IGENE BIOTECHNOLOGY, INC.
Notice of Annual Meeting of Stockholders
December 14, 1995
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of IGENE
Biotechnology, Inc. (the "Company") will be held
at Kimelman & Baird, LLC, 100 Park Avenue, Suite 1101-S2, New York, New York at
10:00 a.m., Thursday, December 14, 1995
local time for the following purposes:
1. To elect seven (7) directors to serve until the next Annual Meeting of
Stockholders or until their successors have been duly
elected and qualified.
2. To consider and act upon an amendment to the Company's 1986 Stock Option
Plan to increase from 1,200,000 to 2,000,000
the number of shares of Company Common Stock $.01 par value ("Common
Stock") which may be issuable pursuant to
options granted under the Plan.
3. To ratify the action of the Board of Directors to cancel certain
promissory notes of the Company in favor of those
directors who made loans to the Company totalling $536,300 in
consideration for the issuance to such directors of its
equivalent in common stock and warrants. Approval of this proposal
will increase the amount of stock held by the
Officers and Directors of the Company from 48.2% to 58.0%.
4. To ratify the action of the Board of Directors in the selection of
Berenson & Company as independent accountants of the
Company for the fiscal year ending December 31, 1995.
5. To consider and transact such other business as may properly come before
the meeting or any adjournments thereof.
Stockholders of record at the close of business on October 20, 1995 will
be entitled to notice of and to vote at the meeting
or at any adjournments thereof.
All stockholders are cordially invited to attend the meeting in person.
Those who cannot attend are urged promptly to sign, date
and mail the enclosed Proxy in the envelope provided for that purpose. A
majority of the outstanding voting shares must be
represented at the meeting in order to transact business, and whether you own a
few or many shares, your Proxy is important in
fulfilling this requirement. Returning your Proxy does not deprive you of your
right to attend the meeting and vote your shares in
person.
By Order of the Board of Directors
Stephen F. Hiu
President and Secretary
<PAGE>
IGENE BIOTECHNOLOGY, INC.
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors in connection
with the solicitation by the Company from holders
of the Common Stock, $.01 par value, of the Company (the "Common Stock") and 8%
Cumulative Convertible Preferred Stock,
Series A, $.01 par value of the Company (the "Preferred Stock") of Proxies to
be voted at the Annual Meeting of Stockholders to be
held at 10:00 a.m. on Thursday, December 14, 1995 local time at Kimelman &
Baird, LLC, 100 Park Avenue, Suite 1101-S2, New
York, New York, or at any adjournment thereof. The approximate date on which
this Proxy Statement and attached form of Proxy
were first mailed to stockholders is November 10, 1995.
The principal executive offices of the Company are located at 9110 Red
Branch Road, Columbia, Maryland 21045.
The expense of preparing, printing and mailing the Proxies will be borne
by the Company. In addition to the solicitation of
Proxies by mail, the Company may arrange for brokerage houses and other
custodians, nominees and fiduciaries to send Proxies and
Proxy material to their principals at the expense of the Company.
Any Proxy may be revoked by a stockholder at any time prior to its use by
execution of another Proxy bearing a later date, by
written notice to any of the persons named in the Proxy, or by oral or written
statement at the meeting. Shares represented by any
Proxy properly executed and received pursuant to this solicitation will be
voted at the meeting in accordance with the Proxy, or if the
Proxy does not specify, in accordance with the recommendation of the Board of
Directors.
Holders of record at the close of business on October 20, 1995 of
outstanding Common Stock and Preferred Stock of the
Company are entitled to notice of and to vote at the Meeting. At October 20,
1995, the Company had 14,255,738 shares of Common
Stock and 225,842 shares of Preferred Stock outstanding and entitled to vote at
the Meeting. Each share of Common Stock is
entitled to one vote and each share of Preferred Stock is entitled to two
votes. The Common Stock and Preferred Stock shall be
treated as one class for purposes of voting. There is no provision for
cumulative voting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and Exchange
Commission are incorporated herein by reference:
The consolidated Balance Sheets and the Consolidated Statements of Income and
Changes in Cash Flows as reported in the
Company's:
a. Annual Report on Form 10-KSB/A for the year ended December 31, 1994,
b. Annual Reports on Form 10-KSB for the years ended December 31, 1993,
and 1992,
c. Quarterly Report on Form 10-QSB for the quarter ended June 30, 1994,
and
d. Quarterly Report on Form 10-QSB/A for the quarter ended June 30,
1995
<PAGE>
ELECTION OF DIRECTORS
At the Meeting seven (7) directors are to be elected to serve until the
next Annual Meeting of Stockholders or until their
successors are elected and qualified. Shares represented by Proxies will be
voted for the election of nominees named below unless
authority to do so is withheld. Management has no reason to believe that any
nominee will be unable to serve if elected. If any
nominee should be unable to serve, the shares represented by a Proxy will be
voted for a substitute nominee to be designated by
management. A plurality of the votes cast is necessary for election.
<TABLE>
<CAPTION>
Name Age Position with IGENE
<S> <C> <C>
Michael G. Kimelman 56 Chairman of the Board of Directors
Thomas L. Kempner 67 Vice Chairman of the Board of Directors
Stephen F. Hiu 38 President, Secretary, Acting Treasurer,
and Director of Research and Development
Patrick F. Monahan 44 Director, and Director of Manufacturing
Joseph C. Abeles 80 Director
John A. Cenerazzo 71 Director
Sidney R. Knafel 64 Director
</TABLE>
MICHAEL G. KIMELMAN was elected a Director of the Company in February 1991 and
Chairman of the Board of Directors in
March 1991. He is the Managing Partner of Kimelman & Baird, LLC He is a
founder of Blue Chip Farms, a standardbred horse-
breeding farm, and has been an officer of the same since its inception in 1968.
Mr. Kimelman is currently a Director of the Harness
Horse Breeders of New York State and serves on the Board of the Hambletonian
Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and has been a
Director of the Company since its inception in
October 1981. He is and has been Chairman and Chief Executive Officer of Loeb
Partners Corporation, investment bankers, New
York, and its predecessors since February 1978. He is currently a Director of
Alcide Corporation, Arlen Development Corp.,
Energy Research Corp., Intermagnetics General Corp., Northwest Airlines, Inc.,
Roper Worldwide, Inc., and Silent Radio, Inc.
STEPHEN F. HIU was appointed President and Treasurer in March 1991, Secretary
in July 1990, and elected a Director in August
1990. He has been Director of Research and Development since January 1989 and,
prior thereto, was Senior Scientist since
December 1985, when he joined the Company. He was a post-doctoral Research
Associate at the Virginia Polytechnic Institute and
State University, Blacksburg, Virginia, from January 1984 until December 1985.
Dr. Hiu holds a Ph.D. degree in microbiology from
Oregon State University and a B.S. degree in biological sciences from the
University of California, Irvine.
<PAGE>
PATRICK F. MONAHAN was appointed Director of Manufacturing and elected a
Director of the Company in April 1991 and has
managed the Company's fermentation pilot plant since 1982. Prior thereto, he
was a technical specialist in the fermentation pilot
plant of W.R. Grace and Co. from 1975 to 1982. He received an Associate in
Arts degree in biology from Allegheny Community
College and a B.S. degree in biology with a minor in Chemistry from Frostburg
State College, Frostburg, Maryland.
