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BIOSEARCH MEDICAL PRODUCTS, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 21, 1999
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Somerville, New Jersey
June 11, 1999
TO THE HOLDERS OF COMMON STOCK OF
BIOSEARCH MEDICAL PRODUCTS, INC.:
The Annual Meeting of the Shareholders of BIOSEARCH MEDICAL PRODUCTS, INC.
will be held at the RYLAND INN, U.S. ROUTE 22 WEST, WHITEHOUSE, NJ 08876,
Wednesday, July 21, 1999, at 10:00 AM, for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. To elect directors of the Company for the ensuing year.
- --->>2. TO VOTE ON EXCHANGING ALL THE COMMON SHARES OF THE COMPANY WITH
HYDROMER, INC. FOR $0.20 PER SHARE
3. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The close of business on June 1, 1999 has been fixed by the Board of
Directors as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Meeting.
By Order of the Board of Directors,
Robert J. Moravsik, Secretary
You are cordially invited to attend the Meeting in person. If you do not
expect to be present, please mark, sign, and date the enclosed form of Proxy and
mail it in the enclosed return envelope, which requires no postage if mailed in
the United States, so that your vote can be recorded.
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RYLAND INN
BOX 284 * ROUTE 22 WEST
WHITEHOUSE, NJ 08888
(908) 534-4011
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PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about June 11,
1999 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Shareholders, is provided in connection with the solicitation of
Proxies on behalf of the Board of Directors of Biosearch Medical Products, Inc.,
for use at the Annual Meeting of Shareholders to be held on July 21, 1999, and
at any adjournment or adjournments thereof, for the purposes set forth in such
Notice. The Company's executive office is located at 35A Industrial Parkway,
Somerville, New Jersey 08876.
At the close of business on June 1, 1999, the record date stated in the
accompanying Notice, the Company had outstanding 2,202,878 shares of common
stock, without par value (the "Common Stock"), each of which is entitled to one
vote with respect to each matter to be voted on at the Meeting. The Company has
no class or series of stock outstanding other than the Common Stock.
On June 1, 1999, Manfred F. Dyck, C.E.O. and a director of the Company,
beneficially owned approximately 21.8% of the outstanding Common Stock of the
Company and his son, Martin C. Dyck, President of the Company, beneficially
owned an additional 1.8% of the Common Stock. Such ownership may enable such
shareholders to exercise a controlling influence over the Company's affairs.
I. ELECTION OF DIRECTORS
(PROPOSAL I)
Five directors will be elected at the Annual Meeting of Shareholders, each
to serve for one year and until a successor shall have been chosen and
qualified. It is the intention of each of the persons named in the accompanying
form of Proxy to vote the shares represented thereby in favor of the five
nominees listed in the following table, unless otherwise instructed in such
Proxy. Each such nominee is currently serving as a director. In case any of the
nominees are unable or decline to serve, such persons reserve the right to vote
the shares represented by such Proxy for another person duly nominated by the
Board of Directors in such nominee's stead or, if no other person is so
nominated, to vote such shares only for the remaining nominees. The Board of
Directors has no reason to believe that any person named will be unable or will
decline to serve. Certain information concerning the nominees for election as
directors is set forth below. Such information was furnished by them to the
Company.
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NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF PERCENT OF
NAME, AGE, & PRINCIPAL COMMON STOCK OUTSTANDING
OCCUPATION AS OF JUNE 1, 1999 (1) SHARES
- ---------------------- ---------------------- ------------
<S> <C> <C>
MANFRED F. DYCK, age 63; 480,004 (2) 21.8
C.E.O. of the Company
since 1975; Director, CEO &
President: Hydromer, Inc.,
(developer and marketer
of polymeric complexes).
Director of the Company
since 1975.
MARTIN C. DYCK, age 37; 39,041 (3) 1.8
President of the
Company since 1998; Vice
President of Operations
since 1993, Employed by
the Company in various
position since 1986, starting
as a Project Manager.
DAVID M. SCHRECK, M.D. age 45; 10,000 (4) 0.5
Chief, Department of Emergency Medicine,
Medical Director, Muhlenberg Regional
Medical Center since 1991; also President
EMO Medical Offices in Livingston,
NJ. Director of the Company since April 1996.
FREDERICK A. PERL, MD, age 71 9,000 (4) 0.4
Attending staff, Somerset Medical
Center since 1957; Consulting staff
Obstetrics and Gynecology, Carrier
Clinic since 1959; Affiliated with
St. Peter's Medical Center, active staff
Since 1994, Director of the Company
since December 1996
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</TABLE>
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<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF PERCENT OF
NAME, AGE, & PRINCIPAL COMMON STOCK OUTSTANDING
OCCUPATION AS OF JUNE 1, 1999 (1) SHARES
- ---------------------- ---------------------- ------------
<S> <C> <C>
KLAUS J.H. MECKELER, M.D. age 65; 22,000 (4) 1.0
Clinical Professor of Medicine
UMDNJ, Robert Wood Johnson Medical School
Former Chief of Gastroenterology
and Director of Endoscopic Clinic
(a clinic specializing in
gastrointestinal disorders)
Somerset Medical Center, since
1966; Director of the
Company since January 1984.
