AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1997
FILE NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IGENE BIOTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 2899 52-1230461
(State or other jurisdiction Primary Standard Industrial (I.R.S. employer
of incorporation or Classification Code Number identification number)
organization)
9110 Red Branch Road
Columbia, Maryland 21045
410-997-2599
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Stephen F. Hiu
9110 Red Branch Road
Columbia, Maryland 21045
410-997-2599
(Name, address including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Martin H. Neidell, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of Each
Class of Securities Dollar Amount To Be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8% Notes $ 5,000,000 $1.00 $5,000,000 $1,475
- --------------------------------------------------------------------------------------------------------------------------------
Warrants Expiring 2007 50,000,000 $ .01 $5,000,000 $1,475
- --------------------------------------------------------------------------------------------------------------------------------
Rights to Purchase
Warrants and Notes 5,000,000 ---- ---- ----
================================================================================================================================
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 5, 1997
DECEMBER __, 1997 PROSPECTUS
IGENE BIOTECHNOLOGY, INC.
Rights to Purchase
Warrants to Buy up to 50,000,000 Shares of Common Stock Expiring 2007 and
and
$5,000,000 Principal Amount of 8% Notes due 2002
IGENE Biotechnology, Inc. (the "Company") is distributing, at no cost, to
holders of record on __________, 1997 (the "Record Date"), of the Company's
Common Stock, Preferred Stock, warrants, options and convertible notes
(collectively the "Securities"), transferable rights (the "Rights") to subscribe
for and purchase at $.10 (the "Subscription Price") per unit (a "Unit"), __ of a
Unit for each share of Common Stock (or common stock equivalent) owned by such
holder. Each holder of a Rights certificate (a "Rights Certificate") who
exercises his or her right to subscribe for all Units that can be subscribed for
with the Rights evidenced by such Certificates (the "Basic Subscription Right")
will have the Right to subscribe for additional Units, if any, available as a
result of any unexercised Rights. See "Subscription to Rights - Additional
Subscription Privilege."
The holders of the Preferred Stock, warrants, options and convertible notes
will receive the number of Rights they would have received had such holders
converted such securities into, or exercised such securities for, Common Stock
on the Record Date. Each whole Unit will entitle the holder to receive $.10
principal amount of 8% Notes Due 2002 (the "Notes") and a ten year warrant (the
"New Warrants") to purchase one share of Common Stock at an exercise price of
$.10 per share.
The Investors (as herein defined) have entered into an Agreement pursuant
to which they have agreed to subscribe for, in accordance with specified
percentages, enough Rights so that the amount of Rights subscribed for in the
Rights Offering (as herein defined) shall total at least $2,000,000. (Cover
continued on following page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" beginning at Page __ of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Underwriting Proceeds to Company(1)
Discounts and
Price Subscription Price Commissions Minimum(2) Maximum(3)
- -------------------------------------------------------------------------------
Per Unit $.10 None $.10 $.10
- -------------------------------------------------------------------------------
Total $5,000,000 None $2,000,000 $5,000,000
===============================================================================
(1) Before deducting expenses payable by the Company estimated to
be $250,000.
(2) Minimum assumes that $2,000,000 in Rights are subscribed by the
Investors.
(3) Maximum assumes that the Rights Offering is fully subscribed.
<PAGE>
(cover page continued)
A transferable Rights Certificate evidencing the total number of Rights to
which a stockholder is entitled is being sent with this Prospectus to each
stockholder entitled to participate in the Rights Offering.
The Rights may not be exercised by any person, and neither this Prospectus
nor any Rights Certificate shall constitute an offer to sell or a solicitation
of an offer to purchase any Notes or New Warrants in any jurisdiction in which
such transactions would be unlawful.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (of which this Prospectus is
a part) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Rights, Notes and New Warrants (the "Offered Securities")
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company or the Offered Securities, reference is
hereby made to such Registration Statement and exhibits filed therewith. The
statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits thereto.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy and information statements and other
information with the Commission. The Registration Statement, including the
exhibits thereto, as well as such reports, proxy and information statements and
other information filed by the Company with the Commission, may be inspected,
without charge, and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024; 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates.
The Company's Common Stock trades in the over-the-counter Market.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES CONTAINED IN THIS PROSPECTUS.
EACH INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY PRIOR TO MAKING
AN INVESTMENT IN THE OFFERED SECURITIES.
THE COMPANY
The Company was incorporated under the laws of the State of Maryland on
October 27, 1981. Its executive offices, laboratories and pilot plant unit are
located at 9110 Red Branch Road, Columbia, Maryland 21045, and its telephone
number is (410) 997-2599.
The Company is engaged in the business of industrial microbiology and
related biotechnologies. The Company was formed to develop, produce and market
value-added specialty biochemical products derived from abundant, inexpensive
and renewable agricultural residues and wastes through the use of
state-of-the-art fermentation technology, physical and chemical separation
technology, and related chemical and biochemical engineering technologies.
In 1996, the Company began commercial fermentation trials with another
potential manufacturing partner. On July 3, 1997, the Company signed a
non-exclusive toll manufacturing agreement with Fermic, S.A. de C.V., Mexico
City, for the production of its natural astaxanthin pigment, AstaXin(R).
Commercial production is expected to be reached in the fourth quarter of 1997.
This agreement is intended to aid the Company in producing enough AstaXin(R) to
meet demand, although there is no assurance that sufficient quantities will be
able to be produced or that demand will materialize.
THE RIGHTS OFFERING
The Company is distributing at no cost to holders of Common Stock,
convertible notes, options, Preferred Stock and warrants, as of the Record Date,
one transferable Right for each share of Common Stock or, in the case of
convertible notes, options, Preferred Stock and warrants, a number of Rights
equal to the number of common shares such holder would receive had such
securities been converted into or exercised for Common Stock as of the Record
Date.
DESCRIPTION........... Each Right entitles the holder to purchase __ of a
Unit. The Subscription Price for each Unit is $.10
and entitles the holder to $.10 principal amount of
8% Notes Due 2002 and one New Warrant to purchase
Common Stock at an exercise price of $.10 for a
period of ten years. On __________, 1997, the
closing price of the Common Stock in the OTC Market
was $.__ per share.
RECORD DATE........... __________, 1997.
EXPIRATION DATE 5:00 p.m. (New York time), ______ __, 1998
(the "Expiration Date").
TRANSFER.............. The Rights are transferable.
ADDITIONAL SUBSCRIPTION
PRIVILEGE............. Each holder of a Rights Certificate who exercises his
or her right to subscribe for all Units that can be
subscribed will have the privilege of subscribing at
the Subscription Price for additional Units, if any,
available as a result of Rights that are not
exercised. See "Subscription to Rights--Additional
Subscription Privilege."
STANDBY COMMITMENT
TO PURCHASE UNITS..... Several Investors in the Company (as herein
defined), have entered into an Agreement pursuant to
which they have agreed that if holders of Securities
of the Company purchase less than $2,000,000 in
Units, then the Investors will purchase at the
Subscription Price, the difference between
$2,000,000 and the amount of Units purchased by such
holders.
DILUTION OF
EXISTING COMMON
STOCK................. Upon consummation of the Rights Offering, the
percentage of the Company's voting securities owned
by existing stockholders, other than the Investors,
could be reduced significantly on a fully diluted
basis. On a fully diluted basis, assuming exercise
of the then outstanding options and warrants and
conversion of notes and Preferred Stock, the
outstanding voting power held by such stockholders
will be reduced from approximately 25% to
approximately 18% of the outstanding voting power of
the Company.
RISK FACTORS.......... An investment in the Offered Securities involves
various risks, and prospective investors should
carefully consider the matters discussed under "Risk
Factors" prior to any investment in the Company.
<PAGE>
RISK FACTORS
The Offered Securities involve a high degree of risk. Prospective investors
should review the entire Prospectus and carefully consider, among other factors,
the following matters:
HISTORICAL NET LOSSES; STOCKHOLDERS' DEFICIT
The Company has incurred net losses since its inception. During its fiscal
year ended December 31, 1996 and nine months ended September 30, 1997, the
Company incurred net losses of $776,873 and $958,726, respectively. The Company
expects to continue to incur net losses for a period of time, and then to become
profitable. There can, however, be no assurance that after the Rights Offering
the Company will be able to achieve increased revenue or profitability. At
September 30, 1997, the Company had a stockholder's deficit of $3,792,015.
DEBT FINANCING; INABILITY TO SERVICE DEBT
After completion of the Rights Offering, the Company will continue to have
substantial debt obligations of a minimum of approximately $4.6 million and a
maximum of approximately $7.6 million and will continue to have significant
Preferred Stock dividend obligations. Even if the Rights Offering is completed,
the Company's ability to meet its debt service obligations will depend on a
number of factors, including its ability to generate operating cash flow. There
can be no assurance that targeted levels of operating cash flow will actually be
achieved. The Company's ability to generate or increase operating cash flow will
be dependent upon the development and sale of its products.
LACK OF LIQUIDITY
The operating activities of the Company continue to consume net cash. The
Company believes that as a result of the proceeds of the Rights Offering, the
Company will have sufficient cash liquidity through September 30, 1998. In order
for cash flow from operating activities to be sufficient to sustain the
Company's operations beyond that date, the Company will likely be required to
achieve an increase in revenue or to raise additional financing. There can be no
assurance that such an increase in revenue will occur or that it will be
sufficient to maintain adequate cash to continue operations beyond that date.
POSSIBLE DECLINE OF STOCK PRICE AFTER RIGHTS OFFERING
The issuance of New Warrants pursuant to the Rights Offering to purchase an
aggregate of up to 50,000,000 shares of Common Stock would represent
approximately 42% of the equity of the Company on a fully diluted basis, which
could adversely affect the market price of the Common Stock.
DILUTION OF VOTING POWER OF EXISTING COMMON STOCK
Upon consummation of the Rights Offering, the percentage of the Company's
voting securities owned by existing stockholders, other than the Investors,
could be reduced significantly on a fully diluted basis. On a fully diluted
basis, assuming exercise of all outstanding options and warrants and conversion
of notes and Preferred Stock, the outstanding voting power held by such
stockholders will be reduced from approximately 25% to approximately 18% of the
outstanding voting power of the Company.
ANTI-DILUTION PROVISIONS OF THE SERIES A PREFERRED STOCK
The Rights Offering will trigger the anti-dilution provisions of the Series
A Preferred Stock. This will dilute the voting power of the holders of Common
Stock.
OWNERSHIP BY CONTROLLING STOCKHOLDERS AND POSSIBLE EFFECTS
The Investors currently hold approximately 35.8% of the outstanding Common
Stock of the Company, and approximately 75.4% on a fully diluted basis assuming
the exercise of warrants and conversion of notes.
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company does not anticipate paying any cash dividends in the
foreseeable future. In addition, unless full cumulative dividends have been paid
on the outstanding Series A Preferred Stock, the Company will not be entitled to
pay dividends on the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Rights Offering, a total of approximately 140
million shares of Common Stock will be issuable upon conversion of notes and
upon exercise of warrants. The conversion of such notes and the exercise of such
warrants, would result in the issuance of a substantial number of shares of
Common Stock, thereby diluting the proportionate equity interests of the holders
of the Common Stock. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sales, will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock (including shares issued upon the
exercise of warrants or options or conversion of notes), or the perception that
such sales could occur, could adversely affect the prevailing market prices for
the Common Stock.
ABSENCE OF A STABLE MARKET
There is no established trading market for the Notes and New Warrants and
there can be no assurance as to the liquidity of any market that may develop for
these securities or as to the price at which holders will be able to sell such
securities.
DEPENDENCE ON OTHERS
The Company has no manufacturing facilities other than its pilot plant
facility in Columbia, Maryland. Thus, to manufacture its products, the Company
has either licensed its products to third-party manufacturers or entered into
production arrangements with third-party manufacturers or joint venture
partners. The Company has no control over the delivery of such products, which
has resulted in delays in the Company's commercialization of its products. To
date, the Company has not had the resources to construct its own manufacturing
facilities, and the proceeds from this offering will not provide the funds
(which would be substantial) necessary for such construction. The principal raw
materials utilized by the Company are generally sold as commodities and, thus,
display cyclical price fluctuations.
LACK OF PROFITABILITY AND RELIANCE ON ONE PRODUCT
The Company's success is dependent upon the successful development and sale
of AstaXin(R), a fermented yeast product used as a feed supplement in
aquaculture. The Company believes AstaXin(R) will be profitable based on
material costs, manufacturing costs and selling price. However, no assurance can
be given that sufficient quantities of AstaXin(R) will be available to meet
demand or that such demand will materialize.
To date, the Company has produced under contract and sold limited
commercial quantities of only one of its products, namely its ClandoSan(R)
chitin-based pesticide and has produced test market quantities of AstaXin(R).
The Company has not produced or sold significant commercial quantities of any
other products which it has developed. Expenses associated with research and
product development and manufacturing and marketing activities will continue to
impact profitability in the near future.
TECHNOLOGICAL CHANGE
The Company expects that technological developments in the biotechnology
field will continue at a rapid pace and that its commercial success will depend
upon its ability to be at the leading edge of specialized biotechnologies and to
attain a competitive technological position in specialized product areas.
COMPETITION
Competitors in the biotechnology field in the United States and elsewhere
are numerous and include major chemical, pharmaceutical and food companies, as
well as specialized biotechnology companies. Competition can be expected to
increase as small biotechnology companies continue to be purchased by major
multinational corporations with their huge resources. Competition is also
expected to increase with the introduction of more diverse products developed by
biotechnology firms, increasing research cooperation among academic institutions
and large corporations, and continued government funding of research and
development activities in the biotechnology field, both in the United States and
overseas. Unlike the majority of biotechnology companies, which are developing
products principally for the pharmaceutical industry, the Company has focused
its own activities on the development of proprietary products for use in food,
fermentation and agricultural industries. In the future, however, competitors
may offer products, which, by reason of price or efficacy or more adequate
resources for technology advances, may be superior to the Company's existing or
future products.
In addition, the aquaculture market into which the Company's product,
AstaXin(R) will be sold is a highly competitive industry worldwide and one large
company is marketing, and certain large companies are presently known to be
planning to develop and market, competitive products.
REQUIREMENTS FOR ADDITIONAL FUNDS
There can be no assurance that the Company will be able to secure
additional financing, or that such financing will be available on terms which
are favorable to the Company.
PATENTS AND PROPRIETARY INFORMATION
It is the Company's policy to protect its intellectual property rights by a
variety of means, including applying for patents and trademarks in the United
States and other countries. The Company also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing technological
innovation to develop and maintain its competitive position. In this regard, the
Company places restrictions on its agreements with third parties with respect to
the use and disclosure of any of its proprietary technology. The Company also
has internal nondisclosure safeguards, including confidentiality agreements with
employees and consultants.
During fiscal years 1994, 1995, and 1996, as part of the Company's
stringent cost containment efforts, all patents and trademarks were carefully
reviewed and those with no foreseeable commercial value have been abandoned to
eliminate costly maintenance fees. Patents (and applications) and/or trademarks
on technology with recognized commercial value include those for AstaXin(R),
ClandoSan(R), Weyco-Serv(R) and streptococcus lytic enzyme. Extensive additional
foreign applications for AstaXin(R) have been submitted.
GOVERNMENT REGULATION
The manufacturing and marketing of most of the products the Company has
developed or intends to develop will likely be subject to regulation by various
governmental agencies in the United States, including the Food and Drug
Administration ("FDA"), the Department of Agriculture ("USDA"), and the
Environmental Protection Agency ("EPA"), and comparable agencies in other
countries. All products developed by the Company to date have been affirmed to
be Generally Recognized as Safe ("GRAS") under applicable regulations of the FDA
by a panel of independent scientific experts convened by the Company to evaluate
its processes and products. All of the Company's products must conform to
current Good Manufacturing Practices (as defined under the Federal Food, Drug
and Cosmetic Act and the rules and regulations thereunder), and the Company
believes all its products so conform. There can he no assurance, however, that
such assertions and affirmations will not be reversed by the FDA, the USDA or
the EPA and that the Company will not then be required to obtain costly and
time-consuming approvals from these agencies or comparable agencies in foreign
countries. The extent of any adverse governmental regulation that might arise
from future administrative or legislative action, including current rules and
regulations, pertaining to the process of GRAS affirmations, cannot be
predicted.
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company's ability to develop marketable products and to maintain a
competitive position in light of technological developments will depend, in
part, on its ability to attract and retain highly qualified scientific,
technical and management personnel. Intense present competition for such
personnel is expected to continue into the future. The Company believes that it
has been successful in attracting skilled and experienced personnel and is
seeking additional scientific, technical and management personnel necessary for
its operations. Retention of such personnel will depend on the Company's ability
to provide such personnel with competitive compensation arrangements, equity
participation and other benefits.
INDEPENDENT AUDITORS' REPORT
Due to the Company's past history of losses, the Independent Auditors'
Report contains an explanatory paragraph that states that the Company's
recurring losses and limited capitalization raise substantial doubt about the
Company's ability to continue as a going concern.
LACK OF COVERAGE; SUSPENSION OF DIVIDENDS
The Company is not generating sufficient revenues from operations to cover
its fixed charges, including scheduled interest and dividend payments on its
outstanding Debenture and the Preferred Stock, or to fund cash repayment of the
Debenture or ultimate redemption of all of the Redeemable Preferred Stock. In
December 1988, the Company suspended payment of the fourth quarter dividend
payable on the Preferred Stock. Any resumption of dividend payments on Preferred
Stock would require significant improvements in cash flow.
THE RIGHTS OFFERING
The Company has been without sufficient working capital with which to fund
its operations and has been borrowing funds, from time to time, on a demand
basis from various directors of the Company. Based on the Company's operations,
it now needs the infusion of a greater amount of funds on a long term basis. Due
to the size of the proposed new financing, the Company, as described below, has
determined that it is feasible to permit all stockholders of the Company to
participate in such financing. The Company felt it was impractical to enable
stockholders to participate in the prior financings due to the smaller nature of
the prior financings, the cost and time delay involved and the complete
uncertainty regarding the Company's prospects.
Commencing in 1997, the Company has had discussions with the directors and
potential outside investors with respect to a long-term financing. In June 1997,
the Company substantially completed negotiations with its directors relating to
this financing. As part of this agreement and in view of the advanced nature of
the potential commercial production of the astaxanthin pigment it was determined
to offer to the stockholders of the Company the opportunity to participate in
the financing on the same terms as the directors.
Effective August 1997, various directors of the Company (Messr. Abeles,
Cenerazzo, Kempner and Knafel) and an outside investor (collectively the
"Investors") and the Company entered into the Loan Agreement pursuant to which
the Investors agreed to make advances to the Company from time to time in an
aggregate principal amount for all such advances outstanding not to exceed
$2,000,000 at any time (the "Bridge Loan"). The $1,750,000 of loans made on and
after June 5, 1997, as hereinafter described, are all part of the Bridge Loan.
The outstanding principal amount of the Bridge Loan bears interest at the rate
of 8% per annum. The Bridge Loan is due and payable on the first to occur of
March 31, 1998, or the closing of the Rights Offering (as described below). At
the option of each Investor, all indebtedness under the Bridge Loan will be
repaid and canceled through the use of proceeds from the Rights Offering or will
be converted into Common Stock of the Company at a conversion price of $.10 per
share.
The Company has agreed to undertake a Rights Offering in which the Company
would seek to raise up to $5,000,000 by issuing to each holder of Common Stock
(including Common Stock issuable upon exercise or conversion of outstanding
convertible notes, preferred stock, warrants and options of the Company on an as
converted basis) one transferable Right for each share of Common Stock or
equivalent thereof. Each Right will entitle the holder to purchase prior to the
Expiration Date of such Right at a subscription price of $.10 per Unit, ____ of
a Unit.
If the Company does not raise at least $2 million in the Rights Offering,
the Investors have agreed to purchase Units equal to the difference between $2
million and the proceeds received from the Rights Offering. This will insure to
the Company that the Company will receive at least $2 million of proceeds
pursuant to the Rights Offering; however, concurrently therewith the Company
will have to repay the Bridge Loan if requested by the Investors so that, in
that event, the Company (after repayment of the Bridge Loan and payment of the
expense of the Rights Offering) will not have any proceeds.
In consideration of the Investors committing to make the Bridge Loan and
agreeing to subscribe for Units pursuant to the Rights Offering to insure the
Company receives at least $2 million pursuant to the Rights Offering, the
Company agreed to issue to the Investors warrants, at an exercise price of $.10
per warrant, to purchase 10 shares of Common Stock for each $1.00 of loans made
by each Investor. In addition, the Investors agreed that all loans made by them
to the Company since November 1995 will be changed from a demand basis and will
mature concurrently with the maturity of the Notes.
DESCRIPTION OF UNITS
Each Unit will consist of $.10 principal amount of Notes and a New Warrant
to purchase one share of Common Stock. The Notes shall be general, unsecured
obligations of the Company and may be issued under an indenture with a trustee
to be selected by the Company. The Notes will bear interest at the rate of 8%
per annum and will be due and payable five years from the date of issuance.
Interest will be payable either annually or at maturity, at the Company's
option. Beginning at the end of 1998, the Notes will be prepayable to the extent
of 25% of the Company's net earnings determined in accordance with generally
accepted accounting principles, plus any applicable tax savings. The prepayment
right may be waived by the holders of two-thirds of the Notes. The Notes may be
tendered at the principal amount in payment of the exercise price of the New
Warrants. The Notes may be prepaid by the Company at any time and from time to
time. The Notes will not contain any negative or financial covenants. The
following will constitute defaults under the Notes:
(a) failure to pay interest on the Notes after the interest becomes due
and payable and continuance of such default for a period of 30 days;
(b) failure to pay all or any portion of the principal of the Notes
when such principal becomes due and payable, whether at maturity or
otherwise and continuance of such default for a period of 5 days; or
(c) certain events of bankruptcy, insolvency, or reorganization which
are voluntary or, if involuntary, continue for a period of 90 days.
Upon default the Notes will become due and payable. Holders of two-thirds of the
principal amount of the Notes outstanding will be able to amend, modify or waive
any of the provisions of the Notes, including defaults.
The New Warrants will expire ten years after issuance and will be
exercisable at an exercise price of $.10 per share. The New Warrants will be
exercisable for either cash, surrender of Notes valued at the principal amount
thereof or by cashless exercise in which the holders elect to receive a number
of shares of Common Stock of the Company having a fair market value equal to the
difference between the fair market value of a share of Common Stock and the
exercise price. If after three years, the closing price of a share of Common
Stock is $1.00 or more, then the Company shall have the option to redeem the New
Warrants at a price of $.01 per Warrant by notice given at least 30 days prior
to the redemption date. If the New Warrants are called for redemption, they must
be exercised prior to the redemption date or the right to exercise them will be
forfeited. The number of shares of Common Stock issuable on exercise of the New
Warrants and the exercise price thereof will be subject to adjustment in the
event of stock dividends, stock splits, reorganizations, consolidations or
mergers.
<PAGE>
SUBSCRIPTION TO RIGHTS
GENERAL
The Company is distributing as soon as practicable after the date of this
Prospectus, at no cost, to each holder of the Securities on the Record Date, one
Right for each share of Common Stock and Common Stock equivalent. Each Right
entitles the holder to purchase at the subscription price of $.10 per Unit, ____
Units. Rights expire at 5:00 p.m. New York City time on __________, 1998 (the
"Expiration Date"), unless the offering period is extended by the Company. The
Rights will be fully transferable and may be traded on any market that develops
for them, if any. The Rights are evidenced by transferable Rights Certificates
in registered form evidencing the total number of Rights to which the holder is
entitled. A Rights Certificate will be sent to each holder of Securities.
There is no minimum number of Rights which must be exercised in the Rights
Offering.
Holders who receive Rights may (a) purchase Units through the exercise of
their Rights, (b) transfer the Rights, (c) subscribe for additional Units or (d)
allow the Rights to expire unexercised.
All commissions, fees and other expenses (including brokerage commissions
and transfer taxes) incurred in connection with the exercise of Rights are the
responsibility of the holder of the Rights and none of such commissions, fees,
or expenses shall be paid by the Company.
THE BOARD OF DIRECTORS OF THE COMPANY DOES NOT MAKE ANY RECOMMENDATION WITH
RESPECT TO THE EXERCISE OF THE RIGHTS BY ANY SHAREHOLDER OR OTHER PERSON.
FRACTIONAL UNITS
No fractional Units will be issued pursuant to the exercise of the Rights.
Persons exercising Rights will be able to purchase that number of Units equal to
the product of their Rights multiplied by _____, rounded down to the next whole
Unit.
RIGHTS OFFERING PERIOD
The Rights will be exercisable until the Expiration Date. At the Expiration
Date, any unexercised Rights will become void and have no value. In the event
the Expiration Date is extended, the Company will make a public announcement
setting forth the date to which the Rights Offering is being extended.
METHOD OF OFFERING
The Rights Offering is being made directly by the Company. The Company will
not pay any underwriting discounts or commissions, finders fees or other
remuneration in connection with any distribution of the Rights or sales of the
Notes and New Warrants offered hereby, other than the fees paid to American
Stock Transfer & Trust Company (the "Exercise Agent"). The Company estimates
that the expenses of the Rights Offering will total approximately $250,000.
HOW TO EXERCISE AND SUBSCRIBE
The Exercise Agent will act as the Company's agent to accept exercises of
the Rights. The Rights may be exercised until the Expiration Date by completing
and signing the Rights Certificates, which accompany this Prospectus, and by
mailing or delivering the forms to the Exercise Agent accompanied by payment in
full for the number of whole Units. Subject to the late delivery and payment
procedures set forth below, a signed and completed Rights Certificate together
with proper payment must be received by the Exercise Agent no later than the
Expiration Date. If time does not permit delivery of any executed Rights
Certificate before the Expiration Date, but the Exercise Agent has received,
before the Expiration Date, full payment (subject to the limited exception for
delayed payment as described below), in proper form, for the Rights exercised,
together with a notice of guaranteed delivery and a letter (which may be
delivered by facsimile transmission) or telegram from a commercial bank or trust
company, or a member firm of any registered United States national securities
exchange or of the National Association of Securities Dealers, Inc., which
contains (i) the certificate number of the Rights Certificate relating to the
Rights, (ii) the name and address of the Rights Offering participant, (iii) the
number of the Rights with respect to which the Rights Certificate was issued,
(iv) the number of the Rights being exercised and (v) a guarantee that a
properly completed and duly executed Rights Certificate will, within five
Business Days of the Expiration Date, be delivered to the Exercise Agent, then
the Company will treat such Rights as having been exercised, subject to receipt
of the properly completed and duly exercised Rights Certificate (and receipt of
payment in the case of a permitted delayed payment). LATE DELIVERY OF RIGHTS
CERTIFICATES WILL NOT BE ACCEPTED UNLESS THERE HAS BEEN STRICT COMPLIANCE WITH
THESE REQUIREMENTS OR THE COMPANY WAIVES DEFECTS IN SUCH LATE DELIVERY. The
Company will be the sole judge as to whether there has been compliance with such
requirements. Neither the Company or the Exercise Agent shall have any liability
whatsoever for any Rights Certificate not being accepted.
Rights Certificates and payment should be mailed or delivered by hand or
overnight courier by such holders to:
IF BY MAIL: IF BY HAND OR OVERNIGHT COURIER:
The Exercise Agent's telephone number is __
The method of delivery of a Rights Certificate to the Exercise Agent is at
the risk of the Rights Offering participants. The Company suggests that express
mail or similar overnight courier be used to insure timely delivery. However, if
delivery is by regular mail service, the use of registered or certified mail,
return receipt requested, properly insured, is recommended. EXECUTED EXERCISE
FORMS SHOULD BE MAILED OR DELIVERED TO THE EXERCISE AGENT AND NOT TO THE
COMPANY. QUESTIONS REGARDING THE RIGHTS OFFERING SHOULD BE DIRECTED TO THE
COMPANY.
ADDITIONAL SUBSCRIPTION PRIVILEGE
Any holder of a Rights Certificate who exercises his or her right (the
"Basic Subscription Right") to subscribe for all the Units that can be
subscribed for with the Rights evidenced by such certificate, has the privilege
(the "Additional Subscription Privilege") of subscribing for additional Units at
the Subscription Price. The Units available for additional subscriptions (the
"Remaining Units") will be those that have not been subscribed and paid for
pursuant to the Basic Subscription Rights.
To exercise such privilege, any holder of a Rights Certificate who
completes Form 1 thereon for the maximum number of Units that can be subscribed
for with the number of Rights evidenced by such certificate must also complete
Form 2 on the Rights Certificate and specify the number of additional Units
desired to be subscribed for. When delivering to the Exercise Agent the
completed Rights Certificate and payment for the Units initially subscribed for
under Form 1, IN ORDER FOR THE ADDITIONAL SUBSCRIPTION TO BE VALIDLY EXERCISED,
PAYMENT IN THE MANNER DESCRIBED BELOW UNDER "PAYMENT" MUST ALSO BE ENCLOSED FOR
THE ADDITIONAL UNITS SUBSCRIBED FOR UNDER FORM 2; THESE LATTER FUNDS WILL BE
PLACED IN A SEGREGATED ACCOUNT WITH THE EXERCISE AGENT PENDING ALLOCATION OF ANY
UNITS PURSUANT TO THE ADDITIONAL SUBSCRIPTION PRIVILEGE, WITH ANY EXCESS FUNDS
BEING RETURNED BY MAIL WITHOUT INTEREST OR DEDUCTION AS SOON AS PRACTICABLE
AFTER THE EXPIRATION DATE.
Where there are sufficient Remaining Units to satisfy all additional
subscriptions by participants in the Additional Subscription Privilege, each
such participant will be allotted the number of additional Units subscribed for.
If the aggregate number of Units subscribed for under the Additional
Subscription Privilege exceeds the number of Remaining Units, the number of
Remaining Units initially allotted to each participant in the Additional
Subscription Privilege will be the lesser of (a) the number of Units which that
participant has subscribed for under the Additional Subscription Privilege and
(b) the product (disregarding fractions) obtained by multiplying the number of
the Remaining Units by a fraction of which the numerator is the number of Units
subscribed for by that participant under the Basic Subscription Rights and the
denominator is the aggregate number of Units subscribed for under the Basic
Subscription Right. If after the initial allotment there are still Remaining
Units and holders of Rights whose exercise of the Additional Subscription
Privilege has not been fully satisfied, such Remaining Units will be allocated
(one or more times as necessary) in accordance with the foregoing principle
until all available Remaining Units have been allocated. Any fractional share to
which persons exercising their Additional Subscription Privilege would otherwise
be entitled pursuant to such allocation will be rounded down to the next whole
share.
Holders of Rights Certificates who participate in the Additional
Subscription Privilege will be notified as soon as practicable after the
Expiration Date of the number of additional Units, if any, allotted to them.
PAYMENT
Payment in full of the aggregate exercise price for the number of whole
Units subscribed for pursuant to the Rights Offering must be made by Rights
Offering participants in United States dollars by check, certified check,
cashier's check, postal or express money order or wire transfer. In order to
avoid any unnecessary delays, it is recommended that payment for Units be made
by certified check, cashier's check or postal or express money order. Checks or
money orders should be made payable to the order of America Stock Transfer &
Trust Company, as Exercise Agent. A member of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States may exercise Rights by delivering (including by facsimile transmission) a
completed and signed Rights Certificate as described above without including
payment of the exercise price therefor to the Exercise Agent, provided that (a)
such purchasing entity guarantees payment of the purchase price in form and
substance satisfactory to the Company and the Exercise Agent and (b) its payment
is actually received no later than five Business Days following the date of its
exercise. ALL EXERCISES OF RIGHTS CERTIFICATES ARE SUBJECT TO THE CLEARANCE OF
ALL CHECKS THROUGH NORMAL BANKING CHANNELS, AND THE RECEIPT OF PAYMENT BY THE
EXERCISE AGENT.
NO WITHDRAWAL RIGHTS
Exercises of Rights pursuant to the Rights Offering will be irrevocable and
will not be subject to withdrawal.
CERTAIN LEGAL MATTERS
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any exercise will be determined by the Company in its
sole discretion, and its determination will be final and binding. The Company
reserves the absolute right to reject any exercise if such exercise is not in
accordance with the terms of the Rights Offering or not in proper form or if the
acceptance thereof or the issuance of Units pursuant thereto could be deemed
unlawful or for any other reason it deems appropriate. The Company also reserves
the absolute right to waive any deficiency or irregularity with respect to any
Rights Certificate or the exercise thereof.
PURCHASE AND SALE OF RIGHTS
Until the Expiration Date, the Rights may be bought and sold in private
transactions or in normal market transactions, such as those through
stockbrokers, assuming a market develops for the Rights. The sale of the Rights
may involve the payment of a commission and applicable taxes, if any. No trading
market exists as of the date of this Prospectus for the Rights. There is no
assurance that any market for the Rights will develop, or if developed, will be
sustained. The number of Rights evidenced by a Rights Certificate may be divided
or combined and transferred at the office of the Exercise Agent, but a Rights
Certificate may not be divided in such a way as to result in a fractional right.
<PAGE>
EFFECT OF RIGHTS OFFERING
The following table sets forth the equity ownership of the Company prior to
the consummation of the Financing Transaction* and assuming exercise of
outstanding warrants and conversion of outstanding notes and Preferred Stock.
