (7)
Fred E. 100,000 $ 33,440 300,000 $ 42,000
Cooper (8) (9) (10)
Anthony J. 0 $ 0 550,000 $ 28,000
Feola (11)
Glenn 0 $ 0 100,000 $ 0
Keeling (12) (13)
__________________
(1) This figure represents the number of shares of common stock acquired by
each named executive officer upon the exercise of warrants.
(2) The value realized of the warrants exercised was computed by determining
the spread between the market value of the underlying securities at the
time of exercise minus the exercise price of the warrant.
(3) All warrants held by the Named Executives are currently exercisable.
(4) The value of unexercised warrants was computed by subtracting the exercise
price of the outstanding warrants from the closing sales price of the
Company's common stock on September 30, 1997 as reported by Nasdaq
($.39).
(5) During the nine months ended September 30, 1997, Mr. Purdy exercised
warrants to purchase 52,800 shares of common stock at $.25 per share.
(6) The closing sales price as reported by Nasdaq On May 1, 1997, the date of
the warrant exercise set forth in note (5) was $.406 per share.
(7) Includes warrants to purchase: 187,200 shares of common stock at $.25 per
share until April 24, 1995 (extended until April 24, 1998); 500,000 shares
of common stock at $.25 per share until May 1, 1995 (extended until May 1,
1998); and 80,000 shares of common stock at $.33 per share until June 29,
1995 (extended until June 29, 1998) (See, "Warrants").
(8) Durimg the nine months ended September 30, 1997, Mr. Cooper exercised
warrants to purchase 100,000 shares of common stock at $.25 per share.
(9) The closing sales price as reported by Nasdaq on April 21, 1997, the date
of the warrant exercise set forth in note (8), was $.594.
(10) Includes warrants to purchase: 300,000 shares of common stock at $.25 per
share until May 1, 1995 (extended until May 1, 1998) (See, "Warrants").
(11) Includes warrants to purchase: 100,000 shares of common stock at $.25 per
share until May 1, 1995 (extended until May 1, 1998); 100,000 shares of
common stock at $.25 per share until November 26, 1995 (extended until
November 26, 1998); and 350,000 shares of common stock at $.0 per share
until October 11, 1996 (extended until October 11, 1999) (See,
"Warrants").
(12) Includes warrants to purchase: 100,000 shares of common stock at $1.48 per
share until August 26, 2001.
(13) Because the market price as of September 30, 1997 was less than the
exercise price of the warrants, such warrants were not "in the money".
Employment Agreements
BICO has entered into employment agreements (the "Agreements") with its Named
Executives Fred E. Cooper, David L. Purdy, Anthony J. Feola and Glenn Keeling
effective November 1, 1994, pursuant to which they are currently entitled to
receive annual salaries of $250,000, $300,000, $300,000 and $200,000
respectively, which are subject to review and adjustment. The initial term of
the Agreements with Messrs. Cooper and Purdy expires on October 31, 1999, and
continues thereafter for additional three-year terms unless any of the parties
give proper notice of non- renewal. The initial term of the Agreements with
Messrs. Feola and Keeling expires on October 31, 1999, and continues thereafter
for additional two-year terms unless either of the parties give proper notice
of non-renewal. The Agreements also provide that in the event of a "change of
control" of BICO, BICO is required to issue the following shares of common
stock, represented by a percentage of the outstanding shares of common stock of
the Company immediately after the change in control: five percent (5%) to Mr.
Cooper and Mr. Purdy; four percent (4%) to Mr.Feola; and three percent (3%) to
Mr. Keeling. In general, a "change of control" is deemed to occur for purposes
of the Agreements (i) when 20% or more of BICO's outstanding voting stock is
acquired by any person, (ii) when one-third (1/3) or more of BICO's directors
are not Continuing Directors (as defined in the Agreement), or (iii) when a
controlling influence over the management or policies of BICO is exercised by
any person or by persons acting as a group within the meaning of Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In addition, in the event of a change in control within the term of the
Agreements or within one year thereafter, Messrs. Cooper, Purdy, Feola and
Keeling are entitled to receive severance payments in amounts equal to: 100% of
their most recent annual salary for the first three years following
termination; 50% of their most recent annual salary for the next two years; and
25% of their most recent salary for the next five years. BICO is also required
to continue medical insurance coverage for Messrs. Cooper, Purdy, Feola and
Keeling and their families during such periods. Such severance payments will
terminate in the event of the employee's death.