</TABLE>
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(1) Except as otherwise indicated, as of June 1, 1999, each nominee had sole
voting and investment power with respect to all shares shown in the table
as beneficially owned by such nominee.
(2) Includes an aggregate of 38,418 shares held by Mr. Dyck as custodian for
certain of his children and his children directly; also includes 96,867
stock options in Mr. Dyck's name. Excludes 4,654 shares and 34,387 options
in the name of Mr. Dyck's son Martin who is also a Director. Includes
29,607 shares held by Ursula M. Dyck, his wife, individually or as
custodian.
(3) Includes 34,387 options being held by Mr. Martin C. Dyck.
(4) In January 1998 the directors voted to re-issue certain options to account
for past services as Board members and to compensate directors for agreeing
to accrue Board Member fees. Dr. Meckeler was granted 22,000 options to
purchase shares as a replacement for all previous options; Dr. Schreck was
granted 10,000 options to purchase shares as a replacement for all previous
options and Dr. Perl was granted 1,000 options in addition to the 8,000
previously granted in 1997. The options were granted at the market price on
the date of grant.
No family relationship exists between any of the directors or executive
officers of the Company, except that Martin C. Dyck who served as President
is Mr. Manfred F. Dyck's son.
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BOARD MEETINGS
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During the past year, the Board of Directors of the Company met ten times.
Each of the persons named above attended at least seventy-five percent (75%) of
the meetings of the Board of Directors and meetings of any committees of the
Board on which such person served which were held during the time that such
person served except for Mr. Martin C. Dyck who was appointed in September of
1998 and Dr. David Schreck who attended 50% of the meetings.
COMMITTEES IN GENERAL
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The Board of Directors of the Company does not have a Nominating Committee
or a Compensation Committee. In June of 1989 the Company formed an Audit
Committee to oversee the auditing process and evaluate the performance of the
outside accountants. The Audit Committee met on one occasion in 1998. The Board
of Directors approved a practice in 1990 whereby the outside directors are to
approve the raises of all employees whose salaries are above $50,000 a year.
SECTION 16 FILING OBLIGATIONS
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During 1998 all directors and officers have complied with their obligation
to file the reports which are required by Section 16(a) of the Exchange Act. The
Company is not aware of any failure on the part of beneficial owners of more
then 10% of the outstanding common stock of the Company, to file timely reports.
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SUMMARY COMPENSATION TABLE
- --------------------------
The following table sets forth information concerning the CEO and executive
officers of the Company whose cash compensation exceeded $100,000 as of December
31, 1998.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compen. Awards Payouts
------------------ --------------------------- -----------
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principle sation Award Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#){2} ($) ($)
-------- ---- --------- -------- --------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manfred F. Dyck 1998 36,840 0 3,420 0 0 0 0
1997 95,803 0 3,510 0 77,617 0 0
1996 192,500 0 16,760 0 0 0 0
</TABLE>
No other executive qualifies for inclusion in this table.
Notes:
1. On October 29, 1997 Mr. Dyck was granted 77,617 options
to purchase company stock at $0.19. This grant was
vested in full. (see Options granted.)
2. On May 5, 1998 Mr. Martin C. Dyck was appointed
President of the Company (Mr. Manfred Dyck retaining
the position of Chairman and CEO). Martin Dyck's 1998
Salary was less then $100,000.
The Company has customary medical and group life insurance programs. See
"Certain Employee Benefit Arrangements" below. See also "Certain Agreements with
Directors and Executive Officers" and "Other Information Concerning Directors,
Officers, and Shareholders" below. The Company makes certain benefits not
described elsewhere herein available to its executive officers with a view to
acquiring and retaining qualified personnel and facilitating job performance.
The Company considers such benefits to be ordinary and incidental business costs
and expenses. The aggregate value of such benefits in the case of each executive
officer in the above table, which cannot be precisely ascertained, but is less
than the lesser of (a) 10% of the total salary and bonus paid to each executive
officer or (b) $50,000 as the case may be, is not included in such table.
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OPTION GRANTED
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On October 29, 1997 Stock Options to purchase 200,041 shares at $0.19 were
awarded to 13 managerial and key employees including Manfred F. Dyck who
received 77,617. These options immediately vested. The options expire if the
employee resigns. It was the Company's opinion that such awards are necessary to
retain the companies experienced key employees who have not received salary
increments for the past three years.
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options Exercise or
Granted Base Price Expir-
Options in Per Share ation
Name Granted Fiscal Year ($/sh) Date
---- ------- ----------- ----------- ---------
Dr. Frederick Perl 1,000 2% .19 1/21/2003
Dr. Klaus J.H. Meckeler 22,000 43% " "
Dr. Davis Schreck 10,000 21% " "
These options were granted on January 21, 1998 based on the longevity
of the director's services to the Company.