JOSEPH C. ABELES, private investor, was elected Director of the Company on
February 28, 1991. Mr. Abeles serves as Director of
Intermagnetics General Corporation, Patten Corporation, Peridot Holdings, Inc.
and Ultralife Batteries, Inc.
JOHN A. CENERAZZO was Chairman of the Board from November 1989 to April 1991.
He served as President of the Company
from August 1988 through September 1989 and has been a Director since September
1987. He is presently Chairman of the
Executive Committee and Director of National Penn Bank Shares, Inc. of
Boyertown, Pennsylvania and a Director of National Penn
Bank, a Director of U.S. Axle Corporation, and a Chairman and a Director of
InfoCore, Incorporated.
SIDNEY R. KNAFEL, a Director of the Company since 1982, has been Managing
Partner of SRK Management Company, a private
investment concern, New York, since 1981, Chairman of Insight Communications,
Inc. since 1985, and of Microbiological Associates,
Inc. since 1985. Mr. Knafel is also currently a Director of Cellular
Communications, Inc., Cellular Communications International,
Inc., Cellular Communications of Puerto Rico, Inc., General American Investors
Company, Inc., International CableTel Inc., four
Prudential mutual funds, and other private companies.
Pursuant to the terms of the Preferred Stock, as a consequence of the
non-payment of dividends on the Preferred Stock for the past
four consecutive dividend payment dates, the holders of Preferred Stock voting
together as a single class are entitled to elect two (2)
directors, in accordance with the procedures set forth in the Charter and
by-laws of the Company. To date, the holders of the
Preferred Stock have not exercised such right. In the event they exercise
their right, the Board would be expanded to nine (9)
directors.
Committees of the Board of Directors
The Company has two standing committees of the Board of Directors. Set
forth below is a description of the functions of
those committees and the members of the Board of Directors who serve on such
committees.
Audit Committee. The responsibilities of the Audit Committee include
recommending to the Board of Directors the independent
certified public accountants to conduct the annual audit of the books and
accounts of the Company, reviewing the proposed scope of
the audit and approving the audit fees to be paid. The Audit Committee also
reviews, with the independent certified public accounts
and with the Company's management, the adequacy and effectiveness of the
internal auditing, accounting and financial controls of
the Company. The functions of the Committee were performed by the Board during
1994.
Compensation Committee. The Compensation Committee approves the salaries
of all officers and certain other employees of the
Company. It also supervises the administration of all benefit plans and other
matters affecting executive compensation, subject to
further approval of the Board of Directors. The members of the Compensation
Committee during 1994 were Messrs. Thomas L.
Kempner and Sidney R. Knafel. There were no meetings of the Compensation
Committee in 1994.
<PAGE>
During 1994, Directors were not compensated for their Board or Committee
activities. The Board of Directors held two (2)
regular and nine (9) special meetings in 1994.
Executive Compensation
No executive officer received more than $100,000 in annual aggregate cash
compensation for services rendered during the fiscal
year ended December 31, 1994.
Other than the 1986 Stock Option Plan described below, the Company has no
profit sharing, incentive compensation or
retirement plans.
The 1986 Stock Option Plan (the "Plan"), which was approved by the
stockholders on May 5, 1987 and amended on June 12,
1989, August 8, 1990, and June 23, 1994, provides for the issuance of options
to acquire up to 1,200,000 shares of Common Stock of
the Company.
For information concerning the Plan, see "Approval of Amendment to the
Company's 1986 Stock Option Plan."
As of December 31, 1994 there were a total of six (6) persons eligible to
participate in the Plan.
Options to acquire 1,059,750 shares of Common Stock of the Company have
been issued and 952,750 shares of Common Stock
are outstanding under the Plan. No options were exercised in fiscal 1994.
The following table sets forth information as to all incentive and
non-statutory stock options that have been granted to the
executive officers of the Company. No options were granted to executive
officers during the year ended December 31, 1994. No
options were exercised by any officer during 1994. The following table
provides information regarding the number of shares covered
by both exercisable and unexercisable stock options for executive officers as
of December 31, 1994 and the values of "in-the-money"
options as of that date. An option is "in-the-money" if the per share fair
market value of the underlying stock exceeds the option
exercise price per share.
<TABLE>
Aggregate Fiscal Year End Option Values
<CAPTION>
Number of
Dollar Value of
Number Unexercised Options
Unexercised in-the-Money
of Shares Dollar At End of Fiscal Year
Options At End of Fiscal Year<F1>
Acquired on Value
Name Exercise Realized Exercisable/Unexercisable
Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Stephen F. Hiu ---- ---- 265,000/190,000
$8,640/$2,160
Patrick F. Monahan ---- ---- 194,500/148,000
$5,184/$1,296
</TABLE>
<F1> The value of unexercised in-the-money options at December 31, 1994 is
based on the difference between $.172 per share and the
per share option exercise price, multiplied by the number of shares of common
stock underlying such option.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of Octobner 20, 1995 with
respect to beneficial ownership of shares of the
Company's outstanding Common Stock and Preferred Stock by (i) each person known
to the Company to own more than five
percent of its Common Stock or Preferred Stock, (ii) each Director, and (iii)
all Directors and Officers as a group.
<TABLE>
<CAPTION>
Common Stock Preferred
Stock
Number of Number of
Name and Address Shares Percent
Shares Percent
<S> <C> <C> <C> <C>
Joseph C. Abeles 2,096,738<F1> 10.7 % --- ---
c/o Abel Associates
220 E. 42nd Street
New York, NY 10017
John A. Cenerazzo 282,068<F2> 1.4 % --- ---
Stokesay Castle Lane
Reading, PA 19606
Stephen F. Hiu 355,500<F3> 1.8 % --- ---
c/o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 2,409,959<F4> 12.3 % --- ---
c/o Loeb Partners
Corporation
61 Broadway
New York, NY 10006
Michael G. Kimelman 1,033,018<F5> 5.3 % --- ---
c/o Kimelman & Baird, LLC
100 Park Avenue
Suite 1101-S2
New York, NY 10017
Sidney R. Knafel 2,040,932<F6> 10.4 % --- ---
c/o SRK Management
126 East 56th Street
New York, NY 10022
Anthony B. Low-Beer 967,078<F7> 4.9 % --- ---
c/o Kimelman & Baird, LLC
100 Park Avenue, Suite 1105
New York, NY 10017
Patrick F. Monahan 264,500<F8> 1.4 %
c/o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 9,449,793<F9> 48.2 %
as a Group (8 persons)
Dow Chemical Company 561,669<F10> 2.9 % 187,500 100.0 %
2030 Willard H. Dow Center
Midland, MI 48674
All Shareholders 19,644,046<F11> 100.0 % 187,500 100.0 %
</TABLE>
<PAGE>
[FN]
<F1> Includes the following: 1,022,000 shares held by Mr. Abeles, 492,494
shares and warrants for an additional 492,494
shares subject to the conversion of $123,918 of promissory notes held
by Mr. Abeles, 2,250 shares subject to the
redemption of 1,125 shares of redeemable preferred stock held by Mr.