<TABLE>
<CAPTION>
BEFORE FINANCING TRANSACTION
--------------------------------------------------------------------------------
ASSUMING EXERCISE OF ALL WARRANTS
AND CONVERSION
OF NOTES, PREFERRED AND DOW DEBENTURE
--------------------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
COMMON OF COMMON OF
SHARES EQUITY SHARES EQUITY
----------- ------- ----------- -------
"INVESTORS"
- ----------------------------
<S> <C> <C> <C> <C>
Joseph C. Abeles 2,113,544 11.04% 12,303,804 18.86%
John A. Cenerazzo 283,872 1.48% 1,579,706 2.42%
Thomas L. Kempner 2,404,365 12.56% 17,033,669 26.11%
Sidney R. Knafel 2,044,716 10.68% 15,168,143 23.25%
Fraydun Manocherian 0 0.00% 3,750,000 5.75%
----------- ------- ----------- -------
All "Investors" as a group 6,846,497 35.76% 49,835,321 76.40%
All other shareholders 12,297,476 64.24% 15,394,690 23.60%
----------- ------- ----------- -------
All shareholders 19,143,973 100.00% 65,230,012 100.00%
=========== ======== =========== ========
Net Tangible Book
Value per Share ($0.20) ($0.06)
======= ========
* The Bridge Loan and the Rights Offering are collectively referred to as the
Financing Transaction.
</TABLE>
<PAGE>
The following tables set forth the equity ownership of the Company after
the consummation of the Financing Transaction, assuming that stockholders fully
subscribe to the Rights Offering and assuming that stockholders do not purchase
any Units upon exercise of the Rights, and that the Investors acquire $2 million
of Units.
<TABLE>
<CAPTION>
AFTER FINANCING TRANSACTION
ASSUMING STOCKHOLDERS PURCHASE UNITS IN RIGHTS OFFERING
------------------------------------------------------------------------------
ASSUMING EXERCISE OF ALL WARRANTS
AND CONVERSION
OF NOTES, PREFERRED AND DOW
DEBENTURE
----------------------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
COMMON OF COMMON OF
SHARES EQUITY SHARES EQUITY
INVESTORS -------- -------- --------- --------
- ----------------------------
<S> <C> <C> <C> <C>
Joseph C. Abeles 2,113,544 11.04% 24,238,662 17.28%
John A. Cenerazzo 283,872 1.48% 3,089,966 2.20%
Thomas L. Kempner 2,404,365 12.56% 37,693,618 26.88%
Sidney R. Knafel 2,044,716 10.68% 34,427,887 24.55%
Faydun Manocherian 0 0.00% 12,814,635 9.14%
-- ------ ----------- ------
All "Investors" as a 6,846,497 35.76% 112,264,768 80.06%
group
All other shareholders 12,297,476 64.24% 27,965,244 19.94%
---------- ------- ----------- -------
All shareholders 19,143,973 100.00% 140,230,012 100.00%
========== ========
Net Tangible Book
Value per Share
($0.20) ($0.03)
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AFTER FINANCING TRANSACTION
ASSUMING STOCKHOLDERS DO NOT
PURCHASE UNITS IN RIGHTS OFFERING
- -------------------------------------------------------------------------------------------------------
ASSUMING EXERCISE OF ALL WARRANTS
AND CONVERSION
OF NOTES, PREFERRED AND DOW
DEBENTURE
---------------------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
COMMON OF COMMON OF
SHARES EQUITY SHARES EQUITY
Investors --------- -------- --------- ---------
- -----------------------
<S> <C> <C> <C> <C>
Joseph C. Abeles 2,113,544 11.04% 15,003,804 16.63%
John A. Cenerazzo 283,872 1.48% 1,879,706 2.08%
Thomas L. Kempner 2,404,365 12.56% 24,908,669 27.61%
Sidney R. Knafel 2,044,716 10.68% 23,043,143 25.54%
Faydun Manocherian 0 0.00% 10,000,000 11.08%
--- ------ ----------- -------
All "Investors" as a 6,846,497 35.76% 74,835,321 82.94%
group
All other 12,297,476 64.24% 15,394,690 17.06%
shareholders
----------- ------- ----------- -------
All shareholders 19,143,973 100.00% 90,230,012 100.00%
============ ======== =========== ========
Net Tangible Book
Value per Share ($0.20) ($0.04)
======= =======
(1) The effect of the transaction is to increase outstanding shares of
Common Stock, thereby producing an antidilutive effect on loss per
common share.
</TABLE>
FINANCIAL INFORMATION
Financial information for the Company for the fiscal year ended December
31, 1996 and for the nine months ended September 30, 1997, is included in this
Prospectus. In addition, set forth below are the Pro Forma Balance Sheets, and
accompanying notes, which give effect to the Financing Transaction and Rights
Offering. Pro Forma statements of operations have not been presented, since the
transaction does not affect net loss.
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
BALANCE SHEETS
AFTER FINANCING TRANSACTION ASSUMING STOCKHOLDERS PURCHASE ALL UNITS
IN RIGHTS OFFERING
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
HISTORICAL PROFORMA HISTORICAL PROFORMA
SEPTEMBER 30, PROFORMA SEPTEMBER 30, DECEMBER 31, PROFORMA DECEMBER 31,
1997 ADJUSTMENTS 1997 1996 ADJUSTMENTS 1996
------------- ------------ ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED) (UNUDITED)
ASSETS
- ---------------
Current assets:
- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash equivalents $ 304,581 $ 5,750,000 $ 6,054,581 41,339 $ 7,000,000 $ 7,041,339
Accounts receivable 14,494 --- 14,494 9,996 --- 9,996
Due from stockholders 97,094 --- 97,094 16,870 --- 16,870
Supplies --- --- 0 6,126 --- 6,126
Equipment held for resale 512,848 --- 512,848 --- --- ---
Deferred costs 92,731 --- 92,731 --- --- ---
Prepaid expenses 946 --- 946 4,652 --- 4,652
--------- --------- --------- ------ -------- ----------
Total current assets 1,022,694 5,750,000 6,772,694 78,983 7,000,000 7,078,983
========= ========= ========= ====== ========= =========
Other assets:
Property and equipment, net 53,045 --- 53,045 19,471 --- 19,471
Security deposits 10,600 --- 10,600 10,600 --- 10,600
--------- --------- --------- ------ -------- ----------
Total assets $ 1,086,339 $5,750,000 $ 6,836,339 109,054 $ 7,000,000 $ 7,109,054
------------ ---------- ----------- ------- ----------- -----------
LIABILITIES,
REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Accounts payable and accrued
expenses $ 462,668 $ --- $ 462,668 300,799 --- $ 300,799
Debenture Interest payable 90,000 --- 90,000 45,000 --- 45,000
Promissory notes payable 2,332,500 (2,332,500) 0 717,000 (717,000) ---
--------- ---------- - ------- -------- ----------
Total current liabilities 2,885,166 (2,332,500) 552,668 1,062,799 --- 345,799
Long-term liabilities:
Promissory notes payable --- 6,082,500 6,082,500 --- 5,717,000 5,717,000
Variable rate subordinated
debenture 1,500,000 --- 1,500,000 1,500,000 --- 1,500,000
--------- ---------- --------- --------- --------- ---------
Total liabilities 4,385,168 3,750,000 8,135,168 2,562,799 5,717,000 7,562,799
--------- --------- --------- --------- --------- ---------
Redeemable preferred stock 493,186 --- 493,186 475,982 --- 475,982
------- -------- ------- ------- --------- -------
Stockholders' deficit:
Preferred stock 1,875 --- 1,875 1,875 --- 1,875
Common stock 191,440 200,000 391,440 186,311 200,000 386,311
Additional paid-in capital 18,062,529 1,800,000 19,862,529 17,971,220 1,800,000 19,771,220
Deficit (22,047,859) --- (22,047,859) (21,089,133) --- (21,089,133)
----------- --------- ----------- ----------- --------- -----------
Total stockholders' deficit (3,792,015) 2,000,000 (1,792,015) (2,929,727) 2,000,000 (929,727)
Total liabilities, redeemable $ 1,086,339 $ 5,750,000 $ 6,836,339 109,054 $7,717,000 $7,109,054
----------- ----------- ----------- ------- ---------- ----------
preferred stock and
stockholders' deficit
</TABLE>
<PAGE>
NOTES TO PROFORMA BALANCE SHEETS:
The above proforma balance sheets provide information about the impact of the
Financing 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 Financing Transaction, under the assumptions
described below, increases common shares outstanding by 20,000,000 shares and
increases fully diluted common shares outstanding by 75,000,000 and 90,000,000
shares, respectively, as of September 30, 1997 and December 31, 1996, thereby
producing an antidilutive effect on loss per common share.
$1,250,000 of Bridge Financing was outstanding as of September 30, 1997, and is
included in the historical balance sheet as of September 30, 1997.
The above unaudited proforma balance sheets have been prepared under
the following assumptions:
1. that the Investors convert all financing under the Bridge Loan
into Common Stock of the Company at $0.10 per share, or
20,000,000 shares;
2. that all stockholders, including the Investors, exercise all
Rights issued to them under the Rights Offering; and
3. that, as part of the Financing Transaction, the terms of all promissory
notes will be changed from a demand basis and will mature concurrently
with the maturity of the New Notes.
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC. BALANCE SHEETS AFTER FINANCING TRANSACTION
ASSUMING STOCKHOLDERS DO NOT PURCHASE ANY UNITS IN RIGHTS OFFERING
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
HISTORICAL PROFORMA HISTORICAL PROFORMA
SEPTEMBER 30, PROFORMA SEPTEMBER 30, DECEMBER 31, PROFORMA DECEMBER 31,
1997 ADJUSTMENTS 1997 1996 ADJUSTMENTS 1996
------------- ------------ ------------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED) (AUDITED) (UNAUDITED)
ASSETS
- ---------------
Current assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash equivalents $ 304,581 $ 750,000 $ 1,054,581 41,339 $ 2,000,000 $ 2,041,339
Accounts receivable 14,494 --- 14,494 9,996 --- 9,996
Due from stockholders 97,094 --- 97,094 16,870 --- 16,870
Supplies --- --- 0 6,126 --- 6,126
Equipment held for resale 512,848 --- 512,848 --- --- ---
Deferred costs 92,731 --- 92,731 --- --- ---
Prepaid expenses 946 --- 947 4,652 --- 4,652
--------- --------- --------- ------ -------- ----------
Total current assets 1,022,694 750,000 1,772,695 78,983 2,000,000 2,078,983
========= ========= ========= ====== ========= =========
Other assets:
Property and equipment, net 53,045 --- 53,045 19,471 --- 19,471
Security deposits 10,600 --- 10,600 10,600 --- 10,600
--------- --------- --------- ------ -------- ----------
Total assets $ 1,086,339 $ 750,000 $ 1,836,340 109,054 $ 2,000,000 $ 2,109,054
------------ ---------- ----------- ------- ----------- -----------
LIABILITIES
REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Accounts payable and accrued
expenses $ 462,668 $ --- $ 462,668 300,799 --- $ 300,799
Debenture Interest payable 90,000 --- 90,000 45,000 --- 45,000
Promissory notes payable 2,332,500 (2,332,500) --- 717,000 (717,000) 0
--------- ---------- - ------- -------- ----------
Total current liabilities 2,885,166 (2,332,500) 552,668 1,062,799 --- 345,799
Long-term liabilities:
Promissory notes payable --- 3,082,500 3,082,500 2,717,000 2,717,000
Variable rate subordinated
debenture 1,500,000 --- 1,500,000 1,500,000 --- 1,500,000
--------- ---------- --------- --------- --------- ---------
Total liabilities 4,385,168 750,000 5,135,168 2,562,799 2,717,000 4,562,799
--------- --------- --------- --------- --------- ---------
Redeemable preferred stock 493,186 --- 493,186 475,982 --- 475,982
------- -------- ------- ------- --------- -------
Stockholders' deficit:
Preferred stock 1,875 --- 1,875 1,875 --- 1,875
Common stock 191,440 --- 191,440 186,311 --- 186,311
Additional paid-in capital 18,062,529 --- 18,062,529 17,971,220 --- 17,971,220
Deficit (22,047,859) --- (22,047,859) 21,089,133 --- (21,089,133)
----------- --------- ----------- ----------- --------- -----------
Total stockholders' deficit (3,792,015) --- (3,792,015) (2,929,727) --- (2,929,727)
Total liabilities, redeemable $ 1,086,339 $ 750,000 $ 1,836,339 109,054 $2,717,000 $2,109,054
----------- ----------- ----------- ------- ---------- ----------
preferred stock and
stockholders' deficit
</TABLE>
<PAGE>
NOTES TO PROFORMA BALANCE SHEETS:
The above proforma balance sheets provide information about the impact of the
Financing 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 Financing Transaction, under the assumptions
described below, does not affect common shares outstanding and increases fully
diluted common shares outstanding by 25,000,000 and 40,000,000 shares,
respectively, as of September 30, 1997 and December 31, 1996, thereby producing
an antidilutive effect on loss per common share.
$1,250,000 of Bridge Financing was outstanding as of September 30, 1997 and is
included in the historical balance sheet as of September 30, 1997.
The above unaudited proforma balance sheets have been prepared under the
following assumptions:
1. that the Bridge Loan will be repaid and canceled through the
use of proceeds from the Rights Offering;
2. that the Investors exercise only enough Rights so that the amount of the
Units purchased shall total $2 million;
3. that other stockholders do not purchase any Units; and
4. that, as part of the Financing Transaction, the terms of all promissory
notes will be changed from a demand basis and will mature concurrently
with the maturity of the New Notes.
DESCRIPTION OF BUSINESS
GENERAL
The Company is engaged in the business of industrial microbiology and
related biotechnologies. The Company was formed on October 27, 1981 to develop,
produce and market value-added specialty biochemical products derived from
abundant, inexpensive and renewable agricultural residues and wastes through the
use of state-of-the-art fermentation technology, physical and chemical
separation technology, and related chemical and biochemical engineering
technologies.
The Company has devoted its resources to the development of proprietary
processes to convert selected agricultural raw materials or feedstocks into
commercially useful and cost effective specialty biochemical products for the
food, feed, flavor and agrochemical industries. In developing these processes
and products, the Company has relied on the expertise and skills of its in-house
scientific staff and, for special projects, various consultants.
The Company has no manufacturing facilities other than its pilot plant
facility in Columbia, Maryland. To date, the Company has either licensed its
products to third-party manufacturers or joint venture partners.
GOVERNMENT REGULATION
The manufacturing and marketing of most of the products the Company has
developed are and will likely continue to be subject to regulation by various
governmental agencies in the United States, including the Food and Drug
Administration ("FDA"), the Department of Agriculture ("USDA"), and the
Environmental Protection Agency ("EPA"), and comparable agencies in other
countries. Substantially all of the food products developed by the Company to
date have been reviewed by a panel of independent scientific experts (the
"Product Review Panel") who are qualified by scientific training and experience
to evaluate, among other things, the safety of ingredients intended to be used
directly or indirectly in foods. The Product Review Panel has advised the
Company that it considers such products to be Generally Recognized As Safe
("GRAS") under the regulations of the FDA. The Company is not aware of any
action by the FDA, the USDA or the EPA contesting these affirmations or of any
basis for their doing so. There can be no assurance, however, that the FDA, the
USDA or the EPA will accept such independent expert evaluations and that the
Company will not be required to obtain costly and time-consuming approvals from
these agencies or comparable agencies in foreign countries. The Company, as a
matter of policy, requires that its products conform to current Good
Manufacturing Practices (as defined under the Federal Food, Drug and Cosmetic
Act and the rules and regulations thereunder) and the Company believes all of
its products so conform. The extent of any adverse governmental regulation that
might arise from future administrative or legislative action, including current
rules and regulations pertaining to the process of GRAS affirmations, cannot be
predicted.
RESEARCH AND DEVELOPMENT
As of December 31, 1996, the Company had expended approximately $10,200,000
on research and development since its inception on October 27, 1981 and has, as
of December 31, 1996 received revenues from product sales of approximately
$1,781,000 from the proprietary processes resulting from such research and
development, excluding one-time license fees received in 1982 and 1985. The
Company will continue to incur research and development costs in connection with
improvements in its existing processes and products, but it does not anticipate
development of new processes and products in l997.
The Company's research and development activities have resulted in the
development of processes to produce the products hereinafter discussed.
COMMERCIAL PRODUCTS
ASTAXIN(R)
AstaXin(R) is the Company's tradename for its dried yeast product made from
a proprietary microorganism developed by the Company. AstaXin(R) is a natural
source of astaxanthin, a pigment which imparts the characteristic red color to
the flesh of salmon, trout, and prawns. In the ocean, salmon and trout obtain
astaxanthin from krill and other planktonic crustaceans in their diet. A
crustacean diet would be prohibitively expensive for farm raised salmonids;
without the addition of astaxanthin, the flesh of such fish is a pale, off-white
color which is less appealing to consumers expecting "salmon-colored" fish.
Efficacy of AstaXin(R) has been demonstrated by fish feeding trials in Europe,
Asia, and North and South America. An estimated 285,000 metric tons of farm
raised salmon are produced annually worldwide.
Prior to 1995 the Company entered into a number of manufacturing and
licensing agreements for commercial quantities of AstaXin(R). In the initial
trials the manufacturing process was successfully scaled-up to 50,000-gallon
fermentors. However, for a number of reasons, outside of the Company's control,
none of these agreements was extended beyond the initial trial periods.
In 1995 the Company signed a nonexclusive licensing Agreement with Archer
Daniels Midland Company for the manufacturing and sale of AstaXin(R). The
Agreement provided for an initial payment and royalties based on sales. On
February 29, 1996 Archer Daniels Midland Company informed IGENE that it would no
longer use IGENE's astaxanthin technology and terminated the licensing
agreement.
In 1996, the Company began commercial fermentation trials with another
potential manufacturing partner. On July 3, 1997, the Company signed a
non-exclusive toll manufacturing agreement with Fermic, S.A. de C.V., Mexico
City, for the production of its natural astaxanthin pigment, AstaXin(R).
Commercial production is expected to be reached in the fourth quarter of 1997.
This agreement is intended to aid the Company in producing enough AstaXin(R) to
meet demand, although there is no assurance that sufficient quantities will be
able to be produced or that demand will materialize.
CRUSTACEAN SHELL PRODUCTS
ClandoSan(R) is the Company's registered trademark for its natural
nematicide made from crab and crawfish exoskeletons and processed into pellets
or granules by patented and patent pending technology developed by the Company.
The product acts in soils as a biological control agent by stimulating the
growth of normal soil microorganisms, which produce chitinase, and other enzymes
that degrade chitin present in the cuticles and eggs of plant-pathogenic
nematodes. It has secondary effects as a slow release organic fertilizer.
ClandoSan(R) does not have a direct adverse effect on plantpathogenic nematodes
either in vitro or in sterilized or irradiated soils and only acts indirectly to
suppress nematode populations in soils. The product generally is not
water-soluble and, consequently, does not contribute to ground water
contamination.
On March 17,1988, ClandoSan(R) was registered by the EPA for use with all
agricultural and horticultural, crops in accordance with the Federal
Insecticide, Fungicide, and Rodenticide Act ("FlERA5) section 3(c)(5).
ClandoSan(R) is now registered in 49 states and is produced at one contract
manufacturing facility in the United States.
WHEY-BASED PRODUCTS
(A) MACROMIN(R) AND MINRALAC(R)
MacroMin(R) and MinraLac(R) are the Company's registered trade names for
coproducts it developed for converting low economic value cheese whey into
economically and biologically useful products for the food industry. In spite of
extensive sales efforts throughout 1989, the Company was not able to develop a
market for these products and they were phased out in 1990.
(B) WEYCO-SERV(R)
Weyco-Serv(R) (or NaturServ(R)) is the Company's trade name for a fermented
whey-based product containing calcium propionate and calcium acetate that can be
used as a food preservative and mold inhibitor in the baked goods industry, in
condiments, and in other foods and beverages. The product is produced by
fermenting modified cheese whey residues using a patented microbial co- culture
and fermentation process developed by the Company.
A license to manufacture and sell Weyco-Serv(R) was granted by the Company
to Hercules Incorporated (`Hercules"), Wilmington, Delaware, in exchange for an
initial license fee of $500,000, pursuant to a license agreement dated as of
September 16, 1985. Hercules had not produced commercially any quantities of
Weyco-Serv(R) and by an agreement dated October 15, 1987, the Company and
Hercules terminated the license agreement.
The termination arrangement provided that the Company pay Hercules $25,000
for termination of the license. If the Company commercializes Weyco-Serv(R), the
Company will pay Hercules up to an additional $600,000 from revenues from sale
or licensing of the product.
The Company continues to be interested in licensing the Weyco-Serv(R)
technology.
DIAGNOSTIC REAGENTS
The Company has developed a number of enzymes that are suitable as reagents
for clinical diagnostic applications. Two such microorganisms and fermentation
processes yield high concentrations of stabilized enzymes that can be used for
the isolation of strain-specific cell wall components in rapid diagnostic tests
for streptococcal diseases. The Company has been granted a patent for industrial
production of a lytic enzyme specific for Group A Streptococcus. To date, the
Company has produced only small commercial quantities of these enzymes and
continues to be interested in manufacturing and marketing these enzymes for use
in diagnostic test kits.
FLAVORS AND FRAGRANCES
The Company has developed natural flavor and fragrance chemicals by
fermentation of whey and other carbohydrates. Patent applications on the
proprietary microorganisms developed by the Company have been submitted in
Europe and in the United States.
The fermentation processes yield a range of water-soluble low molecular
weight organic (carboxylic) acids which can be converted with naturally
occurring alcohols into esters which are commercially useful both as food
flavors and as fragrances in cosmetic and toiletry products.
The Company has also developed a fermentation process for the production of
Poly-LevuLan(TM), its trademark for a high molecular weight fluctose polymer,
which can be used as a flavor carrier or as a foam stabilizer and thickener in
food and cosmetic applications.
The Company is continuing to seek opportunities to commercialize its
flavors and fragrances technology.
PATENTS AND TRADEMARKS
It is the Company's policy to protect its intellectual property rights by a
variety of means, including applying for patents and trademarks in the United
States and in other countries. The Company also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing technological
innovation to develop and maintain its competitive position. In this regard, the
Company places restrictions in its agreements with third parties with respect to
the use and disclosure of any of its proprietary technology. The Company also
has internal nondisclosure safeguards, including confidentiality agreements with
employees and consultants.
During fiscal years 1994, 1995, and 1996, as part of the Company's
stringent cost containment efforts, all patents and trademarks were carefully
reviewed and those with no foreseeable commercial value have been abandoned to
eliminate costly maintenance fees. Patents (and applications) and/or trademarks
on technology with recognized commercial value include those for AstaXin(R),
ClandoSan(R), Weyco-Serv(R), and streptococcus lytic enzyme. Extensive
additional foreign applications for AstaXin(R) have been submitted.
COMPETITION
Competitors in the biotechnology field in the United States and elsewhere
are numerous and include major chemical, pharmaceutical and food companies, as
well as specified biotechnology companies. Competition can be expected to
increase as small biotechnology companies continue to be purchased by major
multinational corporations with their huge resources. Competition is also
expected to increase with the introduction of more diverse products developed by
biotechnology firms, increasing research cooperation among academic institutions
and large corporations, and continued government funding of research and
development activities in the biotechnology field, both in the United States and
overseas. Unlike the majority of biotechnology companies, which are developing
products principally for the pharmaceutical industry, the Company has focused
its own activities on the development of proprietary products for use in food,
fermentation and agricultural industries. In the future, however, competitors
may offer products, which, by reason of price or efficacy or more adequate
resources for technology advances, may be superior to the Company's existing or
future products.
In addition, the aquaculture market into which the Company's product,
AstaXin(R), will be sold is a highly competitive industry worldwide and certain
large companies are presently known to be developing and marketing competitive
products.
EMPLOYEES
At December 31, 1996, the Company had 8 employees, three of whom are in
administration and marketing, while the remainder are engaged in process
development and support of manufacturing activities.
None of the Company's employees is represented by a labor union and the
Company has experienced no work stoppages. The Company believes its relations
with its employees are satisfactory.
DESCRIPTION OF PROPERTY
The Company leases 8,480 square feet of space in the Oakland Ridge
Industrial Park located at 9110 Red Branch Road, Columbia, Maryland. The Company
occupies the space under a lease, expiring on January 31, 2001. Approximate
rental expense is $73,000 for each remaining year of the lease.
Approximately 2,000 square feet of the space occupied by the Company is
used for executive and administrative offices and approximately 2,300 feet is
used for research and development activities. Approximately 4,000 square feet of
space is used for the Company's intermediate-stage or scale-up pilot plant
facility.
In addition, the Company has a 180 square-foot Biosafety level 2 laboratory
suitable for manufacturing bacterial enzymes for in vitro diagnostic kits.
The Company owns all equipment necessary for its current operations and all
equipment is in satisfactory condition.
<PAGE>
USE OF PROCEEDS
The Company anticipates using the cash proceeds received by it from the
Financing Transaction for working capital and general corporate purposes.
LEGAL PROCEEDINGS
Archer Daniels Midland, Inc. ("ADM") filed a lawsuit against the Company on
July 21, 1997 in the U.S District Court in Greenbelt, Maryland alleging patent
infringement. ADM sought injunctive relief and damages.
On August 4, 1997, the Company filed a $300,450,000 civil racketeering and
trade secrets lawsuit in U.S. District Court in Baltimore, Maryland, against
ADM. The Company contends that ADM stole the Company's new secret formula for
making a natural compound that turns the pale flesh of farmbred salmon into the
bright pink of wild fish.
The Company's claim was re-asserted as a counterclaim against ADM and the
two cases were joined in the District Court in _____________, Maryland on
_____________ __, 1997. On September 10, 1997 the District court denied ADM's
request for a preliminary injunction on the basis that ADM could not demonstrate
a likelihood of success on the merits. Management believes ADM's claims are
meritless.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION WITH IGENE
Michael G. Kimelman 58 Chairman of the Board of Directors
Thomas L. Kempner 70 Vice Chairman of the Board of Directors
Stephen F. Hiu 41 Director, President, Secretary, Acting
Treasurer, and Director of Research
and Development
Ramin Abrishamian 44 Director and Chief Executive Officer
Patrick F. Monahan 46 Director, and Director of Manufacturing
Joseph C. Abeles 82 Director
John A. Cenerazzo 73 Director
Sidney R. Knafel 67 Director
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 standard bred
horse-breeding farm, and has been an officer 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, CCC Information Services Group, Inc., Energy
Research Corp., Intermagnetics General Corp., Northwest Airlines, Inc. and Roper
Starch Worldwide, Inc.
RAMIN ABRISHAMIAN was appointed Chief Executive Officer in July 1997. From April
1996 to July 1997, he was an independent consultant. From February 1990 to April
1996, he held various positions with Remediation Technologies, including
president and general manager of a subsidiary. For seven years prior thereto he
held various positions with Arthur D. Little Co. He received a Master of Science
degree from M.I.T., and a Bachelor of Science degree from Strathcylde
University, Scotland, both in chemical and process engineering.
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.
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, Bluegreen Corporation (formerly Patten Corp.), 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 a Director emeritus of National
Penn Bank Shares, Inc. of Boyertown, Pennsylvania, a Director emeritus of
National Penn Bank and a Director of U.S. Axle Corporation.
SIDNEY R. KNAFEL, a Director of the Company since 1982, has been Managing
Partner of SRK Management Company, a private investment concern since 1981;
Chairman of BioReliance Corporation since 1982 and Chairman of Insight
Communications, Inc. since 1985. Mr. Knafel is also currently a Director of
Cellular Communications International, Inc., CoreComm Incorporated, General
American Investors Company, Inc., NTL Incorporated and some private companies.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of July 31, 1997, with
respect to beneficial ownership of shares of the Company's outstanding Common
Stock by (i) each person known to the Company to own more than five percent of
its Common Stock, (ii) each Director, and (iii) all Directors and executive
officers as a group.
NUMBER OF
NAME AND ADDRESS SHARES PERCENT*
Joseph C. Abeles 12,303,804(1) 41.9%
220 E. 42nd Street, Suite 505
New York, NY 10017
John A. Cenerazzo 1,612,456(2) 7.9%
Stokesay Castle Lane
Reading, PA 19606
Ramin Abrishamian 0 --
c/o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
Stephen F. Hiu 783,833(3) 3.9%
c/o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 17,033,668(4) 50.4%
c/o Loeb Partners Corporation
61 Broadway
New York, NY 10006
Michael G. Kimelman 3,049,657(5) 14.3%
c\o Kimelman & Baird, LLC
100 Park Avenue
Suite 1101-S2
New York, NY 10017
Sidney R. Knafel 15,168,144(6) 47%
c\o SRK Management Company
126 East 56th Street
New York, NY 10022
Patrick F. Monahan 542,000(7) 2.8%
c\o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 50,493,562(8) 81.6%
as a Group (8 persons)
Fraydun Manocherian 3,750,000(9) 16.4%
* Under the rules of the Securities and Exchange Commission, the calculation
of the percent assumes for each person that only such person's warrants,
options or convertible notes are exercised or converted and that no other
person exercises or converts outstanding warrants, options or convertible
notes. Accordingly, these percentages are not on a fully-diluted basis.
1 Includes 2,109,404 shares, 2,250 shares issuable upon conversion of Series
A Preferred Stock, $392,663 in demand notes convertible into 4,592,083
shares and warrants to purchase 5,583,427 shares. Also includes 4,140
shares held by his wife and 12,500 shares issuable upon conversion of
Series A Preferred Stock held by his wife.
2 Includes 283,458 shares, warrants to purchase 713,513 shares, 32,750 shares
which are subject to options currently exercisable or exercisable within 60
days, and $49,622 in demand notes convertible into 582,321 shares. Also
includes 414 shares held by his wife.
3 Includes 500 shares held by Dr. Hiu and 783,333 shares which are subject to
options currently exercisable or exercisable within 60 days.
4 Includes 386,972 shares and warrants to purchase 212,960 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; $258,998 in demand notes convertible
into 2,797,320 shares and warrants to purchase 2,797,320 shares held by a
trust under which Mr. Kempner is one of two trustees and the sole
beneficiary; 1,482,987 shares and warrants to purchase 931,744 shares held
by a trust under which Mr. Kempner is one of two trustees and a one-third
beneficiary; $79,200 in demand notes convertible into 1,147,670 shares and
warrants to purchase 1,147,670 shares held by a trust under which Mr.
Kempner is one of two trustees and a one-third beneficiary; 182,526 shares
held by Mr. Kempner's wife; 257,880 shares held by trusts under which Mr.
Kempner is one of two trustees and whose brothers are beneficiaries;
$258,997 in demand notes convertible into 2,797,310 shares and warrants to
purchase 2,797,310 shares held in a trust under which Mr. Kempner is one of
two trustees and whose brother is beneficiary.
5 Includes 521,104 shares, warrants to purchase 1,325,674 shares and $63,070
in demand notes convertible into 804,568 shares held by Mr. Kimelman. Also
includes 81,600 shares held by Kimelman & Baird, LLC, in which Mr. Kimelman
has a 50% interest, and 180,000 shares held by M. Kimelman & Co., in which
Mr. Kimelman has a 60% interest. Also includes 136,713 shares held by his
wife, in which Mr. Kimelman disclaims beneficial ownership.
6 Includes 1,022,661 shares, warrants to purchase 3,522,835 shares, and
$271,225 in demand notes convertible into 3,039,103 shares owned by Mr.
Knafel. Also includes 1,022,055 shares, warrants to purchase 3,522,387
shares and $271,225 in demand notes convertible into 3,039,103 shares held
in trust for the benefit of Mr. Knafel's adult children, as to which Mr.
Knafel disclaims any beneficial interest.
7 Includes 2,000 shares held by Mr. Monahan and 540,000 shares which are
subject to options currently exercisable or exercisable within 60 days.
8 Includes 7,768,414 shares, 1,356,083 shares which are subject to options
currently exercisable or exercisable within 60 days, unexpired warrants to
purchase 22,554,837 shares, 14,750 shares subject to the redemption of
7,375 shares of redeemable preferred stock, and $1,645,000 in demand notes
convertible into 18,799,477 shares.
9 Includes $187,500 in demand notes convertible into 1,875,000 shares and
warrants to purchase 1,875,000 shares.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
Sales revenue for the quarter ended September 30, 1996 of $9,241, resulted
from sales of ClandoSan(R). The Company has made only minimal marketing efforts
for this product in 1997 as it focused on development, production and marketing
of its AstaXin(R) product. Additional sales of ClandoSan(R) will depend on
continued marketing arrangements with distributors for the product and the
Company's own limited direct sales. Long term, the Company hopes to license
rights to manufacture, sell, and distribute ClandoSan(R). ThE Company expects to
continue to focus its efforts on AstaXin(R) and has signed, on June 24, 1997, a
toll manufacturing agreement for the production of AstaXin(R) which is to begin
no later than December 31, 1997.
Research, development and pilot plant expenses decreased by 7.7% for the
current quarter when compared to the corresponding quarter in 1996. This
decrease was due to a one time field study for ClandoSan(R) in 1996.
Marketing expenses increased by 102.6% for the current quarter when
compared to the corresponding quarter in 1996 and are related primarily to the
Company's marketing expenses for AstaXin(R) and would be expected to increase if
production and sales increase, and will depend on marketing arrangements with
distributors of the product. This expense would be offset by revenue from sales
of product.