Two employees were granted at total of 18,000 options (34%), 5 years,
vesting 1/3 in each year at .19 to compensate for not receiving an
increase in salary. It is the opinion of the Company that these
options are needed to retain these important employees.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION STATUS
<TABLE>
<CAPTION>
Number of Unexercised See note
Options Held at Val. of Unexer, in the money
Shares Fisc. Year End (#) Options at Fiscal Year End($)
Acquired when Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercised(#) Realized($) able able able able
---- ---------------- ------------ --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Manfred F. Dyck, CEO, BD - - 96,867 0 0 0
</TABLE>
note: "in the money" calculation assumes a market price of $.12 (June 1, 1999).
Pursuant to the terms of the option grant the shares are restricted, and may
only be sold in the marketplace pursuant to an exception to the requirements to
register such as Rule 144.
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LONG-TERM STOCK INCENTIVE PLAN AWARDS
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The Company did not have such a plan in effect for the fiscal year 1998 and
has no present intention to establish such a plan.
PROFIT SHARING RETIREMENT PLAN
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The Company has a "401K" Plan in effect for all of its employees. Subject
to the discretion of the Company, exercised each year, it contributes 33 1/3% of
employee contributions up to 6% to the plan. Effective May 1, 1991, the Company
has discontinued the contribution subject to further action by the Board. The
full costs of administering the plan, which includes service fees paid to an
insurance company for administering the plan and monies paid to the Company's
auditors to provide an audit report, will be borne by the Company.
CERTAIN AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------
Mr. Dyck has an employment agreement with the Company which provides a
minimum annual salary of $192,500, and a 6-month notice of termination. Mr. Dyck
was required to devote at least 90% of his business time to the affairs of the
Company. On January 1, 1993 the Company and Mr. Dyck agreed that his annual
salary would be reduced to $96,500 and he would be required to work on a part
time basis of three days per week. On June 4, 1994 Mr. Dyck's salary was
increased to the full time amount of $193,000 per year. In December 1994 as part
of a cost reduction plan, Mr. Dyck voluntarily agreed to a salary reduction to
$150,000 per year. On February 5, 1997 Mr. Dyck presented the Board with a cost
reduction program which resulted in his salary being voluntarily reduced to
$95,000/year based on a three day work week. On 5/5/98 by consent and agreement,
Mr. Dyck's salary was amended to $95,000 accrued not paid. He agreed to be
removed as President, but retained the title of Chairman and CEO. Mr. Martin C.
Dyck, son of Mr. Dyck was appointed President.
In June of 1998 the Board passed a resolution providing that in the event
of change of control to one entity or more than one entity acting in concert,
key employees are to be immediately paid a percentage of their yearly salary.
Mr. Martin C. Dyck, President is to be paid one years salary and Mr. Keller a
Vice President and the treasurer is to be paid 25% of a years salary. Four other
key employees are to be paid 25% of their salary. The total payment IF MADE on
12/31/98 would have been $136,000. On May 12, 1999 at a special board meeting to
consider the offer made by Hydromer, Inc. to exchange $0.20 for each common
share of the Company, Mr. Martin C. Dyck waive this change of control payment
($72,000) in lieu of an offer by Hydromer of the position of Vice President at a
salary of $110,000 per year and an option to purchase 10,000 Hydromer shares at
a price equal to the last five day average market price on the day of closing of
the exchange transaction (see Proposal II.)
On December 30, 1998 the Company paid Mr. Martin C. Dyck $ 8,492
representing salary earned but not paid and on March 4, 1999 the Company paid
the Directors as a group $ 70,500
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representing directors' fees earned but not previously paid. On March 11, 1999
the amount of $76,730 owed to Manfred F. Dyck, C.E.O. for salary accrued was
paid. On March 17, 1999 the Board agreed to continue to accrue directors' fees,
and Manfred F. Dyck agreed to a continued accrual of his salary.
For services rendered to the Company certain directors of the Company were
granted options to purchase Common Stock of the Company. (See "Options Granted"
above.)
Each director of the Company is entitled to receive compensation in the
amount of $750 for each meeting of the Board of Directors attended either in
person or telephonically, and $200 for each specially called telephonic
conference meeting. In March of 1999 and until further notice the Board agreed
to accrue, but not pay Directors fees.
INFORMATION CONCERNING CERTAIN SHAREHOLDERS
===========================================
The shareholders (including any "group" as that term is used in Section
13(d) (3) of the Securities Exchange Act of 1934), who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than 5% of any class
of the outstanding voting securities of the Company as of June 1, 1999, each
Director of the Company who owned beneficially shares of Common Stock and all
Directors and Officers of the Company as a group, and their respective share
holdings as of such date (according to information furnished by them to the
Company), are set forth in the following table. Except as indicated in the
footnotes to the table, all of such shares are owned with sole voting and
investment power. The company has one class of shares.
SHARES OF COMMON STOCK
NAME AND OWNED BENEFICIALLY AS OF PERCENT
ADDRESS JUNE 1, 1999 OF CLASS
- -------- ------------------------- ----------
Manfred F. Dyck 480,004 (1) 21.8
255 Holland Road
Far Hills, NJ 07931
Martin C. Dyck 39,041 (2) 1.8
Biosearch Medical Products, Inc.