Abeles, 75,000 shares held by a trust for which
Mr. Abeles is the trustee, and 12,500 shares subject to the redemption
of 6,250 shares of redeemable preferred stock
owned by Mr. Abeles' wife. Mr. Abeles disclaims beneficial ownership
of the shares held in a trust for which he is
trustee and the shares held by his wife.
<F2> Includes 144,400 shares held by Mr. Cenerazzo and 32,750 shares which
are subject to options currently exercisable or
exercisable within 60 days. Also includes 52,459 shares and warrants
for an additional 52,459 shares subject to the
conversion of $16,399 of promissory notes held by Mr. Cenerazzo.
<F3> Includes 500 shares held by Dr. Hiu and 355,000 shares which are
subject to options currently exercisable or
exercisable within 60 days.
<F4> Includes 570,012 shares held by Mr. Kempner; 94,000 shares held by a
trust under which Mr. Kempner is one of two
trustees and the sole beneficiary; 165,901 shares held by a trust under
which Mr. Kempner is one of two trustees and
a one-third beneficiary; 182,526 shares held by his wife; and 257,880
shares held by a trust under which Mr. Kempner
is one of two trustees with his brothers as beneficiaries. Also
includes 569,820 shares and warrants for an
additional 569,820 shares subject to the conversion of $143,088 of
promissory notes held by Mr. Kempner. Mr. Kempner
has disclaimed beneficial ownership of all but 570,012 shares held in
his name; 94,000 shares held by a trust under
which he is the sole beneficiary, 55,300 of the shares held by a trust
of which he is a one-third beneficiary, and
569,820 shares and warrants for an additional 569,820 shares subject to
the conversion of promissory notes held by
Mr. Kempner.
<F5> Includes 81,600 shares held by Mr. Kimelman, and 180,000 shares and
warrants for 252,400 shares held by Kimelman &
Baird, LLC, of which Mr. Kimelman disclaims all but his partnership
interest in Kimelman & Baird, LLC. Also
includes 259,509 shares and warrants for an additional 259,509 shares
subject to the conversion of $65,138 of
promissory notes held by Mr. Kimelman.
<F6> Includes 706,929 shares held by Mr. Knafel and 370,771 shares held in
trust for the benefit of Mr. Knafel's sons.
Also includes 481,616 shares and warrants for an additional 481,616
shares subject to the conversion of $120,877 of
promissory notes held by Mr. Knafel.
<F7> Includes 681,500 shares held by Mr. Low-Beer; 141,789 shares and
warrants for an additional 141,789 shares subject to
the conversion of $66,880 of promissory notes held by Mr. Low-Beer; and
2,000 shares held by trusts under which Mr.
Low-Beer is the trustee and his children are beneficiaries.
<F8> Includes 2,000 shares held by Mr. Monahan and 262,500 shares which are
subject to options currently exercisable or
exercisable within 60 days.
<PAGE>
<F9> Includes 650,250 shares of common stock which are subject to options
currently exercisable or exercisable within 60
days; unexpired warrants to purchase 252,400 shares of common stock;
14,750 shares of common stock subject to the
redemption of 7,375 shares of redeemable preferred stock; and 1,997,687
shares of common stock and warrants to
purchase an additional 1,997,687 shares of common stock subject to the
conversion of $536,300 of promissory notes
held by Directors of the Company. Also includes 1,200,000 shares of
common stock issued to certain directors on
August 15, 1995 at $.125 per share (Aggregate price of $150,000).
Preferred stock does not include 7,375 shares held
or beneficially owned by a Director, which are subject to redemption at
the rate of two shares of common stock for
each preferred share, and have therefore been included in shares of
common stock beneficially owned by Directors at
their equivalent value of 14,750 shares of common stock. The
redeemable preferred shares carry voting rights prior
to their redemption at two votes per share.
<F10> Includes 186,669 shares of common stock which represent shares issued
in lieu of interest on the $1,500,000 debenture
held by Dow, and 375,000 shares of common stock subject to the
conversion of the $1,500,000 debenture. The debenture
carries no voting rights prior to its conversion. Dow has waived
certain redemption rights as to the 187,500 shares
of preferred stock which it holds and which are not redeemable at the
shareholder's option. These limited redemption
preferred shares carry no voting rights prior to redemption.
<R11> For the purposes of this table, total outstanding shares of common
stock includes shares which are outstanding or
subject to rights of acquisition currently or within sixty days as
follows: 14,255,738 shares of common stock
outstanding as of August 15, 1995; 688,850 shares of common stock
which are subject to options currently exercisable
or exercisable within 60 days; 252,400 shares of common stock which
are subject to warrants which are currently
exercisable; 1,997,687 shares and warrants to purchase an additional
1,997,687 shares of common stock which are
subject to the conversion of $536,300 of promissory notes held by
Directors; 375,000 shares of common stock which are
subject to the conversion of the $1,500,000 debenture held by Dow;
and 76,684 shares of common stock which are
subject to the redemption of 38,342 outstanding shares of redeemable
preferred stock, which shares have not been
included in total outstanding preferred stock for the purposes of
this table.
<PAGE>
APPROVAL OF AMENDMENT TO THE COMPANY'S 1986 STOCK OPTION PLAN
The 1986 Stock Option Plan (the "Plan") as approved by the stockholders
in 1987, and as amended, authorizes the
grant of options to purchase up to 1,200,000 shares of the Company's Common
Stock to Key Employees of the Company. The
Board of Directors has approved amendments to the Plan to increase the number
of shares with respect to which options may be
granted from 1,200,000 to 2,000,000. This amendment is subject to stockholder
approval. A copy of the Plan as amended to date is
attached as Exhibit A. The description of the amended Plan that follows is
qualified by reference to the full text.
The Plan is administered by a committee appointed by the Company's
Board of Directors (the "Committee"), by the
Board of Directors itself in the absence of an appointed Committee, or by vote
of a majority of the members of the Board of
Directors itself if such a Committee currently exists. If a Committee is in
existence, it must at all times consist of at least three
Directors who would be ineligible to participate in the Plan. The acts of a
majority of the members of the Committee present
during a meeting at which at least three members of the Board of Directors who
are members of the Committee are present are the
valid acts of the Committee.
The purpose of the Plan is to promote the long-term success of the
Company by providing an incentive to officers and
employees providing services to the Company and by encouraging such individuals
to acquire an ownership interest in the Company.
Any employee or officer or Director of the Company who is determined by the
Committee to be a "Key Employee" is eligible to
receive options under the Plan. At March 1, 1995, there were six (6)
employees, including Messrs. Hiu and Monahan, eligible to
participate in the Plan. In determining whether a particular individual is a
Key Employee, the Committee may consider the nature of
the services rendered by such person, such person's potential contribution to
the long-term success of the Company, and such other
factors as the Committee deems relevant. The Committee may grant options to
Key Employees for such numbers of shares as the
Committee may determine. The term of each option granted under the Plan will
be for such period as the Committee may
determine, but in no event to exceed 10 years from the grant of such option.
