SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MAGNA-LAB INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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<PAGE>
[LOGO] MAGNA-LAB INC.
6800 Jericho Turnpike, Suite 120W,
Syosset, New York 11797
516-393-5874
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
SEPTEMBER 28, 2000
TO THE SHAREHOLDERS OF MAGNA-LAB INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
Magna-Lab Inc., a New York corporation (the "Company"), will be held at the Long
Island Marriott Hotel, 101 James Doolittle Blvd., Uniondale, NY 11553, on
Thursday, September 28, 2000 at 10:00 a.m. local time (the "Meeting"), for the
following purposes:
1. To consider and vote upon the election of five directors;
2. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Class A
Common Stock to 100,000,000;
3. To approve an amendment to the Company's 1992 Stock Option Plan;
4. To ratify the appointment of Rothstein Kass & Company, P.C. as
independent auditors of the Company; and
5. To transact such other business as may properly be presented at the
Meeting or any adjournments thereof.
The close of business on August 24, 2000 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
Meeting. The stock transfer books of the Company will not be closed.
All shareholders are cordially invited to attend the Meeting. Whether or
not you expect to attend, you are respectfully requested by the Board of
Directors of the Company to sign, date and return the enclosed proxy promptly.
Shareholders who execute proxies retain the right to revoke them at any time
prior to the voting thereof. A return envelope which requires no postage if
mailed in the United States is enclosed for your convenience.
By the order of the Board of Directors,
Daniel M. Mulvena
Chairman of the Board
Dated: September 5, 2000
<PAGE>
MAGNA-LAB INC.
6800 Jericho Turnpike, Suite 120W,
Syosset, New York 11797
516-393-5874
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Magna-Lab Inc., a New York
Corporation (the "Company"), for the Annual Meeting of Shareholders to be held
at the Long Island Marriott Hotel, 101 James Doolittle Blvd., Uniondale, NY
11553, on Thursday September 28, 2000 at 10:00 a.m., local time, and for any
adjournment or adjournments thereof (the "Meeting"), for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders. Any shareholder
giving such a proxy has the power to revoke it at any time before it is voted.
Written notice of such revocation should be forwarded directly to the Secretary
of the Company, at the above stated address. Attendance at the Meeting will not
have the effect of revoking the proxy unless such written notice is given or the
shareholder votes by ballot at the Meeting, thereby canceling any proxy
previously given.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted and if a choice is specified in the proxy, the
shares represented thereby will be voted in accordance with the directions
thereon. Any proxy on which no direction is specified will be voted in favor of
the actions described in this Proxy Statement, for the election of the nominees
set forth under the caption "Election of Directors", for the amendment to the
Company's Restated Certificate of Incorporation increasing the authorized shares
of Class A Common Stock to 100,000,000, for the amendment to the Company's 1992
Stock Option Plan, and for the ratification of Rothstein Kass & Company, P.C. as
independent auditors for the Company.
The approximate date on which this Proxy Statement and the accompanying
form of proxy will first be mailed or given to the Company's shareholders is
September 1, 2000.
Your vote is important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the Meeting. If you do
attend, you may vote by ballot at the Meeting, thereby canceling any proxy
previously given.
VOTING
Only holders of shares of Class A Common Stock, par value $.001 per share,
and Class B Common Stock, par value $.001 per share (collectively, the
"Shares"), of record as at the close of business on August 24, 2000 (the "Record
Date"), are entitled to vote at the Meeting. On the Record Date there were
issued and outstanding 39,279,261 shares of Class A Common Stock and 408,821
shares of Class B Common Stock. Each outstanding share of Class A Common Stock
and Class B Common Stock is entitled to one vote and five votes, respectively,
upon all matters to be acted upon at the Meeting. A majority in interest of the
voting power of the outstanding Shares represented at the Meeting in person or
by proxy shall constitute a quorum. The affirmative vote of a plurality of the
voting power of the outstanding Shares is necessary to elect the nominees as
directors. The affirmative vote of a majority of the outstanding voting power of
the Shares is necessary to approve the proposed amendment to the Company's
Restated Certificate of Incorporation, to approve the proposed amendment to the
1992 Stock Option Plan and the affirmative vote of the majority of the
outstanding voting power of the Shares represented at the Meeting is necessary
to ratify Rothstein Kass & Company, P.C. as the independent auditors for the
Company. The Shareholders vote at the Meeting by casting ballots (in person or
by proxy) which will be tabulated by a person appointed by the Board of
Directors before the Meeting to serve as the inspector of election at the
Meeting and who has executed and verified an oath of office. Abstentions and
broker non-votes are included in the determination of the number of Shares
present at the Meeting for quorum purposes but broker non-votes are not counted
in the tabulation of the votes cast on proposals presented to shareholders.