General and administrative expenses increased by approximately 1.3% for the
third quarter of 1997 over the same period in 1996. This reflects continuing
attempts to minimize administrative expenses during this period.
Interest expense for the quarter ended September 30, 1997 increased by
approximately 99.4% over the same period in the prior year and reflects
additional debt issued in the form of promissory notes to certain directors of
the Company and one individual investor.
Litigation expenses of $280,000 for the quarter ended September 30, 1997
represent legal fees incurred in the Company's suit against Archer
Daniels-Midland Inc. ("ADM") alleging theft of trade secrets and breach of
contract and in its defense of ADM's suit against the Company alleging patent
infringement. Management expects to recover legal expenses through damage awards
and/or preservation of rights associated with the Company's product.
As a result of the foregoing, the Company reported a net loss of $541,619,
or $.03 per common share during the third quarter of 1997, compared to a net
loss of $216,730, or $.01 per common share in the same period in 1996. The
weighted average number of common shares outstanding increased to 18,976,637, in
the third quarter of 1997 compared to 18,604,472 in the third quarter of 1996.
This increase in shares reflects the semi-annual issuance of common stock as
payment of interest on a variable note subordinated debenture and the issue of
472,834 shares for exercise of employee stock options.
<PAGE>
FINANCIAL POSITION
In December 1988, the Company suspended payment of the quarterly dividend
on its preferred stock. Resumption of the dividend will require significant
improvements in cash flow. Unpaid dividends cumulate for future payment or
increase the liquidation preference or redemption value of the preferred stock.
As of September 30, 1997, total dividends in arrears on the Company's preferred
stock was $1,286,450, of which $206,450 ($5.76 per share) was included in the
carrying value of the redeemable preferred stock and $1,080,000 ($5.76 per
share) is included in the liquidation preference of the limited redemption
preferred stock.
1996 COMPARED TO 1995
RESULTS OF OPERATIONS
Sales revenue for the year ended December 31, 1996 increased from $25,563
in 1995 to $43,091 in 1996. The increase in overall sales revenue (68%) resulted
from an increase in domestic sales of ClandoSan(R). The Company hopes to find a
licensee for ClandoSan(R) in 1997 as it continues to focus its efforts on its
AstaXin(R) product. Long-term production and sales of AstaXin(R) will depend on
the Company's ability to find suitable manufacturing partners since it has no
commercial scale manufacturing facilities of its own. No commercial quantities
of AstaXin(R) were available for sale in 1996. In May 1995 the Company executed
a non-exclusive technology licensing and royalty agreement with Archer Daniels
Midland Co. However, on February 29, 1996 Archer Daniels Midland informed the
Company that it would no longer utilize the technology and terminated the
agreement. The Company is seeking additional investment to enable it to purchase
or lease a manufacturing facility of its own. Additional sales of ClandoSan(R)
will depend on continued marketing arrangements with distributors for the
product. The Company expects to continue its own limited sale of these products
until a suitable licensee is found and a Licensing Agreement formalized.
Cost of product sales as a percentage of product sales decreased to 54% in
1996 from 66% in 1995 and can be attributed in part to decreased freight charges
incurred by the Company.
Research, development and pilot plant expenses decreased approximately 11%
for the current year. This decrease was attributed to reduced payroll expenses
resulting from a vacant position in the research department and reduced
equipment repair expenses. Research and development costs may be expected to
increase gradually in support of increased manufacturing efforts for AstaXin(R),
but would be offset by technology licensing and technology services income.
Marketing, general and administrative expenses increased 6% in 1996 when
compared to the expenses in 1995. Marketing expenses related to the Company's
AstaXin(R) product could be expected to increase if production and sale of
AstaXin(R) proceeds, but this will depend on marketing arrangements with
distributors of the product. This increase would be offset by sales income or
from licensing additional technology. General and administrative expenses could
be expected to rise to reflect increasing costs of maintaining and enforcing the
Company's patents and patent applications for AstaXin(R) and ClandoSan(R)
worldwide, but only if commercial quantities of THE products are manufactured.
Interest expense for the year ended December 31, 1996 increased by
approximately $40,600 over the prior year. This increase reflects the increase
in accumulating interest due on additional promissory notes issued to certain
directors of the Company, and an addition to the increase in the interest rate
being charged on the variable rate subordinate debenture from 8% to 12%
effective October 1, 1996.
In 1995, the Company's operational costs were offset by aggregate payments
totaling $249,215, which are part of a Licensing Agreement for AstaXin(R), which
was terminated on February 29, 1996.
As a result of the foregoing, the Company reported a net loss of $776,873,
or $.04 per common share in 1996, compared to a net loss of $503,156, or $.04
per common share in 1995. The weighted average number of common shares
outstanding increased to 18,604,171 in 1996 from 13,694,343 in 1995. This
increase in shares in 1996 reflects the annual issuance of common stock as
payment of interest on a variable note subordinated debenture, the conversion of
2,500 shares of the Company's redeemable preferred stock into 5,000 shares of
common stock on January 23, 1996, and the issuance of 4,290,000 shares of common
stock to certain directors of the Company in lieu of retired Promissory Notes
and warrants issued from August 25, 1993 through March 7, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has been funded primarily by equity
contributions, loans from stockholders and license fees. As of September 30,
1997, the Company had a working capital deficit of approximately $1,862,473, and
cash and cash equivalents of $304,581, consisting of proceeds from Promissory
Notes issued to certain Directors and an individual investor of the Company
described below.
Cash used by operations in the nine months ended September 30, 1997 and
1996 amounted to $651,022 and $475,801, respectively. To date, the Company has
achieved only minimal sales of its ClandoSan(R) and AstaXin(R) products while it
seeks additional manufacturing capability for AstaXin(R).
$644,654 was used by investing activities for the nine months ended
September 30, 1997. This includes an investment of $512,848 in equipment to be
resold and deferred costs of $92,731 relating to an agreement to manufacture
AstaXin(R) as described below, and $39,075 in equipment required at Igene's
facilities to perform test runs for production of AstaXin(R).
For a summary of the Company's financing activities see "Certain
Relationships And Transactions." To continue operations short term, the Company
will consider issuing additional stock and debt to officers and directors and
encouraging holders of outstanding warrants to exercise these rights. To
increase its working capital position the Company will also encourage the
holders of promissory notes to convert them into common stock.
The Company does not believe that inflation has had a significant impact on
the Company's operations during the past three years.
OTHER DEVELOPMENTS
On July 3, 1997, the Company signed a non-exclusive toll manufacturing
agreement with Fermic, S.A. de C.V., Mexico City, for the production of its
natural astaxanthin pigment, AstaXin(R). Commercial production is expected to be
reached in the fourth quarter of 1997. This agreement will aid the Company in
producing enough AstaXin(R) to meet demand.
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Since inception, the Company has been unable to pay its operating expenses
without outside assistance. Financing from outside sources, including
institutional lenders and customers, has not been available to the Company. Due
to the difficulty or impossibility in obtaining adequate outside financing, the
time delay and expense which would be occasioned in attempting to secure such
financing and the Company's immediate need for operating capital, since August
1993 various Directors of the Company have made periodic loans to the Company in
order to insure the Company's continued viability. The loans made by the
Directors are evidenced by demand promissory notes bearing interest at the prime
rate. All the notes are convertible into Common Stock at the market price at the
time the notes were issued. The Directors also received warrants to purchase the
number of shares of Common Stock into which the notes are convertible with an
exercise price equal to the market price at the time the note was issued.
On November 16, 1995 and December 22, 1995, the Company issued demand
promissory notes to certain directors of the Company for an aggregate
consideration of $100,000. These notes specify that at any time prior to
repayment the holder has the right to convert the note to common stock of the
Company at $.05 (the then current market price) per share. In connection with
such issuance, the holders received warrants for an equivalent number of shares
of common stock exercisable at $.05 per share.
On December 14, 1995, the shareholders of the Company ratified action taken
by the Board of Directors on April 3, 1995, with respect to the cancellation of
promissory notes and warrants issued to certain directors of the Company between
August 25, 1993 and March 7, 1995, and the conversion of these notes to common
stock of the Company at $.125 per share and warrants to purchase an equal number
of shares of common stock of the Company at $.125 per share, which was the
market price of the common stock on April 3, 1995, the date on which the action
was approved by the Board. Such warrants expire on April 3, 1998.
On February 9, 1996, and March 11, 1996, the Company issued demand
promissory notes to certain directors of the Company for an aggregate
consideration of $140,000. The notes specify that at any time prior to repayment
the holder has the right to convert the note to common stock of the Company at
$.10 per share for the note issued February 9, 1996, and at $.09 per share for
the note issued March 11, 1996 (the then current respective market prices). In
connection with such issuance's, the holders received warrants for an equivalent
number of common shares at $.10 per share for the note issued February 9, 1996
and at $.09 per share for the note issued March 11, 1996.
On April 23, 1996, May 9, 1996 and June 7, 1996, the Company issued demand
promissory notes to certain Directors of the Company for an aggregate
consideration of $177,000. These notes specify that at any time prior to
repayment the holder has the right to convert the note to common stock of the
Company at $.06 per share for the notes issued April 23, 1996 and May 9, 1996,
and at $.05 for the note issued June 9, 1996 (the then current respective market
prices). In connection with such issuances, the holders received warrants for an
equivalent number of common shares at $.06 per share for the notes issued April
23, 1996 and May 9, 1996, and at $.05 per share for the note issued June 7,
1996.
On July 24, 1996 and September 24, 1996, the Company issued demand
promissory notes to certain Directors of the Company for an aggregate
consideration of $160,000. These notes specify that at any time prior to
repayment the holder has the right to convert the note to common stock of the
Company at $.115 per share for the note issued July 24, 1996, and at $.125 per
share for the note issued September 24, 1996 (the then current respective market
prices). In connection with such issuances, the holders received warrants for an
equivalent number of common shares at $.115 per share for the note issued July
24, 1996, and $.125 per share for the note issued September 24, 1996.
On November 13, 1996 and December 11, 1996, the Company issued demand
promissory notes to certain Directors of the Company for an aggregate
consideration of $140,000. These notes specify that at any time prior to
repayment the holder has the right to convert the note to common stock of the
Company at $.09 per share for the notes dated November 13, 1996 and December 11,
1996 (the then current market prices). In connection with such issuances, the
holders received warrants for an equivalent number of common shares at $.09 per
share for the notes issued November 13, 1996 and December 11, 1996.
On January 15, 1997, the Company issued demand promissory notes to certain
Directors of the Company for an aggregate consideration of $70,000. These notes
specify that at any time prior to repayment the holder has the right to convert
the note to common stock of the Company at $.07 per share (the then current
market price). In connection with such issuances, the holders received warrants
for an equivalent number of common shares at $.07 per share.
On February 24, 1997, the Company issued demand promissory notes to certain
Directors of the Company for an aggregate consideration of $100,000. These notes
specify that at any time prior to repayment the holder has the right to convert
the note to common stock of the Company at $.11 per share (the then current
market price). In connection with such issuances, the holders received warrants
for an equivalent number of common shares at $.11 per share.
On April 3, 1997, the Company issued demand promissory notes to certain
Directors of the Company for an aggregate consideration of $99,500. These notes
specify that at any time prior to repayment the holder has the right to convert
the note to common stock of the Company at $.10 (the then current market price)
per share. In connection with such issuances, the holders received warrants for
an equivalent number of common shares at $.10 per share.
On May 8, 1997, the Company issued demand promissory notes to certain
Directors of the Company for an aggregate consideration of $96,000. These notes
specify that at any time prior to repayment the holder has the right to convert
the note to common stock of the Company at $.135 (the then current market price)
per share. In connection with such issuances, the holders received warrants for
an equivalent number of common shares at $.135 per share.
As part of the Financing Transaction, on June 5, 1997, July 3, 1997, July
29, 1997, September 4, 1997, September 24, 1997, October 20, 1997 and November
20, 1997, the Company issued demand promissory notes to the Investors for an
aggregate consideration of $1,750,000. These notes specify that at any time
prior to repayment the holder has the right to convert the note to common stock
of the Company at $.10 per share. In connection with such Issuances, the holders
received warrants for an equivalent number of common shares at $.10 per share.
These issuances are all part of the Bridge Loan.
<PAGE>
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PREFERRED STOCK
Prices for the Preferred Stock were quoted on the over-the-counter market
on the National Association of Securities Dealers, Inc., Automated Quotation
System ("NASDAQ") from November 25, 1987 through January 25, 1988. Prior to
November 25, 1987 there was no public market for the Preferred Stock and since
January 25, 1988, no quotations for the Preferred Stock have been reported on
NASDAQ. The aggregate number of record holders of Preferred Stock as of March 1,
1997 was 17.
COMMON STOCK
The Common Stock has been traded in the over-the-counter market since July
23, 1986. Prior to July 23, 1986, there was no public market for the Common
Stock.
On or about June 9, 1989, the Company was advised by NASDAQ that its
capital and surplus (exclusive of Redeemable Preferred Stock), based on its
financial statements at and for the quarter ended March 31, 1989, did not meet
requirements of continued inclusion in the NASDAQ System. Accordingly, the
quotation of Common Stock in the NASDAQ System was terminated.
Commencing on or about June 12, 1989, the Company's Common Stock began
trading on the over-the-counter market on a limited basis and is quoted in the
national bureau's "Pink Sheets." The following table shows, by calendar quarter,
the range of representative bid prices for the Common Stock since 1995.
CALENDAR QUARTER HIGH LOW
- ---------------------------------------------------------------------------
First Quarter 1995 $.13 $.06
Second Quarter 1995 $.31 $.02
Third Quarter 1995 $.13 $.02
Fourth Quarter 1995 $.13 $.01
First Quarter 1996 $.16 $.03
Second Quarter 1996 $.14 $.04
Third Quarter 1996 $.16 $.11
Fourth Quarter 1996 $.12 $.07
First Quarter 1997 $.115 $.07
Second Quarter 1997 $.17 $.09
Third Quarter $.25 $.11
Fourth Quarter $.14 $.09
(thru November 5 1997)
<PAGE>
Management obtained the above information from the National Quotation
Bureau. Such quotations are inter-dealer quotations without retail mark-up,
mark-downs, or commissions, and may not represent actual transactions. The
aggregate number of record holders of the Common Stock as of October 1, 1997 was
250. The Company believes it has more than 700 beneficial holders of its Common
Stock. As of ____________, 1997, the high and low bid and asked prices for the
Common Stock, as shown in the "Pink Sheets" were as follows:
HIGH LOW
Bid $. $.
ASK $. $.
DIVIDEND POLICY
When and if funds are legally available for such payment under statutory
restrictions, the Company may pay annual cumulative dividends on the Preferred
Stock of $.64 per share on a quarterly basis. During 1988 the Company declared
and paid a cash dividend of $.16 per share. In December 1988, the Company
suspended payment of the quarterly dividend of $.16 per share of Preferred
Stock. No dividends have been declared or paid since 1988. Any resumption of
dividend payments on Preferred Stock would require significant improvement in
cash flow. Preferred Stock dividends are payable when and if declared by the
Company's Board. Unpaid dividends accumulate for future payment or addition to
the liquidation preference and redemption price of the Preferred Stock. As of
December 31, 1996 the total amount of dividends in arrears with respect to the
Company's Preferred Stock was $1,179,246.
Dividends on Common Stock are currently prohibited because of the
preferential rights of holders of Preferred Stock. The Company has paid no cash
dividends on its Common Stock in the past and does not intend to declare or pay
any dividends on its Common Stock in the foreseeable future.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company to its Chief Executive Officer. No other executive officer
received a salary and bonus for 1996 which exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------
Other Annual Stock All Other
Name and Principal Salary Bonus Compensation Options Compensation
POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Dexter W. Gaston, 1996 48,494 1,418,502
Chief Executive Officer (1)
- ---------------------------------------------------------------------------------------------------------------------
(1) Mr. Gaston was employed by the Company from January 11, 1996 until
January 7, 1997.
</TABLE>
STOCK OPTION PLAN
Other than the 1986 Stock Option Plan (the "1986 Plan") and the 1997 Stock
Option Plan, the Company does not have any profit sharing, incentive
compensation or retirement plans.
The table below sets forth information with respect to stock options
granted in 1996 to the executive officer named in the Summary Compensation
Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted To Exercise or
Option/SARs Employees In Base Price Expiration
NAME Granted(#) Fiscal Year ($/Sh) Date
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------
Dexter W. Gaston 1,418,502 63.9% .05 1/11/06
- --------------------------------------------------------------------------------
On August 16, 1996, the Board of Directors approved the exchange of all
outstanding options under the 1986 Plan, including options held by all officers
of the Company, for new options having an exercise price of $.05 per share,
which was the market price of a share of Common Stock on that date.
The following table provides information regarding the number of shares
covered by both exercisable and unexercisable stock options for the executive
officer named in the Summary Compensation Table as of December 31, 1996, and the
value of "in-the-money" options as of that date. An option is "in-the-money" if
the per share market value of the underlying stock exceeds the option exercise
price per share. No options were exercised in 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------------------------
Value Of
Number Of Unexercised
Securities In-
Underlying The-Money
Shares Value Options/SARs Options/SARs
Name Acquired Realized At Fiscal At Fiscal
(a) On ($) Year-End Year-End
Exercise (c) (#) ($)
(b) Exercisable/Unexercisable Exercisable/Unexercisable
(d) (e)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dexter W. Gaston 0 ---- 472,834/945,668 18,913/37,827
- ----------------------------------------------------------------------------------------------------------------------------------
(1) The value of unexercised in-the-money options at December 31, 1996, is
based on the difference between the market price on December 31, 1996
($.09 per share) and the per share option exercise price, multiplied by
the number of shares of common stock underlying such option.
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of federal income tax consequences is based on
current law, is for general information only and is not based upon or supported
by a ruling of the Internal Revenue Service (the "Service"). The tax treatment
of a holder of Rights or Units acquired on exercise of a Right may vary
depending upon his particular situation. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. EACH HOLDER SHOULD
CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF
RECEIVING, HOLDING, EXERCISING AND DISPOSING OF THE RIGHTS OR UNITS, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, FOREIGN AND PENDING TAX LAWS.
RIGHTS
RECEIPT OF RIGHTS. Pursuant to Section 305(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), a holder should not recognize income for
federal income tax purposes by reason of the receipt of a Right, and the Company
intends to so treat the distribution of Rights as a nontaxable distribution.
If the Service were to take a contrary position with respect to this
matter, by deeming the distribution of Rights to constitute a taxable
distribution, a holder receiving a Right would recognize a dividend, taxable as
ordinary income, in an amount equal to the fair market value of the Right
received, but only to the extent of the current and accumulated earnings and
profits of the Company. To the extent the deemed distribution exceeds the
current and accumulated earnings and profits of the Company, such excess would
be treated first as a nontaxable recovery of adjusted tax basis in the security
with respect to which the Right was distributed and then as gain from the sale
or exchange of such security. A holder's tax basis in a Right received in a
taxable distribution would equal the fair market value of the Right as of the
date of distribution of the Right (the "Distribution Date").
Under the Company's intended treatment (i.e. a nontaxable distribution), if
a Right is exercised, the tax basis of the Right in the hands of a holder will
be determined by allocating the holder's tax basis in his securities with
respect to which the Right was distributed between such securities and the
Right, in proportion to their relative fair market values on the Distribution
Date. If, however, the fair market value of the Right on the Distribution Date
is less than 15% of the fair market value of the securities with respect to
which the Right was distributed, the holder's tax basis in the Right will be
deemed to be zero unless the holder affirmatively elects, in accordance with
Treasury Regulations, to apportion his tax basis in accordance with the
preceding sentence. The holding period of a Right will include the holding
period for the securities with respect to which the Right was distributed.
EXERCISE OF RIGHTS. No gain or loss will be recognized by a holder of
Rights upon exercise of the Rights for cash. A holder who pays the Subscription
Price through surrender of notes may recognize gain to the extent the
Subscription Price exceeds the holder's tax basis in the notes surrendered
therefor. Additionally, a holder who pays the Subscription Price through
surrender of notes may be required to recognize as ordinary income any accrued
interest on the surrendered notes that has not been taken into account
previously as interest income for tax purposes. The adjusted tax basis of a
holder of Units acquired upon exercise of Rights will be equal to the sum of the
holder's adjusted tax basis in the exercised Rights and the Subscription Price.
The holding period for Units acquired upon exercise of Rights will commence on
the date of such exercise.
EXPIRATION OF RIGHTS WITHOUT EXERCISE. If a holder of a Right allows it to
expire without exercise, the expiration will be treated as a sale or exchange of
the Right on the expiration date. Because an unexercised Right should be treated
upon expiration as having a zero basis in the hands of the holder of the Right,
such holder should not recognize loss as a result thereof.
ADJUSTMENT TO THE TERMS OF A RIGHT. An adjustment to the Subscription Price
of a Right, or the failure to make such an adjustment (and possibly an
adjustment to the number of Units purchasable upon the exercise of the Right or
the failure to make such an adjustment), in certain circumstances may result in
a distribution that could be taxable as a dividend under the Code to the holder
of the Right or the Units. Alternatively, a modification of the terms of a Right
may be treated as a taxable exchange of the Right for a new right to purchase
Units, with the holder recognizing gain or loss (as discussed above), even
though no cash may have been distributed to the holder.
UNITS
DISPOSITION OF UNITS. The sale or other disposition of Units acquired on
exercise of a Right will result in the recognition of gain or loss by the holder
of such Units in an amount equal to the difference between the amount realized
and the holder's adjusted tax basis in the Units. Gain or loss will be capital
gain or loss if the Units were held as a capital asset, and will be long-term
capital gain or loss if the Units have a holding period for tax purposes of more
than one year.
POTENTIAL LIMITATIONS ON USE OF LOSS CARRYFORWARDS
In general, upon a change of ownership, Section 382 of the Code limits the
amount of a loss corporation's taxable income that could be offset annually by
its carryforwards of net operating losses (and certain "built-in" losses that
are economically accrued but not recognized at the time of a change of
ownership) to an amount equal to the product obtained by multiplying the
aggregate value of such corporation's capital stock immediately prior to the
requisite change of ownership by the federal long-term tax-exempt interest rate.
A change of ownership occurs and Section 382 of the Code will apply if, within a
three year "testing period," there is more than a 50 percentage point increase
in the capital stock of the loss corporation held by persons who own (actually
or constructively) at least five percent in value of the loss corporation's
stock (with persons who separately are less than five percent stockholders
generally being treated in the aggregate as a single stockholder). Except in
limited circumstances, options to acquire stock will be treated as if they had
been exercised, on an option-by-option basis, if such treatment results in the
requisite change of ownership.
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
A holder of Rights or Units may be subject to backup withholding at the
rate of 31% with respect to dividends paid on and gross proceeds from the sale
or redemption of the Rights or Units, unless the holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Holders of Rights or
Units who do not provide the Company with their correct taxpayer identification
number may be subject to penalties imposed by the Service. Any amount withheld
under these rules will be creditable against the holder's federal income tax
liability.
The Company will report to the holders of Rights and Units and to the
Service, the amount of any "reportable payments" and any amount withheld with
respect to the Rights and Units during each calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY. ACCORDINGLY, EACH HOLDER OF RIGHTS AND UNITS SHOULD
CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE RIGHTS AND UNITS, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND PENDING TAX LAWS.
<PAGE>
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the Units,
Notes and the New Warrants are being passed upon for the Company by Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and for the three years then ended have been included herein and in the
registration statement in reliance upon the report of Berenson & Company LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
<PAGE>
FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
<PAGE>
FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT
Board of Directors
IGENE Biotechnology, Inc.
Columbia, MD
We have audited the financial statements of IGENE Biotechnology, Inc. as
listed in response to A.1. of Item 13. In connection with our audits of the
financial statements, we also have audited the financial statement schedules as
listed in response to A.1a. of Item 13. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statements schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IGENE Biotechnology, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
The accompanying financial statements and financial statement schedules
have been prepared assuming that IGENE Biotechnology, Inc. will continue as a
going concern. As discussed in note 13 to the financial statements, the
Company's recurring losses and limited capitalization raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in note 13. The financial statements
and financial statement schedules do not include any adjustments that might
result from the outcome of this uncertainty.
Berenson & Company LLP
March 13, 1997
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENT OF OPERATIONS DATA
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales 43,091 25,563 113,166 68,516 165,060
Total Revenues 66,573 274,978 363,349 69,089 170,654
Cost of Sales 23,198 16,878 36,945 32,137 118,652
Research, Development
and Pilot Plant Expenses 309,351 348,139 391,912 329,030 409,645
Other Expenses 512,504 447,335 474,752 416,489 432,380
Net Loss (776,873) (503,156) (540,260) (708,567) (790,023)
Net Loss Per Common Share (1) (.04) (.04) (.04) (.06) (.07)
Coverage Deficiency
of Fixed Charges (2) 921,572 647,695 684,959 853,266 934,722
IGENE BIOTECHNOLOGY, INC.
BALANCE SHEET DATA
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Cash and Cash Equivalents 41,339 8,326 19,529 65,897 128,118
Working Capital (Deficit) (983,816) (336,992) (645,815) (286,881) (26,918)
Total Assets 109,054 104,255 77,556 258,417 315,834
Long-term Debt 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Total Liabilities 2,562,799 1,901,127 2,177,572 1,938,173 1,677,272
Redeemable Preferred Stock 475,982 484,643 463,104 438,405 413,706
Stockholders' Deficit (2,929,727) (2,281,515) (2,563,119 (2,118,161) (1,775,144)
Common Shares Outstanding 18,631,139 18,572,805 13,028,571 12,975,237 12,475,853
Preferred Shares Outstanding 223,342 225,842 226,092 226,092 226,092
</TABLE>
<PAGE>
Notes:
1 Net loss per common share for the year ended December 31, 1992 is
based on 12,084,190 shares. Net loss per common share for each
of the years in the four-year period ended December 31, 1996 is
based on 12,769,011, 13,002,050, 13,694,343 and 18,604,171
weighted average shares, respectively. For purposes of computing
net loss per common share, the amount of net loss has been
increased by dividends declared and cumulative undeclared
dividends in arrears on preferred stock.
2 Earnings are not adequate to cover fixed charges. The "coverage deficiency
of fixed charges" for each year is equal to the net loss for the year plus
dividends on preferred stock.
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
BALANCE SHEET, DECEMBER 31
1996
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 41,339
Accounts receivable 9,996
Supplies 6,126
Prepaid Expenses 4,652
Due from stockholders (note 6) 16,870
TOTAL CURRENT ASSETS
78,983
OTHER ASSETS
Property and equipment, net (note 3) 19,471
Security deposits 10,600
TOTAL ASSETS $109,054
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses (note 4) $ 300,799
Debenture interest payable (note 5) 45,000
Promissory notes payable (note 6) 717,000
TOTAL CURRENT LIABILITIES
1,062,799
OTHER LIABILITIES
Variable rate subordinated debenture (note 5) 1,500,000
TOTAL LIABILITIES
2,562,799
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
Convertible, voting, Series A, $.01 par value per share. Stated
Value $13.28 per share. Authorized 920,000 shares; issued
35,842 shares. Redemption amount $475,982 (notes 5, 7 and 8) 475,982
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
BALANCE SHEET, DECEMBER 31 (CONTINUED)
STOCKHOLDERS' DEFICIT (notes 7 and 8)
Preferred stock -- $.01 par value per share. 8% cumulative,
Convertible, voting, Series A. Authorized and issued 187,500 shares
<S> <C>
(aggregate involuntary liquidation value of $2,490,000) 1,875
Common stock -- $.01 par value per share. Authorized 35,000,000 shares;
Issued 18,631,139 shares 186,311
Additional paid-in capital 17,971,220
Deficit (21,089,133)
-----------
TOTAL STOCKHOLDERS' DEFICIT (2,929,727)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $109,054
========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC. STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Sales $ 43,091 $ 25,563
Cost of sales 23,198 16,878
------ ------
Gross profits 19,893 8,685
Technology licensing income (note 14) -- 225,000
Technology services income (note 14) 23,482 24,415
------ ------
Net Sales 43,375 258,100
------ -------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Marketing and selling 5,438 12,813
Research, development and pilot plant 309,351 348,139
General and administrative 331,211 303,998
------- -------
Total selling, general and administrative expenses 646,000 664,950
------- -------
Operating loss (602,625) (406,850)
OTHER INCOME (EXPENSES):
Forgiveness of Debt (note 6) -- 33,395
Investment income 1,607 527
Other income (expense) (4,743) 296
Interest expense (171,112) (130,524)
--------- ---------
Net Loss (776,873) (503,156)
Deficit at beginning of year (20,312,260) (19,809,104)
------------ ------------
Deficit at end of year $ (21,089,133) $ (20,312,260)
============== ==============
Net loss per common share (note 9) $ (.04) $ (.04)
================ ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
REDEEMABLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
================ ================ ================
(Shares/Amount) (Shares/Amount) (Shares/Amount)
<S> <C> <C> <C>
Balance at December 31, 1994 38,592/$463,104 187,500/$1,875 13,028,571/$130,285
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5) --- --- 53.3341533
Cumulative undeclared dividends on redeemable
preferred stock 24,539 --- ---
Issuance of 1,200,000 shares of common stock
pursuant to direct purchase of shares by
certain directors of the Company (note 8) --- --- 1,200,000/$12,000
Issuance of 4,290,400 shares of common stock
on conversion of promissory notes --- --- 4,290,400/$42,905
Conversion of redeemable preferred stock into
common stock (250)/$(3,000) --- 500/$5
Net loss for 1995 --- --- ---
-------------------------------------------------------------------
Balance at December 31, 1995 38,342/$484,64 187,500/$1,875 18,572,805/$185,728
3
===============================================================================
Issuance of 53,334 shares of common stock as
payment of interest on variable rate --- --- 53,334/$533
subordinate debenture (note 5)
Cumulative undeclared dividends on redeemable
preferred stock 22,939 --- ---
Conversion of redeemable preferred stock into
common stock (2,500)/$(31,600) --- $5,000/$50
Net loss for 1996 --- --- ---
-------------------------------------------------------------------------------
Balance at December 31, 1996 35,842/$475,982 187,500/$1,875 18,631,139/$186,311
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(CONTINUED)
ADDITIONAL TOTAL STOCKHOLDER'S
PAID-IN CAPITAL DEFICIT DEFICIT
=============== ======== ====================
<S> <C> <C> <C>
Balance at December 31, 1994 17,113,824 (19,809,104) (2,563,120)
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5) 119,467 --- 120,000
Cumulative undeclared dividends on redeemable
preferred stock (24,539) --- (24,539)
Issuance of 1,200,000 shares of common stock
pursuant to direct purchase of shares by
certain directors of the Company (note 8) 138,000 --- 150,000
Issuance of 4,290,400 shares of common stock
on conversion of promissory notes............... 493,395 --- 536,300
Conversion of redeemable
preferred stock into common stock............... 2,995 --- 3,000
Net loss for 1995 --- (503,156) (503,156)
-------------------------------------------------------------------------------------
=====================================================================================
Balance at December 31, 1995 $17,843,142 $(20,312,260) $(2,281,515)
=====================================================================================
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 5) 119,467 --- 120,000
Cumulative undeclared dividends on redeemable
preferred stock (22,939) --- (22,939)
Conversion of redeemable preferred stock into
common stock 31,550 --- 31,600
Net loss for 1996 --- (776,873) (776,873)
-------------------------------------------------------------------------------------
Balance at December 31, 1996 $17,971,220 $(21,089,133) $(2,929,727)
=====================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
========================
1996 1995
-------------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(776,873) ($503,156)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,261 8,048
Loss on sale of assets 4,743 ---
Interest on debenture paid in shares of
common stock 120,000 120,000
Decrease (increase) in:
Accounts receivable 1,133 (339)
Prepaid expenses, supplies and deposits (10,778) 1,438
Increase (decrease) in:
Accounts payable and other accrued expenses 44,672 33,105
------------------------- -----------------------
Net cash used in operating activities (610,842) (340,904)
------------------------- -----------------------
Cash flows from investing activities:
Capital expenditures (955) (2,369)
------------------------- -----------------------
------------------------- -----------------------
Net cash used in investing activities (955) (2,369)
------------------------- -----------------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 150,000
Issuance of promissory notes 644,810 182,070
------------------------- -----------------------
Net cash provided by financing activities 644,810 332,070
------------------------- -----------------------
Net increase (decrease) in cash 33,013 (11,203)
Cash and cash equivalents - beginning of the year 8,326 19,529
----------------------- -----------------------
Cash and cash equivalents - end of the year 41,339 $ 8,326
========================= =======================
Supplementary disclosure and cash flow information:
Cash paid during the year for interest $ --- $ ---
Cash paid during the year for income taxes --- ---
</TABLE>
<PAGE>
Non-cash investing and financing activities:
During 1996 and 1995, the Company issued 53,334 shares of common stock in
each year in payment of interest on the variable rate subordinated debenture. If
paid in cash, the interest would have been payable at 8% during 1996 and 1995,
or $120,000 per year. Shares may be issued in lieu of cash under the debenture
agreement at the higher of $2.25 per share or market price per share. The stock
was issued and related interest was paid in 1996 and 1995 at $2.25 per share, or
$120,000 in each year. (See also note 5)
During 1996 and 1995 the Company recorded dividends in arrears on 8%
redeemable preferred stock at $.64 per share aggregating $22,939 and $24,539,
respectively in each year which has been removed from paid-in capital and
included in the carrying value of the redeemable preferred stock. (See also note
7)
During 1995 the Company issued 4,290,400 shares of common stock pursuant to
the conversion of $536,300 of promissory notes held by certain directors of the
Company. (See also note 8)
During 1995 the Company issued promissory notes to certain directors of the
Company in the face amount of $226,750. As of December 31, 1995 $182,070 had
been received in cash proceeds by the Company. $44,680 remained due from certain
directors of the Company on December 31, 1995, which was received during 1996.