35A Industrial Pkwy
Somerville, NJ 08876
Frederick A. Perl 9,000 (3) 0.4
951 North Mountain Ave.
Boundbrook, NJ 08805
David M. Schreck 10,000 (3) 0.5
80 Division Ave.
Summit, NJ 07901
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SHARES OF COMMON STOCK
NAME AND OWNED BENEFICIALLY AS OF PERCENT
ADDRESS JUNE 1, 1999 OF CLASS
- -------- ------------------------- ----------
Klaus J.H. Meckeler 22,000 (3) 1.0
Biosearch Medical Products, Inc.
35A Industrial Pkway
Somerville, NJ 08807
Steve N. Bronson 301,494 13.7
2101 W. Commercial Blvd, Suite 1500
Ft. Lauderdale, Florida 33309
All Directors and Officers 605,084 (4) 27.5
as a Group (7 persons)
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(1) Includes an aggregate of 38,418 shares held by Mr. Dyck as custodian for
certain of his children and his children directly; also includes 96,867
stock options in Mr. Dyck's name. Excludes 4,654 shares and 34,387 options
in the name of Mr. Dyck's son Martin who is also a Director. Includes
29,607 shares held by Ursula M. Dyck, his wife, individually or as
custodian.
(2) Includes 34,387 options being held by Mr. Martin C. Dyck.
(3) In January 1998 the directors voted to re-issue certain options to account
for past services as Board members and to compensate directors for agreeing
to accrue Board Member fees. Dr. Meckeler was granted 22,000 options to
purchase shares as a replacement for all previous options; Dr. Schreck was
granted 10,000 options to purchase shares as a replacement for all previous
options and Dr. Perl was granted 1,000 options in addition to the 8,000
previously granted in 1997. The options were granted at the market price on
the date of grant.
(4) Includes 217,035 options presently held by Officers or Directors, see
"Options Granted Outside Of Stock Option Plan."
OTHER INFORMATION CONCERNING DIRECTORS, OFFICERS AND SHAREHOLDERS
- ------------------------------------------------------------------
The Company, during 1998 was a party to various transactions with Hydromer,
Inc. Hydromer
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provides the Company with chemicals and analytical services. In 1998 the Company
purchased approximately $35,000 worth of goods and services from Hydromer and
billed Hydromer for approximately $26,000 for services, out of pocket expenses
incurred in its behalf (the Company provides secretarial services to Hydromer at
$500 per month). The Company has served as the a subcontractor of Hydromer to
provide coating services on various products using the chemicals made by
Hydromer. The prices that the Company charges to Hydromer are equal to those
prices it would charge any other third party for like services. The Company paid
$38,900 to Hydromer for patent licenses that expired or were terminated in March
of 1998.
In late 1997 Hydromer and Biosearch entered into a secrecy agreement
whereby the Officers of Hydromer were granted access to the non-public records
of Biosearch to explore any possible business relationships or ventures.
On March 31, 1998 the Company and Hydromer entered into a contract of sale
whereby, Hydromer agreed to purchase the Company's building and land at a price
of $850,000 and a three year lease-back to the Company of 16,000 square feet
(approx. 2/3rds of the building). The parties valued the lease at $346,500. The
transaction was closed on June 12, 1998. Since then the parties have shared
various costs in accordance with the terms of the lease. The Company believes
that the terms of the foregoing arrangement are fair and equitable to both
parties.
As of April 20, 1998, as part of a cost reduction plan, the General Counsel
was employed by the Company on a part time basis of 1 day per week. The
remaining 4 days are spent as the General Counsel of Hydromer. In the event of a
conflict between the Company and Hydromer, outside counsel is used.
In September of 1998, Hydromer expressed interest in acquiring the stock of
the Company in a stock exchange at 6 shares of Biosearch stock for each one
share of Hydromer and conditioned on certain liabilities of Biosearch being
eliminated. The Board of Directors (Manfred F. Dyck, not taking part in the
decision) was of the opinion that the stated terms might not be in the best
interests of the stockholders. In March of 1999 the Directors sought the advice
of an evaluation expert to render a fairness opinion. In April 1999, Hydromer
again expressed their interest to exchange each Biosearch share for a payment of
$0.15. In addition there were other conditions which the board found to be
burdensome on certain employees. On May 10, 1999 Hydromer, Inc. revised its
offer and at a special meeting of the Board of Directors, held on May 12, 1999
the Board approved the offer and directed that it be presented to the
shareholders for a vote. A PLAN OF EXCHANGE was thereafter approved at the
regular Board meeting held on May 27, 1999 (see Proposal II).
In the latter part of 1998 the Company and Hydromer formed a Y2K joint task
force to assess the effect the Y2K problem would have on the facilities, jointly
occupied. The companies are devising a plan that in the opinion of the
management of the Company will be less expensive to implement then any plan
implemented alone by the Company.
On February 25, 1999 the Company closed a transaction with C.R. Bard, Inc.
which transferred the Company's process coating technology and a coating machine
pertaining to
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intermittent urinary catheters for the sum of $650,000. On the same date,
Hydromer closed a transaction which licensed the right to use Hydromer's coating
for the same device. Biosearch's contract had a condition whereby, the closing
was condition on the Hydromer transaction closing at the same time. Outside
counsel was used to represent the interests of Hydromer, because of a potential
conflict.