With respect to options granted, the option price may
be greater than, less than or equal to the fair market value of the Company's
Common Stock at the time the option is granted, as
determined in the discretion of the Committee. On March 1, 1995, the closing
asked price of the Company's Common Stock, based
on information provided by the National Quotation Bureau, was $.125 per share.
The Company may, in conjunction with the grant
of options under the Plan, grant bonuses to optionees to assist them in the
payment of income tax liabilities incurred under the
exercise of options to assist them in the payment of income tax liabilities
incurred under the exercise of options, and may make or
guarantee loans to optionees to assist them in the exercise of options. No
options can be granted by the Committee under the Plan
on or after January 22, 1997. The Committee may modify, extend or renew
outstanding options granted under the Plan, or accept
the surrender of outstanding options, to the extent not previously exercised.
Options are exercisable in such number of installments as the Committee
may determine. The first such installment
becomes exercisable on the first anniversary of the stock option agreement
between the Company and the optionee for such percent
of the optioned stock as may be determined by the Committee. On each
anniversary thereafter, until the option becomes fully
exercisable, each installment becomes exercisable for such additional percent
of the optioned stock as the Committee may determine.
Options may be exercised by payment in full of the option price in cash, by
tender of shares of the Company's Common Stock having
a total fair market value on the date of exercise equal to the option price
(subject
<PAGE>
to certain limitations) or such other consideration as may be approved by the
Committee. No less than 50 shares of Common Stock
may be purchased at one time unless the lesser number purchased is the total
number then purchasable under the option. Options
are not exercisable after 10 years from the grant of the option, and are
subject to earlier termination. The unexercised portion of
any option is automatically cancelled upon termination, for any reason, of the
optionee's employment with the Company, unless the
Committee provides otherwise. Options are not assignable or transferrable,
except by will or by the laws of descent and distribution
upon the holder's death. The Committee has the power to condition the exercise
of any option granted under the Plan on the
continued employment by the Company of the Key Employee at the time of exercise
or on the attainment of specified performance
goals by the Key Employee or by the Company.
In the event of a reclassification, recapitalization, stock exchange,
stock split, stock dividend or other similar event
affecting the Company's Common Stock, the number and class of shares under
previously granted options and the option price
payable upon exercise of such options will be appropriately adjusted by the
Committee to reflect the change in such manner as the
Committee may determine. In the event of a proposed merger, consolidation,
share exchange or similar transaction to which the
Company would be a party, or in the case of a tender offer for the Company's
stock, the Committee or the Board of Directors may
take such action as may be appropriate to protect the holders of options and to
effectuate the purposes of the Plan.
The Board of Directors may terminate, suspend or amend the Plan at any
time, without the approval of the
Company's stockholders. Stockholder approval is required to amend the Plan to
(i) increase the aggregate number of shares subject
thereto, (ii) change the provisions for establishing the option price, (iii)
permit options to be exercisable after the period ending on
the tenth anniversary date of the grant of the option, (iv) extend the term of
the Plan, (v) materially modify the requirements as to
eligibility for participation in the Plan or (vi) materially increase the
benefits accruing to participants under the Plan.
Currently, there are a total of six (6) persons eligible to participate
in the Plan, of whom two (2) are executive
officers, and four (4) are other employees.
All options to be granted under the Plan are nonstatutory options and
are entitled to special tax treatment under
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").
The grant of an option is not subject to federal
income tax. Upon exercise, the holder recognizes ordinary income in an amount
equal to the difference between the option price
and the fair market value of the shares on the date of exercise. An officer of
the Company subject to Section 16 of the Securities
Exchange Act of 1934 recognizes income with respect to exercise options six
months after the exercise date. The amount of income
recognized is measured based on the fair market value of the Common Stock on
the date six months from exercise. An officer who
exercises an option may elect under Section 83(b) of the Code to be taxed at
the time of exercise. In that case, the amount of
income received is based on the fair market value of the Common Stock on the
exercise date. The Company is entitled to a
corresponding deduction for federal income tax purposes (assuming that the
applicable withholding requirements are met and that
such compensation is reasonable) at the time the participant recognizes income,
in an amount equal to the amount recognized by the
participant.
Gain or loss on the subsequent sale of shares received on exercise of
an option will be long term capital gain or loss,
depending on the holding period of the shares. The Tax Reform Act of 1986
virtually eliminated the distinction between ordinary
income and capital gains.
<PAGE>
Holders who are granted a bonus to assist them in the payment of income
tax liabilities incurred on the exercise of an
option will recognize ordinary income in an amount equal to the amount of bonus
received and the Company will receive a
corresponding deduction (assuming that such compensation is reasonable).
The affirmative vote of the holders of at least a majority of the votes
represented by the shares of the Company's
Common Stock and Preferred Stock present or represented by Proxy at the Annual
Meeting is required for approval of the
amendments to the Plan.
The Board of Directors recommends a vote "FOR" approval of the
amendment to the Plan.
RATIFICATION OF ACTION TO CANCEL CERTAIN PROMISSORY NOTES IN EXCHANGE FOR THE
ISSUANCE OF
SHARES OF COMMON STOCK AND WARRANTS
Background
In an effort to keep its expenses low, the Company has been operating
on a limited budget, deferring major capital
expenditures and suspending the payment of dividends on its preferred stock.
It has attempted to raise capital in the last two years,
but has not been successful. The Company has, therefore, had to borrow money
from time to time from members of its board of
directors to pay for the expenses incurred in the operation of the business.
The directors indicated in the table below made a series of loans to
the Company on various dates from August 25,
1993 through March 7, 1995. The loans are evidenced by promissory notes
("Notes") which are payable on demand, provide for the
repayment of interest at the prime rate, are convertible, at the option of the
directors, into shares of common stock at the fair
market value of the stock at the time the Notes were issued, and provide for
warrants to purchase the same number of shares of
common stock at the same price as the conversion amount and price.
The Exchange
The Board is seeking ratification of its action on April 3, 1995 to
terminate the Notes, including the warrants, and to
issue in their place that number of shares of common stock (the "Equivalent
Stock") as shall be equal to the principal amount of
each of the Notes divided by $.125 which is the per share price of the stock on
April 3, 1995, as provided by the National Quotation
Bureau. In addition, each director whose Note is cancelled will receive
warrants to purchase the same number of shares of common
stock as the Equivalent Stock at the per share price of $.125, which warrants
shall expire on April 3, 1998.
The Purpose of Seeking Stockholder Ratification
It is unclear whether the Company is required to submit this proposal
for stockholder approval under Maryland
General Corporation law; however, because of the vagueness of the Maryland
statute, the Company believes it prudent to provide the
Directors of the Company participating in the exchange with
<PAGE>
the protection afforded by the approval of its actions by the stockholders.
There may be negative consequences to unaffiliated
stockholders if this proposal is ratified. Stockholder approval of the
exchange may be a defense or a bar to future lawsuits brought
by stockholders who may believe the Company was harmed by this transaction.
In addition to full Board ratification of the exchange, the Board
obtained separate approval from a committee of the
Board comprised of two Board members who did not participate in the loans or
will not receive stock and warrants if this proposal
is ratified. Such separate action by the Committee was taken in order to
minimize the potential for a conflict of interest or the
appearance of impropriety by the participating Board members; however, the two
disinterested Board members are affiliated with
the Company in that they hold the positions of President and Director of
Manufacturing, respectively, and therefore may indirectly
be considered interested parties.