(See also note 8)
During 1996 the Company issued promissory notes to certain directors of the
Company in the face amount of $617, 000. As of December 31, 1996 $600,130 had
been received in cash proceeds by the Company. $16,870 remained due from certain
directors of the Company as of December 31, 1996. (See also note 8)
The directors also received warrants to purchase the number of shares of
Common Stock into which the promissory notes are convertible with an exercise
price equal to the market price at the time these notes were issued.
The accompanying notes are an integral part of the financial statements.
<PAGE>
IGENE BIOTECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
The Company was incorporated under the laws of the State of Maryland on
October 27, 1981 as "Industrial Genetics, Inc." The Company changed its name to
"IGI Biotechnology, Inc." on August 17, 1983 and to "IGENE Biotechnology, Inc."
on April 14, 1986. The Company is located in Columbia, Maryland and is engaged
in the business of industrial microbiology and related biotechnologies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
For purposes of the financial statements, cash equivalents have been
combined with cash. The Company considers cash equivalents to be short-term,
highly liquid investments that have maturities of less than three months. These
include interest bearing money market accounts.
Research and development costs
For financial reporting purposes, research, development and pilot plant
scale-up costs are charged to expense when incurred.
Depreciation
Depreciation of property and equipment is provided under the straight-line
method over the useful lives of the respective assets.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
The carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of those instruments. The carrying amount of
lone-term debt approximates fair value because of similar current rates at which
the Company could borrow funds with consistent remaining maturities.
Sales Returns
The Company records sales returns in the period in which the product is
returned, rather than estimating future returns of current sales, since they are
expected to be immaterial in amount.
Interest on Variable Rate Subordinated Debenture
The Company records interest on its variable rate subordinated debenture
(see also note 6) at a level rate of 8% through October 1, 1996; rather than at
the fair-market value of shares which have been issued in lieu of cash payments
of interest. This is an estimated average rate based on the Company's plan to
continue (as it has since October 1, 1989) to pay interest on the debenture by
issuing shares of common stock at the higher of $2.25 per share or the current
market value of the Company's shares, as allowed under the terms of the
debenture. If the market value of the Company's stock remains below $2.25 per
share (during the period from October 1989 through December 1995 its highest
price was $1.25) the Company can continue to issued stock in lieu of cash
payments at $2.25 per share. Effective October 1, 1996 the Company will begin
recording interest on its variable rate subordinated debenture at a level rate
of 12%; rather than at the fair-market value of shares, which have been issued
in lieu of cash payments of interest.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies APB Opinion 25 in accounting for employee stock option
plans (note 8). Accordingly, no compensation cost has been recognized in 1996
and 1995. Had compensation cost been determined on the basis of FASB Statement
123, the following changes would have resulted:
1996 1995
------ ------
Net loss:
As reported $(776,873) $(503,156)
Pro forma (781,189) (503,156)
Net loss per common share:
As reported $ (.04) $ (.04)
Pro forma (.04) (.04)
The fair value of compensation was computed using an option-pricing model
which took into account the following factors as of the grant date:
- The exercise price and expected life of the option.
- The current price of the stock and its expected volatility.
- Expected dividends, if any.
- the risk-free interest rate for the expected term of the
option using Treasury Note rates with a remaining term equal
to the expected life of the options.
(3) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are summarized as follows:
Laboratory equipment and fixtures $ 70,060
Pilot plant equipment and fixtures 8,200
Machinery and equipment 57,979
Office furniture and fixtures 33,526
-------
169,765
Less accumulated depreciation 150,294
-------
$ 19,471
==========
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of
the following:
Accounts payable $ 251,050
Audit fees and payroll taxes 13,600
Accrued interest, promissory notes 36,149
------
$ 300,799
=========
(5) VARIABLE RATE SUBORDINATED DEBENTURE
In July 1988, the Company and a principal holder of the Company's
redeemable preferred stock agreed to exchange 187,500 shares of the Company's 8%
cumulative convertible preferred stock, Series A for a $1,500,000 variable rate
convertible subordinated debenture due 2002, Class A.
The debenture bears interest at a rate of 8% per annum through September
30, 1996 and thereafter at a rate of 12% per annum. Interest was payable in cash
through October 1, 1989. Thereafter, the debenture agreement provides that at
the option and at the discretion of the Company, interest may be paid in shares
of the company's common stock at the greater of $2.25 per share or the average
market value per share. During 1996 and 1995, the Company issued 106,668 of its
common stock as payment of interest on the debenture. The debenture is
convertible into common stock of the Company at any time at the option of the
holder at an initial rate of $4 per share of common stock. The debenture is
redeemable at the option of the Company at any interest payment date at par
value plus accrued interest. Upon maturity of the debenture, the Company, at its
option, may repay the remaining principal in shares of 8% cumulative convertible
preferred stock, Series B at a rate of $8 per preferred share.
(6) PROMISSORY NOTES PAYABLE
On August 23, and November 19, 1993, the Company issued promissory notes to
certain directors of the Company for an aggregate consideration of $239,300. The
notes specify that at any time prior to repayment the holder has the right to
convert the note to common stock of the Company at $.48 per share and to receive
a warrant for an equivalent number of common shares at $.48 per share. The
promissory notes were due on demand with interest charged at the prime rate.
On February 10, 1994, and September 26, October 24, 1994 and November 28,
1994, the Company issued additional promissory notes to certain directors of the
Company for an aggregate consideration of $170,250. The notes specify that at
any time prior to repayment the holder has the right to convert the note to
common stock of the Company at $.375 per share for the note issued February 10,
1994 and at $.25 per share for all other notes and to receive warrants for an
equivalent number of common shares at $.375 per share for the note issued
February 10, 1994 and at $.25 per share for all other notes. These promissory
notes were also due on demand with interest charged at the prime rate.
On January 23, 1995, and March 7, 1995, the Company issued additional
promissory notes to certain directors of the Company for an aggregate
consideration of $125,000. The notes specify that at any time prior to repayment
the holder has the right to convert the note to common stock of the Company at
$.1875 per share for the note issued January 23, 1995 and at $.125 per share for
the note issued March 7, 1995 and to receive warrants for an equivalent number
of common shares at $.1875 per share for the note issued January 23, 1995 and at
$.125 per share for the note issued March 7, 1995.
On November 16, 1995, and December 22, 1995, the Company issued additional
promissory notes to certain directors of the Company for an aggregate
consideration of $100,000. These notes specify that at any time prior to
repayment the holder has the right to convert the note to common stock of the
Company at $.05 per share and to receive a warrant for an equivalent number of
common shares at $.05 per share. The promissory notes are due on demand with
interest charged at the prime rate. As of December 31, 1995 $55,320 was received
by the Company. The remaining $44,680 was received in January, 1996.
On December 14, 1995 the shareholders of the Common approved cancellation
of Promissory Notes and Warrants issued to certain Directors of the Company
between August 23, 1993 and March 7, 1995 and the conversion of these notes to
common stock of the Company at $.125 per share and warrants to purchase an equal
amount of common stock of the Company at $.125 per share, which was the fair
market value of the common stock as quoted on April 3, 1995. Interest accrued on
$33,395 was forgiven by the shareholders.
On February 9, 1996, and March 11, 1996, the Company issued additional
promissory notes to certain directors of the Company for an aggregate
consideration of $140,000. The notes specify that at any time prior to repayment
the holder has the right to convert the note to common stock of the Company at
$.10 per share for the note issued February 9, 1996 and at $.09 per share for
the note issued March 11, 1996 and to receive warrants for an equivalent number
of common shares at $.10 per share for the note issued February 9, 1996 and at
$.09 per share for the note issued March 11, 1996.
On April 23, 1996, May 9, 1996 and June 7, 1996, the Company issued
Promissory Notes to certain Directors of the Company for an aggregate
consideration of $177,000. These notes specify that at any time prior to
repayment the holder has the right to convert the note to common stock of the
Company at $.06 per share for the notes issued April 23, 1996 and May 9, 1996,
and at $.05 for the note issued June 7, 1996, and to receive warrants for an
equivalent number of common shares at $.06 per share for the notes issued April
23, 1996 and May 9, 1996 and at $.05 per share for the note issued June 7, 1996.
On July 24, 1996 and September 24, 1996, the Company issued Promissory
Notes to certain Directors of the Company for an aggregate consideration of
$160,000. These notes specify that at any time prior to repayment the holder has
the right to convert the note to common stock of the Company at $.115 per share
for the note issued July 24, 1996 and at $.125 per share for the note issued
September 24, 1996, and to receive warrants for an equivalent number of common
shares at $.115 per share for the note issued July 24, 1996 and $.125 per share
for the note issued September 24, 1996. As of December 31, 1996 the unpaid
portion of these Promissory Notes was $4,760.
On November 13, 1996 and December 11, 1996, the Company issued Promissory
Notes to certain Directors of the Company for an aggregate consideration of
$140,000. These notes specify that at any time prior to repayment the holder has
the right to convert the note to common stock of the Company at $.09 per share
for the notes dated November 13, 1996 and December 11, 1996, and to receive
warrants for an equivalent number of common shares at $.09 per share for the
note issued November 13, 1996 and December 11, 1996. As of December 31, 1996 the
unpaid portion of these Promissory Notes was $12,110.
The directors also received warrants to purchase the number of shares of
Common Stock into which the promissory notes are convertible with an exercise
price equal to the market price at the time these notes were issued.
(7) REDEEMABLE PREFERRED STOCK
Each share of redeemable preferred stock is entitled to vote on all matters
requiring shareholder approval as one class with holders of common stock, except
that each share of redeemable preferred stock is entitled to two votes and each
share of common stock is entitled to one vote.
Redeemable preferred stock is convertible at the option of the holder at
any time, unless previously redeemed, into shares of the Company's common stock
at the rate of two shares of common stock for each share of preferred stock
(equivalent to a conversion price of $4.00 per common share), subject to
adjustment under certain conditions.
Shares of redeemable preferred stock are redeemable for cash in whole or in
part at the option of the Company at any time at the stated value plus accrued
and unpaid dividends to the redemption date. Dividends are cumulative and
payable quarterly on January 1, April 1, July 1 and October 1, since January 1,
1988. See note 5 relating to exchange of redeemable preferred stock and note 8
relating to conversion of redeemable preferred stock and waiver of redemption
privileges. Mandatory redemption is required by October 2002. As of December 31,
1996, cumulative dividends in arrears totaled $189,246 ($5.28 per share) and
were included in carrying value of redeemable preferred stock. See Note 5
relating to exchange of redeemable preferred stock and Note 8 relating to
conversion of redeemable preferred stock and waiver of redemption privileges.
(8) STOCKHOLDERS' EQUITY
COMMON STOCK
In January 1987, the Board of Directors approved the 1986 Stock Option Plan
("Plan"). In August 1990, the shareholders approved an increase in the number of
shares issuable pursuant to options granted under the Plan. Under the Plan
options to acquire up to 978,850 shares of the Company's common stock may be
issued to certain directors, officers and employees. Options granted under the
Plan are exercisable in installments of twenty percent each year beginning on
the first anniversary of the date when such options are granted and expire not
later than ten years from the date of grant. On January 22, 1987, the Board of
Directors approved the granting, under the Plan, of options to purchase 72,750
shares of the Company's common stock at $5.40 per share to 23 full-time
employees of the Company. The option price represented a discount from the
market price at the date of grant. The total amount of such discount was
accounted for as compensation expense and recognized over the period in which
employees were providing the related services. In May 1989 the Compensation
Committee of the Board of Directors approved the reduction of the exercise price
from $5.40 to $1.00 per share of the aforementioned options. In addition, the
Compensation Committee approved the granting of options to purchase an
additional 146,350 shares at an exercise price of $1.00 per share pursuant to
the Plan. In May 1990, the Compensation Committee of the Board of Directors
approved the granting of options to purchase an additional 560,250 shares at an
exercise price of $.10 per share pursuant to the Plan. In January 1991, options
to purchase 250,000 shares of common stock of the Company at $.25 per share were
granted to two officers and one key employee of the Company. In January 1992,
options to purchase 350,000 shares of common stock of the Company at $.625 share
were granted to one officer and one key employee of the Company. In April 1993,
options to purchase 50,000 shares of common stock of the Company at $1.00 per
share were granted to one key employee of the Company. The options granted in
May 1989, May 1990, January 1991, January 1992, and April 1993 were at an
exercise price in excess or equal to the current market price and, accordingly,
no additional compensation expense was recognized. Prior to 1993, no options
were exercised under the Plan. In 1993 options to purchase 87,000 shares of
common stock at $.10 per share and 20,000 shares of common stock at $.25 per
share were exercised pursuant to the Plan. On March 17, 1994 the Board of
Directors approved an increase from 978,850 to 1,200,000 in the number of shares
issuable pursuant to options granted under the plan which was approved by
stockholders at the Company's 1994 Annual Meeting. On December 16, 1995 an
increase from 1,200,000 to 2,000,000 in the number of shares issuable pursuant
to options granted under the plan which was approved by stockholders at the
Company's 1995 Annual Meeting.
On January 11, 1996, warrants to purchase 1,418,502 shares of common stock
of the Company at $.05 were granted to the CEO of the company, and options to
purchase 800,000 shares to two officers of the Company at $.05 per common share.
One-third of the shares were to be vested immediately and one-third on each
anniversary of the grant. The Compensation Committee also recommended the
conversion of previously granted employee stock options issued between March 9,
1987 to March 9, 1995 to options at $.05 per share, which was the fair market
value at that time. The Board of Directors approved this recommendation on April
17, 1996. Upon termination of the CEO in January 1997, only 472,834 of shares
granted to the CEO were vested and are exercisable until January 7, 1998.
In May and November 1988, holders of 314,092 shares of redeemable preferred
stock converted those shares into 628,184 shares of the Company's common stock
and received warrants to purchase 314,092 shares of common stock at a rate of
$6.00 per share which expired on July 30, 1993. During 1990, holders of 13,500
shares of redeemable preferred stock converted those shares to 27,000 shares of
the Company's common stock. During 1991 holders of 5,125 shares of redeemable
preferred stock converted those shares to 10,250 shares of the Company's common
stock. During 1993 and 1994 no shares of redeemable preferred stock were
converted to shares of the Company's common stock.
In February 1991, the Company sold 4,596,000 shares of common stock and
received net proceeds of $1,109,000. Also in February, 1991 the Company issued
warrants to purchase 800,000 shares of common stock at $.25 per share to a
stockholder controlled company for acting as placement agent.
In June 1992, the company sold 680,667 shares of common stock and received
net proceeds of $503,693. Also in June, 1992, the Company issued warrants to
purchase 252,400 shares of common stock at $.75 per share to a stockholder
controlled Company for acting as placement agent. In addition, 680,667 warrants
to purchase common stock at $.75 per share were issued to other qualified
investors as part of the private placement.
On March 25, 1993 the Company issued 33,334 shares of common stock at $.75
upon execution of a Letter of Intent with Burns Philp Food Inc. to enter into a
Technology License Agreement. Upon execution of a Technology License Option
Agreement on April 16, 1993, Burns Philp purchased 166,666 newly issued shares
of common stock at $.75 per share, and an additional 62,500 shares at $.48 per
share on July 13, 1993. On October 13 the Company issued 76,550 shares of common
stock at $1.00 per share as part of the termination of the Agreement with Burns
Philip.
At December 31, 1994, 86,746 shares of authorized but unissued common stock
were reserved for exercise at $6.64 per share pursuant to a stock purchase
warrant granted to the underwriter in connection with the Company's initial
public offering, 978,850 shares of authorized but unissued common stock were
reserved for exercise pursuant to the 1986 Stock Option Plan, 452,184 shares of
authorized but unissued common stock were reserved for issuance upon conversion
of the Company's outstanding preferred stock, 314,092 shares of authorized but
unissued common stock were reserved for issuance upon exercise at $6.00 per
share of stock purchase warrants issued to preferred stockholders who converted
to common stock in 1988, 800,000 shares of authorized but unissued common stock
were reserved for issuance upon reinvestment of interest on the variable rate
subordinated debenture and 375,000 shares of authorized but unissued common
stock were reserved for issuance upon conversion of the variable rate
subordinated debenture.
On August 15, 1995, the Company sold 1,200,000 shares of common stock to
certain directors of the Company at $.125 per share and received net proceeds of
$150,000.
On December 14, 1995, the Company issued 4,290,400 shares of common stock
in exchange for retired Promissory Notes and Warrants issued to certain
directors of the Company from August 25, 1993 through March 7, 1995. Issued
along with the common stock were warrants to purchase an equal amount of common
stock of the Company at $.125 per share, which was the fair market value of the
common stock as quoted on April 3, 1995 by the National Quotation Bureau, which
warrants shall expire on April 3, 1998.
The following table summarizes options and warrants issued, outstanding and
exercisable:
DECEMBER 31,
----------------------------
1996 1995
---- ----
Issued 7,508,652 5,642,550
Outstanding 7,403,652 5,537,550
Exercisable 5,822,651 5,237,550
PREFERRED STOCK
In May 1988, the Company and a holder of its redeemable preferred stock
entered into an agreement under which the mandatory redemption rights referred
to in note 5 were waived as to 187,500 shares of the preferred stock. These
shares are subject to redemption at the option of the Company under provisions
governing the preferred stock which permit the Company to redeem such stock at
any time. Under these arrangements, the amounts attributable to shares of the
preferred stock as to which mandatory redemption rights were waived are recorded
and combined in total with the stockholders' equity accounts.
On January 23, 1996 a holder of preferred stock converted 2,500 shares of
preferred stock into 5,000 shares of common stock of the Company.
At December 31, 1996, cumulative dividends in arrears totaled $990,000
($5.28 per share) and were included in the aggregate involuntary liquidation
value of the preferred stock.
At December 31, 1996, 187,500 shares of authorized but unissued preferred
stock were reserved for issuance upon maturity of the variable rate subordinated
debenture.
(9) NET LOSS PER COMMON SHARE
Net loss per common share for 1996 and 1995 is based on 18,604,171 and
13,694,343 weighted average shares, respectively. For purposes of computing net
loss per common share, the amount of net loss has been increased by dividends
declared and cumulative undeclared dividends in arrears on preferred stock.
(10) COMMITMENTS
The Company is obligated for office and laboratory facilities and other
rentals under separate operating lease agreements, which expire in 2001. The
basic annual rentals are expected to be between $57,000 - $59,000 under such
leases. Annual rent expense relating to the leases for the years ended December
31, 1996 and 1995 approximated $68,000 and $83,000, respectively.
Exclusive worldwide rights to manufacture and sell of the products
developed by the Company were granted to Hercules Incorporated ("Hercules"), in
exchange for an initial license fee of $500,000 pursuant to a licensing
agreement dated as of September 16, 1985. Hercules did not produce commercially
any quantities of the product and by an agreement dated October 15, 1987, the
Company and Hercules agreed to terminate the license agreement. Pursuant to
termination agreements negotiated between the parties, the Company paid Hercules
$25,000 for termination of the license and will not refund the $500,000 initial
license fee paid by Hercules. If the Company commercializes the product, the
Company will pay Hercules up to an additional $600,000 from revenues from the
sale or licensing of the product.
(11) CONTINGENCIES
On September 24, 1982, the Company and McKesson Corporation formed a joint
venture for the purpose of developing, manufacturing and selling certain
whey-based products. On June 26, 1984, McKesson Corporation assigned to the
Company all of its rights, titles and interests in the joint venture in
consideration of a cash payment for the joint venture's inventory and a
commitment to pay an additional amount of approximately $500,000, payable
without interest in five equal annual installments, commencing after the first
fiscal year in which the Company attains pre-tax profits, as defined, or at
least $1 million. Because the payment is dependent upon the Company's attaining
profitable operations in the future, no liability therefore has been reflected
in the accompanying balance sheet.
In May 1995, the Company signed a non-exclusive licensing agreement with
Archer Daniels Midland Company ("ADM") for the manufacture and sale of
AstaXin(R). On February 29, 1996 ADM informed the Company that it had decided
not to utilize the Technology and requested that IGENE return approximately
$250,000 in payments under the License Agreement. IGENE maintains that ADM is
not entitled to the payments and that additional monies are owed to IGENE. It is
management's contention that it is not probable that this dispute will result in
an unfavorable outcome. Accordingly, no liability has been reflected in the
accompanying balance sheet.
(12) INCOME TAXES
At December 31, 1996 and 1995, the Company has federal and state net
operating loss carry- forwards of approximately $20,100,000 and $19,300,000,
respectively, that expire from 1997 to 2011. The recorded deferred tax asset,
representing the expected benefit from the future realization of the net
operating losses, net of the valuation allowance, was $-0- for both years.
The sources of the deferred tax asset is approximately as follows:
1996
----
Net operating loss carry-forward benefit $ 8,200,000
Valuation allowance (8,200,000)
Deferred tax asset $
-------------
(13) UNCERTAINTY
The Company has incurred net losses in each year of its existence,
aggregating approximately $21,100,000 from inception to December 31, 1996 and
its liabilities and redeemable preferred stock exceeded its assets by
approximately $2,900,000 at that date. These factors indicate that the Company
will not be able to continue in existence unless it is able to raise additional
capital and attain profitable operations.
Management has instituted a program of significant cost reductions,
deferred all except immediately necessary capital expenditures, and suspended
payment of dividends on the Company's preferred stock payments. The
implementation of these measures to conserve working capital together with the
successful marketing and licensing of the Company's products, which management
hopes to achieve, may permit the Company to attract additional capital and
enable it to continue.
The Company is actively seeking and is in discussion with a potential
manufacturer of its AstaXin(R) technology. The Company believes this technology
to be highly marketable and is hopeful that an income-producing technology
licensing agreement could be executed during 1997 for this product.
To increase working capital, the Company plans to issue additional stock to
officers and directors and to encourage holders of outstanding warrants to
exercise these rights. The Company will also encourage the holders of
convertible promissory notes to convert them into common stock. To meet
short-term cash needs the Company issued additional promissory notes to officers
and directors. (see also note 15)
(14) TECHNOLOGY LICENSING INCOME
On May 11, 1995 the Company and Archer-Daniels-Midland Company signed a
non-exclusive licensing agreement for AstaXin(R). The Agreement provided for an
initial payment of $200,000 and royalties based on sales. In addition, the
Company received $23,482 and $24,415 in 1996 and 1995, respectively, for
technology services pertaining to the Agreement. The Company also received
payment of $25,000 in December, 1995 under the terms of the Agreement. On
February 29, 1996 Archer-Daniels-Midland Company terminated its Licensing
Agreement with the Company (See Note 11).
(15) SUBSEQUENT EVENTS
Effective January 1, 1997 the Company initiated a SIMPLE retirement plan.
All employees who received at least $5,000 of compensation for the preceding
year are eligible to participate in the plan. The Company makes a non-elective
contribution for each participating employee equal to 2% of each such employee's
compensation.
On January 15, 1997 the Company issued Promissory Notes to certain
Directors of the Company for an aggregate consideration of $70,000. These notes
specify that at any time prior to repayment the holder has the right to convert
the note to common stock of the Company at $.07 per share and to receive
warrants for an equivalent number of common shares at $.07 per share.
On February 24, 1997 the Company issued Promissory Notes to certain
Directors of the Company for an aggregate consideration of $100,000. These notes
specify that at any time prior to repayment the holder has the right to convert
the note to common stock of the Company at $.11 per share and to receive
warrants for an equivalent number of common shares at $.11 per share.
The directors also received warrants to purchase the number of shares of
Common Stock into which the promissory notes are convertible with an exercise
price equal to the market price at the time these notes were issued.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
IGENE BIOTECHNOLOGY, INC.
PROPERTY, PLANT AND EQUIPMENT
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS OF PERIOD
-------------- ------------ ----------- ----------- ---------
Year ended December 31, 1996:
<S> <C> <C> <C> <C>
Laboratory equipment and fixtures $ 85,092 $ --- $ 15,032 $ 70,060
Pilot plant equipment and fixtures 56,862 955 49,615 8,200
Machinery and equipment 101,683 --- 43,704 57,979
Office furniture and fixtures 42,864 --- 9,338 33,526
------ -------- ----- ------
$ 286,501 $ 955 $ 117,689 $ 169,765
============= ======== ========== ==========
SCHEDULE VI
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
ADDITIONS
BALANCE AT AT COST BALANCE
BEGINNING DEPRECIATION AT END
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS OF PERIOD
-------------- ---------- ------------- ----------- ----------
Year ended December 31, 1996:
Laboratory equipment and fixtures $ 73,091 $ 2,000 $ 15,032 $ 60,059
Pilot plant equipment and fixtures 56,863 67 49,614 7,314
Machinery and equipment 84.234 4,122 38,961 49,395
Office furniture and fixtures 42,792 72 9,338 33,526
------ -- ----- ------
$ 56,980 $ 6,261 $ 112,946 $ 150,294
============ ========= ============ ==========
</TABLE>
<PAGE>
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
1996 1995
---- ----
Maintenance and repairs......................... $ 27,174 $ 35,849
Taxes, other than payroll and income taxes...... 18,193 15,267
<PAGE>
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC. BALANCE SHEETS
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
(UNAUDITED) (UNAUDITED) DECEMBER 31, 1996
ASSETS ------------------ ------------------- ------------------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 304,581 $ 35,975 $ 41,339
Accounts receivable 14,494 47,509 9,996
Due from stockholders(note 6) 97,094 --- 16,870
Equipment held for resale 512,848 --- ---
Supplies --- 7,009 6,126
Deferred costs 92,731 --- ---
Prepaid expenses 947 953 4,652
--- --- -----
Total current assets 1,022,695 91,446 78,983
Property and equipment, net 53,045 25,353 19,471
Security deposits 10,600 10,600 10,600
$1,086,340 $127,399 $109,054
---------- -------- --------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and
other accrued expenses 462,668 268,486 300,799
Debenture interest payable 90,000 60,000 45,000
Promissory Notes payable 2,332,500 558,770 717,000
Total current liabilities 2,885,168 887,256 1,062,799
Long term liabilities:
Variable rate subordinated debenture 1,500,000 1,500,000 1,500,000
--------- --------- ---------
Total liabilities 4,385,168 2,387,256 2,562,799
--------- --------- ---------
Redeemable preferred stock -- 8% cumulative,
convertible, voting, Series A,
$.01 par value per share;
redemption value $13.76,
$13.12 and $13.28 per share.
Authorized 920,000 shares; issued 35,842
shares 493,186 470,247 475,982
IGENE BIOTECHNOLOGY, INC. BALANCE SHEETS (CONTINUED)
Stockholders' deficit:
Preferred stock -- $.01 par value per share.
8% cumulative, convertible, voting, Series A.
Authorized and issued 187,500 shares
(aggregate involuntary liquidation value of
$2,580,000, 2,460,000, and 2,490,000) 1,875 1,875 1,875
Common stock -- $.01 par value per share.
Authorized 35,000,000 shares; issued
19,143,973, 18,604,472, and 18,631,139 shares 191,440 186,045 186,311
Additional paid-in capital 18,062,529 17,917,221 17,971,220
Deficit (22,047,859) (20,835,245) (21,089,133)
----------- ----------- -----------
Total stockholders' deficit (3,792,015) (2,730,104) (2,929,727)
---------- ---------- ----------
$ 1,086,339 $ 127,399 $ 109,054
=========== ============ ============
The accompanying notes are an integral part of the financial statement
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
-- THREE MONTHS ENDED --
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
Sales $ --- $ 9,241
Cost of sales --- 3,927
-------- -----
Technology services income --- ---
Net revenue --- 5,314
Selling, general and administrative expenses:
Marketing and selling 2,681 1,323
Research, development and pilot plant 77,637 84,123
General and administrative 94,305 93,082
------ ------
Total selling, general and Administrative expenses 174,623 178,528
------- -------
Operating loss (174,623) (173,214)
Other income (expenses):
Litigation expenses (280,000) ---
Investment income --- 105
Other income (expense) --- ---
Interest expense (86,996) (43,621)
------- -------
Net loss (541,619) (216,730)
Deficit at beginning of period (21,506,240) (20,618,515)
----------- -----------
Deficit at end of period $(22,047,859) $(20,835,245)
------------ ------------
Net loss per common share $ (0.03) $ (0.01)
============ ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
(UNAUDITED)
REDEEMABLE PREFERRED
PREFERRED STOCK STOCK COMMON STOCK
(SHARES/AMOUNT) (SHARES/AMOUNT) SHARES/AMOUNT
<S> <C> <C> <C>
Balance at December 31, 1995 38,342/$484,643 187,500/$1,875 18,572/$185,728
Issuance of 26,667 shares of
common stock in lieu of cash
payment for interest on
subordinated debenture --- --- 26,667/$267
Cumulative undeclared 17,204 --- ---
dividends on redeemable
preferred stock
Conversion of preferred stock (2,500)/$(31,600) --- 5,000/$50
to common stock
Net loss for nine months ended
September 30, 1996 --- --- ---
Balance at September 30, 1996 35,842/$464,512 187,500/$1,875 18,604,472/$186,046
Balance at 35,842/$475,982 187,500/$1,875 18,631,139/$186,311
December 31, 1996
Issuance of 40,000 shares of --- --- 40,000/$400
common stock in lieu of
cash payment for interest
on subordinated debenture
Issuance of common stock through
Exercise of employee stock options --- --- 472,834/$4,729
Cumulative undeclared
dividends on redeemable
preferred stock 17,204 --- ---
Net loss for nine months ended
September 30, 1997 --- --- ---
Balance at
September 30, 1997 35,842/$493,186 187,500/$1,875 19,143,973/$191,440
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
(UNAUDITED- CONTINUED)
TOTAL
ADDITIONAL STOCKHOLDER'S
PAID-IN CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C>
Balance at $ 17,843,142 $(20,312,260) $ (2,281,515)
December 31, 1995
Issuance of 26,667 shares
Of common stock in lieu
of Cash payment for
interest on subordinated
debenture 59,733 -- 60,000
Cumulative undeclared
dividends on redeemable
preferred stock (17,204) -- (17,204)
Conversion of preferred
stock to common stock 31,550 -- 31,600
Net Loss for nine months
ended September 30, 1996 -- (522,985) (522,985)
Balance at June 30, 1996 $ 17,922,955 $(20,618,514) $ (2,507,638)
Balance at December 31, 1996 $ 17,971,220 $(21,089,133) $ (2,929,727)
Issuance of 40,000 shares
Of common stock in lieu
of Cash payment for
interest On subordinated
debenture 89,600 -- 90,000
Issuance of common stock
through Exercise of
employee stock options 18,913 -- 23,842
Cumulative undeclared
dividends on redeemable
preferred stock (17,204) -- (17,204)
Net Loss for nine months
ended September 30, 1997 -- (958,726) (958,726)
Balance at September 30,
1977 $ 18,062,529 $(22,047,859) $ (3,792,015)
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, September 30,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net loss $(958,726) $(522,985)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 5,502 4,167
Interest on debenture paid in shares of
common stock 90,000 60,000
Decrease (increase) in:
Accounts receivable (4,498) (36,380)
Prepaid expenses, supplies and
deposits 9,831 (7,962)
Increase (decrease) in:
Accounts payable and other Accrued
expenses 206,869 27,359
Net cash used in operating activities (651,022) (475,801)
Cash flows from investing activities:
Capital expenditures (39,075) ---
Purchase of equipment held for resale (512,848) ---
Deferred costs (92,731) ---
Net cash used in investing activities (644,654) ---
Cash flows from financing activities:
Issuance of promissory notes 1,615,500 458,770
Proceeds from issuance of common stock 23,642 ---
Decrease (increase) in amounts Due from (80,224) 44,680
stockholders
Net cash provided by financing activities 1,558,918 503,450
Net increase in cash and cash equivalents 263,242 27,649
Cash and cash equivalents at beginning of 41,339 8,326
period
Cash and cash equivalents at end of period 304,581 35,975
Supplementary disclosure of cash flow -------- -------
information:
Cash paid during the year for interest $ --- $ ---
Cash paid during the year for income taxes $ --- $ ---
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
IGENE BIOTECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED-CONTINUED)
Noncash investing and financing activities:
During 1997 and 1996 the Company issued 40,000 and 26,667 shares, respectively,
of common stock in each period in payment of interest on the variable rate
subordinated debenture. If paid in cash, the interest would have been payable at
12% and 8% during 1997 and 1996, of $90,000 and $60,000, respectively, in each
period. Shares may be issued in lieu of cash under the debenture agreement at
the higher of $2.25 per share or market price per share. The stock was issued
and related interest was paid in 1997 and 1996 at $2.25 per share, or $90,000
and $60,000, respectively, in each period.
During 1997 and 1996 the Company recorded dividends in arrears on 8% redeemable
preferred stock at $0.48 per share aggregating $17,204 in each period which has
been removed from paid-in capital and included in the carrying value of the
redeemable preferred stock.
The accompanying notes are an integral part of the financial statements.