Manfred F. Dyck, C.E.O. of the Company and his wife Ursula M. Dyck are also
directors of Hydromer. Mr. Manfred Dyck is the President and CEO of Hydromer. In
total they hold 42% (on a fully diluted basis) of the capital stock of Hydromer.
Their son Martin C. Dyck, who is President of the Company, owns 46,152 shares or
1.1% of Hydromer stock.
II. SHARE EXCHANGE FOR $0.20
(PROPOSAL II)
SHOULD THE SHAREHOLDERS OF THE COMPANY EXCHANGE THEIR SHARES FOR A
PAYMENT OF $0.20 PER SHARE. [THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE YES TO THIS PROPOSAL II.]
INFORMATION ABOUT TRANSACTION:
- ------------------------------
Pursuant to New Jersey Law N.J.S.A. 14A:10-13 (Share Exchange) the Company will
be acquired by Hydromer, Inc. a New Jersey Corporation as a wholly owned,
non-public subsidiary by exchanging each share of the Company for the right to
receive a payment of $0.20 ("Share Consideration"). If a majority of the votes
cast by holders of shares which are entitled to vote on the plan of exchange
approve this plan then on the effective date of exchange the share certificates
shall only evidence the right to receive the Share Consideration times the
amount of the shares on the certificate (orange certificate). In the event a
share certificate is blue in color the Share Consideration shall be divided by 5
(in 1996 there was a 1 for 5 reverse split), as the blue certificates represents
pre-split shares
RIGHT OF DISSENT:
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Under New Jersey Business Corporation Act, because the consideration is cash,
shareholders have no statutory right of dissent [N.J.S.A. 14A:11-1(a)(i)(B)]
SHAREHOLDERS PROTECTION ACT:
- ----------------------------
In New Jersey there is a Law known as the "New Jersey Shareholders Protection
Act" [N.J.S.A. 14A:10A-1 et seq. the "Protection Act"]. One of its purposes as
stated is to discourage takeovers of public corporations financed largely
through debt to be repaid in short-term by the sale of substantial assets of the
target corporation. These takeovers prevent shareholders from realizing the full
value of their holdings through forced mergers and coercive devices.
The Protection Act prevents any business combinations between an "interested
shareholder" as
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defined in the law, and the Company for a period of five years unless the
business combination is approved by the Board of Directors prior to the
interested stockholder's stock acquisition date or unless the transaction is
otherwise exempt from the law. There are two "interested shareholders" in this
transaction. Hydromer, Inc. which will acquire the shares of the Company and Mr.
Manfred F. Dyck who holds more then 10% of the voting shares of both Hydromer
and the Company. The business combination in this case occurs when the Company
becomes a wholly owned subsidiary of Hydromer, Inc. Prior to the shareholders
vote on this matter, the Board of Directors has investigated the fairness of the
share exchange, hired and independent evaluation expert. This expert was of the
opinion that the exchange rate of $0.20 per share is fair. (See Fairness
Opinion, Exhibit B). The Board has approved the transaction and has submitted
the final approval to the shareholders.
Hydromer's acquisition of the Company's shares is permitted by the Protection
Act because the Company's Board of Directors has approved the transaction before
Hydromer has acquired any shares of the Company. [N.J.S.A. 14A:10A-4 and 5a.]
Although Manfred F. Dyck is an "interested shareholder" by virtue of his share
ownership of Hydromer, Inc. [N.J.S.A. 14A:10A-3j(2)], this transaction is
specifically exempt from the Protection Act because Manfred F. Dyck owns a
smaller proportion of the voting power of the Company on the Effective Date of
this transaction (21.8%) then he owned on the effective date (August 5, 1986) of
the Protection Act (41.2%) [N.J.S.A. 14A:10A-6b]
BUSINESS OF HYDROMER, INC.:
- ---------------------------
Hydromer, Inc. is a corporation organized in April of 1980. It was spun off from
the Company to exploit certain chemical technology in the industrial/medical
device market place invented by the Company. Presently Hydromer occupies 33% of
the building that the Company leases from Hydromer. Hydromer manufactures
chemicals and performs R&D in the polymer coating markets. Hydromer's annual
sales for the year ending 6/30/98 were $2,360,570 (refer to the financial
statements of Hydromer which have been mailed with this document).
Hydromer intends to use the Company's currently under utilized facilities to
produce items that would otherwise have to be subcontracted. Hydromer also
believes that the Company's medical coating expertise will be a synergistic
addition to its own capabilities.
SUMMARY OF MATERIAL FEATURES OF THIS EXCHANGE:
- ----------------------------------------------
The Board of Directors have proposed that each stockholder vote for the exchange
of each of their common shares of the Company for a payment of $0.20. There are
other terms and conditions that must be met which are contained in attached plan
of exchange (exhibit A). It is the Company's opinion that these terms can be met
and if the majority of the shareholders vote affirmatively the exchange will be
completed.
In addition, the President of the Company, Martin C. Dyck has been offered
employment with
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Hydromer, Inc. as the Vice President of Operation at a salary of $110,000 per
year. He will also be given options to purchase 10,000 shares of Hydromer, Inc.
at the 5 day rolling average market price prior to the Effective Date. Mr.
