IGENE BIOTECHNOLOGY, INC.
Notice of Annual Meeting of Stockholders
To be held September 29, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders of IGENE Biotechnology, Inc. (the "Company")
will be held at the offices of Kimelman & Baird, LLC, 100 Park
Avenue, 21st floor, New York, New York 10017 at 10:00 a.m.
local time on September 29, 1998 for the following purposes:
1. To elect seven (7) Directors.
2. To approve the appointment of Berenson & Company as
independent auditors of the Company for the fiscal year
ending December 31, 1998.
3. To transact such other business as may properly come
before the meeting, or any adjournment thereof.
Stockholders of record at the close of business on August
28, 1998, shall be entitled to notice of, and to vote at, the
meeting.
By order of the Board of Directors
/s/Stephen F. Hiu
Stephen F. Hiu
President and Secretary
Dated: Columbia, Maryland
September 8, 1998
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE
ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING.
IGENE BIOTECHNOLOGY, INC.
9110 Red Branch Road
Columbia, Maryland 21045
PROXY STATEMENT
The accompanying Proxy is solicited by the Board of
Directors of IGENE Biotechnology, Inc., a Maryland Corporation
(the "Company"), for use at the Annual Meeting of Stockholders
(the "Meeting") to be held on September 29, 1998, or any
adjournment thereof, at which stockholders of record at the
close of business on August 28, 1998 (the "Record Date") shall
be entitled to vote. The cost of solicitation of proxies will
be borne by the Company. The Company may use the services of
its Directors, officers, employees and others to solicit
proxies, personally or by telephone; arrangements may also be
made with brokerage houses and other custodians, nominees,
fiduciaries and stockholders of record to forward solicitation
material to the beneficial owners of stock held of record by
such persons. The Company may reimburse such solicitors for
reasonable out-of-pocket expenses incurred by them in
soliciting, but no compensation will be paid for their services.
Each proxy executed and returned by a stockholder may be
revoked at any time before it is voted by timely submission of
written notice of revocation or by submission of a duly executed
proxy bearing a later date (in either case directed to the
Secretary of the Company) or, if a stockholder is present at the
Meeting, he or she may elect to revoke his proxy and vote his or
her shares personally.
There is being mailed herewith to each stockholder of
record the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997. The date of this Proxy Statement
is September 8, the approximate date on which this Proxy
Statement and form of Proxy were first sent or given to
stockholders.
On the Record Date, the Company had outstanding and
entitled to vote with respect to all matters to be acted upon a
the meeting 21,436,473 shares of Common Stock. Each holder of
Common Stock is entitled to one vote for each share of stock
held by such holder.
On the Record Date, the Company also had outstanding and
entitled to vote with respect to all matters to be acted upon at
the meeting 29,592 shares of 8% Cumulative Preferred Stock
("Series A Preferred Stock"). Each holder of Series A Preferred
Stock is entitled to two votes for each share of Preferred Stock
held by such holder. Holders of record of outstanding Common
Stock and Series A Preferred Stock will be entitled to vote
together as a single class at the Meeting.
Pursuant to the terms of the Company's Series A Preferred
Stock, as a consequence of the non-payment of dividends on such
Stock for more than the past four consecutive dividend payment
dates, the holders of Series A Preferred Stock, if they so
elect, may vote as a separate class with respect to the election
of two additional directors, in accordance with the procedures
set forth in the Charter and by-laws of the Company. To date,
the holders of the Series A Preferred Stock have not exercised
such right. In the event they exercise their right, the Board
would be expanded to nine directors.
The presence of holders representing a majority of all the
votes entitled to be cast at the meeting will constitute a
quorum at the meeting. In accordance with Maryland law,
abstentions, but not broker non-votes, are counted for purposes
of determining the presence or absence of a quorum for the
transaction of business. Each item on the agenda must receive
the affirmative vote of a majority of the voting power voted at
the meeting in order to pass. Abstentions and broker non-votes
are not counted in determining the votes cast with respect to
any of the matters submitted to a vote of stockholders.