<PAGE>
IGENE BIOTECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Unaudited Financial Statements
The financial statements presented herein as of September 30, 1997 and 1996 and
for the three month and nine month periods ended September 30, 1997 and 1996 are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
financial position and results of operations. Such financial statements do not
include all of the information and footnote disclosures normally included in
audited financial statements prepared in accordance with generally accepted
accounting principles.
(2) Inventories
None.
(3) Stockholders' Equity
At September 30, 1997 and 1996, 71,684 shares of authorized but unissued common
stock were reserved for issuance upon conversion of the Company's outstanding
preferred stock.
As of September 30, 1997 and 1996, 2,000,000 shares of authorized but unissued
common stock were reserved for exercise pursuant to the 1986 Stock Option Plan.
As of September 30, 1997 and 1996, 800,000 shares of authorized but unissued
common stock were reserved for issuance upon reinvestment of interest on the
variable rate subordinated debenture and 375,000 shares of authorized but
unissued common stock were reserved for issuance upon conversion of the variable
rate subordinated debenture.
As of September 30, 1997 and 1996, 51,141,548 and 24,588,248 shares,
respectively, of common stock were reserved for the conversion of promissory
notes and the issue of warrants attached to those notes. The promissory notes
are held by Directors of the Company and one individual investor.
(4) Net Loss Per Common Share
Net loss per common share for the quarters ended September 30, 1997 and 1996 is
based on 18,976,637 and 18,604,472 weighted average shares, respectively. For
purposes of computing net loss per common share, the amount of net loss has been
increased by cumulative undeclared dividends in arrears on preferred stock.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company is a Maryland corporation. The Company's Articles of
Incorporation contain a provision limiting the liability of the directors and
officers to the fullest extent permitted by Section 5- 349 of the Courts and
Judicial Proceedings Code of Maryland. The Company's Articles of Incorporation
also contain a provision permitted under Maryland General Corporation Law
eliminating (with limited exceptions) each director's personal liability for
monetary damages for breach of any duty as a director. In addition, the
Company's Articles of Incorporation and Bylaws provide for the Company's
indemnification of its directors and officers from certain liabilities and
expenses, as well as advancement of costs, expenses and attorneys' fees, to the
fullest extent permitted under Maryland General Corporation Law. Such rights are
contract rights fully enforceable by each beneficiary thereof, and are in
addition to, and not exclusive of, any other right to indemnification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee......................................$ 2,950
Legal fees and expenses...................................$125,000
Accountants' fees and expenses............................$ 25,000
Printing..................................................$ 50,000
Miscellaneous.............................................$ 47,050
-------
TOTAL............................$250,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
See "Certain Relationships And Transactions."
ITEM 27. EXHIBITS
EXHIBIT NO.
3.1 Articles of Incorporation of Registrant, as amended to
date.
3.2 By-Laws, constituting Exhibit 3.2 to the Registrant's
Registration Statement No. 33-5441 on Form S-1, are
hereby incorporated herein by reference.
4.1 Form of Variable Rate Convertible Subordinated Debenture
Due 2002 (Class A), constituting Exhibit 4.4 to
Registration Statement No. 33-5441 on Form S-1, is hereby
incorporated herein by reference.
*4.2 Indenture between the Company and American Stock Transfer &
Trust Company as Trustee, relating to 8% notes due 2002.
*4.3 Warrant Agreement between the Company and American Stock
Transfer Trust Company, as Warrant Agent relating to
warrants expiring 2007.
*5.1 Opinion of Stroock & Stroock & Lavan LLP as to the
legality of the Offered Securities.
10.1 Exchange Agreement made as of July 1, 1988 between the
Company and Essex Industrial Chemicals, Inc. with respect
to the exchange of 187,500 shares of Preferred Stock for
a Debenture, constituting Exhibit 10.21 to Registration
Statement No. 33-5441 on Form S-1, is hereby incorporated
herein by reference.
10.2 Preferred Stockholders' Waiver Agreement dated May 5,
1988, constituting Exhibit 10.6 to Registration Statement
No. 33-5441 on Form S-1, is hereby incorporated herein by
reference.
10.3 Form of Agreement between the Company and Certain
Investors in Preferred Stock dated September 30, 1987,
constituting exhibit 10.7 to Registration Statement No.
33-5441 on Form S-1, is hereby incorporated herein by
reference.
10.4 Letter of Intent as of March 26, 1993, between Burns Philp
Food, Inc. and the Company, constituting Exhibit 10.9 to
the Company's report on form 10-KSB for the year ended
December 31, 1992, is hereby incorporated herein by
reference.
10.5 Technology Evaluation Agreement as of March 4, 1994
between the Food Science Group of Pfizer Inc. and the
Company, constituting Exhibit 10.10 to the Company's
report on form 10-KSB for the year ended December 31,
1993, is hereby incorporated herein by reference.
10.6 Letter Agreement executed May 11, 1995 between Archer
Daniels Midland and the Company, along with November 11,
1995 Amendment, constituting Exhibit 10.11 to the
Company's report on form 10-KSB for the year ended
December 31, 1995, is hereby incorporated herein by
reference.
10.7 Loan Agreement dated August 1, 1997 between the Investors
and the Company.
10.8 Agreement of Lease effected December 15, 1995 between
Columbia Warehouse LP and the Company, constituting
Exhibit 10.13 to the Company's report on form 10-KSB for
the year ended December 31, 1995, is hereby incorporated
herein by reference.
23.1 Consent of Stroock & Stroock & Lavan LLP (included as part
of Exhibit 5.1).
23.2 Consent of Berenson & Company LLP.
24.1 Power of Attorney of Directors and Officers of Registrant
(included on signature page).
- ----------
*To be filed by Amendment
<PAGE>
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the" Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the law or high end of the estimate maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution;
PROVIDED, HOWEVER, paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or S-8, and the
information required to be included in a post-effective
amendment by those paragraphs is incorporated by reference from
period reports filed by the registrant under the Securities
Exchange Act of 1934, as amended that are incorporated by
reference in the registration statement.
(2) For determining the liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as express in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that (1) for the purpose
of determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed pursuant to
ruled 424(b)(1), and 42(b)(4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement at the time it was declared effective,
and (2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment, if any, that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the obligations for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Columbia, state of Maryland, on December 5, 1997.
IGENE Biotechnology, Inc.
By: /S/ STEPHEN F. HIU
Stephen F. Hiu
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael Kimelman, Thomas L. Kempner and Stephen
F. Hiu, and each of them, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) of and supplements to this Registration Statement and
any Registration Statement relating to any offering made pursuant to this
Registration Statement and any Registration Statement relating to any offering
made pursuant to this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, to all intents and purposes and as fully as they might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
_________________________ Chairman of the Board December __, 1997
Michael G. Kimelman of Directors
/S/ THOMAS L. KEMPNER Vice Chairman of the December 5, 1997
Thomas L. Kempner Board of Directors
/S/ RAMIN ABRISHAMIAN Director and Chief December 5, 1997
Ramin Abrishamian Executive Officer
/S/ STEPHEN F. HIU Director, President, December 5, 1997
Stephen F. Hiu Chief Financial
Officer and Chief
Accounting Officer
/S/ JOSEPH C. ABELES Director December 5, 1997
Joseph C. Abeles
Director December , 1997
John A. Cenerazzo
/S/ SIDNEY R. KNAFEL Director December 5, 1997
Sidney R. Knafel
/S/ PATRICK F. MONAHAN Director December 5, 1997
Patrick F. Monahan
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3.1 Articles of Incorporation of Registrant, as amended to date.
3.2 By-Laws, constituting Exhibit 3.2 to the Registrant's
Registration Statement No. 33-5441 on Form S-1, are
hereby incorporated herein by reference.
4.1 Form of Variable Rate Convertible Subordinated Debenture
Due 2002 (Class A), constituting Exhibit 4.4 to
Registration Statement No. 33-5441 on Form S-1, is hereby
incorporated herein by reference.
*4.2 Indenture between the Company and American Stock Transfer &
Trust Company as Trustee, relating to 8% notes due 2002.
*4.3 Warrant Agreement between the Company and American Stock
Transfer Trust Company, as Warrant Agent relating to
warrants expiring 2007.
*5.1 Opinion of Stroock & Stroock & Lavan LLP as to the
legality of the Offered Securities.
10.1 Exchange Agreement made as of July 1, 1988 between the
Company and Essex Industrial Chemicals, Inc. with respect
to the exchange of 187,500 shares of Preferred Stock for
a Debenture, constituting Exhibit 10.21 to Registration
Statement No. 33-5441 on Form S-1, is hereby incorporated
herein by reference.
10.2 Preferred Stockholders' Waiver Agreement dated May 5,
1988, constituting Exhibit 10.6 to Registration Statement
No. 33-5441 on Form S-1, is hereby incorporated herein by
reference.
10.3 Form of Agreement between the Company and Certain
Investors in Preferred Stock dated September 30, 1987,
constituting exhibit 10.7 to Registration Statement No.
33-5441 on Form S-1, is hereby incorporated herein by
reference.
10.4 Letter of Intent as of March 26, 1993, between Burns Philp
Food, Inc. and the Company, constituting Exhibit 10.9 to
the Company's report on form 10-KSB for the year ended
December 31, 1992, is hereby incorporated herein by
reference.
10.5 Technology Evaluation Agreement as of March 4, 1994
between the Food Science Group of Pfizer Inc. and the
Company, constituting Exhibit 10.10 to the Company's
report on form 10-KSB for the year ended December 31,
1993, is hereby incorporated herein by reference.
10.6 Letter Agreement executed May 11, 1995 between Archer
Daniels Midland and the Company, along with November 11,
1995 Amendment, constituting Exhibit 10.11 to the
Company's report on form 10-KSB for the year ended
December 31, 1995, is hereby incorporated herein by
reference.
10.7 Loan Agreement dated August 1, 1997 between the Investors
and the Company.
10.8 Agreement of Lease effected December 15, 1995 between
Columbia Warehouse LP and the Company, constituting
Exhibit 10.13 to the Company's report on form 10-KSB for
the year ended December 31, 1995, is hereby incorporated
herein by reference.
23.1 Consent of Stroock & Stroock & Lavan LLP (included as part
of Exhibit 5.1).
23.2 Consent of Berenson & Company LLP.
24.1 Power of Attorney of Directors and Officers of Registrant
(included on signature page).
EXHIBIT 3.1
IGENE BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGENE Biotechnology, Inc., a Maryland corporation, having its principal
office in Columbia, Maryland (the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article FIFTH and inserting in lieu thereof the following:
"FIFTH: The total number of shares of stock
of all classes which the Corporation has
authority to issue is Two Hundred Fifty One
Million Five Hundred Thousand (251,500,000)
shares divided into Two Hundred Fifty Million
(250,000,000) shares par value of One Cent
($.01) per share of Common Stock, having an
aggregate par value of Two Million Five
Hundred Thousand Dollars ($2,500,000.00) and
One Million Five Hundred Thousand (1,500,000)
shares of the par value of One Cent ($.01)
per share of Preferred Stock having an
aggregate par value of Fifteen Thousand
Dollars ($15,000.00). The aggregate par value
of all shares of stock is Two Million Five
Hundred Fifteen Thousand Dollars
($2,515,000.00)."
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on September 19, 1997, adopted a resolution in which was set
forth the foregoing amendment to the charter, declaring that the said amendment
to the charter was advisable and directing that it be submitted for action
thereon at the annual meeting of the stockholders of the Corporation to be held
on November 17, 1997.
THIRD: Notice setting forth the aforesaid amendment of the charter and
stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote required by law.
FOURTH: (a) The total number of shares of all classes of stock of the
Corporation heretofore authorized, and the number and par value of the shares of
each class were as follows:
The total number of shares of all classes was 36,500,000, divided
into two classes as follows:
35,000,000 shares of Common Stock, par value $.01 per share
and 1,500,000 shares of Preferred Stock, par value $.01 per share
(b) The total number of shares of all classes of stock of the
Corporation as increased, and the number and par value of the shares of each
class, are as follows:
The total number of shares of stock of all classes is 251,500,000,
divided into two classes as follows:
250,000,000 shares of Common Stock, par value $.01 per share
and 1,500,000 shares of Preferred Stock, par value $.01 per share
(c) The aggregate par value of all shares of all classes of stock
of the Corporation heretofore authorized was $365,000. The aggregate par value
of all shares of all classes of stock as increased by this amendment is
$2,515,000. This amendment has the effect of increasing the aggregate par value
of all shares of all classes of stock of the Corporation by $2,150,000.
IN WITNESS WHEREOF, IGENE Biotechnology, Inc. has caused this instrument to
be signed in its name and on its behalf by its Chief Executive Officer and its
corporate seal to be hereunto affixed and attested by its Secretary.
The undersigned acknowledges these Article of Amendment to be the corporate
act of the Corporation and states that to the best of his knowledge, information
and belief the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects and that
this statement is made under the penalties of perjury.
Attest: IGENE Biotechnology, Inc.
__________________________ ______________________________
Stephen F. Hiu Ramin Abrishamian
Secretary Chief Executive Officer
[affix corporate seal]
Dated as of November 17, 1997
<PAGE>
IGENE BIOTECHNOLOGY, INC.
MEETING OF THE BOARD OF DIRECTORS
April 3, 1991
A regular meeting of the Board of Directors of IGENE Biotechnology, Inc. (the
"Company") was held at the offices of SRK Management, 126 East 56th Street, New
York, N.Y. at 10:15 a.m. The meeting was chaired by Mr. John A. Cenerazzo,
Chairman of the Board of the Company. The following Directors of the Company
were present:
Joseph C. Abeles
John A. Cenerazzo
Stephen F. Hiu
Thomas L. Kempner
Michael G. Kimelman
Anthony B. Low-Beer
Sidney R. Knafel was unable to attend.
In addition to the Directors of the Company, Gisela Harbs of Abel Associates,
Victoria Hamilton of SRK Management, Mary Losti of M. Kimelman & Co., Bruce Lev
of Lev, Spalter, Berlin, Certilman & Lipson, and Patrick Monahan of IGENE were
present at the Meeting as guests of the Board.
The Meeting was called to order by Mr. Cenerazzo.
Mr. Cenerazzo first asked the Directors to approve the Minutes of the Board
Meeting of February 28, 1991 which had previously been circulated to all
Directors. There being no amendments and upon a motion duly made and seconded,
the Minutes were unanimously approved.
Mr. Cenerazzo announced his decision to resign as Chairman of the Board of
Directors and recommended that Michael G. Kimelman be appointed Chairman. It was
also suggested that Mr. Patrick Monahan be appointed a Director of the Company
taking the seat vacated by Robert Fiertz who had resigned on March 15, 1991.
Following discussion, upon motion duly made, seconded and unanimously approved,
it was:
RESOLVED, that Michael G. Kimelman is elected to serve as Chairman of
the Board of Directors of the Company, and
FURTHER RESOLVED that Patrick F. Monahan be appointed a director of
the Company to serve until nominees for directors are elected in the
1991 Annual Meeting of Shareholders.
Dr. Hiu next presented a financial report and described current operations at
the Company since the last meeting:
* The overdue invoice from Venable, Baetjer and Howard
will be reviewed by Bruce Lev.
* Consolidation into 8,240 sq. ft. of space will be
completed in 2 weeks. Rent has been reduced
because of the consolidation.
* Accounting functions will be performed by Ralph Smith
and Phillip Gugliotti on a consulting basis.
* Salaries and job functions of all employees were
discussed.
Dr. Hiu then reminded the Board that the resignation of Mr. Fiertz necessitated
changes in the signatories of the Company with regard to the Company's cash
accounts. After discussion of this matter and upon a motion duly made, seconded
and unanimously approved, it was
RESOLVED, that the corporate banking resolutions addressed in a
Unanimous Consent previously circulated to all directors and made
effective on March 15, 1991 be hereby ratified, and
FURTHER RESOLVED, that the appropriate banking resolutions changing
the signatory of the Company's payroll account be hereby approved, and
FURTHER RESOLVED that Stephen F. Hiu, as president of the Company, be
appointed the Company's resident agent in Maryland.
The Directors next discussed plans for the Annual Meeting of Stockholders,
including the nomination of Directors and selection of independent auditors for
1991.
Following the discussion, upon motion duly made and seconded, it was unanimously
RESOLVED, that the annual meeting (the "Meeting") of stockholders be
held on Thursday, June 27, 1991, at Manufacturers Hanover Trust
Company, 270 Park Avenue, Room 3, New York, New York at 10:00 a.m.;
and
FURTHER RESOLVED, that holders of 8% Cumulative Convertible Preferred
Stock, Series A ("Preferred Stock") or Common Stock, of record on May
8, 1991, be entitled to notice of and to vote at the Meeting; and
FURTHER RESOLVED, that the number of directors beginning as of the
date of the Meeting shall be eight, provided that, if the holders of
Preferred Stock exercise their right to elect two directors, the Board
shall be expanded to ten to include the directors elected by holders
of Preferred Stock; and
FURTHER RESOLVED, that the following persons are nominated to serve as
directors for the ensuing year:
Joseph C. Abeles
John A. Cenerazzo
Stephen F. Hiu
Thomas L. Kempner
Michael G. Kimelman
Anthony B. Low-Beer
Sidney R. Knafel
Patrick F. Monahan
and;
FURTHER RESOLVED, that the accounting firm of Berenson, Berenson,
Adler and Co. be selected as independent auditors of the Company for
the year December 31, 1991.
Mr. Manahan next updated the Directors on manufacturing operations in Chile:
* High pigment titers have been achieved in the small
fermentors.
* Installation of dryer is behind schedule about 2
weeks, but this is not a bottleneck.
Sterilization equipment necessary for longer
fermentors has arrived.
* Fundacion Chile is very pleased with results of their
feeding trials with AstaXin(R).
* IGENE will supply AstaXin(R) for feeding study to be
conducted by Washington State University and
Fundacion Chile.
The directors next discussed ClandoSan(R) manufacturing and sales. Dr. Hiu told
the directors that Anne E. Robinson would be hired on a part-time basis as a
marketing consultant for this product and will make a recommendation to the
Board regarding the product's future.
The next meeting of the Board of Directors is tentatively scheduled for May 20th
at the offices of SRK Management.
There being no further business, upon a motion duly made, seconded and approved,
the Meeting was adjourned at 12:00 noon.
Respectfully Submitted:
-------------------------
Stephen F. Hiu, Ph.D.
Secretary
Approval: ________________________
<PAGE>
IGENE BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGENE Biotechnology, Inc., a Maryland corporation having its principal
office in Howard County, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking
out Article FIFTH and inserting in lieu thereof the following:
"FIFTH: The total number of shares of stock of all classes which
the Corporation has authority to issue is 36,500,000 shares
divided into 35,000,000 shares of Common Stock, par value $.01
per share, having an aggregate par value of $350,000 and
1,500,000 shares of Preferred Stock, par value $.01 per share,
having an aggregate par value of $15,000. The aggregate par value
of all shares of stock is $365,000."
SECOND: The board of directors of the Corporation, at a meeting duly
convened and held on July 10, 1990, adopted a resolution in which was set forth
the foregoing amendment to the charter, declaring that the said amendment to the
charter was advisable and directing that it be submitted for action thereon at
the annual meeting of the stockholders of the Corporation to be held on August
8, 1990 or at any adjournment thereof.
THIRD: Notice setting forth the aforesaid amendment of the charter and
stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote required by law.
FOURTH: (a) The total number of shares of all classes of stock of the
Corporation heretofore authorized, and the number and par value of the shares of
each class were as follows:
The total number of shares of stock of all classes was
11,500,000, divided into two classes as follows:
10,000,000 shares of Common Stock, par value $.01 per share and
1,500,000 shares of Preferred Stock, par value $.01 per share
(b) The total number of shares of all classes of stock of the
Corporation as increased, and the number and par value of the shares of each
class, are as follows:
The total number of shares of stock of all classes is 36,500,000,
divided into two classes as follows:
35,000,000 shares of Common Stock, par value $.01 per share and
1,500,000 shares of Preferred Stock, par value $.01 per share
(c) The aggregate par value of all shares of all classes of
stock of the Corporation heretofore authorized was $115,000. The aggregate par
value of all shares of all classes of stock as increased by this amendment is
$365,000. This amendment has the effect of increasing the aggregate par value of
all shares of all classes of stock of the Corporation by $250,000.
IN WITNESS WHEREOF IGENE Biotechnology, Inc. has caused these presents
to be signed in its name and on its behalf by its President and its corporate
seal to be hereunto affixed and attested by its Secretary.
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects and
that this statement is made under the penalties of perjury.
Attest: IGENE Biotechnology, Inc.
_________________________ By: ___________________________
Stephen F. Hiu, Secretary Robert E. Fiertz, President
[Affix corporate seal]
Dated as of August 8, 1990
<PAGE>
IGENE BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGENE Biotechnology, Inc., a Maryland corporation having its principal
office in Columbia, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article Eight and inserting in lieu thereof the following:
"Eighth. (a) The liability of directors and officers to
the Corporation and its stockholders for money damages
shall be limited to the maximum extent that the
liability of directors and officers of Maryland
corporations is permitted to be limited by Maryland
law. This limitation on liability shall apply to events
occurring at the time a person serves as a director or
officer of the Corporation whether or not such person
is a director or officer at the time of any proceeding
in which liability is asserted. Neither the amendment
or repeal of this subparagraph or adoption of any
provision of these Articles of Incorporation
inconsistent with this subparagraph shall eliminate or
reduce this protection offered by this subparagraph to
a director or officer of the Corporation with respect
to any act or omission which occurred prior to such
amendment, repeal or adoption.
(b) To the maximum extent permitted by Maryland
law, the Corporation shall indemnify its current acting and
its former directors and officers against any and all
liabilities and expenses incurred in connection with
their services in such capacities, and shall indemnify,
to the same extent, its employees and agents and
persons who serve and have served, at its request as a
director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture or
other enterprise. The Corporation shall advance
expenses to its directors, officers and the other
persons referred above to the extent permitted by
Maryland law. The Board of Directors may by Bylaw,
resolution or agreement make further provision for or
limit such indemnification of directors, officers,
employees and agents to the extent permitted by
Maryland law. Neither the amendment or repeal of this
subparagraph, nor adoption of any provision of these
Articles of Incorporation inconsistent with this
subparagraph shall eliminate or reduce the protection
afforded by this subparagraph to a director or officer
of the Corporation with respect to any act or omission
which occurred prior to such amendment, repeal or
adoption.
(c) References to the Maryland law include the
Maryland General Corporation Law as from time to time
amended."
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on April 7, 1988, duly adopted a resolution in which was set
forth the foregoing amendment to the charter, declaring that the said amendment
to the charter was advisable and directing that it be submitted for action
thereon at a meeting of the stockholders of the Corporation to be held on May 9,
1988.
THIRD: Notice setting forth the aforesaid amendment of the charter and
stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote required by law.
IN WITNESS WHEREOF IGENE Biotechnology, Inc. has caused this instrument to
be signed in its name and on its behalf by its Executive Vice President and its
corporate seal to be hereunto affixed and attested by its Assistant Secretary.
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects and
that this statement is made under the penalties of perjury.
Attest: IGENE Biotechnology, Inc.
- --------------------- ---------------------------
Phillip J. Gugliotti William T. Hall
Assistant Secretary Executive Vice President
<PAGE>
IGENE BIOTECHNOLOGY, INC.
ARTICLES SUPPLEMENTARY
IGENE BIOTECHNOLOGY, INC., a Maryland corporation having its principal
office in Columbia, Maryland, hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority contained in the Charter the Board of
Directors has classified One Million Fifty Thousand (1,050,000) shares of the
One Million Five Hundred Thousand (1,500,000) shares of authorized but unissued
shares of Preferred Stock into 8% Cumulative Convertible Preferred Stock, Series
A.
SECOND: A description of the 8% Cumulative Preferred Stock, Series A, is as
follows:
Section 1. 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
Shares of the Preferred Stock of the Corporation, par value $.01 per share
are hereby constituted as the original number of shares of a series of Preferred
Stock designated as 8% Cumulative Convertible Preferred Stock, Series A ("Series
A Stock").
Section 2. DIVIDENDS
Holders of shares of Series A Stock will be entitled to receive, when and
as declared by the Board of Directors of the Corporation out of assets of the
Corporation legally available for payment, an annual cash dividend of $.64 per
share, payable in arrears in equal quarterly installments on January 1, April 1,
July 1, and October 1, commencing January 1, 1988. Dividends on the Series A
Stock will be cumulative from the date of original issue. Dividends will be
payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board of Directors
of the Corporation or a duly authorized committee thereof. Unless full
cumulative dividends on all outstanding shares of Series A Stock or any other
class of preferred stock ranking on a parity with the Series A Stock as to
dividends and upon liquidation ("Parity Stock") have been paid at the time such
dividends are payable or are contemporaneously declared and paid (or declared
and a sum sufficient for the payment thereof is set apart for such payment), the
Corporation will not (a) declare or pay any dividend on the Common Stock $.01
par value (the "Common Stock"), of the Corporation or on any other class of
stock ranking junior to the Series A Stock as to dividends and upon liquidation
(the Common Stock and any such junior class being the "Junior Stock") or make
any payment on account of, or set apart money for, a sinking or other analogous
fund for, the purchase, redemption or other retirement of, any Junior Stock or
make any distribution in respect thereof, either directly or indirectly and
whether in cash or property or in obligations or shares of the Corporation
(other than in shares of Junior Stock) or (b) purchase any shares of Series A
Stock or Parity Stock whether pursuant to a sinking fund redemption or otherwise
(except for consideration payable in Junior Stock) or redeem fewer than all of
the shares of Series A Stock or Parity Stock then outstanding. Unless and until
all dividends accrued and payable but unpaid on the Series A Stock and any
Parity Stock at the time outstanding have been paid in full, all dividends
declared by the Corporation upon such Series A Stock or Parity Stock shall be
declared pro rata with respect to all Series A Stock and Parity Stock then
outstanding, so that the amounts of any dividends declared on the Series A Stock
and such Party Stock shall in all cases bearing each other the same ratio that,
at the time of such declaration, all accrued and payable but unpaid dividends on
the Series A Stock and such other Parity Stock, respectively, bear to each
other.
Section 3. CONVERSION
3.01. CONVERSION PRIVILEGE. Subject to and upon compliance with the
provisions of this Section 3, at the option of each holder of shares of Series A
Stock, each share of Series A Stock may at any time during usual business hours
prior to October 1, 2002 (or if the Series A Stock or portion thereof is called
for redemption prior to October 1, 2002, then in respect of shares of the Series
A Stock to and including but not after the close of business on the fifth day
prior to the date fixed for such redemption) be converted into fully paid and
nonassessable shares of Common Stock of the Company at the conversion price in
effect at the date of conversion. The conversion price shall be initially $4.00
per share of Common Stock (so that each share of Series A Stock, issued for
$8.00, shall be initially convertible into two shares of Common Stock). The
conversion price shall be adjusted in certain instances as provided in
Subsection 3.05 and as so adjusted is herein referred to as the "Conversion
Price." No adjustment in the conversion price shall be made by reason of the
issuance of Series A Stock pursuant to the proposed Subscription Offering (the
"Subscription Offering") by the Company, as defined and described in the Private
Placement Memorandum dated September 25, 1987. The stated value of the Series A
Stock is $8.00 per share.
3.02. MANNER OF EXERCISE OF CONVERSION PRIVILEGE. Any holder of
shares of Series A Stock desiring to convert the same into shares of Common
Stock shall surrender the certificate or certificates for the shares of Series A
Stock being converted, duly endorsed or assigned to the Corporation or in blank,
at the principal office of the Corporation or at a bank or trust company
appointed by the Corporation for that purpose, accompanied by a written notice
of conversion specifying the number (in whole shares) of shares of Series A
Stock to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued; in case
such notice shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issue of shares of Common Stock in such name or names and an opinion of counsel
acceptable to the Company in form acceptable to the Company that such transfer
or issuance may be effected without registration or qualification under any
state or federal law. In case fewer than all of the shares of Series A Stock
represented by a certificate are to be converted by a holder, upon such
conversion the Corporation shall issue and deliver or cause to be issued and
delivered, to the holder a certificate or certificates for the shares of Series
A Stock not so converted. The holders of shares of Series A Stock at the close
of business on a dividend payment record date shall be entitled to receive the
dividend payable on such shares (except shares called for redemption on a
redemption date between such record date and the dividend payment date) on the
corresponding dividend payment date notwithstanding the conversion thereof.
However, shares of Series A Stock surrendered for conversion during the period
from the close of business on any dividend payment record date for the Series A
Stock to the opening of business on the corresponding dividend payment date
(except shares called for redemption on a redemption date during such period for
which no dividend shall be payable) must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date;
provided, however, that no such payment need be made if there shall exist at the
time of the conversion a default in payment of dividends; further provided, the
Corporation shall return to such holder any funds received from the holder if no
dividend is paid on the corresponding dividend payment date. A holder of shares
of Series A Stock on a dividend payment record date who (or whose transferee)
converts shares of Series A Stock on a dividend payment date will receive the
dividend payable on such shares by the Corporation on such date, and the
converting holder need not include payment in the amount of such dividend upon
surrender of shares of Series A Stock for conversion. Except as provided above,
no payment or adjustment will be made on account of accrued or unpaid dividends
upon the conversion of shares of Series A Stock.
3.03. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversions of shares of the Series A Stock. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of shares of the Series A Stock, the Company shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the
market value of such fractional interest computed on the basis of the prevailing
market value of the Common Stock in the open market as determined by the
Company, which determination shall be conclusive.
3.04. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Conversion Price for any stock dividend or distribution or any subdivision or
combination of the outstanding shares of the Common Stock of the Company as
provided in Subsection 3.05, the holder of shares of the Series A Stock shall
thereafter be entitled to purchase, at the Conversion Price resulting from such
adjustment, the number of shares (calculated to the nearest tenth of a share)
obtained by multiplying the Conversion Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment.
3.05. ADJUSTMENT OF CONVERSION PRICE; EFFECT OF CONSOLIDATION,
MERGER, OR SALE.
(a) The Conversion Price shall be subject to adjustment from
time to time after October 1, 1987, as follows:
(i) In case the Company shall (A) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class), (B) subdivide its outstanding shares of
Common Stock, (C) combine its outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of its shares of Common Stock
any shares of capital stock of the Company, the conversion privilege and the
Conversion Price in effect immediately prior to such action shall be adjusted so
that each holder of shares of Series A Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of capital stock of
the Company which holder would have owned immediately following such action had
the shares of Series A Stock been converted immediately prior thereto. An
adjustment made pursuant to this Subsection (i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Subsection (i), the holder of the shares of
Series A Stock thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes of capital stock of the Company, the Board
of Directors (whose determination shall be conclusive) shall determine the
allocation of the adjusted conversion rate between or among shares of such
classes of capital stock.
(ii) In case the Company shall issue rights or warrants
(other than shares in the Subscription Offering, with respect to which this
Section shall be inapplicable) to all holders of its Common Stock entitling them
(for a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase shares of Common Stock at a price per share less than
the current market price per share (as determined pursuant to Subsection (iv)
below) on the record date mentioned below, the Conversion Price shall be
adjusted so that the same shall equal the rate determined by multiplying the
Conversion Price in effect immediately prior to the date of issuance of such
rights or warrants by a fraction of which the denominator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such current market price.
Such adjustment shall become effective retroactively immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants.
(iii) In case the Company shall distribute to all holders
of its Common Stock evidences of its indebtedness or assets (excluding any cash
dividend paid from retained earnings of the Company) or rights or warrants to
subscribe to securities of the Company (excluding those referred to in
Subsection (ii) above and excluding the right to subscribe for Series A Stock in
the Subscription Offering, as to which this section shall be inapplicable) then
in each such case the Conversion Price shall be adjusted so that the same shall
equal the rate determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
denominator shall be the current market price per share (determined as provided
in Subsection (iv) below) of the Common Stock on the record date mentioned
below, and of which the numerator shall be such current market price per share
of Common Stock less the then fair market value (as determined by the Board of
Directors of the Company, whose determination shall be conclusive) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights or warrants applicable to one share of Common Stock. Such
adjustment shall become effective retroactively immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(iv) For the purpose of any computation under Subsection
(a)(ii) and (iii) above, the current market price per share of Common Stock on
any date shall be deemed to be 100% of the average of the daily closing prices
for 30 consecutive business days commencing 45 business days before the day in
question. The closing price for each day shall be the average of the closing bid
and asked prices reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or if the Common Stock is quoted on the
NASDAQ National Market System, the last reported sale price on the NASDAQ
National Market System or, in case no such reported sales takes place on such
day, the average of the reported closing bid and asked quotations in such
System, or, if the Common Stock is listed on any national securities exchange,
the last reported sale price regular way on such exchange, or if no such
quotations are available, the fair market price as determined by the Board of
Directors of the Company (whose determination shall be conclusive).
(v) In any case in which the Section 3.05 shall require
that an adjustment be made retroactively immediately following a record date,
the Company may elect to defer for not more than 45 days issuing to the holder
of any shares converted after such record date (x) the shares of Common Stock
and other capital stock of the Company issuable upon such conversion over and
above (y) the shares of Common Stock and other capital stock of the Company
issuable upon such conversion only on the basis of the conversion price prior to
adjustment.