Thus, an abstention from voting on any matter has the same legal effect as a
vote "against" the matter, even though the shareholder may interpret such action
differently.
1
<PAGE>
SOLICITATION OF PROXIES
The solicitation of proxies hereby is being made by the Company. The cost
of preparing, assembling and mailing the proxy, this Proxy Statement and the
other materials enclosed will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, employees and consultants
may solicit proxies by telephone or other means of communication. The Company,
through its transfer agent, will request brokerage houses, banking institutions,
and other custodians, nominees and fiduciaries, with respect to Shares held of
record in their names or in the names of their nominees, to forward the proxy
material to the beneficial owners of such Shares and will reimburse them for
their reasonable expenses in forwarding the proxy material.
1. ELECTION OF DIRECTORS
At the Meeting, five directors will be elected by the shareholders to
serve until the next Annual Meeting of Shareholders or until their successors
are elected and shall qualify. Each of the nominees is currently a director of
the Company. Mr. Adereth was added to the Board in July 2000 and Messrs. Feldman
and Kessler joined the Board in January 2000 following the resignations of Dr.
Teichholoz and Mr. Michael Rosenberg in December 1999. Messrs. Adereth, Feldman
and Kessler were named to the Board pursuant to agreements to provide equity
capital to the Company beginning in December 1999 and continuing until October
31, 2000. Management recommends that the persons named below be elected as
directors of the Company and it is intended that the accompanying proxy will be
voted for their election as directors, unless the proxy contains contrary
instructions. The Company has no reason to believe that any of the nominees will
not be a candidate or will be unable to serve. However, in the event that any of
the nominees should become unable or unwilling to serve as a director, the
persons named in the proxy have advised that they will vote for the election of
such person or persons as shall be designated by management.
The following sets forth the names and ages of the five nominees for
election to the Board of Directors, their respective principal occupations or
employment during the past five years and the period during which each has
served as a director of the Company.
Daniel M. Mulvena has been the Company's Chairman and Chief Executive
Officer since March 1998 and a consultant to the Company since February 1997.
Mr. Mulvena devotes such time as is necessary to the business and affairs of the
Company. Mr. Mulvena is Chairman of the Board of EcoCath, Inc., a publicly
traded medical technology company and serves as a consultant to and/or on the
Board of several privately-held and publicly-held medical technology companies
including publicly-held companies Thoratec Laboratories, Inc., Zoll Medical
Corporation and Cambridge Heart. Mr. Mulvena is the principal owner of Commodore
Associates, a private firm providing consulting services to medical technology
companies.
Mr. Mulvena has served Boston Scientific Corporation, a publicly traded
corporation which manufactures and sells minimally invasive medical products
("BSC"), from 1992 through 1995 including as Vice-President and General Manager
and ultimately as Group Vice-President Cardio/Cardiology responsible for
Mansfield, Cardiac Assist and Mansfield Electrophysiology Divisions of BSC. From
1989 through 1991, Mr. Mulvena was Chairman, President and Chief Executive
Officer of, and from 1991 through 1992 was a consultant to, Lithox Systems,
Inc., a developer and manufacturer of medical devices. From 1984 to 1989, Mr.
Mulvena served as President of Bard Implants and Bard Cardiosurgery, all
divisions of C.R. Bard, Inc. C.R. Bard, Inc. is a leading worldwide manufacturer
of medical devices. Mr. Mulvena has served as Co-Chairman of the Board of
Directors of Life Medical Sciences, a publicly traded corporation engaged in the
research and development of technologies for use in medical applications.