The Board is further seeking stockholder approval for a reduction in
the conversion price of the common stock and
warrants to $.125 per share from share prices ranging from $.125 to $.48 per
share which amounts were the face value conversion
prices of the Notes and warrants being cancelled as part of the exchange.
The Board noted, upon approval of this transaction on April 3, 1995,
that the market price of the Company's common
stock was $.125 per share. As an incentive for the Board members to give up
their ability to demand immediate repayment of their
loans as permitted by the Notes, it approved the reduction in the price per
share to $.125.
<TABLE>
Stock & Warrants to be
Issued to Directors
<CAPTION>
Amount of No. of No. of
Note Shares * Warrants *
<S> <C> <C> <C>
J. C. Abeles $ 123,918 991,344 991,344
J. A. Cenerazzo 16,399 131,192 131,192
T. L. Kempner 143,088 1,144,704 1,144,704
M. G. Kimelman 65,138 521,104 521,104
S. R. Knafel 120,877 967,016 967,016
A. J. Low-Beer 66,880 535,040 535,040
$ 536,300 4,290,400 4,290,400
* per share price $.125
</TABLE>
Purpose
The Company believes that it would be in a better position to attract
potential investors if the loans were converted to
equity on its financial statements. Further, the demand nature of the Notes
enables any or all the noteholders to seek the immediate
repayment of their Notes, which, if such event occurred, would necessitate the
liquidation of the Company to repay such amounts.
<PAGE>
A potential investor indicated that the debt which the Company is
presently carrying is a deterrent to its ability to
raise money in the future. The exchange described above allows the Company to
position itself for future financings without having
to repay the Notes as a pre-condition of such financings.
Impact of the Exchange
On a primary and fully diluted basis the holdings of each common
shareholder will be diluted by approximately 23.2%
and 18.9%, respectively, of holdings prior to the exchange, based upon both
voting power and book value per share. In addition,
Directors and Officers of the Company will increase the amount of fully diluted
shares of stock which they beneficially own from
48.2% to 58.0%; however, the Company will receive cash from the exercise of the
warrants by the Directors. Further, the shares that
will be issued in exchange will be unregistered stock and therefore will not be
freely transferable.
The following table sets forth information as of September 15, 1995
with respect to beneficial ownership of shares of
the Company's outstanding common stock, voting power, equity available to
common shareholders, and book value per common
share before and after ratification of action to cancel certain promissory
notes and warrants in exchange for the issuance of common
stock and warrants.
<TABLE>
<CAPTION>
Prior to Ratification After
Ratification
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Percentage of common stock
beneficially owned:
Officers and directors as a group 31.9 % 48.2 % 47.7 % 58.0 %
All others 68.1 % 51.8 % 52.3 % 42.0 %
Totals 100.0 % 100.0 % 100.0 % 100.0 %
Percentage of voting power:
Officers and directors as a group 31.8 % 48.2 % 47.5 % 58.0 %
All others 68.2 % 51.8 % 52.5 % 42.0 %
Totals 100.0 % 100.0 % 100.0 % 100.0 %
Equity available to common
shareholders (in thousands
of dollars) $(2,478)$ 821 $(1,942) $ 821
Book value per common share $ (.17)$ .04 $ (.10)$ .03
</TABLE>
Fully diluted shares includes all shares subject to options, warrants, and
rights of conversion or redemption which are currently
exercisable or exercisable within sixty days. Primary shares does not include
any shares not presently outstanding which are subject
to such options, warrants, or rights of conversion or redemption. Book value
per common share is computed using equity available
to common shareholders as of June 30, 1995, as modified to include the issue of
1,200,000 shares to certain directors on August 15,
1995 at $.125 per share (aggregate price of $150,000).
<PAGE>
The proforma balance sheet on the following page provides information about
the impact of the exchange transaction by
showing how it might have affected historical financial statements if the
transaction had been consummated at an earlier time.
Proforma statements of operations have not been presented, since the
transaction does not affect net loss. The effect of the
transaction is to increase common shares outstanding by 4,290,400 shares,
thereby producing an antidilutive effect on loss per
common share.
The Company would receive $536,300 in cash from the exercise of the warrants,
if exercised. The shares issued in the exchange will
be unregistered stock, and therefore, will not be freely transferrable.
The Board of Directors recommends a vote "FOR" ratification of action to cancel
certain promissory notes in exchange for the
issuance of common stock and warrants. Ratification requires the affirmative
vote of a majority of votes represented at the meeting.
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
PROFORMA BALANCE SHEETS
As of June 30, 1995 and December 31, 1994
<CAPTION>
Unaudited Unaudited Audited
Unaudited
Historical Proforma Historical
Proforma
June 30, Proforma June 30, December 31,
Proforma December 31,
ASSETS 1995 Adjustments1995 1994
Adjustments 1994
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents$ 73,272 $ $ 73,272
$ 19,529 $ $ 19,529
Accounts receivable (no 13,831 13,831 10,790
10,790
allowance for doubtful accounts)
Inventory 1,240 1,240 --- ---
Prepaid expenses 3,230 3,230
1,438 1,438
TOTAL CURRENT ASSETS 91,573 91,573
31,757 31,757
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 284,131 284,131 284,131
284,131
Less accumulated depreciation 253,275 253,275
248,932 248,932
PROPERTY AND EQUIPMENT, NET 30,856 30,856
35,199 35,199
OTHER ASSETS:
Security deposits 10,600 10,600 10,600
10,600
TOTAL ASSETS $ 133,029 $ $ 133,029 $ 77,556
$ $ 77,556
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and $ 228,492 $ $ 228,492
$ 238,022 $ $ 238,022
accrued expenses
Debenture interest payable 30,000 30,000 30,000
30,000
Promissory notes payable 536,300 (536,300) ---
409,550 (409,550) ---
TOTAL CURRENT LIABILITIES 794,792 (536,300) 258,492
677,572 (409,550) 268,022
OTHER LIABILITIES:
Variable rate subordinated 1,500,000 1,500,000
1,500,000 1,500,000
debenture
TOTAL OTHER LIABILITIES 1,500,000 1,500,000
1,500,000 1,500,000
TOTAL LIABILITIES 2,294,792 (536,300) 1,758,492
2,177,572 (409,550) 1,768,022
REDEEMABLE PREFERRED STOCK 466,239 466,239
463,104 463,104
STOCKHOLDERS' EQUITY:
Preferred stock 1,875 1,875 1,875 1,875
Common stock 130,557 42,904 173,461 130,286 32,764 163,050
Additional paid-in capital17,170,417493,396 17,663,813 17,113,823
376,786 17,490,609
Deficit (19,930,851) (19,930,851) (19,809,104)
(19,809,104)
TOTAL STOCKHOLDER' DEFICIT (2,628,002) 536,300 (2,091,702)
(2,563,120) 409,550 (2,153,570)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT$ 133,029 $ --- $ 133,029
$ 77,556 $ --- $ 77,556
<PAGE>
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company proposes and recommends the
selection of Berenson & Company as
independent accountants to make an examination of the accounts of the Company
for the year ending December 31,
1995. Berenson & Company were the independent accountants for the Company's
most recently completed fiscal
year ended December 31, 1994.