(vi) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which by reason
of this Subsection (vi) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; and, provided further that
adjustment shall be required and made in accordance with the provisions of this
Section 3.05 (other than this Subsection (vi) not later than such time as may be
required in order to preserve the tax-free nature of a distribution to the
holders of shares of Common Stock). All calculations under this Section 3.05
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. Anything in this Section 3.05 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Conversion Price in
addition to those required by this Section 3.05, as it in its discretion shall
determine to be advisable in order that any such dividends, subdivision of
shares, distribution of rights to purchase stock or securities, or distribution
of securities convertible into or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
(vii) The term "Common Stock" shall mean the Corporation's
Common Stock as the same exists as of the date of these Articles Supplementary
or any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes from no par
value to par value or changes in par value. In the event that at any time as a
result of an adjustment made pursuant to this Section 3.05 the holders of the
Series A Stock thereafter surrendered for conversion shall become entitled to
receive any shares of the Company other than shares of its Common Stock,
thereafter the Conversion Price of such other shares so receivable upon
conversion of the Series A Stock shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in Subsections (i) through
(vi) above, and all other provisions of this Section 3 with respect to the
Common Stock shall apply on like or similar terms to any such other shares.
(b) If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Series A Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination,) (ii) any consolidation, merger, or statutory share
exchange to which the Company is a party, other than a consolidation, merger, or
statutory share exchange in which consolidation, merger, statutory share
exchange the Company is a continuing corporation and which does not result in
any reclassification of, or change (other than a change in par value or from no
par value to par value, or as a result of a subdivision or combination) in,
outstanding shares of the Common Stock, or (iii) any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then the Company or such successor or purchasing
corporation, as the case shall be, lawful provision shall be made as a part of
the terms of such transaction whereby holders of shares of Series A Stock shall
receive upon conversion thereof, the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger,
statutory share exchange, sale or conveyance by a holder of the number of shares
of Common Stock issuable upon conversion of shares of Series A Stock immediately
prior to such consolidation, merger, statutory share exchange, sale or
conveyance, subject to adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3.05. The provisions
of this Subsection (b) shall similarly apply to successive consolidations,
mergers, statutory share exchanges, sales or conveyances.
(c) NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion
Price, then and in each such case the Company shall give written notice thereof,
by first class mail, postage prepaid, addressed to each holder of shares of
Series A Stock at the address of such holder as shown on the books of the
Company, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(d) STOCK TO BE RESERVED. The Company will at all times reserve and
keep available out of its authorized Common Stock or its treasury shares, solely
for the purpose of issuance upon the exercise of the Series A Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of the Series A Stock. The Company covenants that all shares of
Common Stock which shall be so issued shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, and, without limiting the generality of the foregoing, the
Company covenants that it will from time to time take all such action as may be
required to assure that the par value per share of the Common Stock is at all
times equal to or less than the effective Conversion Price. The Company will not
take any action which results in any adjustment of the Conversion Price if the
total number of shares of Common Stock issued and issuable after such action
upon exercise of the Series A Stock would exceed the total number of shares of
Common Stock then authorized by the Company's Charter.
(e) ISSUE TAX. The issuance of certificates for shares of Common
Stock upon exercise of the Series A Stock shall be made without charge to the
holder hereof for any issuance tax in respect thereof, provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder.
(f) CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of the shares of Common Stock issued or issuable upon
the exercise of the Series A Stock in any manner which interferes with the
timely conversion of the Series A Stock.
Section 4. LIQUIDATION
4.01. LIQUIDATION PREFERENCE. In case of the voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of any shares of Series A Stock are entitled to receive a liquidation
preference of $8.00 per share, plus an amount equal to the dividends accrued and
unpaid thereof to the payment date, before any distribution is made to the
holders of Junior Stock.
4.02. LIMITATIONS. The holders of share of Series A Stock and all
Parity Stock shall share ratably, in accordance with the respective amounts
payable thereon, in any such distribution which is not sufficient to pay in full
the aggregate of the amount payable thereon. After payment in full of the
liquidation price to which the holders of shares of Series A Stock are entitled,
the holders of shares of Series A Stock will not be entitled to any further
participation in any distribution of assets by the Corporation.
4.03. CONSOLIDATION, MERGER, ETC. Neither a consolidation or merger
of the Corporation with or into any other corporation, nor a merger of any other
corporation with or into the Corporation, nor a sale of transfer of all or
substantially all of the Corporation's assets for ____ or securities nor a
statutory share exchange in which stockholders of the Corporation may
participate shall be considered a liquidation, dissolution or winding-up of the
Corporation within the meaning of this Section 4.
Section 5. OPTIONAL REDEMPTION OF SERIES A STOCK
5.01. RIGHT OF REDEMPTION AND REDEMPTION PRICE. Subject to Section
2, the Series A Stock may be redeemed in whole or in part at any time beginning
on October 1, 1989, at a redemption price equal to $8.00 per share, plus accrued
and unpaid dividends, in the manner set forth in this Section 5, subject to the
conversion rights provided herein.
5.02. NOTICE OF REDEMPTION; PARTIAL REDEMPTION. In case the Company
shall desire to exercise such right to redeem all, or, as the case may be, any
of the shares of Series A Stock in accordance with the rights reserved so to do
or in case of sinking fund redemptions, it shall mail a notice of such
redemption in the case of an optional redemption or notice of the availability
of funds in the case of sinking fund redemptions not less than 30 nor more than
60 days prior to the date fixed for redemption to the holder of shares of Series
A Stock, at such holder's last address as it shall appear upon the registry
books maintained by the Company but any defect therein or failure of the
addressee to receive such notice shall not affect the validity of the
proceedings for the redemption of the shares of Series A Stock.
Each such notice of redemption or availability of funds for
redemption, as the case may be, shall specify the date fixed for redemption and
shall state the number of shares to be redeemed or for which funds are available
for redemption, and the payment thereof, together with accrued and unpaid
dividends to the date fixed for redemption, will be made at the principal
execution office of the Company. Such notice shall also state the Conversion
Price and the date on which the right to convert the shares of Series A Stock
into Common Stock will terminate. If all shares of Series A Stock outstanding
are called for redemption, the notice of redemption shall so state. In case of
an optional redemption, if fewer than all shares of Series A Stock outstanding
are to be redeemed, the shares to be redeemed shall be selected by lot or pro
rata or in some other equitable manner determined by the Corporation. If fewer
than all shares of Series A Stock are called for redemption, upon surrender
thereof a new certificate for the unredeemed shares will be issued without
charge to the holder. If the number of shares to be redeemed is a partial
redemption and are converted before the termination of the conversion right
resulting from such redemption, the converted shares shall be deemed (so far as
may be) to be the portion selected for redemption.
The Corporation may not redeem less than all of the Series A Stock
then outstanding if, as of such time, the Corporation has failed to pay all
accrued and unpaid dividends thereon or has failed to make a mandatory fund
redemption as described in Section 7.
5.03. NO ACCRUAL OF DIVIDENDS. If a notice of score redemption has
been given pursuant to this Section and if, on or before the date fixed for
redemption, the funds necessary for such redemption shall have been set aside by
the Corporation, separate and apart from its other funds, for the pro rata
benefit of the holders of the shares so called for redemption, then on and after
the redemption date, notwithstanding that any certificates for such shares have
not been surrendered for cancellation, dividends shall cease to accrue on the
shares of Series A Stock to be redeemed, such shares shall no longer be deemed
to be outstanding and all rights of the holders of such shares as stockholders
of the Corporation shall cease except the right to receive the monies payable
upon such redemption, without interest, upon surrender of the certificates
evidencing such shares.
Section 6. VOTING
6.01. RIGHT TO VOTE. Holders of shares of Series A Stock shall be
entitled to vote on all matters requiring stockholder approval as one class with
the holders of Common Stock except as provided in Section 6.02. Each holder of
Series A Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which such holder of Series A Stock would be
entitled to convert his or her shares of Series A Stock as of the record date
set for determining stockholders entitled to vote.
6.02. DIVIDEND DEFAULTS.
(1) After October 1, 1989 if on the date used to determine
stockholders of record for any meeting of stockholders for the election of
directors, dividends on the shares of Series A or any Parity Stock shall not
have been paid on four consecutive dividend payment dates, the holders of shares
of Series A and the holders of shares of Parity Stock, voting together as a
single class, shall be entitled at such meeting to elect two Directors. Such
right to vote as a single class to elect two Directors shall, when vested,
continue until all dividends in default on the shares of Series A and such
Parity Stock, as the case may be, shall have been paid in full and, when so
paid, such right to elect two Directors separately as a class shall cease,
subject, always, to the same provisions for the vesting of such right to elect
two Directors separately as a class in the case of future dividend defaults.
(2) So long as any shares of Series A are outstanding and
default in dividends as described in Section 6.02(1) exists, the number of
Directors of the Corporation shall at all times be not more than eleven.
(3) Directors elected pursuant to paragraph (1) of this
Section 6.02 shall serve until the earlier of (x) the annual meeting of the
stockholders of the Corporation and the election (by the holders of shares of
Series A and Parity Stock) and the qualification of their respective successors
or (y) the date upon which all dividends in default on the shares of Series A
and such Parity Stock shall have been paid in full. Directors elected pursuant
to paragraph (1) of this Section 6.02 may be removed by, and shall not be
removed except by, the vote of the holders of record of Series A and Parity
Stock, voting together as a single class without regard to series, at a meeting
of the stockholders, or the holders of shares of Series A and Parity Stock,
called for that purpose. If, prior to the end of the term of any Director
elected as aforesaid, a vacancy in the office of such Director shall occur
during the continuance of a default in dividends on the shares of Series A or
such Priority Stock by reason other than removal, such vacancy shall be filled
for the unexpired term by the appointment by the remaining Director elected as
aforesaid of a new Director for the unexpired term of such former Director.
6.03. AMENDMENT OF RIGHT, PREFERENCES, ETC. The affirmative vote of
the holders of a majority of the shares of the Series A Stock shall be required
to amend, alter or repeal any of the provisions of these Articles Supplementary
which would materially and adversely change any right, preference, privilege or
voting power of the Series A Stock or of the holders thereof; provided, however,
that any increase in the amount of authorized Preferred Stock, the creation and
issuance of other series of Preferred Stock, whether ranking senior, on a parity
with or junior to the Series A Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, shall not be deemed to affect
materially and adversely such rights, preferences, privileges or voting powers.
Where the shares of any Parity Stock are also materially and adversely affected
by such amendment, alteration or repeal, the holders of the Series A Stock and
Parity Stock shall vote as one class and the affirmative vote of the holders of
a majority of the shares of such class shall be required to approve.
The foregoing voting provisions shall not apply if no shares
of Series A Stock have been issued, at or prior to the time when the act with
respect to which such vote would otherwise be required shall be effected, all
outstanding shares of the Series A Stock shall have been redeemed or sufficient
funds shall have been deposited in trust in accordance with Section 5 to effect
such redemption.
Section 7. SINKING FUND
7.01. SINKING FUND REDEMPTIONS. Holders of Series A Stock may
surrender in the aggregate a number of shares equal to six percent (6%) of
shares of Series A Stock outstanding at the close of the Subscription
Offering for redemption on October 1 of each year in the years 1992 through
2001, and the balance of the shares of Series A Stock on October 1, 2002. For a
sinking fund for the redemption of the Series A Stock, the Corporation shall
make available, when and as appropriated by the Board of Directors, out of funds
legally available for the purpose, before October 1 in each of the years 1992 to
2002, inclusive, as a sinking fund payment, an amount in cash sufficient to
redeem on each such October 1 through 2001, in the aggregate a number of shares
equal to six percent (6%) of shares of Series A Stock outstanding at the close
of the Subscription Offering and on October 1, 2002 an amount of cash sufficient
to redeem the balance of the shares of Series A Stock; each such sinking fund
payment shall be applied on each such October 1 to the redemption, at $8.00 per
share, of Series A Stock surrendered to the Corporation by the holders of the
Series A Stock for redemption, plus an amount equal to the dividends accrued and
unpaid on such shares to the date of redemption. The sinking fund payments
provided for in the preceding sentence shall be cumulative. In case more than
the number of shares the Corporation is required to redeem on any redemption
date are surrendered for redemption, the Corporation may select the shares to be
redeemed by lot, pro rata, by agreement among the holders or in any equitable
manner determined by the Corporation, including by a combination of selection by
lot and agreement. In case fewer than the number of shares the Corporation is
required to redeem on any redemption date are surrendered for redemption, the
excess funds available in the sinking fund shall cumulate and the number of
shares equal to the difference between the number of shares surrendered for
redemption and the maximum number of shares which could have been surrendered
for redemption may be surrendered for redemption on the following October 1.
Notwithstanding the net asset value per share of the Series A Stock at the time
of redemption, all redemptions whether made under Section 5 or 7 shall be at
$8.00 per share (plus accrued and unpaid dividends).
Notice of redemption for the redemption of such shares shall be as
set forth in Section 5.
If the Board of Directors should for any reason fail to appropriate
sinking fund payments for number of shares the Corporation is required to redeem
in each year starting in 1992, then the Board of Directors may not thereafter
(i) pay any dividends or make any other distribution (excluding dividends paid
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock of the Corporation) on the Common Stock or Junior Stock or (ii)
purchase, redeem or otherwise acquire any shares of Junior Stock. No redemption,
whether made under Section 5 or 7, may be made unless and to the extent funds
are legally therefor pursuant to the Maryland General Corporation Law.
7.02. SATISFACTION OF SINKING FUND REDEMPTIONS. The Company may
apply as a credit any shares of Series A Stock redeemed at the election of the
Company (other than pursuant to this Section 7) or converted at the option of
the holder, in each case in satisfaction of all or any part of any Sinking Fund
redemption required to be made pursuant to this Section 7 and the amount of the
Sinking Fund redemption shall be reduced accordingly. The amount of any Sinking
Fund redemption for any year shall automatically be reduced by the shares of
Series A Stock called for redemption through operation of the Sinking Fund or
converted into Common Stock pursuant to Section 3 on or before the date fixed
for redemption in that year.
THIRD: The reclassification of authorized but un-issued shares as set forth
in these Articles Supplementary has effected no change in the authorized capital
of the Corporation consisting of Ten Million (10,000,000) shares of Common Stock
with a par value of One Cent ($.01) each, One Million Five Hundred Thousand
(1,500,000) shares of Preferred Stock with a par value of $.01 each, amounting
in the aggregate to One Hundred Fifteen Thousand Dollars ($115,000).
IN WITNESS WHEREOF, IGENE Biotechnology, Inc. has caused these presents to
be signed in its name and on its behalf by its President or one of its Vice
Presidents and its corporate seal to be hereunto affixed and attested by its
Asst. Secretary this 30th day of September, 1987, and the undersigned officers
acknowledge that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief all matters and
facts set forth herein relating to the authorization and approval of these
Articles are true in all material respects, and that this statement is made
under the penalties of perjury.
ATTEST: IGENE BIOTECHNOLOGY, INC.
_____________________________ By: _________________________
Philip J. Gugliotti, Robert Austin Milch, President
Assistant Secretary
<PAGE>
IGENE BIOTECHNOLOGY, INC.
ARTICLES SUPPLEMENTARY
IGENE BIOTECHNOLOGY, INC., a Maryland corporation having its principal
office in Columbia, Maryland, hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to Articles Supplementary filed September 30, 1987, One
Million Fifty Thousand (1,050,000) shares of Preferred Stock were classified as
8% Cumulative Convertible Preferred Stock, Series A.
SECOND: Pursuant to authority contained in the Charter the Board of
Directors has classified an additional Eighty-Two Thousand Five Hundred (82,500)
shares of the One Million Five Hundred Thousand (1,500,000) shares of authorized
but unissued shares of Preferred Stock into 8% Cumulative Convertible Preferred
Stock, Series A.
THIRD: The reclassification of authorized but unissued shares as set forth
in these Articles Supplementary has effected no change in the authorized capital
of the Corporation consisting of Ten Million (10,000,000) shares of Common Stock
with a par value of One Cent ($.01) each, One Million Five Hundred Thousand
(1,500,000) shares of Preferred Stock with a par value of $.01 each, amounting
in the aggregate to One Hundred Fifteen Thousand Dollars ($115,000).
IN WITNESS WHEREOF, IGENE BIOTECHNOLOGY, INC. has caused these presents to
be signed in its name and on its behalf by its President or one of its Vice
Presidents and its corporate seal to be hereunto affixed and attested by its
Secretary this 27th day of October, 1987, and the undersigned officers
acknowledge that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief all matters and
facts set forth herein relating to the authorization and approval of these
Articles are true in all material respects, and that this statement is made
under the penalties of perjury.
ATTEST: IGENE BIOTECHNOLOGY, INC.
- ------------------------------- By: -------------------------
William T. Hall, Secretary Robert Austin Milch, President
<PAGE>
IGENE BIOTECHNOLOGY, INC.
ARTICLES OF RESTATEMENT
IGENE Biotechnology, Inc., a Maryland corporation having its principal
office in Columbia, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland (the
"Department") that:
FIRST: The Corporation desires to restate its charter as
currently in effect.
SECOND: The provisions of the Corporation's charter
currently in effect are as follows:
"FIRST: I, Shale D. Stiller, whose post office address is
1300 Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore,
Maryland 21201, being at least eighteen (18) years of age, hereby form
a corporation under and by virtue of the General Laws of the State of
Maryland.
SECOND: The name of the Corporation (hereinafter called the
Corporation) is IGENE BIOTECHNOLOGY, INC.
THIRD: The purposes for which the Corporation is formed are:
(a) To engage in any and all activities relating to mutated
and genetically engineered microorganisms.
(b) To carry on the aforesaid business and any related or
unrelated business and activity in the State of Maryland, in any
state, territory, district or dependency of the United States, or in
any foreign country.
(c) To do anything permitted in Section 2-103 of the
Corporations and Associations Article of the Annotated Code of
Maryland, as amended from time to time.
FOURTH: The post office address of the principal office of
the Corporation in the State is 9110 Red Branch Road, Columbia,
Maryland 21045. The name and post office address of the resident agent
of the Corporation in this State is Dr. Robert Austin Milch, 9110 Red
Branch Road, Columbia, Maryland 21045. Said agent is an individual
actually residing in this State.
FIFTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is Eleven Million Five
Hundred Thousand (11,500,000) shares divided into Ten Million
(10,000,000) shares par value of One Cent ($.01) per share of Common
Stock, having an aggregate par value of One Hundred Thousand Dollars
($100,000.00) and One Million Five Hundred Thousand (1,500,000) shares
of the par value of One Cent ($.01) per share of Preferred Stock
having an aggregate par value of Fifteen Thousand Dollars
($15,000,000). The aggregate par value of all shares of stock is One
Hundred Fifteen Thousand Dollars ($115,000.00).
SIXTH: The number of directors of the Corporation shall be
no less than five (5) and no greater than nine (9), which numbers may
be increased or decreased pursuant to the By-Laws of the Corporation.
In the event that there are less than three (3) stockholders, the
number of directors may be less than three (3) but no less than the
number of stockholders.
SEVENTH: No Stockholders of the Corporation shall have any
preferential or pre-emptive right to acquire additional shares of
stock of the Corporation except to the extent that, and on such terms
as, the Board of Directors from time to time may determine.
EIGHT: The Corporation shall have the power to indemnify, by
express provision in its By-Laws, by Agreement or by majority vote of
either its stockholders or disinterested directors, any one or more of
the following classes of individuals: (1) present or former directors
and/or officers of the Corporation, (2) present or former agents
and/or employees of the Corporation, (3) present or former
administrators, trustees or other fiduciaries under pension, profit
sharing, deferred compensation, or any other employee benefit plan
maintained by the Corporation and (4) persons serving or who have
served at the request of the Corporation in any of the aforementioned
capacities for any other corporation, partnership, joint venture,
trust, or other enterprises. Provided, however, that the Corporation
shall not have the power to indemnify any person if such
indemnification would be contrary to Section 2-418 of the Corporations
and Associations Article of the Annotated Code of Maryland, or any
statute, rule or regulation of similar import.
NINTH: In carrying on its business, or for the purpose of
attaining or furthering any of its objects, the Corporation shall have
all of the rights, powers and privileges granted to corporations by
the laws of the State of Maryland, and the power to do any and all
acts and things which a natural person or partnership could do and
which may now or hereafter be authorized by law, either alone or in
partnership or conjunction with others. In furtherance and not in
limitation of the powers conferred by statute, the powers of the
corporation and of the Directors and Stockholders shall include the
following:
(a) Any Director individually, or any firm of which any
Director may be a member, or any corporation or association of which
any Director may be an officer or director or in which any Director
may be interested as the holder of any amount of its capital stock or
otherwise, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation, and, in
the absence of fraud, no contract or other transaction shall be
thereby affected or invalidated, provided that in case a Director, or
firm of which a Director is a member, or a corporation or association
of which a Director is an officer or director in which a Director is
interested as the holder of any amount of its capital stock or
otherwise, is so interested, such fact shall be disclosed or shall
have been known to the Board of Directors or a majority thereof. Any
Director of the Corporation who is also a Director or officer of or
interested in such other corporation or association, or who, or the
firm of which he is a member, is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of
Directors of the Corporation which shall authorize any such contract
or transaction, with like force and effect as if he were not such
director or officer of such other corporation or association or were
not so interested or were not a member of a firm so interested.
(b) The Corporation reserves the right, from time to time,
to make any amendment of its Charter, now or hereafter authorized by
law, including any amendment which alters the contract rights, as
expressly set forth in its Charter, of any outstanding stock.
(c) Except as otherwise provided in these Articles of
Incorporation, the Charter or the By-Laws of the Corporation, as from
time to time amended, the business of the Corporation shall be managed
by its Board of Directors, which shall have and may exercise all the
powers of the corporation except such as are by law, these Articles of
Incorporation, the Charter or the By-Laws, conferred upon or reserved
to the Stockholders. Additionally, the Board of Directors of the
Corporation is hereby specifically authorized and empowered from time
to time in its discretion:
(1) To authorize the issuance from time to time of
shares of its stock of any class, whether now or hereafter authorized,
or securities convertible into shares of its stock, of any class of
classes, whether now or hereafter authorized, for such considerations
as said Board of Directors may deem advisable, subject to such
restrictions or limitations, if any as may be set forth in the By-Laws
of the Corporation;
(2) By articles supplementary to these Articles of
Incorporation, to classify or reclassify any unissued shares by fixing
or altering in any one or more aspects, from time to time before
issuance of such shares, the preferences, rights, voting powers,
restrictions and qualifications of, the dividends on, the time and
prices of redemption of, and the conversion rights of, such shares."
THIRD: The provisions set forth in these Articles of
Restatement are all the provisions of the charter currently in effect.
FOURTH: The restatement of the Corporation's charter was
approved by a majority of the entire board of directors of the Corporation.
These Articles of Restatement supersede all prior charter documents.
FIFTH: The Corporation currently has eight (8) Directors.
The names of the Directors of the Corporation currently in office are as
follows:
Robert Austin Milch
William T. Hall
Thomas L. Kempner
John C. Archibald
Morton A. Cohen
Carl L. Kempner
Sidney R. Kanfel
Kenneth D. Weiser
SIXTH: The Corporation's charter is not amended by these
Articles of Restatement.
SEVENTH: The current address of the Corporation and the name
and address of the Corporation's current resident agent are as stated in the
Restatement contained in Article Second above.
THE UNDERSIGNED, President of IGENE Biotechnology, Inc., who
executed on behalf of the corporation the foregoing Articles of Restatement, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of the corporation, the foregoing Articles of Restatement to be the
corporate act of the corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval of the Articles are true in all
material respects, under the penalties of perjury.
IN WITNESS WHEREOF IGENE Biotechnology, Inc., has caused
these presents to be signed in its name and on its behalf by its President and
its corporate seal to be hereunto affixed and attested by its Secretary, on
November 4, 1986.
[SEAL] IGENE BIOTECHNOLOGY, INC.
By: _________________________
Robert Austin Milch
President
Attest:
- ------------------------------
William T. Hall
Secretary
<PAGE>
IGENE BIOTECHNOLOGY, INC.
ARTICLES SUPPLEMENTARY
IGENE Biotechnology, Inc., a Maryland corporation having its principal
office in Columbia, Maryland, hereby certifies to the State Department of
Assessments and Taxation of Maryland (the "SDAT") that:
FIRST: The charter of the Corporation gives the Corporation authority
to issue One Million Five Hundred Thousand (1,500,000) shares of Preferred
Stock. By Articles Supplementary filed with the SDAT on December 29, 1983, the
Board of Directors classified shares of Preferred Stock as Series A Preferred
Stock with the preferences, conversion or other rights, voting powers,
restrictions, limitation as to dividends and qualified actions as set forth in
such Articles Supplementary.
SECOND: Pursuant to authority contained in the Charter, all of the
authorized but unissued shares of Preferred Stock previously classified as
Series A Preferred Stock have been duly reclassified by the Board of Directors
of the Corporation as authorized but unissued shares of Preferred Stock of the
Corporation.
THIRD: The description of the Preferred Stock which the Corporation
has authority to issue, as contained in the Articles of Amendment to the
Articles of Incorporation filed by the Corporation on March 7, 1986, is "One
Million Five Hundred Thousand (1,500,000) shares of the par value of One Cent
($.01) per share of Preferred Stock having an aggregate par value of Fifteen
Thousand Dollars ($15,000.00)." The preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends and qualifications of
the Preferred Stock shall be set by the Board of Directors prior to issuance of
shares of such stock pursuant to authority contained in the Charter.
FOURTH: The reclassification of stock made by these Articles
Supplementary was approved by the Board of Directors of the Corporation by a
meeting held on September 12, 1986. No stockholder approval of these Articles
Supplementary is required and these Articles Supplementary have therefore been
approved and authorized in the manner and by the vote required by law and by the
Corporation's charter.
IN WITNESS WHEREOF, IGENE Biotechnology, Inc. has caused these
presents to be signed in its name and on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereunto affixed and attested
by its Secretary this 4th day of November, 1986, and the undersigned officers
acknowledge that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief all matters and
facts set forth herein relating to the authorization and approval of these
Articles are true in all material respects, and that this statement is made
under the penalties of perjury.
ATTEST: IGENE Biotechnology, Inc.
- ----------------------------- By:---------------------------
William T. Hall, Secretary Robert Austin Milch,
President
<PAGE>
ARTICLES OF MERGER
Genetic Research Corporation, a Maryland corporation (herein sometimes
called "Merging Company"), and IGI Biotechnology, Inc., a Maryland corporation
(herein sometimes called "Survivor"), hereby certify to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Merging Company and Survivor have agreed that Merging Company
shall be merged into Survivor.
SECOND: Survivor shall survive the merger under the laws of the state
of Maryland and shall continue under the name:
IGI Biotechnology, Inc.
THIRD: The names of the corporations parties to the merger are Genetic
Research Corporation and IGI Biotechnology, Inc., both corporations organized
and existing under the laws of the State Maryland.
FOURTH: The Charter and Bylaws of Survivor in effect on the date of
this merger shall continue in full force and effect as the Charter and Bylaws of
the corporation surviving the merger.
FIFTH: The principal office of the Merging Company is located in
Howard County, Maryland. The principal office of the Survivor is located in
Howard County, Maryland. Neither the Merging Company nor the Survivor own any
property in Maryland, the title to which could be affected by the recording of
an instrument among the Land Records of any county in Maryland or the City of
Baltimore, Maryland.
SIXTH: The total number of shares of stock of all classes which
Merging Company has authority to issue is Five Thousand (5,000) shares of
capital stock without par value. The total number of shares of stock of all
classes which Survivor has authority to issue is Twenty-Two Million (22,000,000)
shares, of which Twenty-One Million (21,000,000) shares are New Common Stock
having an aggregate par value of Two Hundred Ten Thousand Dollars ($210,000.00)
and of which One Million (1,000,000) shares are Series A Preferred Stock having
an aggregate par value of Ten Thousand Dollars ($10,000.00). The aggregate par
value of all shares of all classes of authorized stock of the Survivor is Two
Hundred Twenty Thousand Dollars ($220,000.00). These Articles of Merger make no
change in the capitalization of the Survivor or any other amendment to its
Charter.
SEVENTH: Since the Merging Company is a wholly-owned subsidiary of the
Survivor, all issued shares of the Merging Company will be cancelled
automatically as a result of this merger, and no new shares of the Survivor or
any other consideration will be issued in consideration of the cancellation of
the stock of the Merging Company.
EIGHTH: Upon the effective date of the merger, the separate existence
of the Merging Company shall cease and the Survivor shall own and possess all of
the property, rights, privileges and franchises of whatever nature and
description of the Merging Company without further act or deed. Notwithstanding
the foregoing, confirmatory deeds or other like instruments, when deemed
desirable to evidence such transfer, vesting or devolution of any property,
rights, privileges or franchises, may, at any time or from time to time, be made
and delivered in the name of the Merging Company by the last acting officers
thereof, or by the corresponding officers of the Survivor.
Upon the effective date of the merger, the Survivor shall be liable
for all the debts and obligations of the Merging Company and any claim existing
or action or proceeding pending by or against it may be prosecuted to judgment
or decree as if the merger had not taken place. The rights of creditors of the
Merging Company shall not be impaired by this merger.
NINTH: The Board of Directors of Merging Company, by a unanimous
consent dated October 17, 1984, adopted resolutions approving the merger. The
Board of Directors of Survivor, at a meeting held on September 21, 1984, adopted
resolutions approving the merger. The terms and conditions of the merger
described in these Articles were therefore duly approved by the Directors of
Merging Company and of Survivor as required by the laws of Maryland and by the
Charters of Merging Company and Survivor and, since the Merging Company is a
wholly owned subsidiary of Survivor, no approval by the stockholders of either
company is required.
TENTH: This merger shall become effective in accordance with the laws
of the State of Maryland when these Articles have been accepted for record by
the Department of Assessments and Taxation of Maryland.
<PAGE>
IN WITNESS WHEREOF, the corporations party to these Articles of Merger
have caused these Articles to be signed in their respective corporate names and
on their behalfs by their respective Presidents and their corporate seals to be
hereunto affixed and attested by their respective Secretaries, and each officer
signing this document acknowledges it to be the corporate act of his respective
corporation and that, to the best of his knowledge, information and belief, all
matters and facts set forth herein with respect to the authorization and
approval of the foregoing Articles are true in all material respects and that
this verification is made under the penalties of perjury.
ATTEST: IGI BIOTECHNOLOGY, INC.
__________________________ By: _______________________
Carl L. Kempner, Robert Austin Milch,
Secretary President
GENETIC RESEARCH CORPORATION
__________________________ By: _______________________
Thomas L. Kempner, Robert Austin Milch,
Secretary President
<PAGE>
IGI Biotechnology, Inc.
ARTICLES SUPPLEMENTARY
IGI Biotechnology, Inc. (the "Corporation"), a Maryland corporation
having its principal office in Howard County, Maryland, hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority contained in the Corporation's Charter,
the Board of Directors of the Corporation by resolution has classified all One
Million (1,000,000) authorized but unissued shares of the Corporation's
Preferred Stock as authorized but unissued shares of Series A Preferred Stock,
$.01 par value per share (the "Series A Preferred Stock").
SECOND: A description of the Series A Preferred Stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitation as to dividends, qualifications, and terms and conditions of
redemption, as approved by the Board of Directors is as follows:
A. Dividends.
The holders of Series A Preferred Stock shall be entitled to receive,
as and when declared by the Board of Directors and out of funds of the
Corporation legally available for the payment of dividends, noncumulative
dividends in cash at the rate of six percent of $4.00 (the "Issue Price") per
share per annum, and no more, payable annually with respect to each fiscal year
no later than 120 days after the end of such fiscal year; provided that the
aggregate amount of such dividends payable with respect to any fiscal year shall
not exceed the consolidated net income of the Corporation and its subsidiaries
(if any) for such fiscal year. As long as any shares of Series A Preferred Stock
are outstanding the Corporation shall not declare or pay any dividends (other
than dividends payable solely in shares of New Common Stock) on shares of New
Common Stock or any other class of stock ranking junior to the Series A
Preferred Shares in respect of dividends or rights upon liquidation, or make,
directly or indirectly, any other distribution of any sort in respect of shares
of such junior stock or any payment on account of the redemption, purchase or
other acquisition of shares of such junior stock unless, at the date of such
distribution or other payment, all dividends on the then outstanding shares of
Series A Preferred Stock for the preceding fiscal year have been declared at the
rate set forth above and paid or set apart for payment in full and all sinking
fund redemptions of shares of Series A Preferred Stock then or theretofore
required hereunder have been made. The dividend per share for the fiscal year
ended December 31, 1983 shall be in an amount which bears the same proportion to
the Issue Price as the number of days in the period from the initial issuance of
shares of Series A Preferred Stock to December 31, 1983 bears to 360.
B. Voting Rights.
Except as otherwise expressly provided herein or as required by law,
the holder of each share of Series A Preferred Stock shall have the right to one
vote for each share of New Common Stock into which such Series A Preferred Stock
could then be converted (with any fractional share determined on an aggregate
conversion basis being rounded to the nearest whole share), and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of New Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the By-laws of the Corporation, and shall be entitled
to vote, together with holders of New Common Stock, with respect to any question
upon which holders of New Common Stock have the right to vote.