Martin C. Dyck will remain as President of Biosearch Medical Products, Inc. at a
salary of $1.00/year. In consideration, Mr. Martin C. Dyck agreed to waive a the
"change of control" payment of $72,000 which was awarded to key employees in
June of 1998.
REASON FOR THIS TRANSACTION:
- ----------------------------
The Company has been struggling to increase sales but the lack of any capital
for marketing programs has impeded the Company's ability to exist as a going
concern. It has been unable to obtain financing due to its financial history and
to maintain its existing operations the Company has had to sell off some of its
assets.
Hydromer has the marketing and sales organization that would increase the sales
volume of activities within the Company's area of expertise which is the
manufacture and coating of medical devices. The Company has an FDA registered
facility which also is registered under ISO 9001 (A standard used in Europe).
The Company is authorized to put the "CE Mark" on some of its medical products
such as stents, biofeedback devices and various catheters.
As to Hydromer, Inc. it sees positive value in the Company's operation. The
Company has used Hydromer's chemicals on most of its medical devices and has
developed expertise in the use of Hydromer's Coatings. Hydromer will, in
addition be able to make use of the tax credits the Company has built up due to
losses (Net Operating Losses or NOL's). Hydromer values these NOL's at a maximum
of $12,000 if Hydromer continues to be profitable. There is, of course, no
assurance that the Net Operating Losses will be useful.
ACCOUNTING TREATMENT:
- ---------------------
The proposed transaction is a business combination accounted for under the
purchase method, effective on the date of the transaction. Balance sheet
elements of both companies will be combined on the effective date. The monies
paid to the shareholders for their exchange of Biosearch stock along with the
fees and costs associated with the acquisition will be accounted for on
Hydromer's balance sheet as an investment in a subsidiary. The consolidated
shareholders equity that remains on the effective date will go to Hydromer
(Biosearch's shareholders' equity will be eliminated upon consolidation). Assets
of Biosearch Medical Products, Inc. will be appraised and recorded at their fair
value on the consolidated balance sheet. Any difference between the amount paid
to Biosearch shareholders (the Purchase Price) and the fair value of Biosearch
will result in good will. This goodwill will be amortized over 20 years. This
amortization is not deductible for tax purposes.
Fixed assets will be recorded at fair value as of the close of business on the
effective date. Any balances between Hydromer and Biosearch, such as trade
payables and receivables, prepaid and deferred rent, will be eliminated in
consolidation.
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FEDERAL INCOME TAX CONSEQUENCES:
- --------------------------------
This transaction is viewed by the Internal Revenue Service as the sale of an
investment (either short term or long term depending on when it was purchased).
A capital gain (or loss) requires the seller to pay capital gains tax (or credit
the loss against similar gains). Consult a tax advisor for the situation
pertaining to each shareholder. Each shareholder will need their original
purchase price of the stock.
DIVIDENDS:
- ----------
The Company has never paid dividends and no dividends are in arrears.
REGULATORY REQUIREMENTS:
- ------------------------
Completing this transaction will result in the Company having only one
shareholder (it has gone private). The Company will still stay in existence and
retain all its rights and liabilities. No regulatory approval is required.
FAIRNESS OPINION:
- -----------------
The Company has retained Jeffrey F. Nelson of Wharton Valuation Associates, Inc.
to investigate this transaction and render an opinion as to its fairness. The
Board of Directors has relied on this report in recommending to the shareholders
to vote FOR this exchange. The report is attached as Exhibit B.
MATERIAL CONTRACTS WITH HYDROMER:
- ---------------------------------
Please refer to "Other Information Concerning Directors, Officers and Other
Shareholders"
PRICE OF SECURITIES BEFORE AND AFTER PUBLIC ANNOUNCEMENT ON MAY 13, 1999.
- -------------------------------------------------------------------------
before- $0.12
after- $0.16
FURTHER INFORMATION ABOUT THE COMPANY AND HYDROMER:
- ---------------------------------------------------
Included with this mailing is the Company's annual report, the Company's 10 QSB
for the quarter ending March 30, 1999; Hydromer's 10SBK for the period ending
June 30, 1998 and their unaudited financial report for the quarters ending
September 30, 1998, December 31, 1998 and March 30, 1999.
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Exhibit A
PLAN OF EXCHANGE
BY AND BETWEEN
HYDROMER, INC.
AND
BIOSEARCH MEDICAL PRODUCTS, INC.
This is a Plan Of Exchange ("PLAN") by and between Hydromer Inc., a corporation
of the State of New Jersey ("HYDI " or "Acquiring Corporation") and Biosearch
Medical Products, Inc. a corporation of the State of New Jersey ("BMP").
I. PLAN OF EXCHANGE
- -------------------
1.01. A PLAN by which the issued and outstanding common shares of BMP are
acquired by HYDI and converted to a right to receive $0.20 per BMP share
pursuant to the provisions of Chapter 10 of the New Jersey Business
Corporation Act is adopted as follows:
(a) On the EFFECTIVE DATE, all the issued and outstanding common
shares of BMP shall be deemed to be acquired by HYDI.