In the event that either Mr. Purdy or Mr. Cooper becomes disabled, as defined
in their Agreements, he will be entitled to the following payments, in lieu of
salary, such payments to be reduced by any amount paid directly to him pursuant
to a disability insurance policy provided by the Company or its affiliates:
100% of his most recent annual salary for the first three years; and 70% of his
most recent salary for the next two years. In the event that either Mr. Feola
or Mr. Keeling becomes disabled, as defined in their Agreements, he will be
entitled to the following payments, in lieu of salary, such payments to be
reduced by any amount paid directly to him pursuant to a disability insurance
policy provided by the Company or its affiliates: 100% of his most recent
annual salary for the first year; and 70% of his most recent salary for the
second year.
The Agreements also generally restrict the disclosure of certain confidential
information obtained by Messrs. Cooper, Purdy, Feola and Keeling during the
term of the Agreements and restricts them from competing with BICO for a period
of one year in specified states following the expiration or termination of the
Agreements.
In addition to the Employment Agreements described above, BICO also entered
into employment agreements with two of its non-executive officer employees
effective November 1, 1994. The terms of such agreements are similar to those
described for Messrs. Feola and Keeling above, with the following amendments:
the term of one agreement is from November 1, 1994 through October 31, 2002,
and is renewable for successive two-year terms; the term of the other agreement
is from November 1, 1994 through October 31, 1999, and is renewable for
successive two-year terms; the annual salaries are $100,000 and $75,000
respectively; and, in the event of a "change in control", BICO is required to
issue both employees shares of common stock equal to two percent (2%) of the
outstanding shares of the common stock of the Company immediately after the
change in control.
REPORT ON EXECUTIVE OFFICER COMPENSATION
The Company has no Compensation Committee which determines executive
compensation. The Named Executive Officers' salaries are determined by their
employment contracts, which are negotiated and approved by the Board of
Directors. Raises in salaries and bonuses are recommended by the CEO and
approved by the Board of Directors. The CEO bases his recommendations on a
number of subjective factors which include each executive officer's scope of
responsibility and accountability within the Company, and each individual's
performance and service to the Company.
Deductibility of Executive Compensation Expense Under Federal Tax Laws
When awarding compensation to its executives, the Board of Directors has
considered the impact of recently enacted provisions of the Internal Revenue
Code of 1986, as amended, that in certain circumstances disallow compensation
deductions in excess of $1 million for any year with respect to the Company's
Named Executives ("Section 162(m)"). While the Company does not expect that
these provisions will limit its tax deductions for executive compensation in
the near term, in the future, the Board may determine to adopt a compensation
program which does not satisfy the conditions of Section 162(m) if in the
Board's judgment, after considering the additional costs of not satisfying
Section 162(m), such program is appropriate.
Submitted by the Board of Directors
David L. Purdy
Fred E. Cooper
Anthony J. Feola
Glenn Keeling
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BIOCONTROL TECHNOLOGY ("BICO"),
NASDAQ MARKET INDEX AND SIC CODE INDEX
"Line Graph"
1991 1992 1993 1994 1995 1996 **1997
------ ------ ------ ------ ------ ------ ------
BICO 100.00 66.67 53.85 34.62 73.72 19.23 5.13
SIC Code Index 100.00 83.20 60.75 69.91 119.26 129.89 149.36
NASDAQ MarketIndex 100.00 100.98 121.13 127.17 164.96 204.98 255.70
Assumes $100 Invested on January 1, 1992
Assumes Dividend Reinvested
**As of November 28, 1997
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the indicated information as of September 30,
1997 with respect to each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding common
stock, each director of the Company, and all directors and executive officers
of the Company as a group. The table excludes disclosure of entities such as
Cede & Co. and other companies which would reflect the ownership of entities
who hold stock on behalf of shareholders.
As of September 30, 1997 there were 95,754,826 shares of the Company's common
stock outstanding. The first column sets forth the common stock currently
owned by each person or group, excluding currently exercisable warrants for the
purchase of common stock. The second column sets forth the percentage of the
total number of shares of common stock outstanding as of September 30, 1997
owned by each person or group, excluding exercisable warrants. The third
column sets forth the total number of shares of common stock which each named
person or group has the right to acquire, through the exercise of warrants,
within sixty (60) days, plus common stock currently owned. The fourth column
sets forth the percentage of the total number of shares of common stock
outstanding as of September 30, 1997 which would be owned by each named person
or group upon the exercise of all of the warrants held by such person or group
together with common stock currently owned, as set forth in the third column.
Except as otherwise indicated, each person has the sole power to vote and
dispose of each of the shares listed in the columns opposite his name.