Representatives of Berenson & Company will not be present in person at the
Annual Meeting. They will,
however, be given the opportunity to make a statement if they desire to do so,
and will be available by telephone to
respond to appropriate questions.
The Board of Directors recommends a vote "FOR" the appointment of Berenson
& Company as independent
auditors of the Company for the year ending December 31, 1995. Such
appointment requires the affirmative vote of
a majority of votes represented at the meeting.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
No proposals from stockholders have been received for action at the 1995
Annual Meeting to which this Proxy
Statement relates. Proxy materials for the 1996 Annual Meeting are expected to
be released on or about May 20,
1996. Accordingly, stockholder proposals intended to be presented at the 1996
Annual Meeting and to be included in
the Company's proxy statement and form of proxy relating to the meeting must be
received at the Company's
principal executive offices not later than February 20, 1996.
OTHER BUSINESS
As of the date of this Proxy Statement, the management of the Company does
not intend to bring any other
matters before the Meeting requiring action of the stockholders, nor does it
have any information that other matters
will be brought before the Meeting. However, if any other matters requiring
the vote of the stockholders properly
come before the Meeting, it is the intention of the persons named in the
enclosed form of Proxy to vote in
accordance with their best judgment.
By Order of the Board of Directors
Stephen F. Hiu
President and Secretary
October 13, 1995
<PAGE>
EXHIBIT A
IGENE BIOTECHNOLOGY, INC.
1986 STOCK OPTION PLAN
1. PURPOSE AND SCOPE
1.1 Purpose.
The purpose of the 1986 Stock Option Plan (the "Plan") is to promote the
long-term success of IGENE
BIOTECHNOLOGY, INC. (the "Company") by providing an incentive to employees and
officers providing
services to the Company as designated by the Committee (hereinafter defined) of
the Company and by
encouraging such individuals to acquire a proprietary interest in the Company.
The opportunity to acquire a
proprietary interest in the Company through the award of options will provide
such individuals with additional
motivation to further the profitable growth of the Company and will encourage
them to remain the employ of the
Company.
1.2 Subsidiaries.
For purposes of this Plan the term "Company" shall include any
corporation, partnership or joint venture
in which the Company owns, directly or indirectly, fifty percent (50%) or more
of its voting stock, voting control
or capital or profits interests.
1.3 Stock Subject to Plan.
The stock subject to options to be granted under the Plan shall be
shares of the Company's authorized
but unissued common stock, or shares of common stock reacquired by the Company
and held as treasury stock.
The aggregate number of shares which may be issued pursuant to the exercise of
options under this Plan shall
not exceed 2,000,000 shares, unless such number of shares is adjusted as
provided in Section 5 hereof. In the
event that any outstanding option expires or terminates for any reason without
having been exercised in full, the
shares of common stock allocable to the unexercised portion of such option
shall become available for other
options under the Plan.
1.4 Eligibility for Awards.
Any employee of the Company who is determined by the Committee to be a
Key Employee (hereinafter
defined) shall be eligible to receive options under the Plan. For purpose of
the Plan, the defined term "Key
Employee" as used herein shall include employees and officers of the Company.
In no event may a member of
the Committee be granted an option.
1.5 Effective Date and Duration of Plan.
The Plan shall become effective upon its adoption by the Board of
Directors; provided, that no option
may be exercised prior to the approval of the Plan by the shareholders of the
Company and if the Plan is not
approved by the shareholders within twelve months after approval by the Board,
it shall terminate and all options
previously issued shall be null and void unless the Board expressly approves
a
<PAGE>
resolution to the contrary. Unless previously terminated by the Board of
Directors, the Plan shall terminate at
4:00 p.m. Easter Standard Time (E.S.T.) on the tenth anniversary of its
adoption by the Board of Directors
which date of adoption, for purposes of this agreement, shall be deemed the
"Effective Date".
2. ADMINISTRATION OF PLAN.
2.1 Administration by Committee.
The Plan shall be administered by a committee of the Board of Directors
appointed pursuant to Section
2.3 hereof (the "Committee") or the Plan may be administered by the Board of
Directors itself in the absence of
such an appointed Committee or by vote of a majority of the Board of Directors,
if such a Committee currently
exists. The administration of the Plan shall at all times be in accordance
with the requirements of Rule 16b-3 of
the Securities and Exchange Commission, as amended from time to time. Where
the Board of Directors is
administering the Plan, its powers shall be the same as those provided to the
Committee in this Plan.
2.2 Powers of Committee
The Committee shall have full and final authority in its discretion:
(i) to determine who are Key Employees of the Company, taking into
account the nature of the
services rendered by the particular individual, the individual's potential
contribution to the long-term success of
the Company and such other factors as the Committee in its discretion shall
deem relevant;
(ii) to allocate and to grant options from time to time to such Key
Employees;
(iii) to determine the time or times at which options shall be
granted;
(iv) to determine the duration, terms and provisions of the options
and option agreements,
including, but not limited to, any vesting or other restrictions;
(v) to condition the exercise of any option granted hereunder on the
continued employment by the
Company of the Key Employee at time of exercise or the attainment of specified
performance goals by the Key
Employee or by the Company;
(vi) to restrict the sale or otherwise provide for the repurchase of
shares acquired pursuant to the
terms of an option granted under the Plan;
(vii) to determine the fair market value of the common stock and the
option price;
(viii) to interpret the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan; and
(x) to make all other determinations, orders and decisions which the
Committee deems necessary or
advisable for the administration of the Plan. All such determinations and
actions shall be conclusively binding
for all purposes and upon all persons.
<PAGE>
2.3 Committee.
2.3.1 The Board of Directors shall appoint a committee to administer
the Plan (the "Committee").
The Committee shall at all times contain at least three members of the Board of
Directors. All members shall
be "disinterested persons" as defined in Rule 16b-3 of the Securities and
Exchange Commission, as amended
from time to time. Members of the Committee shall not be eligible to receive
options under this Plan.
2.3.2 The Board of Directors may from time to time remove members
from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board of Directors. The
Committee shall select one of its members as Chairman, and shall hold meetings
at such times and places as it
may determine. The acts of a majority of the Committee during a meeting, at
which at least three members of
the Board of Directors who are members of the Committee as present (or acts
reduced to or approved in
writing by a majority of the members of the Committee, including at lease three
members of the Board of
Directors who are members of the Committee, without the necessity of holding
such a meeting) shall be the valid
acts of the Committee.
2.3.3 The Committee shall keep minutes of its proceedings and shall
advise the Board of Directors of
all decisions, actions, and determinations made by the Committee. The
interpretation and construction by the
Committee of any provision of the Plan, or of any option granted under it,
shall be final.
2.3.4 The Committee shall file with the Board, at least annually, a
report which shall state the total
number of options granted under the Plan, the total amount, if any, exercised
under the Plan, and the number of
shares issued pursuant to the exercise of any option, all from the inception of
the Plan and from the date of the
last report of the Committee or on a calendar year basis through the end of the
most recently completed
calendar year.