(b) On the EFFECTIVE DATE, each issued and outstanding common share of
BMP shall be converted into a right to receive $0.20. Each holder of
issued and outstanding BMP shares on the EFFECTIVE DATE shall be
entitled to receive, upon surrender to HYDI or its transfer agent of a
certificate or certificates representing such shares in accordance
with such reasonable procedures and conditions with respect to such
surrender as HYDI and BMP shall establish, a check for a cash amount
representing that number of BMP shares surrendered multiplied by
$0.20. Certificates for BMP shares not surrendered to HYDI shall,
after the EFFECTIVE DATE, be deemed to represent such right to receive
$0.20 for each BMP share represented by such certificate.
(c) When this PLAN shall become effective, BMP shall continue its
corporate existence as a wholly owned subsidiary of HYDI, and the
Certificate of Incorporation of BMP, as existing on the EFFECTIVE DATE
shall continue in full force and effect as the Certificate of
Incorporation of BMP until altered, amended or repealed as provided in
the Certificate or as provided by law.
(d) Options to purchase shares of BMP which have an exercise price of
less than $0.20 shall be redeemed by the payment to the holder of such
option of the difference between the exercise price and $0.20. Options
to purchase shares of
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BMP, which have an exercise price of greater than $0.20 shall be
extinguished.
(e) The Certificate of Incorporation of HYDI, as existing on the
EFFECTIVE DATE, shall continue in full force and effect as the
Certificate of Incorporation of the Acquiring Corporation until
altered, amended or repealed as provided in the Certificate or as
provided by law.
1.02. The effective date of the PLAN ("EFFECTIVE DATE") shall be upon
recordation with the Division of Commercial Recording in the State of New
Jersey.
II. REPRESENTATIONS AND WARRANTIES OF CONSTITUENT CORPORATIONS
- --------------------------------------------------------------
2.01. HYDI represents and warrants to BMP that it is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New Jersey with corporate power and authority to own property and
carry on its business as it is now being conducted, and to enter into and
carry out the terms of this PLAN OF EXCHANGE.
2.02. (a) BMP represents and warrants to HYDI that BMP is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey with corporate power and authority to own property and
carry on its business as it is now being conducted and to enter into and
carry out the terms of this PLAN OF EXCHANGE.
(b) BMP has an authorized capital of 5,000,000 shares of common stock
of which, prior to the EFFECTIVE DATE, 2,202,878 shares are validly
issued and outstanding and 257,000 are subject to warrants, options
and rights to purchase.
III. COVENANTS AND OBLIGATIONS PRIOR TO THE EFFECTIVE DATE
- -----------------------------------------------------------
3.01. Pending consummation of this PLAN, each of the constituent
corporations will carry on its business in substantially the same manner as
before and will use its best efforts to maintain its business organization
intact, to retain its present employees, and to maintain its relationships
with suppliers and other business contacts.
IV. DIRECTORS AND OFFICERS
- ---------------------------
4.01. (a) The Board of Directors of BMP on the EFFECTIVE DATE shall serve
as the Board of Directors until their successors have been elected and
qualified.
(b) If a vacancy shall exist on the Board of Directors of the BMP on
the EFFECTIVE DATE, the vacancy may be filled as provided in the
By-laws of BMP.
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<PAGE>
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V. BY-LAWS
- -----------
5.01. The By-laws of HYDI and BMP as existing on the EFFECTIVE DATE shall
continue in full force until altered, amended or repealed as provided in
such By-laws or as provided by law.
VI. TERMINATION
- -----------------
6.01. This Plan may be terminated and abandoned at any time prior to the
EFFECTIVE DATE at the election of the Board of Directors of HYDI or BMP, if
between the date of this PLAN and on the EFFECTIVE DATE there shall have
been in the opinion of such Board of Directors any materially adverse
change in the business or condition, financial or otherwise, of either
corporation.
VII. MISCELLANEOUS
- -------------------
7.01. The validity, interpretation and performance of this PLAN shall be
governed by, construed and enforced in accordance with the laws of the
State of New Jersey.
7.02. The original executed copy of this PLAN is on file at the principal
place of business of HYDI, 35 Industrial Parkway, Branchburg, NJ 08876.
7.03. A copy of the PLAN will be furnished without cost to any shareholder
of BMP or HYDI upon request.
IN WITNESS WHEREOF, the parties hereto caused this PLAN to be executed by
their duly authorized officers and their respective corporate seals affixed
hereto on the twenty seventh day of May, 1999.
HYDROMER, INC.
ATTEST:
By: By:
-------------------------------------- -----------------------------------
Secretary Vice-President
BIOSEARCH MEDICAL PRODUCTS, INC.
ATTEST:
By: By:
----------------------------------- ------------------------------------
Secretary President
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Exhibit B
Fairness opinion; Report of:
Jeffrey J. Nelson
Wharton Valuation Associates, Inc.
704 River Road
West Trenton, NJ 08628
Dated May 12, 1999
We have conducted an analysis of Biosearch Medical Products, Inc. ("Biosearch"
or the "Company") for the purpose of determining the fair value of 100 percent
of the Company's outstanding stock. It is our understanding that our analysis
may be used by the Company's Board of Directors in assessing the financial
fairness of an offer to purchase all the Company's outstanding common stock.