Amount and Nature Percent of
Name and Address of of Beneficial Percent of Ownership with Class with
Beneficial Owner Ownership(1) Class(2) Warrants (3) Warrants(4)
______________________ ________________ __________ ______________ ___________
David L. Purdy (5) 240,140 * 1,007,340(6) 1.0%
300 Indian Springs Road
Indiana, PA 15701
Fred E. Cooper 776,200 * 1,076,200(7) 1.1%
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
Anthony J. Feola 354,000 * 904,000(8) *
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
Glenn Keeling 138,500 * 238,500(9) *
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
All directors and 1,508,840 1.5% 3,226,040(10) 3.3%
executive officers
as a group (4 persons)
* Less than one percent
________________________
(1) Excludes currently exercisable warrants set forth in the third column and
detailed in the footnotes below.
(2) Represents current common stock owned by each person, as set forth in the
first column, excluding currently exercisable warrants, as a percentage of
the total number of shares of common stock outstanding as of September 30,
1997
(3) Includes ownership of all shares of common stock which each named person
or group has the right to acquire, through the exercise of warrants,
within sixty (60) days, together with the common stock currently owned.
(4) Represents total number of shares of common stock owned by each person, as
set forth in the third column, which each named person or group has the
right to acquire, through the exercise of warrants within sixty (60) days,
together with common stock currently owned, as a percentage of the total
number of shares of common stock outstanding as of September 30, 1997. For
computation purposes, the total number of shares of common stock
outstanding as of September 30, 1997 has been increased by the number of
additional shares which would be outstanding if the person or group owned
the number of shares set forth in the third column.
(5) Does not include shares held by Mr. Purdy's spouse or adult children. Mr.
Purdy disclaims any beneficial interest to shares held by members of his
family.
(6) Includes currently exercisable warrants to purchase the following: 187,200
shares of common stock at $.25 per share until April 24, 1995 (extended
until April 24, 1998); 80,000 shares of common stock at $.33 per share
until June 29, 1995 (extended until June 29, 1998); and 500,000 shares of
common stock at $.25 per share until May 1, 1995 (extended until May 1,
1998) pursuant to Mr. Purdy's previous employment agreement. In addition,
Mr. Purdy is entitled to certain shares of Common Stock upon a change of
control of BICO as defined in his employment agreement (See, "Employment
Agreements").
(7) Includes currently exercisable warrants to purchase the following:
300,000 shares of common stock at $.25 per share until May 1, 1995
(extended until May 1, 1998) pursuant to Mr. Cooper's previous employment
agreement. In addition, Mr. Cooper is entitled to certain shares of Common
Stock upon a change of control of BICO as defined in his employment
agreement (See, "Employment Agreements").
(8) Includes currently exercisable warrants to purchase the following:
100,000 shares of common stock at $.25 per share until November 26, 1995
(extended until November 26, 1998); 100,000 shares of common stock at $.25
per share until May 1, 1995 (extended until May 1, 1998) pursuant to Mr.
Feola's previous employment agreement; and 350,000 shares of common stock
at $.50 per share until October 11, 1996 (extended until October 11,
1999). In addition, Mr. Feola is entitled to certain shares of Common
Stock upon a change of control of BICO as defined in his employment
agreement (See, "Employment Agreements").
(9) Includes currently exercisable warrants to purchase 100,000 shares of
common stock at $1.48 per share until August 26, 2001. In addition, Mr.
Keeling is entitled to certain shares of Common Stock upon a change of
control of BICO as defined in his employment agreement (See, "Employment
Agreements").
(10) Includes shares of common stock, including stock currently owned,
available under currently exercisable warrants as set forth above.
FINANCIAL AND OTHER INFORMATION
For additional information, including Financial Information, Financial
Statements and corresponding notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, please review the Company's
Form Annual Report on Form 10-K, as well as the Company's Quarterly Reports on
Form 10-Q, which are available at no charge from the Company or on line from
the SEC's EDGAR system. For information, please contact Diane McQuaide, the
Company's Investor Relations representative at:
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
(412) 429-0673
INCREASE IN NUMBER OF AUTHORIZED SHARES
The Company's Articles of Incorporation, as amended, authorize the issuance of
150,000,000 shares of common stock, par value $.10 per share. As of September
30, 1997, there were 95,754,826 shares outstanding, and currently
exercisable warrants to purchase 5,446,162 shares of common stock.