Incorporation of Certain Documents by Reference
The Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, and Quarterly Report on Form 10-
QSB for the six months ended June 30, 1998, copies of which
accompany this Proxy Statement, are incorporated herein by
reference.
All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the securities Exchange Act of 1934
(the "Exchange Act") subsequent to the date of this Proxy
Statement and prior to the meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from
the date of the filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for the purposes of this proxy Statement to the
extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
The Company will provide, without charge, to each person to
whom a copy of this Proxy Statement is delivered, upon the
written or oral request of such person and by first class mail
or other equally prompt means within one business day of receipt
of such request, a copy of any or all of the documents
incorporated herein by reference (other than exhibits, unless
such exhibits are specifically incorporated herein by
reference). Requests should be directed to: Investor Relations,
IGENE Biotechnology, Inc., 9110 Red Branch Road, Columbia,
Maryland 21045.
The Company is subject to the informational requirements of
the Exchange Act and, in accordance therewith, files reports,
proxy or information statements and other information with the
commission. Such reports, proxy or information statements,
exhibits and other information filed by the Company with the
Commission can be inspected and copies at the pubic reference
facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission at 7 World Trade Center
(13th Floor), New York, New York 10048 and Northwestern Atrium
Center, 500 Madison Street, Suit 1400, Chicago, Illinois 60661-
2511. Copies of such materials can be obtained by mail from the
Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and its public reference facilities in New York, New York and
Chicago, Illinois, at prescribed rates. The Commission maintains
an Internet web site that contains reports, proxy and
information statements and other information regarding issuers
who file electronically with the commission.
Financial Information
Financial information for the Company for the fiscal year
ended December 31, 1997, is included in the Company's Annual
Report on Form 10-KSB, a copy of which accompanies this proxy
Statement.
It is expected that the following business will be
considered at the meeting and action taken thereon:
1. ELECTION OF DIRECTORS
Pursuant to the By-Laws of the Company, the number of
Directors of the Company has been set at seven members. It is
proposed to elect seven Directors at this Meeting to hold office
for a one-year term until the 1999 Annual Meeting of
Stockholders and until their successors are duly elected and
qualify. It is intended that the accompanying form of Proxy
will be voted for the nominees set forth below, each of whom is
presently a Director of the Company. If some unexpected
occurrence should make necessary, in the Board of Directors'
judgment, the substitution of some other person or persons for
any of the nominees, shares will be voted for such other persons
as the Board of Directors may select. The Board of Directors is
not aware that any nominee may be unable or unwilling to serve
as a Director. The following table sets forth certain
information with respect to the nominees.
<TABLE>
NOMINEES FOR ELECTION
<CAPTION>
Name Age Position with IGENE
<S> <C> <C>
Michael G. Kimelman 59 Chairman of the Board of Directors
Thomas L. Kempner 71 Vice Chairman of the Board of
Directors
Stephen F. Hiu 42 Director, President, Secretary,
Acting Treasurer, and Director
of Research and Development
Patrick F. Monahan 47 Director, and Director of
Manufacturing
Joseph C. Abeles 83 Director
John A. Cenerazzo 74 Director
Sidney R. Knafel 67 Director
</TABLE>
MICHAEL G. KIMELMAN was elected a Director of the Company in
February 1991 and Chairman of the Board of Directors in March
1991. He is the Managing Partner of Kimelman & Baird, LLC. He
is a founder of Blue Chip Farms, a standard bred horse-breeding
farm, and has been an officer of the same since its inception in
1968. Mr. Kimelman is currently a Director of the Harness Horse
Breeders of New York State and serves on the Board of the
Hambletonian Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and
has been a Director of the Company since its inception in
October 1981. He is and has been Chairman and Chief Executive
Officer of Loeb Partners Corporation, investment bankers, New
York, and its predecessors since February 1978. He is currently
a Director of Alcide Corporation, CCC Information Services
Group, Inc., Energy Research Corp., Intermagnetics General
Corp., Northwest Airlines, Inc., and Roper Starch Worldwide,
Inc.