Lawrence A. Minkoff, Ph.D., a founder of the Company, is presently the
Company's President and Chief Scientific Officer and has also served as its
Chairman of the Board and Chief Executive Officer from inception in February
1991 until March 1998. From October 1989 until February 1991, Dr. Minkoff has
served as President and a director of Minkoff Research Labs, Inc., a privately
held company engaged in the development of MRI technology. Dr. Minkoff continues
as President of Minkoff Research Labs, Inc. Prior to the formation of the
Company Minkoff Research Labs, Inc. conducted the development activities
relating to certain of the Company's technology. From July 1978 to October 1989,
Dr. Minkoff was an executive vice-president of Fonar Corporation, a publicly
traded corporation engaged in developing and commercializing the use of magnetic
resonance imaging for scanning the human body. Dr. Minkoff served as a member of
its board of directors from January 1985 to February 1989.
2
<PAGE>
J. M. Feldman, has been a Vice President and Director of the Company since
January 2000. For more than the past five years Mr. Feldman has been a financial
advisor employed by various firms in the brokerage industry.
Jonathan Adereth, has served as a Director of the Company since August
2000. Mr. Adereth was CEO and President of Elscint Ltd. from 1994 until 1998.
Mr. Adereth joined Elscint Ltd. in 1972, starting as an R&D Physicist, then
Manager prior to becoming involved in Corporate Marketing Management. In 1981,
Mr. Adereth established Elscint Australia and served as its first General
Manager. In 1983 Mr. Adereth was appointed a General Manager of the Digital
X-Ray Systems Division of the company and in 1986 he became a Corporate Vice
President Sales. In 1998, the assets of Elscint were sold to Marconi Medical
Inc. and to GE Medical Systems.
Mr. Adereth is currently a partner of InnoMed Venture Capital, a member of
the Jerusalem Global Ventures, Chairman of the Board and CEO of Carmel
Biosensors Ltd. and a Director at Medivision - Ophthalmic Imaging Systems Ltd.
and at Eliav - Oncology Imaging Systems Ltd. He is also founder and a major
shareholder of Techbridge Medical Ltd., a worldwide network for distribution of
medical products developed in Israel. In addition, Mr. Adereth acts as a
strategic consultant to a number of high tech medical equipment companies in
Israel.
Seymour Kessler, D.P.M. has served as a Director of the Company since
January 2000. For more than the past five years Dr. Kessler has been a Managing
Director of RKP Capital Partners, a private investment bank specializing in
small to medium size companies. Dr. Kessler received his Doctorate of Podiatric
Medicine from Illinois College of Podiatric Medicine in 1954 and served as a
practicing Podiatric Surgeon as well as banker, investor and corporate
executive. He is a Board Certified Diplomat of the American Board of Ambulatory
Foot Surgery and the American Board of Podiatric Orthopedics. Dr. Kessler is the
developer of the "Kessler/Wilson Osteotomy", a minimally invasive surgical
procedure and a co-founder and past president of the Academy of Foot and Ankle
Surgery. Dr. Kessler has served as CEO of Princeton Dental Management Corp. and
as a member of the Board of Directors of several banks in the Chicago area. He
has also served as a Director of RealShares, Inc., an NASD member firm.
The Company maintains key-person life insurance coverage in the face
amount of $5,000,000 for Dr. Lawrence A. Minkoff naming the Company as
beneficiary under such policies.
General Information Concerning the Board of Directors and its Committees
The Board of the Company met eleven times in the fiscal year ended
February 29, 2000 and acted by unanimous written consent one time. The New York
Business Corporation Law provides that the Board of Directors, by resolution
adopted by a majority of the entire board, may designate one or more committees,
each of which shall consist of three or more directors. The Board annually
elects from its members the Executive Committee, the Audit Committee and the
Compensation Committee. During the last fiscal year each of the directors
attended at least 75% of the aggregate of (1) the total number of meetings of
the Board and (2) the total number of meetings held by all committees of the
Board on which he served.
Executive Committee. The Executive Committee was formed in January 2000.
The Executive Committee was formed to provide a forum for continuous
communication about issues of strategy, development, finance and operations
affecting the Company. The Executive Committee is empowered to convene between
Board meetings to undertake matters which are more efficiently acted upon by a
smaller group than the entire Board. The Executive Committee is composed of
Messrs. Mulvena, Minkoff, Kessler and Feldman. After its formation in January
2000, the Executive Committee held its first meeting in March 2000. There were,
therefore, no meetings of the Executive Committee during the fiscal year ended
February 29, 2000.