All outstanding shares of the Company's common stock are issued fully paid and
nonassessable. All additional shares of common stock will be fully paid and
nonassessable. All the shares of common stock will be equal to each other with
respect to liquidation rights and dividend rights and there are no preemptive
rights to purchase any additional shares of common stock. Holders of common
stock are entitled to one vote per share on all matters submitted to a vote of
shareholders, but are not entitled to cumulate their votes in the election of
directors. Accordingly, the holders of over 50% of the outstanding common stock
voting for the increase in the number of authorized shares of common stock
could determine the outcome of such vote, and the holders of the remaining
common stock would not be able to change the outcome of the vote.
In the event of liquidation, dissolution or winding up of the Company, holders
of the common stock are entitled to receive on a pro rata basis all assets
remaining after satisfaction of all liabilities including liquidation
preferences granted to holders of the preferred stock of the Company.
Holders of common stock are entitled to cash dividends only when and if
declared by the Board of Directors out of funds legally available for payment
thereof, and subject to the prior right of holders of the Company's preferred
stock to receive any accrued but unpaid dividends. Further, common stock
dividends may be paid only to the extent the net assets exceed the liquidation
preference of any outstanding preferred stock. The Company has not paid any
cash dividends on its common stock since its inception and no cash dividends on
the common stock are contemplated at any time in the foreseeable future.
The Board of Directors of the Company unanimously approved a resolution to
propose that the shareholders increase the number of authorized shares of
common stock to 300,000,000 by amending the Company's Articles of
Incorporation. If such an increase is approved, the Board of Directors may,
without additional shareholder approval, authorize the sale of such additional
shares in order to raise additional capital to fund the Company's operations
and research and development projects. The Board will authorize management to
use any such funds raised to fund existing or new research and development
projects as management determines is in the best interest of the Company.
Management does not believe that, until full-scale manufacturing of the
Noninvasive Glucose Sensor begins, or the sales of the Company's other products
generates meaningful revenues, the Company presently has alternative means
to raise additional funds. The proposal to increase the number of authorized
shares is part of management's long-term plan to continue funding the Company's
existing and future research and development projects, and to fund
manufacturing start-up of the Noninvasive Glucose Sensor. Any future sale of
additional shares, whether in a public or private offering, will dilute the
holdings of existing shareholders. The Company has no current specific plans
for any proceeds received from the future sale of the additional shares, but
may use any such proceeds to continue funding existing research and development
projects, manufacturing, and future projects which are deemed by management to
be in the best interest of the Company. Such projects are subject to risks, and
there can be no assurances that any current or future project will be
successful or result in commercially viable products.
The Board of Directors recommends shareholder approval of the proposal to amend
the Company's Articles of Incorporation to increase the number of authorized
shares of common stock to 300,000,000. The affirmative vote of the holders of
a majority of the common stock entitled to vote at the Special Meeting is
necessary to approve the amendment. If not otherwise specified, properly
executed proxies will be voted in favor of the amendment.
CHANGES IN THE COMPANY'S INDEPENDENT AUDITORS
Effective January 25, 1995, upon a determination by the Board of Directors, the
Company engaged Thompson Dugan, P.C. as its independent auditors and
accountants to replace Grant Thornton LLP. Thompson Dugan, P.C. also serves as
the independent auditors and accountants for Diasense, replacing Grant Thornton
LLP. Neither company had any disagreements with Thompson Dugan, P.C. or Grant
Thornton LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. A representative of
Thompson Dugan, P.C. will not be present at the Special Meeting to answer
questions.
SHAREHOLDER PROPOSALS
All shareholder proposals to be presented at the next Annual Meeting of the
Company must be received by the Company at its principal executive offices by
January 31, 1998 for inclusion in the proxy materials relating to the next
Annual Meeting.
OTHER MATTERS
The management of the Company does not know of any other matters that are to be
presented for action at the meeting. Should any other matter come before the
meeting, however, the person named in the enclosed Proxy shall have
discretionary authority to vote all shares represented by valid proxies with
respect to such matter in accordance with his judgement.
The enclosed Proxy is solicited on behalf of the Board of Directors. The
expenses of solicitation, including the cost of preparing, handling, printing
and mailing the Notice of Annual Meeting, Proxy and Proxy Statement, the
aggregate of which is estimated to be approximately $30,000, has been or will
be paid by the Company. The Company will pay Chase Mellon Shareholder
Services, its Registrar and Transfer Agent, for its assistance in the
solicitation of proxies and will reimburse brokers and other persons holding
shares in their names or those of their nominees for their expenses for sending
Proxy materials to principals and obtaining their proxies.
Shareholders are urged to specify their choice, date, sign and return the
enclosed proxy in the enclosed envelope. Prompt response is helpful and your
cooperation will be appreciated.
By Order of the Board of Directors
______________________________
David E. Staudenmaier, Secretary