Notwithstanding the foregoing, unless prior to or simultaneously with
the consummation of any transaction referred to below all of the outstanding
shares of Series A Preferred Stock are to be redeemed or the Corporation has
provided monies for such redemption in accordance with Section E hereof, the
consent of the holders of at least two-thirds of the outstanding shares of the
Series A Preferred Stock, given in person or by proxy, either in writing or at a
meeting called for the purpose, shall be necessary to effectuate or validate the
action of the Corporation in effecting, authorizing or permitting any one or
more of the following:
1. The consolidation or merger of the Corporation with any other
corporation or the conveyance, transfer or lease of the properties and assets of
the Corporation as, or substantially as, an entirety to any other corporation or
entity; or
2. The authorization, creation or issue of any class of stock of the
Corporation ranking equal or prior to the Series A Preferred Stock in respect of
dividends or rights upon liquidation, or the authorization, creation or issue of
any obligation or security convertible into or exchangeable for shares of stock
of any class ranking equal or prior to the Series A Preferred Stock in respect
of dividends or rights upon liquidation, or the reclassification of any stock of
the Corporation into shares of Series A Preferred Stock or stock ranking equal
or prior to Series A Preferred Stock in respect of dividends or rights upon
liquidation; or
3. The issuance and sale by the Corporation to the public by means of
an initial underwritten public offering of shares of New Common Stock for a
price per share of New Common Stock to the public of nine dollars ($9.00) or
less; or
4. The issue of any shares of New Common Stock for a price per share
of New Common Stock of four dollars ($4.00) or less, or the issue of any stock,
obligation or security convertible into or exchangeable for shares of New Common
Stock the price per share of New Common Stock issuable upon such conversion or
exchange (determined by dividing (i) the total consideration received or
receivable by the Corporation for the issue or sale of such stock, obligation or
security, plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof by (ii) the
total maximum number of shares of New Common Stock issuable upon the conversion
or exchange of all such stock, obligation or security) is four dollars ($4.00)
or less per share of New Common Stock; or
5. The creation, incurrence, assumption or sufferance by the
Corporation of indebtedness for borrowed money or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, other
than any indebtedness or liability outstanding on the date hereof, exceeding the
greater of (i) one million dollars ($1,000,000), or (ii) either (x) three times
the Corporation's net worth (as defined below) or (y) ten million dollars
($10,000,000), whichever is less; or
6. The granting by the Corporation to any persons of stock options
other than options to purchase up to 450,000 shares of the Corporation's New
Common Stock, which options are authorized under the Corporation's existing
Non-Qualified Stock Option Plan and Qualified Incentive Stock Option Plan, both
of which were approved by the Board of Directors on December 3, 1982; or
7. The repeal of these Articles Supplementary or the Articles of
Incorporation of the Corporation or any amendment or alteration thereof which
would affect adversely the preferences, rights and qualifications, and the
limitations or restrictions thereof, of the shares of Series A Preferred Stock
or of the holders, as such, thereof; or the repeal of any provision of the
By-laws of the Corporation relating to the quorum or notice for meetings of the
holders of Series A Preferred Stock, or any amendment or alteration thereof
which would adversely affect the aforesaid preferences or rights of the shares
of Series A Preferred Stock or the holders, as such, thereof.
The Corporation's net worth shall mean the sum of the following
determined in accordance with generally accepted accounting principles then
employed, applied on a consistent basis:
(a) the par or stated value of all outstanding capital stock (less
cost of treasury shares); PLUS
(b) the amount of capital surplus and earned surplus (or, in the case
of a capital surplus or earned surplus deficit, MINUS the amount of such
deficit).
C. Liquidation Preference.
In the event of any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
further distribution of any of the assets or funds of the Corporation to the
holders of New Common Stock, an amount equal to $4.00 per share of Series A
Preferred Stock. If the assets and funds of the Corporation available for
distribution to stockholders are insufficient to permit payment of the full
aforesaid preferential amount, each issued and outstanding share of Series A
Preferred Stock shall entitle the holder to an equal proportion of the assets
and funds to be distributed. If the assets and funds of the Corporation
available for distribution to stockholders exceeds the preferential amount
payable to holders of Series A Preferred Stock above described, the remaining
assets and funds of the Corporation available for distribution to stockholders
shall be distributed pro rata to holders of the New Common Stock.
Written notice of any such liquidation, dissolution or winding-up,
stating a payment date and the place where such payment shall be made or other
procedure for the making of such payment shall be given by first class mail,
postage prepaid, to each holder of record of Series A Preferred Stock at such
holder's address as shown on the records of the Corporation.
D. Conversion Rights.
The holders of the Series A Preferred Stock shall have conversion
rights as follows:
(a) RIGHT TO CONVERT. Subject to subsection (d) of this Section D,
each share of Series A Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation, into one fully paid and nonassessable share of New
Common Stock (the "Stated Conversion Rate"). The Stated Conversion Rate for the
Series A Preferred Stock shall be subject to adjustment as set forth in
subsection (d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock shall
automatically be converted into one fully paid and nonassessable share of New
Common Stock, subject to adjustment of the Stated Conversion Rate as described
in subsection (d), effective as of the closing of a bona fide underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or other federal securities act in lieu
thereof, covering the offer and sale of equity securities of the Corporation for
the account of the Corporation to the public. Each holder of record of shares of
Series A Preferred Stock will be notified by written notice of the effective
conversion and the procedures for obtaining issuance of new stock certificates
representing New Common Stock. Such notice shall be sent by first class mail,
postage prepaid, to each holder of record of Series A Preferred Stock at such
holder's address as shown on the records of the Corporation. The Corporation
shall not issue any certificates or shares of New Common Stock to a holder of
Series A Preferred Stock which has been automatically converted into New Common
Stock until the certificate representing the Series A Preferred Stock has been
surrendered or an acceptable affidavit and indemnity with respect to the lost
stock certificate shall have been provided to the Corporation, but the holder of
the Series A Preferred Stock shall, after such conversion, be treated for all
other purposes as the holder of New Common Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of New Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation, and shall give written notice by mail, postage
prepaid, to the Corporation at its principal corporate office, of the election
(unless such conversion is automatic pursuant to subsection (b) above) to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of New Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of New
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of New
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of New Common Stock as of such date.
If the conversion is in connection with an underwritten public offering of
securities registered pursuant to the Securities Act of 1933, as provided in
subsection (b), the conversion may, at the option of any holder tendering Series
A Preferred Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the New Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have converted
such Series A Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) ADJUSTMENT OF STATED CONVERSION RATE. The Stated Conversion Rate
shall be subject to adjustment from time to time as set forth below:
(1) the Stated Conversion Rate shall be adjusted so as to equal at all
times the quotient (rounded to the nearest hundredth share) of $4.00 divided by
the Current Conversion Price (as defined below). The Current Conversion Price
shall be deemed initially to be $4.00. In case at any time or from time to time
(except as provided in subparagraph (6) of this subsection (d)) the Corporation
shall issue or sell any shares of New Common Stock for a consideration per share
less than the Current Conversion Price in effect immediately prior to such issue
or sale, then forthwith upon such issue or sale the Current Conversion Price in
effect immediately prior to such issue or sale shall be reduced to a price
(calculated to the nearest cent) determined by dividing (i) an amount equal to
the sum of (x) the number of shares of New Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Current Conversion
Price, and (y) the consideration, if any, received by the Corporation upon such
issue or sale, by (ii) the total number of shares of New Common Stock
outstanding immediately after such issue or sale. No adjustment of the Current
Conversion Price, however, shall be made in an amount less than five cents
($.05), but any lesser adjustment shall be carried forward and shall be made at
the time and together with the next subsequent adjustment which together with
any adjustments so carried forward shall amount to five cents ($.05) or more.
(2) For the purposes of subparagraph (1) above, the following (i) to
(vi), inclusive, shall also be applicable:
(i) In case at any time the Corporation shall grant any rights to
subscribe for, or any rights or options to purchase, New Common Stock or any
stock or other securities convertible into or exchangeable for New Common Stock
(such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such rights or options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which New Common Stock is issuable upon the exercise
of such rights or options or upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such rights
or options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such rights or options, plus, in
the case of any such rights or options which relate to such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
New Common Stock issuable upon the exercise of such rights or options or upon
the conversion or exchange of all such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the Current Conversion
Price in effect immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of New Common Stock issuable
upon the exercise of such rights or options or upon conversion or exchange of
the total maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued for such
price per share. Except as provided in subparagraph (5) of this Section, no
further adjustments of the Current Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such rights or options or upon the actual issue of such New Common
Stock upon conversion or exchange of such Convertible Securities.
(ii) In case at any time the Corporation shall issue or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which New
Common Stock is issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (y) the total maximum
number of shares of New Common Stock issuable upon the conversion or exchange of
all such Convertible Securities) shall be less than the Current Conversion Price
in effect immediately prior to the time of such issue or sale, then the total
maximum number of shares of New Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the date of the issue
or sale of such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as provided in
subparagraph (5) of this subsection (d), no further adjustments of the Current
Conversion Price shall be made upon the actual issue of such Convertible
Securities, and (y) if any such issue or sale of such Convertible Securities is
made upon exercise of any rights to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which adjustments of the Current
Conversion Price have been or are to be made pursuant to other provisions of
subparagraph (2) of this subsection (d), no further adjustment of the Current
Conversion Price shall be made by reason of such issue or sale.
(iii) In case at any time the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
payable in New Common Stock or Convertible Securities, any New Common Stock or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(iv) In case at any time any shares of New Common Stock or
Convertible Securities or any rights or options to purchase any such New Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commission or concessions or discounts paid or allowed by the
Corporation in connection therewith. In case any shares of New Common Stock or
Convertible Securities or any rights or options to purchase any such New Common
Stock or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
reasonably determined by the Board of Directors of the Company, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Corporation in connection
therewith. In case any shares of New Common Stock or Convertible Securities or
rights or options to purchase any such New Common Stock or Convertible
Securities shall be issued in connection with any merger of another corporation
into the Corporation, the amount of consideration therefor shall be deemed to be
the fair value of the assets of such merged corporation as determined by the
Board of Directors of the Corporation after deducting therefrom all cash and
other consideration (if any) paid by the Corporation in connection with such
merger.
(v) In case at any time the Corporation shall take a record of
the holders of New Common Stock for the purpose of entitling them (x) to receive
a dividend or other distribution payable in New Common Stock or in Convertible
Securities, or (y) to subscribe for or purchase New Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of New Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(vi) The number of shares of New Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Corporation or any subsidiary, and the disposition of any such shares shall be
considered an issue or sale of New Common Stock for the purposes of subparagraph
(1) above.
(3) In case the Corporation shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding any cash
dividend paid out of earned surplus), then in each such case the Current
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Current Conversion Price in effect immediately
prior to the date of such distribution by a fraction whose numerator shall be
such Current Conversion Price less the then fair market value (as reasonably
determined by the Board of Directors of the Corporation) of the portion of the
assets or evidences of indebtedness so distributed and whose denominator shall
be such Current Conversion Price. Such adjustment shall be made whenever any
such distribution is made and shall be retroactively effective as of immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(4) In case at any time the Corporation shall subdivide its
outstanding shares of New Common Stock into a greater number of shares, the
Current Conversion Price in effect immediately prior to such subdivision shall
be proportionately reduced and conversely, in case the outstanding shares of New
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Current Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(5) If the purchase price provided for in any right or option
referred to in subparagraph (2)(a) of this subsection (d), or the rate at which
any Convertible Securities referred to in subparagraphs (2) (a) or (2) (b) of
this subsection (d) are convertible into or exchangeable for New Common Stock,
shall change or a different purchase price or rate shall become effective at any
time or from time to time (other than under or by reason of provisions designed
to protect against dilution), then, upon such change becoming effective, the
Current Conversion Price then in effect hereunder shall forthwith be increased
or decreased to such Current Conversion Price as would have obtained had the
adjustments made upon the granting or issuance of such rights or options or
Convertible Securities been made upon the basis of (a) the issuance of the
number of shares of New Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
options or rights or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and (b) the granting
or issuance at the time of such change of any such options, rights, or
Convertible Securities then still outstanding for the consideration, if any,
received by the Corporation therefore and to be received on the basis of such
changed price. On the expiration of any right or option referred to in
subparagraph (2) (a) of this subsection (d), or of the termination of any right
to convert or exchange any Convertible Securities referred to in subparagraphs
(2) (a) or (2) (b) of this subsection (d), the Current Conversion Price shall
forthwith be readjusted to such amount as would have obtained had the adjustment
made upon the granting or issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance or sale of only the number
of shares of New Common Stock actually issued upon the exercise of such options
or rights or upon the conversion or exchange of such Convertible Securities. If
the purchase price provided for in any such right or option, or the rate at
which any such Convertible Securities are convertible into or exchangeable for
New Common Stock, shall change at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of New Common Stock upon the exercise of any such right or option or
upon conversion or exchange of any such Convertible Security, the Current
Conversion Price then in effect hereunder shall forthwith be decreased to such
Current Conversion Price as would have obtained had the adjustments made upon
the issuance of such right or option or Convertible Security been made upon the
basis of the issuance of (and the total consideration received for) the shares
of New Common Stock delivered as aforesaid.
(6) The Corporation shall not be required to make any adjustment
of the Current Conversion Price in the case of
(a) the granting by the Corporation of stock options to its
employees, or
(b) the issuance of shares of New Common Stock pursuant to the
exercise of such options, whether granted prior to or subsequent to the date
hereof or pursuant to other employee benefit plans, or
(c) the issuance of such additional shares of New Common Stock as
may be issuable upon the exercise of such options or pursuant to such options or
pursuant to such plans as a result of adjustment in the number of shares covered
by such options or plans for stock dividends, stock splits or other changes in
the capitalization of the Corporation, or
(d) the issuance by the Corporation, pursuant to the Purchase
Agreement dated as of December 27, 1983 by and between the Corporation and the
investors listed on Schedule A thereto, of Warrants (as defined in such Purchase
Agreement), and the issuance of shares of New Common Stock pursuant to the terms
thereof.
(7) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of its assets
to another corporation, shall be effected in such a way that holders of New
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for New Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, the Corporation
or such successor or purchasing corporation, as the case may be, shall execute
an agreement providing that the holder of each share of Series A Preferred Stock
shall have the right thereafter to convert such share of Series A Preferred
Stock into the kind and amount of stock, securities or assets receivable upon
such reorganization, reclassification, consolidation, merger or sale by a holder
of the number of shares of New Common Stock into which each share of Series A
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger or sale, subject to
adjustments which shall be as nearly equivalent as may practicable to the
adjustments provided for in this subsection (d).
(8) If any event occurs as to which, in the opinion of the Board
of Directors of the Corporation, the provisions of this subsection (d) are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of Series A Preferred Stock in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provision, in accordance
with such essential intent and principles, so as to protect such rights as
aforesaid, but in no event shall any adjustment have the effect of increasing
the Current Conversion Price as otherwise determined pursuant to any of the
provisions of this subsection (d).
The adjustment of the Stated Conversion Rate hereinabove
described is solely applicable to conversion of Series A Preferred Stock to New
Common Stock and shall not affect any voting dividend, or liquidation rights or
any other rights, preferences, powers, restrictions and limitations of or
relating to the Series A Preferred Stock, and, until conversion, except as
stated herein, each share of Series A Preferred Stock shall have the same
rights, preferences, powers, restrictions and limitations.
(e) RESERVATION OF SHARES. The Corporation shall at all times
reserve and keep available out of its authorized New Common Stock and/or shares
of New Common Stock then owned or held by or for the account of the Corporation,
solely for the purpose of delivery upon conversion of Series A Preferred Stock
as herein provided, such number of shares of New Common Stock as shall then be
deliverable upon the conversion of all outstanding shares of Series A Preferred
Stock. All shares of New Common Stock which shall be so deliverable shall be
duly and validly issued and fully paid and nonassessable.
(f) NOTICE OF ADJUSTMENT. Whenever the Stated Conversion Rate is
adjusted, as herein provided, the Corporation shall promptly mail to the holders
of the Series A Preferred Stock a certificate of independent public accountants
(who may be the accountants regularly employed by the Corporation) setting forth
the Current Conversion Rate after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall be
conclusive evidence of the correctness of such adjustment.
E. Redemption.
(a) OPTIONAL REDEMPTION. The Series A Preferred Stock shall not
be redeemable at the option of the holders thereof. The Series A Preferred Stock
shall not be redeemable at the option of the Corporation without the prior
written consent of the holders of a majority of the Series A Preferred Stock at
the time outstanding.
(b) MANDATORY REDEMPTION. Commencing in the year 1990, and in
each of the next four years thereafter the Corporation shall on the earlier of
the 120th day of such year or the date on which the annual dividend for the
preceding year is declared, but no earlier than the first day of such year,
redeem, on a pro rata basis among holders, calculated as an equal percentage of
the number of shares then held by each such holder, a number of shares of Series
A Preferred Stock equal to 20% of the total number of such shares outstanding on
January 1, 1984. Such redemption (the "sinking fund redemption") shall be at a
price equal to $4.00 per share. Any shares of Series A Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, or converted into New Common
Stock, after December 31, 1983, shall be credited against the Corporation's
sinking fund redemption obligations both theretofore and thereafter accruing
hereunder. The sinking fund obligations of the Corporation shall be cumulative.
On or before the date of a sinking fund redemption the
Corporation shall deposit with a bank or trust company having a capital and
surplus of at least $50,000,000 doing business in the Borough of Manhattan, the
City of New York, State of New York (the "Paying Agent"), funds sufficient in
the amount to pay at the office of such Paying Agent, on the date of such
sinking fund redemption (the "Date of Redemption"), the applicable redemption
price. As of the Date of Redemption, provided (i) such deposit has been made,
and (ii) no default is made in the payment of the sinking fund redemption price,
all dividends on the shares of Series A Preferred Stock called for redemption
shall cease to accrue, and all rights of the holders thereof as shareholders of
the Corporation (except the right to receive from said Paying Agent upon
surrender of the certificates representing the redeemed shares the sinking fund
redemption price and accrued and unpaid dividends to Date of Redemption) shall
cease and determine, and such shares of Series A Preferred Stock shall be
redeemed.
Notice of any proposed redemption of shares of Series A Preferred
Stock shall state (i) the number of shares to be redeemed, (ii) the right of the
holder of such shares of Series A Preferred Stock to convert such shares into
New Common Stock in accordance with the provisions of Section D hereof until the
close of business on the tenth day prior to the Date of Redemption; (iii) the
name and address of the Paying Agent; and (iv) the intention of the Corporation
to deposit with such Paying Agent funds sufficient in amount to pay, on the Date
of Redemption, the applicable sinking fund redemption price together with
accrued and unpaid dividends to the Date of Redemption. Such notice shall be
given by the Corporation by first class mail, postage prepaid, addressed to the
holders of record of the shares of Series A Preferred Stock to be redeemed at
their respective addresses appearing on the books of the Corporation, not less
than 30 nor more than 60 days prior to the Date of Redemption.
Any funds deposited with the Paying Agent as provided above which
shall not be required for such redemption because of the exercise of any right
of conversion, or otherwise, subsequent to the date of such deposit, shall be
returned to the Corporation forthwith. The Corporation shall be entitled to
receive from such Paying Agent the interest, if any, allowed on any funds
deposited as aforesaid and the holders of any redeemed shares shall have no
claim to any such interest. Any funds so deposited with the Paying Agent which
shall remain unclaimed by the holders of the shares so called for redemption at
the end of three months after the redemption date shall be paid by the Paying
Agent to the Corporation and thereafter the holders of the shares called for
redemption shall look only to the Corporation for payment.
IN WITNESS WHEREOF, IGI Biotechnology, Inc. has caused these
presents to be signed in its name and or its behalf by its President and its
corporate seal to be hereunto affixed and attested by its Assistant Secretary
this 28th day of December 1983, and the undersigned officers acknowledge that
these Articles Supplementary are the act of the Corporation, that to the best of
their knowledge, information and belief all matters and facts set forth herein
relating to the authorization and approval of these Articles are true in all
material respects, and that this statement is made under the penalties of
perjury.
ATTEST: IGI BIOTECHNOLOGY, INC.
- ------------------------- By__________________________
Henry M. Dachowitz, Robert Austin Milch,
Assistant Secretary President
<PAGE>
NOTICE OF CHANGE
OF PRINCIPAL OFFICE
OF
IGI BIOTECHNOLOGY, INC.
received for record August 31, 1983 at 9:35 A.M.
and recorded on Film No. 2603 Frame No. 3454
one of the charter records of the State Department of
Assessments and Taxation of Maryland.
To the clerk of the Circuit court of Howard County 63
AA No. 19085
Special Fee Paid $5.00
Recording Fee Paid $3.00
----
Total $8.00
70-75
Return to: Vanable, Baetjer and Howard
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 81201
<PAGE>
IGI BIOTECHNOLOGY, INC.
NOTICE OF CHANGE OF PRINCIPAL OFFICE ADDRESS
The undersigned officers of IGI Biotechnology, Inc. hereby
certify that a meeting of the Board of Directors of said Corporation duly and
regularly convened and held on June 17, 1982, at which a quorum was present and
acting throughout, the following resolution was duly and regularly adopted:
RESOLUTION OF DIRECTORS
RESOLVED, that the post office address of the principal
office of this Corporation in the State of Maryland by and it hereby
is changed to 9110 Red Branch Road, Columbia, Maryland 21045
The undersigned officers further certify that the foregoing
resolution has not been repealed or amended since its adoption.
IN WITNESS WHEREOF, the undersigned officers hereunto
subscribe their names this 24th day of August, 1983.
ATTEST IGI BIOTECHNOLOGY, INC.
- ----------------------- --------------------------
William T. Hall, Robert Austin Milch,
Assistant Secretary President
<PAGE>
INDUSTRIAL GENETICS, INC.
ARTICLES OF AMENDMENT
INDUSTRIAL GENETICS, INC., a Maryland corporation having its
principal office in Howard County, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by
striking out Articles SECOND and FIFTH and inserting in lieu thereof the
following:
SECOND: The name of the Corporation (hereinafter
called the "Corporation") is
IGI BIOTECHNOLOGY, INC.
FIFTH: The total number of shares of capital stock which the
Corporation has authority to issue is Twenty-Two Million
(22,000,000) shares, of which Twenty-One Million (21,000,000)
shares shall be New Common Stock with a par value of one cent
($.01) per share and aggregate par value of Two Hundred Ten
Thousand Dollars ($210,000.00) and of which One Million
(1,000,000) shares shall be Preferred Stock with a par value
of One Cent ($.01), per share and an aggregate par value of
Ten Thousand Dollars ($10,000.00). The total aggregate par
value of all authorized stock is Two Hundred Twenty Thousand
Dollars ($220,000.00).
Unless otherwise provided in Articles Supplementary, all
shares of New Common and Preferred Stock shall have the same
rights, powers, privileges, restrictions and limitations.
SECOND: The board of directors of the Corporation, by written
consent to such action signed by all the members thereof and filed with the
minutes of proceedings of the board, adopted a resolution in which was set forth
the foregoing amendment to the charter declaring that the said amendment to the
charter was advisable and directing that it be submitted for action thereon at a
special meeting of the stockholders of the Corporation to be held on July 15,
1983.
THIRD: Notice setting forth the ______ amendment of the charter
(or a summary of the changes to be affected by said amendment of the charter)
and stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote of the holders of two-thirds
of the Corporation's stock outstanding and entitled to vote thereon.
FOURTH: The Amendment of the charter of the Corporation as
hereinabove set forth has been duly advised by the board of directors and
approved by the stockholders of the Corporation in the manner and by the vote
required by law.
FIFTH: (a) The total number of shares of all classes of stock of
the Corporation heretofore authorized, and the number and par value of the
shares of each class were as follows: Twelve Million shares authorized of which
Eleven Million were New Common Stock with a par value of one cent ($.01) per
share and One Million were Convertible Preferred Stock with a par value of One
Dollar ($1.00) per share.
(b) The total number of shares of all classes of stock of
the Corporation as increased, and the number and par value of the shares of each
class, are as follows: Twenty Two Million shares authorized of which Twenty-One
Million are New Common Stock with a par value of one cent ($.01) per share and
One Million are Preferred Stock with a par value of One Cent ($.01) per share.
(c) The aggregate par value of all shares of all classes of
stock of the Corporation heretofore authorized was $1,110,000.00. The aggregate
par value of all shares of all classes of stock as changed by this amendment is
$220,000.00. Although this amendment increases the total number of shares
authorized, because of the reduction in the par value per share of the Preferred
Stock, this amendment has the effect of reducing the aggregate par value of all
shares of all classes of stock of the Corporation by $890,000.00.
THE UNDERSIGNED, President of INDUSTRIAL GENETICS, INC., who
executed on behalf of said corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name on
behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval of the foregoing Articles are true in
all material respects, under the penalties of perjury.
IN WITNESS WHEREOF INDUSTRIAL GENETICS, INC. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunto affixed and attested by its Secretary, on July 29,
1989.
Attest: INDUSTRIAL GENETICS, INC.
___________________________ By:__________________________(SEAL)
Carl L. Kempner, Secretary Robert Austin Milch, President
<PAGE>
INDUSTRIAL GENETICS, INC.
ARTICLES OF AMENDMENT
Industrial Genetics, Inc., a Maryland corporation, having its
principal office in this State in Columbia, Maryland (hereinafter referred to as
the "Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation are hereby amended by adding
new Article NINTH as follows:
"NINTH: In carrying on its business, or for the purpose of
attaining or furthering any of its objects, the Corporation shall have all of
the rights, powers and privileges granted to corporations by the laws of the
State of Maryland, and the power to do any and all acts and things which a
natural person or partnership could do and which may now or hereafter be
authorized by law, either alone or in partnership or conjunction with others. In
furtherance and not in limitation of the powers conferred by statute, the powers
of the Corporation and of the Directors and Stockholders shall include the
following:
(a) Any Director individually, or any firm of which any Director
may be a member, or any corporation or association of which any Director may be
an officer or director or in which any Director may be interested as the holder
of any amount of its capital stock or otherwise, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
Corporation, and, in the absence of fraud, no contract or other transaction
shall be thereby affected or invalidated; provided that in case a Director, or
firm of which a Director is a member, or a corporation or association of which a
Director is an officer or director or in which a Director is interested as the
holder of any amount of its capital stock or otherwise, is so interested, such
fact shall be disclosed or shall have been known to the Board of Directors or a
majority thereof. Any Director of the Corporation who is also a Director or
officer of or interested in such other corporation or association, or who, or
the firm of which he is a member, is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
of the Corporation which shall authorize any such contract or transaction, with
like force and effect as if he were not such director or officer of such other
corporation or association or were not so interested or were not a member of a
firm so interested.
(b) The Corporation reserves the right, from time to time, to
make any amendment of its Charter, now or hereafter authorized by law, including
any amendment which alters the contract rights, as expressly set forth in its
Charter, of any outstanding stock.
(c) Except as otherwise provided in these Articles of
Incorporation, the Charter or the By-Laws of the Corporation, as from time to
time amended, the business of the Corporation shall be managed by its Board of
Directors, which shall have and may exercise all the powers of the Corporation
except such as are by law, these Articles of Incorporation, the charter or the
By-Laws, conferred upon or reserved to the Stockholders. Additionally, the Board
of Directors of the Corporation is hereby specifically authorized and empowered
from time to time in its discretion:
(1) To authorized the issuance from time to time of shares of its
stock of any class, whether now or hereafter authorized, or securities
convertible into shares of its stock, of any class or classes, whether now or
hereafter authorized, for such considerations as said Board of Directors may
deem advisable, subject to such restrictions or limitations, if any, as may be
set forth in the By-Laws of the Corporation;
(2) By articles supplementary to these Articles of Incorporation,
to classify or reclassify any unissued shares by fixing or altering in any one
or more aspects, from time to time before issuance of such shares, the
preferences, rights, voting powers, restrictions and qualifications of, the
dividends on, the times and prices of redemption of, and the conversion rights
of, such shares."
SECOND: The amendment of the Corporation's charter as hereinabove
set forth was duly advised by a majority of the directors present at a meeting
at which a quorum was present on January 19, 1982.
THIRD: The amendment of the Corporation's charter as hereinabove
set forth was duly approved by a majority of all the votes cast at a meeting at
which a quorum was present in person or by proxy, dated January 29, 1982, at a
Special Meeting of the Stockholders of the Corporation.
IN WITNESS WHEREOF, Industrial Genetics, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary this 29th day of January, 1982. Each of the
undersigned officers of Industrial Genetics, Inc. acknowledges, under the
penalties for perjury, that these Articles of Amendment are the corporate act of
said Corporation, and that the matters and facts set forth herein are true in
all material respects to the best of his knowledge, information and belief.
ATTEST: INDUSTRIAL GENETICS, INC.
- -------------------------- ----------------------------
Carl L. Kempner Robert Austin Milch
Secretary President
<PAGE>
INDUSTRIAL GENETICS, INC.
ARTICLES OF AMENDMENT
INDUSTRIAL GENETICS, INC., a Maryland corporation, having its
principal office in this State in Columbia, Maryland (the "Corporation")
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend its Charter as currently
in effect. The Corporation's Charter is hereby amended by deleting Article FIFTH
and by substituting new Article FIFTH as set forth below, and by deleting
Article SIXTH and by substituting new Article SIXTH as set forth below:
"FIFTH: The total number of shares of capital
stock which the Corporation has authority to issue is Twelve
Million (12,000,000) shares, of which Eleven Million
(11,000,000) shall be New Common Stock with a par value of
one cent ($.01) per share and an aggregate par value of One
Hundred Ten Thousand Dollars ($110,000.00) and of which One
Million ($1,000,000) shall be Convertible Preferred Stock
with a par value of One Dollar ($1.00) per share and an
aggregate par value of One Million Dollars ($1,000,000.00).
The total aggregate par value is One Million One Hundred Ten
Thousand Dollars ($1,110,000.00).
(a) A description of each class with its rights,
voting powers, restrictions, limitations as to dividends and
qualifications is as follows:
1. In the event of the dissolution and/or
liquidation of the Corporation, the holders of the
Convertible Preferred Stock shall be entitled to receive out
of the funds available for distribution, an amount per share
equal to the purchase price of such share of Convertible
Preferred Stock, before any distribution is made to the
holders of the New Common Stock. After the said preferred
payment all sums remaining for distribution to stockholders
shall be distributed to the Convertible Preferred
Shareholders and the New Common Shareholders on a pro rata
basis according to the number of shares held by each such
stockholder without differentiation as to classification.
2. The holders of the New Common Stock and the
Convertible Preferred Stock shall be entitled to vote for
the election of directors, and upon all other matters which
the holders of stock are permitted or entitled to vote under
the laws of the State of Maryland.
3. Each share of Convertible Preferred Stock is
convertible at any time, at the option of the holder, into
one share of New Common Stock.
SIXTH: The number of directors of the Corporation
shall be no less than five (5) and no greater than nine (9),
which numbers may be increased or decreased pursuant to the
By-Laws of the Corporation. In the event that there are less
than three (3) stockholders, the number of directors may be
less than three (3) but not less than the number of
stockholders."
SECOND: The amendment of the Corporation's Charter as hereinabove
set forth was duly advised by the Board of Directors of the Corporation at a
meeting at which a quorum was present on June 17, 1982.
THIRD: The amendment to the Corporation's Charter as hereinabove
set forth, was duly approved by the stockholders of the Corporation at a Special
Meeting of Stockholders at which a quorum was present held on June 28, 1982.
FOURTH: The amendment to the Corporation's Charter as hereinabove
set forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation.
FIFTH: Prior to the filing of these Articles of Amendment, the
Corporation had authority to issue Twelve Million (12,000,000) shares of Capital
stock, consisting of Ten Million (10,000,000) shares of Common Stock with a par
value of one cent ($.01) per share and having an aggregate par value of One
Hundred Thousand Dollars ($100,000.00), One Million (1,000,000) shares of Class
A Common Stock with a par value of one cent ($.01) per share and an aggregate to
par value of Ten Thousand Dollars ($10,000.00) and One Million (1,000,000)
shares of Convertible Preferred Stock with a par value of One Dollar ($1.00) per
share and an aggregate par value of One Million Dollars ($1,000,000.00). The
aggregate par value of all shares of capital stock authorized prior to the
filing of the Article of Amendment was One Million One Hundred Ten Thousand
Dollars ($1,110,000.00).
SIXTH: After the filing of these Articles of Amendment, the
corporation shall have the authority to issue Twelve Million (12,000,000) shares
of capital stock, consisting of Eleven Million (11,000,000) shares of New Common
Stock with a par value of one cent ($.01) per share and an aggregate par value
of One Hundred Ten Thousand Dollars ($110,000.00) and One Million (1,000,000)
shares of Convertible Preferred Stock with a par value of One Dollar ($1.00) per
share and an aggregate par value of One Million Dollars ($1,000,000.00). The
aggregate par value of all shares of capital stock authorized after the filing
of these Articles of Amendment is One Million One Hundred Ten Thousand Dollars
($1,110,000.00).
SEVENTH: A description of each class of stock of the Corporation,
including the preferences, voting powers, and conversion and other rights and
restrictions of each class of the authorized capital stock are as set forth in
Article FIRST of these Articles of Amendment.
<PAGE>
IN WITNESS WHEREOF, Industrial Genetics, Inc., has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary this 17th day of June 1987, and its said President
acknowledges under penalties of perjury that these Articles of Amendment are the
corporate act of said Corporation, and that, to the best of his knowledge,
information and belief, the matters and facts set forth herein are true in all
material respects.