Audit Committee. The Audit Committee reviews the engagement of the
independent accountants and reviews the independence of the accounting firm. The
Audit Committee also reviews the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal control procedures. The
Audit Committee is currently composed of three directors, Messrs. Feldman,
Kessler and Rosenthal. Prior to January 2000, the Audit Committee was composed
of Messrs. Joel Kanter, Irwin Rosenthal and Michael Rosenberg. The Audit
Committee met once during the fiscal year ended February 29, 2000.
Compensation Committee. The Compensation Committee reviews and recommends
to the Board remuneration arrangements and compensation plans for the Company's
officers and key employees and consultants.
3
<PAGE>
The Compensation Committee also administers the 1992 Stock Option Plan. The
Compensation Committee is composed of three directors, presently Mr. Kessler and
two directors who did not stand for reelection, Messrs. Joel Kanter and Irwin
Rosenthal. Mr. Kessler replaced Dr. Teichholz who resigned from the Board in
December 1999. The Compensation Committee met twice during the fiscal year ended
February 29, 2000.
All Directors of the Company are elected by the shareholders, or in the
case of a vacancy, are elected by the Directors then in office, to hold office
until the next annual meeting of shareholders of the Company and until their
successors are elected and qualify or until their earlier resignation or
removal.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Class A and Class B Common Stock as of
August 24, 2000 for (i) each of the Company's directors and each of the
executive officers/consultants, (ii) each person known by the Company to own
beneficially 5% or more of the outstanding shares of any class of its voting
securities and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage
Number of of Total
Class of Shares Percent Class A Percentage
Name and Address Common Beneficially of and Class B of Total
Of Beneficial Owner (1)(10) Stock (2) Owned(3) Class(3) Common Stock (3) Voting Power (2)(3)
--------------------------- --------- -------- -------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Daniel M. Mulvena (4)(5) Class A 950,000 2.4% 2.3% 2.2%
Lawrence A. Minkoff, Ph.D. (4)(5) Class A 1,550,000 3.8%
Class B 238,915 56.1%
----------
1,788,915 4.3% 6.4%
----------
Irwin M. Rosenthal (4)(5) Class A 849,593 1.8% 1.8% 1.7%
Allen Perres (4)(5) Class A 3,500,000 8.2% 8.1% 7.8%
Kenneth C. Riscica (4)(5) Class A 717,500 1.8% 1.8% 1.7%
J.M. Feldman (4)(5) Class A 75,000 0.2% 0.2% 0.2%
Seymour Kessler (4)(5) Class A 75,000 0.2% 0.2% 0.2%
Joel Kanter (4)(5)(6) Class A 641,754 1.8% 1.8% 1.7%
Jonathan Adereth (4)(9) Class A 2,500,000 6.0% 5.9% 5.7%
Noga Investments in Technology Class A 30,772,727 48.0% 47.7% 46.5%
Ltd. (7)
Robert M. Rubin (4) Class A 3,400,000 9.5% 9.4% 9.0%
Abbe/Berman "Group" (8) Class A 2,000,000 5.6% 5.5% 5.3%
All Executive Officer and Class A 10,858,847 22.0%
Directors as a Group (9 persons) Class B 238,915 56.1%
----------
11,097,762 22.3% 23.4%
----------
</TABLE>
(see following page for notes)
------------------------
The information presented in the table above is based solely upon Schedules 13D
and 13G, and schedules 3, 4 and 5 filed by the respective holders under the
Securities Exchange Act of 1934 and has not been otherwise independently
verified by the Company.
(1) All shares are beneficially owned and sole voting and investment power is
held by the persons named, except as otherwise noted.
(2) Class B Common Stock is entitled to five votes per share but is otherwise
substantially identical to the Class A Common Stock, which has one vote
per share. Each share of Class B Common Stock is convertible into one
share of Class A Common Stock.
4
<PAGE>
(3) Based upon 39,279,261 shares of Class A common stock and 408,821 shares of
Class B common stock outstanding at August 24, 2000 and reflecting as
outstanding, with respect to the relevant owner, the shares which that
beneficial owner could acquire upon exercise of options which are
presently exercisable or will become exercisable within the next 60 days.