STEPHEN F. HIU was appointed President and Treasurer in March
1991, Secretary in July 1990, and elected a Director in August
1990. He has been Director of Research and Development since
January 1989 and, prior thereto, was Senior Scientist since
December 1985, when he joined the Company. He was a post-
doctoral Research Associate at the Virginia Polytechnic
Institute and State University, Blacksburg, Virginia, from
January 1984 until December 1985. Dr. Hiu holds a Ph.D. degree
in microbiology from Oregon State University and a B.S. degree
in biological sciences from the University of California,
Irvine.
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 and a Director Emeritus
of National Penn Bank, a Director of U.S. Axle Corporation, and
a Chairman and a Director of InfoCore, Incorporated.
SIDNEY R. KNAFEL, a Director of the Company since 1982, has been
Managing Partner of SRK Management Company, a private investment
concern, New York, since 1981, Chairman of Insight
Communications, Inc. since 1985, and of BioReliance Corporation
since 1982. 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.
Committees of the Board of Directors
The Company has two standing committees of the Board of
Directors. Set forth below is a description of the functions of
those committees and the members of the Board of Directors who
serve on such committees.
Audit Committee
The responsibilities of the Audit Committee include
recommending to the Board of Directors the independent certified
public accountants to conduct the annual audit of the books and
accounts of the Company, reviewing the proposed scope of the
audit and approving the audit fees to be paid. The Audit
Committee also reviews, with the independent certified public
accountants and with the Company's management, the adequacy and
effectiveness of the internal auditing, accounting and financial
controls of the Company. There were no meetings of the Audit
Committee in 1997. The functions of the Committee were
performed by the Board during 1997.
Compensation Committee
The Compensation Committee approves the salaries of all
officers and certain other employees of the Company. It also
supervises the administration of all benefit plans and other
matters affecting executive compensation, subject to further
approval of the Board of Directors. The members of the
Compensation Committee during 1997 were Messrs. Thomas L.
Kempner and Sidney R. Knafel. There were no meetings of the
Compensation Committee in 1997.
Board Compensation
During 1997, Directors were not compensated for their Board
or Committee activities. The Board of Directors held 8 meetings
in 1997. Each Director of the Company attended in excess of 75%
of the total number of meetings of the Board of Directors
including committee meetings for which each respective director
was a member.
Executive Compensation
The following table sets forth information with respect to
the compensation of the named executive officers for each of the
last three completed fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Securities
Name and Underlying All Other
Principal Position Year Salary Options/SARS(#) Compensation
<S> <C> <C> <C> <C>
Ramin Abrishamian/CEO 1997 $50,000 --- $59,591*
Dexter Gaston/CEO 1996 $48,494 1,418,502 ---
* Mr. Abrishamian was paid as a consultant in this amount prior
to being appointed CEO.
</TABLE>
Other than the 1986 and 1997 stock option plans and the
Simple Retirement Plan described below, the Company has no
profit sharing or incentive compensation plans.
Simple Retirement Plan
Effective February 1, 1997 the Company adopted a Simple
Retirement Plan under Internal Revenue Code Section 408(p). The
plan is a defined contribution plan, which covers all of the
Company's employees who receive at least $5,000 of compensation
for the preceding year. The plan permits elective employee
contributions. The Company makes a nonelective contribution of
2% of each eligible employee's compensation for each year. The
Company's contributions to the plan for 1997 were $5,483, which
is expensed in the 1997 statement of operations.
Stock Option Plan
The 1997 Stock Option Plan (the "Plan"), which was approved
by the stockholders on November 17, 1997, and which succeeds the
1986 Stock Option Plan, provides for the issuance of options to
acquire up to 20,000,000 shares of Common Stock of the Company.
The Plan is administered by a committee of the Board of
Directors.
The purpose of the Plan is to advance the interests of the
Company by encouraging and enabling the acquisition of a larger
personal proprietary interest in the Company by directors, key
employees, consultants and independent contractors who are
employed by, or perform services for, the Company and its
subsidiaries and upon whose judgment and keen interest the
Company is largely dependent for the successful conduct of its
operations. It is also expected that the opportunity to acquire
such a proprietary interest will enable the Company and its
subsidiaries to attract and retain desirable personnel,
directors and other service providers.