ATTEST: INDUSTRIAL GENETICS, INC.
______________________ By_________________________
Carl L. Kempner Robert Austin
Milch Secretary President
<PAGE>
ARTICLES OF INCORPORATION
OF
INDUSTRIAL GENETICS, INC.
FIRST: I, Shale D. Stiller, whose post office address is 1300
Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore, Maryland 21201,
being at least eighteen (18) years of age, hereby form a corporation under and
by virtue of the General Laws of the State of Maryland.
SECOND: The name of the corporation (hereinafter called the
"Corporation") is Industrial Genetics, Inc.
THIRD: The purposes for which the Corporation is formed are:
(a) To engage in any and all activities relating
to mutated and genetically engineered microorganisms.
(b) To carry on the aforesaid business and any
related or unrelated business and activity in the State of Maryland, in any
state, territory, district or dependency of the United States, or in any foreign
country.
(c) To do anything permitted in Section 2-103 of
the Corporations and Associations Article of the Annotated Code of Maryland, as
amended from time to time.
FOURTH: The post office address of the principal office of the
Corporation in this State is 8406 Park Heights Avenue, Pikesville, Maryland
21208. The name and post office address of the resident agent of the Corporation
in this State is Dr. Robert Austin Milch, 8406 Park Heights Avenue, Pikesville,
Maryland 21208. Said agent is an individual actually residing in this State.
FIFTH: The total number of shares of capital stock which the
Corporation has authority to issue is Twelve Million (12,000,000) shares, of
which Ten Million (10,000,000) shall be Common Stock with a par value of one
cent ($.01) per share, of which One Million (1,000,000) shall be Class A Common
Stock with a par value of one cent ($.01) per share, and of which One Million
(1,000,000) shall be Convertible Preferred Stock with a par value of One Dollar
($1.00) per share. The total aggregate par value is One Million One Hundred Ten
Thousand Dollars ($1,110,000).
(a) A description of each class with its rights,
voting powers, restrictions, limitations as to dividends and
qualifications is as follows:
1. In the event of the dissolution and/or
liquidation of the Corporation, the holders
of the Convertible Preferred Stock shall be
entitled to receive, out of the funds
available for distribution, an amount per
share equal to the purchase price of such
share of Convertible Preferred Stock,
before any distribution is made to the
holders of the Class A Common Stock, or to
the holders of the Common Stock. After the
said preferred payment, the holders of the
Class A Common Stock shall be entitled to
receive out of funds available for
distribution, an amount equal to One Dollar
($1.00) per share before any distribution
to the holders of the Common Stock. After
the said preferred payment, all sums
remaining for distribution to stockholders
shall be distributed to the Common, the
Class A and the Convertible Preferred
Shareholders, pro rata according to the
number of shares held by each such
stockholder without differentiation as to
classification.
2. The holders of the Common Stock, Class A
Common Stock and the holders of the
Convertible Preferred Stock shall be
entitled to vote for the election of
directors, and upon all other matters which
the holders of stock are permitted or
entitled to vote under the laws of the
State of Maryland.
3. Each share of Convertible Preferred Stock,
is convertible at any time at the option of
the holder, into one share of Common Stock.
SIXTH: The number of directors of the Corporation shall be five
(5) which number may be increased or decreased pursuant to the By-Laws of the
Corporation, and so long as there are less than three (3) stockholders, the
number of directors may be less than three (3) but not less than the number of
stockholders. The names of the directors, who shall act until the first annual
meeting or until their successors are duly chosen and qualified are: Dr. Robert
Austin Milch, William T. Hall, Carl L. Kempner, Kenneth D. Weiser and Thomas L.
Kempner.
SEVENTH: No Stockholder of the Corporation shall have any
preferential or pre- emptive right to acquire additional shares of stock of the
Corporation except to the extent that, and on such terms as, the Board of
Directors from time to time may determine.
EIGHTH: The Corporation shall have the power to indemnify, by
express provision in its By-Laws, by Agreement or by majority vote of either its
stockholders or disinterested directors, any one or more of the following
classes of individuals: (1) present or former directors and/or officers of the
Corporation, (2) present or former agents and/or employees of the Corporation,
(3) present or former administrators, trustees or other fiduciaries under
pension, profit sharing, deferred compensation, or any other employee benefit
plan maintained by the Corporation and (4) persons serving or who have served at
the request of the Corporation in any of the aforementioned capacities for any
other corporation, partnership, joint venture, trust, or other enterprises.
Provided, however, that the Corporation shall not have the power to indemnify
any person if such indemnification would be contrary to Section 2-418 of the
Corporations and Associations Article of the Annotated Code of Maryland, or any
statute, rule or regulation of similar import.
IN WITNESS WHEREOF, I do hereby acknowledge these Articles of
Incorporation to be my act this 27th day of October, 1981.
_____________________ (SEAL)
SHALE D. STILLER
<PAGE>
IGI BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGI Biotechnology, Inc., a Maryland corporation having its
principal office at 9110 Red Branch Road, Columbia, Maryland (hereinafter called
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation, as heretofore amended,
further amended by striking out Article Second of the Certificate of
Incorporation and inserting in lieu thereof the following:
"SECOND: The name of the Corporation (hereinafter called the
Corporation) is IGENE BIOTECHNOLOGY, INC."
SECOND: The Board of Directors of the Corporation at a meeting
held April 1, 1986, unanimously adopted a resolution in which was set forth the
foregoing amendment to the charter, declaring that the amendment was advisable,
and directing that it be submitted to the stockholders of the Corporation for
action thereon.
THIRD: Pursuant to notice, a summary of the amendment as proposed
by the Board of Directors was duly given to the stockholders who approved the
amendment at a meeting held on April 14, 1986, by the vote required by law.
FOURTH: The amendment of the charter of the Corporation as
hereinabove set forth has been duly advised by the Board of Directors and
approved by the stockholders of the Corporation by the vote required by law.
IN WITNESS WHEREOF, IGI Biotechnology, Inc. has caused this
instrument to be filed in its name and on its behalf by its President, Robert
Austin Milch, and witnessed by its Secretary, William T. Hall, on the 17th day
of April, 1986.
The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief the matters and facts set forth in these Articles with
respect to the authorization and approval of the amendment of the Corporation's
charter are true in all material respects and that this statement is made under
the penalties of perjury.
ATTEST: IGI BIOTECHNOLOGY, INC.
__________________________ By: _______________________
Secretary President
<PAGE>
IGI BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGI Biotechnology, Inc., a Maryland corporation having its
principal office in Columbia, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The charter of the Corporation is hereby amended by
striking out Article FIFTH and inserting in lieu thereof the following:
FIFTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is Eleven Million Five
Hundred Thousand (11,500,000) shares divided into Ten Million
(10,000,000) shares par value of One Cent ($.01) per share of Common
Stock, having an aggregate par value of One Hundred Thousand Dollars
($100,000.00) and One Million Five Hundred Thousand (1,500,000) shares
of the par value of One Cent ($.01) per share of Preferred Stock
having an aggregate par value of Fifteen Thousand Dollars
($15,000.00). The aggregate par value of all shares of stock is One
Hundred Fifteen Thousand Dollars ($115,000.00).
SECOND: On the effective date of this amendment:
(a) Each share of issued and outstanding Common Stock of the
par value of $2.00 per share shall be changed into one share of Common
Stock of the par value of $.01 per share and each then outstanding
certificate representing issued and outstanding shares of Common Stock
of the par value of $2.00 per share shall thereafter represent the
same number of shares of Common Stock of the par value of $0.01 per
share.
(b) Each stockholder of the Corporation, upon surrender of
the certificates representing Common Stock of the par value of $2.00
per share held prior to the foregoing amendment, shall be entitled to
receive new certificates representing their ownership of the number of
the Corporation's Common Stock of the par value of $0.01 per share.
(c) That stockholders may exchange certificates representing
shares outstanding prior to the 200 to 1 reverse stock split for
certificates representing shares of Common Stock with a par value of
$0.01 per share without being required to first obtain certificates
for Common Stock with a par value of $2.00 per share subject to the
approval of the stockholders.
THIRD: The amendment of the charter of the Corporation as
hereinabove set forth has been duly advised by the board of directors and
approved by the stockholders of the Corporation in the manner and by the vote
required by law.
FOURTH: (a) The total number of shares of all classes of stock of
the Corporation heretofore authorized was 1,605,000 shares, of which 105,000
shares were designated Common Stock of the par value of $2.00 per share and
1,500,000 shares were designated Preferred Stock, of the par value of One Cent
($.01) per share.
(b) The total number of shares of all classes of stock of
the Corporation as increased is 11,500,000 shares, of which 10,000,000
shares are designated Common Stock and 1,500,000 shares are designated
Preferred Stock, all of the par value of One Cent ($.01) per share.
(c) The aggregate par value of all authorized shares of all
classes of stock of the Corporation is $115,000 and is reduced by this
amendment by $110,000.
(d) No change was made by this amendment in the rights,
powers, restrictions, limitations, qualifications or terms and
conditions of redemption of either class of authorized stock.
THE UNDERSIGNED, President of IGI Biotechnology, Inc. who
executed on behalf of said corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein are
true in all material respects, under the penalties of perjury.
IN WITNESS WHEREOF IGI Biotechnology, Inc. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunto affixed and attested by its Secretary.
Attest: IGI BIOTECHNOLOGY, INC.
---------------------------- By: ----------------------------
Secretary President
[Affix corporate seal]
<PAGE>
IGI BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGI Biotechnology, Inc., a Maryland corporation having its
principal office in Columbia, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Charter of the Corporation is hereby amended by
striking out Article FIFTH and inserting in lieu thereof the following:
FIFTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is One Million Six
Hundred Five Thousand (1,605,000) shares divided into One Hundred Five
Thousand (105,000) shares par value of Two Dollars ($2.00) per share
of Common Stock, having an aggregate par value of Two Hundred Ten
Thousand Dollars ($210,000.00) and One Million Five Hundred Thousand
(1,500,000) shares of the par value of One Cent ($.01) per share of
Preferred Stock having an aggregate par value of Fifteen Thousand
Dollars ($15,000.00). The aggregate par value of all shares of stock
is Two Hundred Twenty Five Thousand Dollars ($225,000.00).
SECOND: On the effective date of this amendment:
(a) Each two hundred shares of issued and outstanding Common
Stock of the par value of $.01 per share shall be changed into one
share of Common Stock of the par value of $2.00 per share and each
then outstanding certificate representing issued and outstanding
shares of Common Stock shall thereafter represent (i) the number of
shares equal to the largest integral number which when multiplied by
200 does not exceed the number of shares which such certificate
previously represented and (ii) the right to receive a cash payment of
$.40 multiplied by (x) the number of shares previously represented by
such certificate minus (y) the number of shares which such certificate
shall henceforth represent multiplied by 200.
(b) Each stockholder of the Corporation, upon surrender of
the certificates representing Common Stock of the par value of $.01
per share held prior to the foregoing amendment, shall be entitled to
receive new certificates of the par value of $2.00 per share
representing their ownership of the number of the Corporation's Common
Stock determined in accordance with the formula set forth in
subparagraph (a) above.
(c) No fractional shares of Common Stock shall be issued and
the holders of Common Stock shall not be able to become entitled to
any fractional shares of Common Stock by reason of the
reclassification and change of Common Stock provided in subparagraph
(a) above. If rights to fractions of a share of Common Stock result
from such reclassification, the Corporation shall for each such
fraction deliver to each holder a cash payment of $.40 for each share
of Common Stock owned prior to the reclassification which such
fraction represents in accordance with the formula set forth in the
resolution above.
THIRD: The amendment of the charter of the Corporation as
hereinabove set forth has been duly advised by the board of directors and
approved by the stockholders of the Corporation in the manner and by the vote
required by law.
FOURTH: (a) The total number of shares of all classes of stock of
the Corporation heretofore authorized was 22,500,000 shares, of which 21,000,000
shares were designated Common Stock and 1,500,000 shares were designated
Preferred Stock, all of the par value of One Cent ($.01) per share.
(b) The total number of shares of all classes of stock of
the Corporation as decreased is 1,605,000 shares, of which 105,000
shares are designated Common Stock of a par value of $2.00 per share
and 1,500,000 shares are designated Preferred Stock, of the par value
of One Cent ($.01) per share.
(c) The aggregate par value of all authorized shares of all
classes of stock of the Corporation is $225,000 and is not affected by
this amendment.
(d) No change was made by this amendment in the rights,
powers, restrictions, limitations, qualifications or terms and
conditions of redemption of either class of authorized stock.
THE UNDERSIGNED, President of IGI Biotechnology, Inc. who
executed on behalf of said corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein are
true in all material respects, under the penalties of perjury.
<PAGE>
IN WITNESS WHEREOF IGI Biotechnology, Inc. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunto affixed and attested by its Secretary.
Attest: IGI BIOTECHNOLOGY, INC.
- ------------------------ By:-----------------------------
Secretary President
[Affix corporate seal]
<PAGE>
IGI BIOTECHNOLOGY, INC.
ARTICLES OF AMENDMENT
IGI Biotechnology, Inc., a Maryland corporation having its
principal office at 9110 Red Branch Road, Columbia, Maryland 21045 (hereinafter
called the "Corporation") hereby certifies to the State Department of
Assessments and Taxation that:
FIRST: The charter of the Corporation is hereby amended by
striking out Article FIFTH and inserting in lieu thereof following:
FIFTH: The total number of shares of capital stock of all
classes which the Corporation has authority to issue is Twenty-Two
Million Five Hundred Thousand (22,500,000) shares, of which Twenty-One
Million (21,000,000) shares shall be New Common Stock with a par value
of One Cent ($.01) per share and an aggregate par value of Two Hundred
Ten Thousand Dollars $(210,000.00) and of which One Million Five
Hundred Thousand (1,500,000) shares shall be Preferred Stock with a
par value of One Cent ($.01) per share and an aggregate par value of
Fifteen Thousand Dollars ($15,000.00). The total aggregate par value
of all authorized stock is Two Hundred Twenty-Five Thousand Dollars
($225,000.00). All of the authorized shares of Preferred Stock are
hereby classified as Series A Preferred Stock, and the shares of New
Common Stock and Series A Preferred Stock shall have the rights,
powers, privileges, restrictions and limitations described in the
Articles Supplementary previously recorded on December 29, 1983.
SECOND: The board of directors of the Corporation, at a meeting
duly convened and held on September 21, 1984, adopted a resolution in which was
set forth the foregoing amendment to the charter, declaring that the said
amendment was advisable and directing that it be submitted for action thereon at
a special meeting of the stockholders of the Corporation to be held on Monday,
December 17, 1984.
THIRD: Notice setting forth the aforesaid amendment of the
charter and stating that a purpose of the meeting of the stockholders would be
to take action thereon, was given as required by law, to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote of the holders of at least
two-thirds of the presently issued and outstanding Series A Preferred Stock and
by stockholders holding at least two-thirds of all the presently issued and
outstanding stock of the Corporation of all classes.
FOURTH: The amendment of the charter of the Corporation as
hereinabove set forth has been duly advised by the board of directors and
approved by the stockholders of the Corporation in the manner and by the vote
required by the Corporation's charter and by applicable law.
FIFTH: (a) The total number of authorized shares of all classes
of stock of the Corporation before the amendment and the number and par value of
each class, are as follows: Twenty-Two Million (22,000,000) shares, of which One
Million (1,000,000) were Series A Preferred Stock with a par value of One Cent
($.01) per share, and Twenty-One Million (21,000,000) were New Common Stock with
a par value of One Cent ($.01) per share.
(b) The total number of shares of all classes of stock of
the Corporation as increased, and the number and par value of each class, are as
follows: Twenty- Two Million Five Hundred Thousand (22,500,000) shares, of which
Twenty-One Million (21,000,000) shall be New Common Stock with a par value of
One Cent ($.01) per share and One Million Five Hundred Thousand (1,500,000)
shall be Series A Preferred Stock with a par value of One Cent ($.01) per share.
(c) The aggregate par value of all shares of all classes of
stock of the Corporation heretofore authorized was Two Hundred Twenty Thousand
Dollars ($220,000.00). The aggregate par value of all shares of all classes of
stock, as increased by this amendment, is Two Hundred Twenty-Five Thousand
Dollars ($225,000.00). This amendment has the effect of increasing the aggregate
par value of all authorized shares of all classes of stock of the Corporation by
Five Thousand Dollars ($5,000.00).
The undersigned President of IGI BIOTECHNOLOGY, INC., who
executed on behalf of said Corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing articles of amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth herein are
true in all material respects, under the penalties of perjury.
<PAGE>
IN WITNESS WHEREOF, IGI BIOTECHNOLOGY, INC. has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunto affixed and attested by its Assistant Secretary,
on January __, 1985.
Attest: IGI BIOTECHNOLOGY, INC.
- ------------------------- By:-----------------------(SEAL)
William T. Hall Robert Austin Milch
Assistant Secretary President
EXHIBIT 10.7
LOAN AND STANDBY PURCHASE AGREEMENT
Agreement made this 1st day of August, 1997, by and among IGENE
Biotechnology, Inc., a Maryland corporation (the "Company"), and the investors
listed on Schedule A attached hereto (collectively, the "Investors").
W I T N E S S E T H :
WHEREAS, the Company desires to obtain the right to borrow
certain amounts from the Investors and the Investors desire to make loans
available to the Company; and
WHEREAS, the Investors are willing to subscribe for certain Units
(as hereinafter defined), which may not be purchased pursuant to the Company's
Rights Offering (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises,
representations and warranties contained herein, the parties hereby agree as
follows:
1. LOANS. At the request of the Company made at any time or from
time to time on or prior to December 31, 1997, the Investors agree, severally
and not jointly, to lend to the Company an aggregate principal amount not to
exceed $2,000,000. Such loans (a) shall be evidenced by promissory notes (the
"Notes") in the form attached hereto as Exhibit 1, (b) shall bear interest at
the rate of 8% per annum, (c) shall be due and payable on the first to occur of
(i) the first business day after expiration of the Rights Offering (the
"Closing") and (ii) six months from the date hereof, and (d) shall be
convertible into Common Stock of the Company at a conversion price of $.10 per
share. Each loan shall be made pro rata by each Investor based on the amount
committed by each Investor as set forth on Schedule A.
2. NOTICES AND CONDITION. The Company shall give the Investors at
least two business days prior written notice of its intention to borrow under
the provisions of Section 1 hereof. The obligation of the Investors to make any
loans hereunder is subject to the condition that prior to making any such loan
the representations, warranties and covenants of the Company contained herein
shall continue to be true and correct in all material respects.
3. WARRANTS. In consideration of the Investors agreeing to make
loans as provided in Section 1 hereof and the over-subscription commitment as
provided in Section 4.2 hereof, the Company hereby issues to each Investor
warrants (the "Warrants") to purchase ten shares of Common Stock of the Company
for each $1.00 of loans committed to be made by each Investor. The Warrants
shall be at an exercise price of $.10 per share and shall expire ten years from
the date hereof.
4. RIGHTS OFFERING - SUBSCRIPTION.
4.1. RIGHTS OFFERING. The Company hereby agrees to undertake a
rights offering (the "Rights Offering") in which the Company would issue to each
holder of Common Stock (including Common Stock issuable upon conversion or
exercise of outstanding convertible notes, warrants and options of the Company
on an as- converted basis) one transferable right (a "Right") for each such
share of Common Stock. Each Right would entitle the holder to purchase prior to
the expiration date of such Right at a subscription price of $.10 per Unit (the
"Subscription Price") one unit (the "Unit") consisting of $.10 principal amount
of unsecured promissory notes (the "New Notes") and warrants (the "New
Warrants") to purchase one share of Common Stock at $.10.
4.2. OVER-SUBSCRIPTION. If the Company does not raise at least $2
million pursuant to the Rights Offering, each Investor agrees, severally and not
jointly, pro rata based on Schedule A, to purchase from the Company, at the
Subscription Price, enough Rights so that the total number of Units purchased by
the Investors shall be equal to the difference between $2 million and the
proceeds received by the Company pursuant to the Rights Offering. The closing of
the over-subscription shall be concurrently with the Closing.
4.3. PAYMENT OF SUBSCRIPTION PRICE. In lieu of paying the
Subscription Price in cash, the Investors may tender Notes valued at the
principal amount thereof. Upon any such tender, accrued interest shall
concurrently be paid in cash by the Company. The Company shall repay any
indebtedness outstanding under the Notes after giving effect to the preceding
sentence and after giving effect to any Notes which may have been converted into
Common Stock.
5. REPRESENTATIONS OF THE COMPANY. The Company represents and
warrants to the Investors as follows:
5.1. The issuance of the Notes and the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants or conversion of the Notes
(the "Conversion Shares") pursuant to the provisions of this Agreement have been
duly and validly authorized. No approval or authorization of the shareholders or
the directors of the Company or of any governmental authority or agency which
has not been obtained will be required by the Company for the issuance and sale
of the Notes, the Warrants, or the Conversion Shares as contemplated by this
Agreement, except for approval of the Amendment (as hereinafter defined). When
issued and sold to the Investors, the Warrants will be duly and validly issued,
fully paid and non- assessable, and will be free and clear of any liens or
encumbrances created by the Company. The Conversion Shares, when issued and
delivered upon exercise of the Warrants or conversion of the Notes, will be duly
and validly issued, fully paid and non-assessable.
5.2. The Company has the full corporate power and authority to
enter into this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the Notes by the
Company have been duly authorized by all necessary corporate action. This
Agreement and the Notes constitute legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms.
5.3. Neither the sale of the Notes, the Warrants (or the issuance
and delivery of the Conversion Shares), the execution and delivery of this
Agreement, nor the fulfillment of the terms set forth in this Agreement and the
consummation of the transactions contemplated by this Agreement, will (i)
conflict with or constitute a breach of, or constitute a default under or an
event which, with or without notice or lapse of time or both, would be a breach
of or default under or violation of the Certificate of Incorporation or By-Laws
of the Company or would be a breach of or default under or violation of any
agreement, document, lease or other instrument or undertaking by which the
Company is bound or to which any of its properties are subject, would be a
violation of any law, administrative regulation, judgment, order or decree
applicable to the Company, or (ii) require the consent which has not been
obtained of any other person or entity under any agreement, lease, document or
other instrument or undertaking by which the Company is bound or to which any of
its properties are subject.
5.4. At the time the Registration Statement with respect to the
Rights Offering (the "Registration Statement") becomes effective, the
Registration Statement will comply in all material respects with the
requirements of the Securities Act of 1933 and the regulations thereunder (the
"Securities Act"). The proxy statement relating to the annual meeting of
stockholders (the "Proxy Statement"),when mailed to stockholders and at the date
of the annual meting of stockholders, will comply in all material respects with
the requirements of the Securities Exchange Act of 1934 and the regulations
thereunder (the "Exchange Act"). The final prospectus included in the
Registration Statement (the "Prospectus"), at the time the Registration
Statement becomes effective and at the Closing, and the Proxy Statement when
mailed to stockholders and at the date of the annual meeting of stockholders,
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall not apply to
statements in or omissions from the Proxy Statement, Registration Statement or
the Prospectus made in reliance upon and in conformity with the information
furnished to the Company in writing by the Investors expressly for use in the
Proxy Statement, Registration Statement or in the Prospectus.
5.5. The consolidated financial statements (which term, as used
herein, includes all related notes) to be included in the Proxy Statement,
Registration Statement and the Prospectus will present fairly the financial
position of the Company and its consolidated subsidiaries at the dates indicated
and the results of operations of the Company and its consolidated subsidiaries
for the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis.
6. ACTIONS ON OR PRIOR TO CLOSING. Each of Investors, severally
and not jointly, and the Company covenant to take the following actions prior to
Closing.
6.1. CONSENTS AND REASONABLE EFFORTS. Each of the Company
and the Investors shall use its best efforts to obtain all consents, approvals,
authorizations or waivers of any public, governmental or regulatory body or
authority, and any and all consents, approvals or waivers from parties to
contracts as may be necessary for the consummation of the transactions
contemplated by this Agreement (the "Consents").
6.2. STOCKHOLDER APPROVAL. The Company shall use it best
efforts to obtain approval of the transactions contemplated by this Agreement,
including an appropriate amendment to its Certificate of Incorporation
increasing its authorized number of shares of Common Stock (the "Amendment"), by
the holders of at least two-thirds of the voting power entitled to vote at the
Company's Annual Meeting of Stockholders.
6.3. RIGHTS OFFERING. The Company shall take all steps
reasonably required to complete the Rights Offering as contemplated by this
Agreement. The commencement of the mailing of the certificates representing the
Rights to the holders of record of the Common Stock shall take place as promptly
as practicable after the day on which the Registration Statement becomes
effective.
7. CONDITIONS TO OBLIGATIONS OF THE INVESTORS AND THE COMPANY.
The obligations of the Company and the Investors to effect the transactions
described in Section 4 of this Agreement are subject to the satisfaction of the
following conditions, unless waived in writing by the Investors and the Company.
(a) The Registration Statement shall have become effective
not later than the date the Prospectus is mailed to the stockholders of the
Company and at the Closing no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings therefor initiated
or threatened by the Securities and Exchange Commission.
(b) Holders of shares of Common Stock and Preferred Stock
representing at least two-thirds of the voting power entitled to vote at the
Annual Meeting shall have voted to approve the transactions set forth in this
Agreement and the Amendment.
(c) The Rights Offering shall have expired in accordance
with its terms.
(d) All necessary Consents shall have been obtained. The
holders of all outstanding convertible notes issued by the Company between
November 15, 1995 and May 8, 1997 shall have agreed to extend the maturity date
of such notes to the same maturity date as the New Notes. By executing this
Agreement, each Investor who holds such notes agrees to such extension.
(e) The representations, warranties and covenants of the
Company contained in this Agreement shall be true and correct in all material
respects on the Closing.
8. ACTIONS AFTER CLOSING.
(a) The Company will make generally available to its
security holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the Securities Act) for the twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
(b) The Company will use the net proceeds received by it
from the sale of the Units in the manner specified in the Prospectus under "Use
of Proceeds."
(c) The Company agrees to indemnify and hold harmless, to
the full extent permitted by law, the Investors and each person, if any, who
controls any Investor within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against all losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to, reasonable
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever (which fees and expenses shall be reimbursed
to the Investors on a current basis within 30 days of invoice therefor), and any
and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Proxy Statement or the Registration
Statement (or any amendment thereto), or any related preliminary prospectus or
the Prospectus, or in any amendment thereof or supplement thereto or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by an Investor expressly for use therein.
(d) Each Investor, severally and not jointly, agrees to
indemnify and hold harmless, to the full extent permitted by law, the Company
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, against all
losses, liabilities, claims, damages and expenses whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever (which fees and
expenses shall be reimbursed to the Company on a current basis within 30 days of
invoice therefor), and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Proxy Statement or the
Registration Statement (or any amendment thereto), or any related preliminary
prospectus or the Prospectus, or in any amendment thereof or supplement thereto
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information furnished in writing by such Investor
to the Company specifically for inclusion in such Proxy Statement, Registration
Statement or Prospectus and has not been corrected in a subsequent writing prior
to or concurrently with the effective date of the Registration Statement.
(e) Promptly after receipt by an indemnified party under
subsection (c) or (d) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section except to the extent that it has
been prejudiced in any material respect by such failure or from any liability
which it may have otherwise). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) in the
reasonable judgment of the indemnified party, based upon advice of its counsel,
a conflict of interest may exist between such indemnified party and the
indemnifying party with respect to such claims (in which case, the indemnified
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party or parties), in any of which events such fees and
expenses shall be borne by the indemnifying parties; provided that, with respect
to clause (iii), the indemnifying party has consented in writing to the
indemnified party's choice of counsel, which consent shall not be unreasonably
withheld. In the event one or more law firms has represented both the
indemnifying party and the indemnified party (the "Joint Counsel") and the
indemnified party retains separate counsel, the indemnified party agrees that it
shall not object to the continued use of the Joint Counsel by the indemnifying
party and further agrees to waive any conflicts of interest. Under no
circumstances shall any indemnified party take a position or make an argument in
any proceeding in which such party is being indemnified that is inconsistent
with or prejudicial to any position or argument advanced by the indemnifying
party. If so requested by the indemnifying party, the indemnified party shall
appeal a judgment rendered against such indemnified party; provided that the
cost of such appeal shall be borne by the indemnifying party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section to the contrary
notwithstanding, an indemnifying party (A) shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld; (B) shall be
liable for the cost of appealing any judgment rendered against an indemnified
party, or for any increase in the amount of a judgment resulting from such
appeal, which consent may be withheld in the indemnifying parties' sole
discretion; and (C) shall be liable for a judgment rendered against an
indemnified party only if such judgment is final and nonappealable.
(f) The Company shall at all times while the Notes, New
Notes, Warrants or New Warrants are outstanding reserve and keep available out
of its authorized but unissued Common Stock solely for the purpose of effecting
the conversion or exercise of the foregoing securities the full number of shares
of Common Stock deliverable upon exercise or conversion thereof.
9. TRANSFER OF SECURITIES.
(a) REPRESENTATION OF INVESTORS. Each Investor severally
represents that it is an "Accredited Investor" as defined in Rule 501 of the
General Rules and Regulations under the Securities Act.
(b) INVESTMENT PURPOSE. Each Investor is acquiring the Notes
and Warrants for its own account and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the Securities Act.
(c) TRANSFER OF SECURITIES. The Notes and Warrants shall not
be transferable except upon the conditions specified in this Section 9, which
conditions are intended to insure compliance with the provisions of the
Securities Act and state securities laws in respect of the transfer of any such
securities.
(d) RESTRICTIVE LEGENDS. Unless and until otherwise
permitted by this Section 9, each Note and Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS SECURITY MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT."
(e) TERMINATION OF RESTRICTIONS. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
9 upon the transferability of the Notes and Warrants shall terminate as to any
particular Notes and Warrants when(i) such Notes and Warrants shall have been
effectively registered under the Securities Act and sold by the holder thereof
in accordance with such registration, (ii) such Notes and Warrants have been
sold in accordance with Rule 144 or Rule 144A promulgated under the Securities
Act, or (iii) written opinions to the effect that such restrictions are no
longer required or necessary under any federal or state law or regulation have
been received from counsel for the holder thereof (who may be inside counsel)
and, if the Company shall so require, from counsel for the Company.
10. SURVIVAL. All representations, warranties, covenants and
agreements contained in this Agreement or in any document, exhibit, schedule or
certificate delivered in connection herewith shall survive the execution and
delivery of this Agreement and the Closing and any investigation at any time
made by the Investors or on their behalf.
11. MISCELLANEOUS PROVISIONS.
11.1. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York without
giving any effect to principles of conflicts of laws.
11.2. All notices hereunder shall be in writing and shall be
deemed to have been given at the time when hand delivered, when received if sent
by telecopier or same day or overnight recognized commercial carrier service, or
three days after being mailed by certified mail, addressed to the address below
stated of the party to which notice is given, or to such changed address as such
party may have fixed by notice:
To the Company: 9110 Red Branch Road
Columbia, MD 21045
Attn: President
To the Investors: At addresses set forth
on Schedule A
with a copy to
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn: Martin H. Neidell
provided however, that any notice of change of address shall be effective only
upon receipt.
11.3. This Agreement shall be binding upon and inure to the
benefit of the Company, the Investors and the successors and permitted assigns
of the Investors. The Company may not assign this Agreement without the prior
written consent of the Investors. The Investors may assign all or any part of
their rights and obligations hereunder.
11.4. This Agreement and all exhibits and schedules hereto
set forth the entire understanding of the parties with respect to the
transactions contemplated hereby. This Agreement may be amended, the Company may
take any action herein prohibited or omit to take action herein required to be
performed by it, and any breach of or compliance with any covenant, agreement,
warranty or representation may be waived, only if the Company has obtained the
written consent or waiver of the Investors who have committed to make a majority
of the loans.
11.5. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.6. The headings in this Agreement are for reference
purposes only and shall not constitute a part hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the day and year first above written.
IGENE Biotechnology, Inc.
By: ----------------------
THE INVESTORS
--------------------------
Joseph C. Abeles
--------------------------
John A. Cenerazzo
--------------------------
Thomas L. Kempner
--------------------------
Sidney R. Knafel
--------------------------
Fraydun Manocherian
<PAGE>
SCHEDULE A
-----------
NAME AND ADDRESS OF INVESTORS AMOUNT OF LOANS
- ----------------------------- ---------------
Joseph C. Abeles $216,000
Abel Associates
220 E. 42nd Street
New York, NY 10017
John A. Cenerazzo $24,000
Stokesay Castle Lane
Reading, PA 19606
Thomas L. Kempner $630,000
Loeb Partners Corporation
61 Broadway
New York, NY 10006
Sidney R. Knafel $630,000
SRK Management
126 East 56th Street
New York, NY 10022
Fraydun Manocherian $500,000
EXHIBIT 23.2
BERENSON & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
135 West 50th Street
New York, NY 10020
(212) 977-6800
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration State of IGENE Biotechnology, Inc.,
on Form SB-2 of our report dated March 13, 1997 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the Company's ability
to continue as a going concern) appearing in the Prospectus, which is part of
this Registration Statement, and of our report dated March 13, 1997 relating to
the financial statement schedules appearing elsewhere in this Registration
Statement. We also consent to the reference to us under the heading "Expert" in
such Prospectus.
/s/ Berenson & Company LLP
New York, NY
December 2, 1997