It is our understanding that an offer of $0.20 per share of common stock has
been made by Hydromer, Inc. We understand further that Hydromer has agreed to
assume approximately one-half of the "change of control" obligation (not booked
on the Company's balance sheet). We consider this offer to be fair from a
financial point of view from the perspective of the shareholders of Biosearch
Medical Products, Inc.
We base this conclusion upon an analysis of financial projections for Biosearch
out over the next five years, as well as the prices being paid for companies in
the medical instrument industry. With respect to out valuation of the Company's
projections, we applied a discount rate which reflects the considerable
uncertainty that the actual results will not materialize as projected. With
respect to the prices being paid for similar companies, we valued the Company at
the lower end of the range of multiples (of revenue) prevailing in the market
place, again reflecting relatively poor operating history. We also considered
the Company's relatively thin equity capitalization and poor operating results
for the first three months of 1999.
I hope this brief summary is of help to you and urge you to call if there is any
questions regarding it.
/s/ JEFFREY J. NELSON,
--------------------
Managing Director
-18-
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III. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Amper, Politziner & Mattia to serve as
independent accountants for the Company for the fiscal year ending December 31,
1998. The Board of Directors considers this firm to be eminently qualified.
A representative of Amper, Politzner & Mattia will be present at the Meeting
with the opportunity to make a statement, if such representative desires to do
so, and will be available to respond to appropriate questions.
IV. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters which
may be brought before the Meeting. However, if any such matters are properly
presented for action, it is the intention of the person named in the
accompanying form of Proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
V. MISCELLANEOUS
If the accompanying form of Proxy is executed and returned, the shares of
Common Stock represented thereby will be voted in accordance with the terms of
the Proxy, unless the Proxy is revoked. If no directions are indicated in such
Proxy, the shares represented thereby will be voted in the election of directors
IN FAVOR OF the items proposed by the Board of Directors. Any Proxy may be
revoked at any time before it is exercised. The casting of a ballot at the
Meeting by a shareholder, who may have already given a Proxy, will have the
effect of revoking the same.
All costs relating to the solicitation of Proxies will be borne by the
Company. Proxies will be solicited by the Company by mail and the Company may
pay brokers and other persons holding shares of stock in their names or those of
their nominees for their reasonable expenses in sending soliciting material to
their principals.
It is important that Proxies be returned promptly. Shareholders who do not
expect to attend the Meeting in person are urged to mark, sign, and date the
accompanying form of Proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their votes can be
recorded.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 2000 Annual Meeting
of Shareholders of the Company must be received by the Company by February 20,
2000 in order to be considered for inclusion in the Company's Proxy Statement
relating to such Meeting.
***END***
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<PAGE>
1. ELECTION FOR, all nominees [X] WITHHOLD AUTHORITY [X] *EXCEPTIONS [X]
OF DIRECTORS listed below to vote for all
nominees.
Nominees: Manfred F. Dyck, Martin C. Dyck, Klaus J.H. Meckeler, M.D., Frederick
L. Perl, M.D. and David M. Schreck, M.D.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below).
"Exceptions
-------------------------------------------------------------------
2. Exchange of Common Stock: Should 3. In their discretion, upon such
the shareholders of the Company other matters as may properly
exchange their stock for a payment come before the meeting or any
of $0.20 per share? (The Board of adjournment thereof.
Directors recommend you vote
YES for this PROPOSAL II)
YES [X] NO [X] Change of Address or
Comments Mark Here [X]
Important please sign your name
or names on the line(s) below
exactly as shown hereon. Executors,
administrators, trustees, guardians
or corporate officers indicate
their full title when signing.
Where shares are registered in the
names of joint tenants or trustees,
each tenant or trustee should sign.
Dated: ,1999
------------------------
-----------------------------------
| (Signature of Shareholder)
|
| -----------------------------------
| (Signature of Shareholder if
-------| held jointly)
Votes MUST be indicated
(x) in Black or Blue ink. [X]
Please sign, Date and Return the Proxy Card
Promptly Using the Enclosed Envelope.
PROXY
BIOSEARCH MEDICAL PRODUCTS INC.
PROXY-Annual Meeting of Shareholders - JULY 21, 1999
This Proxy is Solicited on behalf of the Board of Directors
The undersigned, a shareholder of BIOSEARCH MEDICAL PRODUCTS INC., does
hereby appoint ROBERT KELLER and ROBERT J. MORAVSIK, or either of them with full
power of substitution, his proxies, to appear and vote all shares of Common
Stock of the Company which the undersigned is entitled to vote at the Annual
Meeting of Shareholders to be held at the Ryland Inn, Route 22 West, Whitehouse,
New Jersey, on July 21, 1999, 10:00 am, local time, or at any adjournment
thereof, upon such matters as may properly come before the Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED THEY WILL BE VOTED IN FAVOR OF THE NOMINEES LISTED ON THE
REVERSE SIDE AND FOR THE STOCK EXCHANGE
(Continued and to be Completed on Reverse Side)
BIOSEARCH MEDICAL PRODUCTS
P.O. BOX 11047
NEW YORK, N.Y. 10203-0047