Options are exercisable at such rates and times as may be
fixed by the committee. Options become exercisable in full upon
(i) the holder's retirement on or after his 65th birthday, (ii)
the disability or death of the holder, (iii) or under special
circumstances as determined by the Committee. Options generally
terminate on the tenth business day following cessation of
service as an employee, director, consultant or independent
contractor.
Options may be exercised by payment in full of the option
price in cash or check, or by delivery of previously-owned
shares of common stock having a total fair market value on the
date of exercise equal to the option price, or by such other
methods as permitted by the Committee.
The Plan contains anti-dilution provisions in the event of
certain corporate transactions.
The Board of Directors may at any time withdraw from, or
amend the Plan and any options not heretofore granted.
Stockholder approval is required to (i) increase the number of
shares issuable under the plan, (ii) increase the number of
options which may be granted to any individual during a year,
(iii) or change the class of persons to whom options may be
granted. No options shall be granted under the Plan after
September 19, 2007.
Options to acquire 7,110,584 shares of common stock have
been granted under the 1986 and 1997 Stock Option Plans and
6,520,750 options are outstanding under the Plans as of July 31,
1998.
The following table sets forth information with respect to
stock options granted in 1997 to the executive officers.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Percent
Number of of Total
Securities Options/SARs
Underlying Granted To Exercise or
Option/SARS EmployeesIn Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date
<S> <C> <C> <C> <C>
Stephen F. Hiu 500,000 62.5 .05 1/11/06
Patrick F. Monahan 300,000 37.5 .05 1/11/06
</TABLE>
The following table sets forth information as to all
incentive and non-statutory stock options that have been granted
to the executive officers of the Company. 10,000 in options
were exercised by officers in 1997. The following table
provides information regarding the number of shares covered by
both exercisable and unexercisable stock options for executive
officers as of December 31, 1997 and the values of "in-the-
money" options as of that date. An option is "in-the-money" if
the per share fair market value of the underlying stock exceeds
the option exercise price per share.
<TABLE>
Aggregate Fiscal Year End Option Values
<CAPTION>
Number of Dollar Value of
Number of Unexercised In-The-Money
Shares Options Options
Acquired Dollar At End of At End of
on Value Fiscal Year Fiscal Year(1)
Name Exercise Realized Exercisable/ Exercisable/
Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Stephen F. Hiu ------ ------ 955,000/None $57,300/None
Patrick F. Monahan 10,000 $500 632,500/None $37,950/None
1. The value of unexercised in-the-money options at December
31, 1997 is based on the difference between $.11 per share
and the per share option exercise price, multiplied by the
number of shares of common stock underlying such option.
</TABLE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of July 31,
1998, 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.
<TABLE>
<CAPTION>
Number of
Name and Address Shares Percent*
Directors and Officers:
<S> <C> <C>
Joseph C. Abeles 15,006,039(1) 43.71%
c/o Abel Associates
220 E. 42nd Street, Suite 505
New York, NY 10017
Ramin Abrishamian 1,500,000(2) 6.54%
534 Charles River Street
Needham, MA 02192
John A. Cenerazzo 1,912,456(3) 8.29%
Stokesay Castle Lane
Reading, PA 19606
Stephen F. Hiu 3,055,500(4) 12.48%
c/o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 43,656,172(5) 69.68%
c/o Loeb Partners Corporation
61 Broadway
New York, NY 10006
Michael G. Kimelman 7,228,667(6) 26.05%
c/o Kimelman & Baird, LLC
100 Park Avenue
New York, NY 10017
Sidney R. Knafel 40,743,263(7) 67.75%
c/o SRK Management
126 East 56th Street
New York, NY 10022
Number of
Name and Address Shares Percent*
Directors and Officers (continued):
Patrick F. Monahan 1,744,500(8) 7.53%
c/o IGENE Biotechnology, Inc.