2.4 Liability Limited.
To the maximum extent permitted by law, no members of the Board of
Directors of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan and/or any option granted
under it.
2.5 Indemnification.
To the maximum extent permitted by law, the members of the Board of
Directors and the Committee
shall be indemnified by the Company in respect of all their activities under
this Plan.
3. STOCK OPTIONS.
3.1 Grant of Options by Key Employees.
3.1.1 The Committee may grant options under the Plan to Key Employees
for such number of shares
as the Committee may determine. More than one option may be granted to an
eligible Key Employee subject to
the terms and restrictions set forth herein.
<PAGE>
3.1.2 An option shall not be granted on or after the period which ends
at 4:00 p.m., E.S.T., on the
tenth anniversary of the Effective Date.
3.2 Option Price.
3.2.1 The Committee shall determine the option price of shares of
common stock for which options
are granted under the Plan. The option price may be greater than, equal to or
less than the fair market value of
the common stock at the time the option is granted.
3.2.2 For purposes of this Plan, the "fair market value" of a share of
common stock shall equal the ten
(10) trading day average of the mean between the high dealer "bid" and the low
dealer "ask" price for the
common stock in the over-the-counter market for the ten trading day period
ending as of the last trading day
prior to the date the option is granted, as published in such source or sources
as the Committee shall determine.
If the common stock is reported on the National Association of Securities
Dealers Automated Quotation
National Market System ("NASDAQ/NMS"), then the fair market value of a share of
common stock shall equal
the 10 trading day average of the closing price per share for the ten trading
day period ending as of the close of
market trading on the last trading day prior to the date an option is granted;
or if no closing price shall have
been reported on that date, for the ten trading day period ending as of the
next preceding day on which there
was a reported closing price. If the stock is listed on a national exchange on
the relevant date, the last quoted
sales price on the exchange where the common stock is principally traded shall
be used for purposes of
determining fair market value. If the common stock is not listed on a national
exchange or the closing price is
not reported by NASDAQ/NMS or there is no "bid" or "ask" price in the
over-the-counter market, then the fair
market value of the common stock shall be determined by the Committee, in its
sole discretion.
3.3 Terms of Options
3.3.1 The term of each option granted under this Plan shall be for
such period as the Committee
shall determine, not to exceed the period which ends at 4:00 pm. , E.S.T., on
the last business day preceding the
tenth anniversary of the grant of the option as provided in the stock option
agreement, and shall be subject to
earlier termination as hereinafter provided. An option shall not be
exercisable after the expiration of the period
which ends at 4:00 p.m., E.S.T., on the last business day preceding the tenth
anniversary of the grant of the
option as provided in the stock option agreement.
3.4 Exercise of Options
3.4.1 Subject to the provisions of Section 3.4.4, each option shall be
exercisable in accordance with its
terms unless the option is cancelled or otherwise lapses due to termination of
employment, death or retirement.
If an option is not immediately exercisable in full, the Committee may, in its
discretion, accelerate the time when
such option may be exercised.
3.4.2 To exercise an option in whole or in part, a Key Employee
holding an option shall give written
notice of exercise to the Committee no later than 4:00 p.m., E.S.T., on the day
the option or any portion thereof
is exercisable specifying the number of shares as to which the option is being
exercised, accompanied by payment
in full of the option price for such shares either in cash, shares of the
Company's common stock having a total
fair market value on the date of exercise equal to the option price (including
shares acquired upon exercise of an
option), or in such other consideration as approved by the Committee
<PAGE>
in its sole discretion. Not less than 50 shares may be purchased at any one
time unless the number purchased is
the total number then purchasable under the option. The granting of an option
shall impose no obligation upon
the holder to exercise such option.
3.4.3 The Company may make or guarantee loans to holders of options to
assist them in the exercise
of their options, but shall have no obligation to do so.
3.4.4 The Company may grant bonuses to holders of options to assist
them in the payment of income
tax liabilities incurred on the exercise of such options.
3.4.5 The exercise of each option shall also be subject to any
restrictions, terms or conditions
contained in the rules and regulations of the Committee or in the option
agreement.
3.5 Option Agreement.
Promptly after the grant of an option under the Plan, and before the
exercise of any part thereof, the
Company and the Key Employee shall execute an option agreement incorporating
the terms of this Plan and
specifying the option price, the number of shares of common stock subject to
the option, the terms and
conditions of the option, and such other matters, as the Committee in its sole
discretion may determine.
4. TERMINATION OF EMPLOYMENT.
4.1 Termination Other Than by Reason of Death, Disability or Retirement.
The unexercised portion of any option automatically shall be cancelled
on the date the holder's
employment as an employee or officer, as the case may be, terminates for any
reason (other than by reason of
death, disability or retirement) except that the Committee may, in its absolute
discretion, extend the privilege to
exercise all or any part of the option until the end of its stated term or for
any lesser period it deems
appropriate.
4.2 Death, Disability or Retirement.
If the holder of an option ceases to be in the employ of the Company by
reason of death, disability, or
retirement on or before the holder reaches the age of 65, then the holder or
the person to whom the option shall
have been transferred by will or the laws of descent and distribution, may
exercise all or any part of the option
exercisable on the date of death, disability or retirement, provided such
exercise occurs within six months after
the date the holder dies, becomes disabled or retires (but not later than the
end of the stated term of the
option). Notwithstanding the foregoing, the Committee may, in its absolute
discretion, extend the privilege to
exercise all or any part of the option until the end of its stated term. For
purposes of this Section, "disability"
shall mean the inability to engage in any substantial gainful activity by
reason of any medically determined
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected
to last for a continuous period of not less than three months, as determined by
the Committee.
<PAGE>
5. STOCK ADJUSTMENTS.
5.1 Changes in Capital Structure.
In the event of a reclassification, recapitalization, combination or
exchange of stock, stock split, stock
dividend, or other similar event affecting shares of the Company, the number
and class of shares granted, the
number or rights, the number and class of shares which may be issued upon
exercise of options previously
granted, and the price per share payable upon exercise of such options shall be
equitably adjusted by the
Committee to reflect the changes in such manner as the Committee, in its sole
discretion, may deem appropriate.
No fractional shares of stock shall be issued under the Plan on account of such
adjustments.
5.2 Sale, Merger or Tender Offer.
In the event of any proposed merger, consolidation, share exchange, or
similar transaction to which the
Company would be a party, or in the case of a tender offer for stock of the
Company, the Committee or the
Board may take such action in such manner as the Committee or the Board, as the
case may be, in its sole
discretion, deems appropriate to effectuate the purposes of this Plan and to
protect the holder of options, which
action may include, but without limitation, any one or more of the following:
accelerate or change of the exercise
dates of any option; terminate options for the payment of consideration for the
cancellation and surrender of any
option; and in any case where equity securities other than common stock of the
Company are proposed to be
delivered in exchange for or with respect to common stock of the Company,
provide that any option shall
become one or more options with respect to such other equity securities.