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 114,846,597(9) 89.40%
As a Group (8 persons)
Others:
Fraydun Manocherian 8,750,000(10) 28.29%
All Shareholders 142,905,763(11) 100.00%
</TABLE>
* 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 1,125 shares of Series A Preferred Stock, $311,663 in long-
term notes convertible into 3,782,083 shares and warrants to
purchase 9,093,427 shares. Also includes 4,140 shares and
warrants to purchase 2,235 shares held by his wife and 12,500
shares issuable upon conversion of 6,250 shares of Series A
Preferred Stock held by his wife.
2 Includes warrants to purchase 1,500,000 shares of common stock
held by Mr. Abrishamian.
3 Includes 283,458 shares, warrants to purchase 1,103,513 shares,
32,750 shares subject to options currently exercisable and
$40,622 in long-term notes convertible into 492,321 shares. Also
includes 414 shares held by his wife.
4 Includes 500 shares held by Dr. Hiu, 2,955,000 shares subject to
options currently exercisable, and warrants to purchase 50,000
shares. Also includes warrants to purchase 50,000 shares held in
a trust in which Dr. Hiu's father is the trustee and Dr. Hiu is
one of the beneficiaries as to which Dr. Hiu disclaims any
beneficial interest.
5 Includes 386,972 shares and warrants to purchase 5,286,916 shares
held by Mr. Kempner; 94,000 shares, $140,873 in long-term notes
convertible into 1,616,065 shares and warrants to purchase
13,367,592 shares held by a trust under which Mr. Kempner is one
of two trustees and the sole beneficiary; 1,482,987 shares,
$79,200 in long-term notes convertible into 1,147,670 shares and
warrants to purchase 4,622,848 shares held by a trust under which
Mr. Kempner is one of two trustees and a one-third beneficiary;
182,526 shares and warrants to purchase 98,564 shares held by Mr.
Kempner's wife; 203,880 shares and warrants to purchase 110,095
shares held by trusts under which Mr. Kempner is one of two
trustees and his brothers are beneficiaries; and 94,000 shares,
$140,872 in long-term notes convertible into 1,616,065 shares and
warrants to purchase 13,345,992 shares held by a trust under
which Mr. Kempner is one of two trustees and one of his brothers
is the beneficiary.
6 Includes 521,104 shares, warrants to purchase 5,325,672 shares
and $63,070 in long-term notes convertible into 804,568 shares
held by Mr. Kimelman. Also includes 83,256 shares and warrants to
purchase 894 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 and warrants to purchase 176,460 shares
held by his wife, in which Mr. Kimelman disclaims any beneficial
interest.
7 Includes 1,518,769 shares, warrants to purchase 27,892,008
shares, and $306,200 in long-term notes convertible into
3,715,706 shares owned by Mr. Knafel. Also includes 525,947
shares and warrants to purchase 7,090,833 shares held in trusts
for the benefit of Mr. Knafel's adult children, as to which Mr.
Knafel disclaims any beneficial interest.
8 Includes 12,000 shares held by Mr. Monahan, 1,682,500 shares
subject to options currently exercisable and warrants to purchase
50,000 shares.
9 Includes 7,820,070 shares, 6,170,250 shares which are subject to
options currently exercisable or exercisable within 60 days,
unexpired warrants to purchase 87,667,049 shares, 14,750 shares
subject to the conversion of 7,375 shares of redeemable preferred
stock, and $1,082,500 in long-term notes convertible into
13,174,478 shares.
10 Includes warrants to purchase 8,750,000 shares.
11 Includes 21,436,473 shares outstanding as of July 31, 1998, and
shares which are subject to rights of acquisition as follows:
6,520,750 shares which are subject to options currently
exercisable or exercisable within 60 days; unexpired warrants to
purchase 100,964,878 shares; 59,184 shares subject to the
conversion of 29,592 shares of redeemable preferred stock;
375,000 shares subject to the conversion of 187,500 shares of
non-voting, limited redemption preferred stock; 375,000 shares
subject to the conversion of the $1,500,000 subordinated
debenture; and 13,174,478 shares subject to the conversion of
$1,082,500 of outstanding long-term promissory notes.
Compensation Committee Interlocks and Insider Participation
Thomas L. Kempner and Sidney R. Knafel are members of the
Compensation Committee. None of the executive officers of the Company
has served on the Board of Directors or compensation committee of any
other entity that has had any of such entity's officers serve either
on the Company's Board of Directors or Compensation Committee.
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, various Directors of the Company
have made periodic loans to the Company in order to ensure the
Company's continued viability.
On December 14, 1995 the shareholders of the Company approved
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 4,290,400 common stock of the Company
at $.125 per share and warrants to purchase 4,290,400 shares 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. Such warrants
originally expired on April 3, 1998, and were extended on April 6,
1998, and now have an expiration date of April 3, 2008.
Beginning November 16, 1995 and continuing through May 8, 1997,
the Company issued promissory notes to certain directors for aggregate
consideration of $1,082,500. These notes specify that at any time
prior to repayment the holder has the right to convert the notes to
common stock of the Company at prices ranging from $0.05 per share to
$0.135 per share, based on the market price of common shares at the
issue date. In connection with such issuance, the holders also
received warrants for an equivalent number of shares at the equivalent
price per share. The warrants expire ten years from the issue of the
notes. These notes are due on March 31, 2003. The notes bear
interest at the prime rate.
The notes are detailed, by issue date, and by conversion and
warrant price, as follows:
<TABLE>
<CAPTION>
Conversion/ Warrant
Issue Date Note Amount Price/Share
<S> <C> <C>
November 16, 1995 $ 40,000 $ 0.050
December 22, 1995 60,000 0.050
Total issued in 1995 100,000
February 14, 1996 70,000 0.100
March 11, 1996 70,000 0.090
April 23, 1996 36,000 0.060
May 9, 1996 71,000 0.060
June 7, 1996 70,000 0.050
July 24, 1996 90,000 0.115
September 24, 1996 70,000 0.125
November 15, 1996 70,000 0.090
December 11, 1996 70,000 0.090
Total issued in 1996 617,000
January 14, 1997 70,000 0.070
February 24, 1997 100,000 0.110
March 31, 1997 75,000 0.100
April 3, 1997 24,500 0.100
May 8, 1997 80,000 0.135
May 8, 1997 16,000 0.135
Total issued in 1997 365,500
TOTAL $1,082,500
</TABLE>
Beginning June 5, 1997 and continuing through December 5, 1997,
the Company issued promissory notes to certain directors and another
investor for aggregate consideration of $2,000,000. These notes
specify that at any time prior to repayment the holder had the right
to convert the notes to common stock of the Company at $.10 per share.
In connection with such issuance, the holders also received warrants
for an equivalent number of shares at $0.10 per share. The warrants
expire ten years from the issue of the notes. These notes bear
interest at 8%. These notes were due on March 31, 1998. The Company
repaid these notes with proceeds from the Rights Offering, as
described below.
The Company distributed, to holders of record on February 13,
1998, transferable rights to subscribe for and purchase 0.54 of a Unit
for each share of common share or equivalent owned by such holder.
Each Unit entitled the holder to receive $0.10 principal amount of 8%
Notes due March 31, 2003 and warrants to purchase one share of common
stock at an exercise price of $0.10 per share. Common shares or
equivalents include: Common Stock, Preferred Stock, unexpired
warrants, options exercisable, and convertible notes outstanding. The
Company raised $5,000,000 through this Rights Offering, which was
fully subscribed. In consideration of certain investors agreeing to
subscribe to Units such that the Company received at least $2,000,000,
the Company issued additional warrants to these investors to purchase
10 shares of Common Stock for each $1 of loans made by each investor,
exercisable at $0.10 per share and expiring ten years after issue.
As of March 31, 1998, the Company's stockholders purchased a total
of 50,000,000 Units, including additional Units available to fully
subscribing shareholders as a result of unexercised rights of other
shareholders, under the terms of the Rights Offering. The Rights
Offering period expired March 31, 1998 was not extended. The
Company's gross proceeds from the Rights Offering were $5,000,000, of
which $1,875,000 was used to repay outstanding promissory notes due on
March 31, 1998; and $475,000 was used to repay demand promissory notes
issued from January 1, 1998 through March 31, 1998 as described below.