5.3 Liquidation or Dissolution.
If the Company dissolves and liquidates (other than pursuant to a plan
of merger of reorganization),
then notwithstanding any restrictions on exercise set forth in this Plan or any
option agreement, each holder of
an option shall have the right to exercise any option which is currently
exercisable pursuant to the terms of his
stock option agreement at any time up to ten days prior to the date of such
liquidation and dissolution as
determined by the Board. The Committee may establish a different period for
exercise by notice to the holder,
and it may establish limitations on exercise to avoid subjecting the holder to
liability under Section 16(b) of the
Securities Exchange Act of 1934. Any option not so exercised shall terminate
at 4:00 p.m. on the tenth day prior
to the date of such liquidation or dissolution.
5.4 Limitation on Rights of Holder.
Except as expressly provided in Section 5.1, 5.2 or 5.3 hereof, the
holder of an option shall have no
rights by reason of the issuance of (i) shares of common stock of the Company
pursuant to this Plan, (ii)
additional shares of common stock, (iii) any other security or debenture
convertible into common stock, (iv) or
any other equity security, including issuance pursuant to a plan of merger,
consolidation, or statutory share
exchange, and no adjustment by reason thereof shall be made with respect to the
number of shares of common
stock subject to an option or the price of such option.
<PAGE>
5.5 Rights of the Company.
5.5.1 The grant of an option pursuant to the Plan shall not affect in
any way the right or power of the
Company to issue additional shares of stock; to make adjustments,
reclassifications, reorganizations or changes in
its capital or business structure; to participate in a merger, consolidation,
or share exchange with another
corporation; or to dissolve, liquidate, or sell or transfer all or any part of
its business or assets.
5.5.2 In making any adjustment or taking any action under this Section
5, or in determining that no
such adjustment or action is appropriate, the Committee and the Board may rely
upon the advice of counsel and
accountants of the Company and the determination shall be conclusive.
6. AMENDMENT OF THE PLAN.
The Board of Directors may at any time terminate, suspend or amend the
Plan. However, no such
amendment shall, without the approval of the stockholders of the Company:
(i) increase the aggregate number of shares which may be issued in
connection with options with
the exception of the adjustment provisions in Section 5.1;
(ii) change the provisions for establishing the option price;
(iii) permit options to be exercisable after the period ending on the
tenth anniversary of the grant of
the option as provided in the stock option agreement;
(iv) extend the term of the Plan;
(v) materially modify the requirements as to eligibility for
participation in the Plan; or
(vi) materially increase the benefits accruing to participants under
the Plan.
7. MISCELLANEOUS.
7.1 Non-Transferability of Options.
No option granted hereunder shall be transferable otherwise than by will
or the laws of descent and
distribution. During the lifetime of the holder, an option may be exercised
only by him or, during the period he
is under a legal disability, by his guardian or legal representative.
7.2 Non-Guarantee of Employment.
Nothing in the Plan, any option agreement, or any option shall be
construed as a contract of
employment between the Company and the holder, or as a contractual right to
continue in the employ of the
Company or as a limitation of the right of the Company to discharge the holder
at any time.
<PAGE>
7.3 No Rights of Stockholder.
The holder of an option shall not have any of the rights of a
stockholder with respect to the shares that
may be issued upon the exercise of the option until such shares have been
issued to him upon the due and
proper exercise of the option, including payment to the Company of the
consideration for the stock to be issued.
7.4 Legal Restrictions.
The Company will not be obligated to issue shares of common stock if
counsel to the Company
determines that such issuance would violate any law or regulation of any
governmental authority or any
agreement between the Company and any securities association or exchange upon
which the common stock is
traded. In connection with any stock issuance or transfer, the person
acquiring the shares shall, if requested by
the Company, give assurances satisfactory to counsel to the Company regarding
such matters as the Company
may deem desirable to assure compliance with all legal requirements. The
shares of common stock issued under
this Plan shall be subject to such legends as may be required by law or as may
be deemed appropriate by the
Company to ensure compliance with applicable securities laws; any such legend
may restrict transfer of that
stock, unless such transfer is made pursuant to a proper registered offering or
an exemption to such a
registration requirement as evidenced by an opinion of the optionee's counsel
acceptable to the Company in its
sole discretion. The Company shall in no event be obliged to take any action
in order to cause the exercise of
any option.
7.5 Modification, Extension ad Renewal of Options.
Subject to the terms and conditions of the Plan and any option
agreement, the Committee may modify,
extend or renew outstanding options granted under the Plan, or accept the
surrender of outstanding options, to
the extent not previously exercised, and authorize the granting of new options
in substitution therefor. The
Committee may not change the terms or conditions of any outstanding option in a
manner that would adversely
affect the rights of the holder without the express written consent of the
holder unless permitted by the terms of
this Plan or the option agreement.
7.6 Application of Funds.
The proceeds received by the Company from the sale of common stock
pursuant to the exercise of
options shall be used for its general corporate purposes.
7.7 Exclusion From Retirement and Fringe Benefit Computation.
The aware and exercise of options pursuant to the Plan shall not be
taken into account as "wages",
"salary", or "compensation" in determining eligibility, benefits or otherwise
under (i) any pension, retirement,
profit-sharing or other qualified or non-qualified plan or deferred
compensation, (ii) any employee welfare or
fringe benefit plan including, but not limited to, group life or disability
insurance, or (iii) any form of
extraordinary pay including, but not limited to, bonuses, sick pay and vacation
pay.
<PAGE>
7.8 Withholding Taxes.
The Company shall have the right to deduct from any compensation or any
other payment of any kind
due the holder of an option the amount of any federal, state or local taxes
required by law to be withheld as the
result of the disposition of shares acquired pursuant to the exercise of an
option. In lieu of such deduction, the
Company may require the holder to make a cash payment to the Company equal to
the amount required to be
withheld. In the event the holder does not make such payment when requested,
the Company may refuse to
issue any stock certificate pursuant to the exercise of any option until
arrangements satisfactory to the Committee
for such payment have been made.
7.9 Limitation on Exercise.
Notwithstanding anything in the Plan or any option agreement to the
contrary, the Committee may
restrict the right to exercise an option to the extend that such exercise would
trigger an "excess parachute
payment" (as that term is defined in Section 280G(b) of the Internal Revenue
Code of 1954, as amended).
7.10 Gender.
As used herein the masculine gender shall include the feminine as the
identify of an employee may
require.
7.11 Governing Law.
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations
or decisions made thereunder, and the rights of any and all persons having or
claiming to have any interest
therein or thereunder, shall be determined exclusively in accordance with the
laws of the State of Maryland,
without regard to its conflict of laws, rules, and principles Without limiting
the generality of the foregoing, the
period within which any action in connection with the Plan must be commenced
shall be governed by the laws of
the State of Maryland without regard to the place where the act or omission
complained of took place, the
residence of any party to such action or the place where the action may be
brought.
7.12 Headings.
The headings in this Plan are for reference purposes only and shall not
affect the meaning or
interpretation of the Plan.
7.13 Notices.
All notices and other communications made or given pursuant to this Plan
shall be in writing and shall
be sufficiently made or given if hand delivered or mailed by certified mail,
addressed to the employee at the
address contained in the records of the Company, or to the Company for the
attention of its Secretary at its
principal office.
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