The Company incurred transfer agent and legal fees of $211,712 in
relation to the Rights Offering, resulting in net proceeds after fees
and debt repayment of $2,438,288. The Company recorded $5,000,000 in
principal of new notes issued to holders of subscribed units, which
are payable five years from date of issue and bear interest at 8%. In
connection with the Rights Offering, the holders of subscriber Units
also received warrants to purchase 50,000,000 shares of common stock
expiring ten years from date of issue and exercisable at $.10 per
share.
On January 13, and February 2 and 24, and March 10 and 20, 1998
the Company issued non-convertible demand promissory notes to certain
directors for an aggregate consideration of $950,000. These loans
bear interest at the prime rate. The notes were repaid during the six
months ended June 30, 1998.
On April 6, 1998, the Company issued 9,500,000 warrants to
purchase common stock, at $0.10 per share, to certain directors who
were the lenders of $950,000 in demand notes issued in 1998. The
Company also issued 4,000,000 warrants to purchased common stock at
$0.10 per share, expiring 5 years from issue, to Mr. Michael Kimelman,
the chairman of the board of directors.
The Company agreed, on February 20, 1998, to issue 2,000,000
shares of common stock to its legal counsel, in payment of retainers
for on-going litigation. The stock was issued in May and June of 1998
at $.0675 per share, or $135,000.
In May of 1998 the Company also issued 190,000 shares of common
stock to its patent counsel in payment of outstanding fees, pursuant
to an agreement dated August 27, 1997. The stock was issued in May of
1998 at $0.142 per share, the market price as of the date of the
agreement, for an aggregate amount of $27,000.
Effective April 16, 1998, the Company issued 3,350,000 employee
stock options to its employees at $0.10 per of share of common stock,
expiring on the sooner of ten years from date of issue or ten days
following cessation of employment.
Effective May 1, 1998, the Company issued 1,500,000 stock options
to its CEO, Ramin Abrishamian, expiring two years from the date of
issue. Effective May 1, 1998, Mr. Abrishamian resigned his position
as CEO of the Company. Mr. Abrishamian has declined to stand for re-
election as a director at the 1998 annual meeting.
Section 16(a) Beneficial ownership Reporting Compliance
The Company believes that during 1997 all of its officers,
directors and holders of more than 10% of its Common Stock complied
with all filing requirements under Section 16(a) of the Securities
Exchange Act of 1934, except as follows. In 1997 directors of the
Company made various loans to the Company. The loans are evidenced by
demand promissory notes convertible into Common Stock. The directors
also received warrants to purchase shares of Common Stock. In
addition, in 1997, two directors of the Company (who are also officers
and employees) were granted stock options under the Company's 1986
Plan. None of the foregoing securities were reported on Forms 4 or
Forms 5 filed with the Securities and Exchange Commission. In making
this disclosure, the Company has relied solely on written
representations of its directors, officers and more than 10% holders
and on copies of reports that have been filed with the Securities and
Exchange Commission.
2. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Berenson &
Company as independent auditors of the Company for the fiscal year
ending December 31, 1998. A representative of Berenson & Company is
not expected to be present at the meeting.
The Board of Directors of the Company recommends a vote FOR
approval of the appointment of Berenson & Company as the Company's
auditors.
3. OTHER MATTERS
Stockholder Proposals
Proposals of stockholders intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the
Company on or prior to June 10, 1999, to be eligible for inclusion in
the Company's Proxy Statement and form of Proxy to be used in
connection with such meeting.
Other Business
At the date of this Proxy Statement, the only business which the
Board of Directors intends to present or knows that others will
present at the Meeting is that hereinabove set forth. If any other
matter or matters are properly brought before the meeting, or any
adjournment thereof, it is the intention of the persons named in the
accompanying form of Proxy to vote the Proxy on such matters in
accordance with their judgment.
/s/ Stephen F. Hiu
Stephen F. Hiu
President and Secretary
Dated: September 8, 1998