(4) The address for Mssrs. Mulvena, Minkoff, Rosenthal, Perres, Riscica,
Rubin, Feldman, Kessler, Kanter and Adereth is c/o Magna-Lab Inc., 6800
Jericho Turnpike, #120W, Syosset, NY 11791.
(5) Includes currently exercisable options to purchase the following shares of
Class A Common Stock; Mr. Mulvena, 950,000, Dr. Minkoff, 1,550,000, Mr.
Rosenthal, 500,000, Mr. Perres, 3,500,000, Mr. Riscica 717,500, Mr.
Feldman, 75,000, Mr. Kessler, 75,000, Mr. Kanter, 75,000 including amounts
which are subject to shareholder approval of an increase in the Company's
Stock Option Plan.
(6) Includes the holding of The Kanter Family Foundation and Windy City
Associates to which Mr. Kanter does not have sole voting or investment
power.
(7) The address for Noga Investments in Technology Ltd. is 6 Azoran Street,
South Industrial Zone, P.O. Box 8471, Netaninya, Israel. Includes
5,681,818 shares presently owned and 25,090,909 shares subject to
presently exercisable options andissuable upon satisfactions of existing
purchase commitments and scheduled to be satisfied by October 31, 2000.
(8) The Abbe/Berman Group consists of Coleman Abbe, Richard Abbe, Leo Abbe and
Jeffrey Berman, each of whom beneficially owns 500,000 shares of Class A
common stock. The address for each of Messrs. Coleman Abbe, Richard Abbe,
Leo Abbe and Jeffrey Berman is c/o Hampshire Securities Corp., 640 Fifth
Avenue, New York, NY 10016. Such reporting persons may be deemed to be
part of a "group" and such reporting persons disclaim any such "group"
membership. The "Abbe Group" reflects such amounts as though such
reporting persons were a member of a "group" (which they disclaim).
(9) The Company and Mr. Adereth are currently negotiating a consulting
agreement with Mr. Adereth which contemplates Mr. Adereth being granted
options to purchase 2,500,000 shares of Class A Common Stock at $0.49 per
share. Such shares are included in the above table.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) reports they file.
The Company believes, based solely on review of copies of such reports
furnished to the Company, that section 16(a) filing requirements applicable to a
portion of the options that were not subject to stockholder approval granted to
Company's officers and directors and consultants in May 1997 (Mulvena, Minkoff,
Riscica and Rosenthal) were delinquent until their filing in May 2000. Other
than this delinquency for options granted, the Company believes, based solely on
review of copies of such reports furnished to the Company, that Section 16(a)
filing requirements applicable to the Company's officers and directors and
greater than ten percent shareholders have been complied with during the last
fiscal year.
EXECUTIVE COMPENSATION
The following tables set forth certain information relating to
compensation paid or accrued by the Company for the past three fiscal years to
its Chief Executive Officer and its executive officers whose cash paid
compensation exceeded $100,000 for the year ended February 29, 2000 (the "Named
Executive Officers"). Only those columns which call for information applicable
to the Company or the Named Executive Officers for the periods indicated have
been included in such tables.
5
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Year Annual Compensation
Ended Compensation Options/
Name & Principal Position Feb. 28 Salary ($) Bonus ($) SAR (#)
------------------------- ------- ---------- --------- -------
<S> <C> <C> <C> <C>
Daniel Mulvena, Chairman of the 2000 $ 106,765 -- 1,300,000
Board, Chief Executive Officer 1999 $ 114,757 -- --
1998 $ 42,000 -- 250,000
Lawrence A. Minkoff, Ph.D., President
and Chief Scientific Officer 2000 $ 125,833(a) $ 100,000(a) 2,200,000
1999 $ 112,000 -- --
1998 $ 93,334(b) -- 150,000
</TABLE>
----------
(a) During the fiscal year ended February 29, 2000, Dr. Minkoff's salary was
adjusted from $112,000 per annum to $195,000 per annum and he was awarded
a performance bonus of $100,000 that was paid during May 2000.
(b) Net of approximately $18,666 due to Dr. Minkoff for services rendered and
forgiven by him under the Debt Reduction Program.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information with respect to options granted
during the last fiscal year to the Named Executive Officers of the Company.
Individual Grants
<TABLE>
<CAPTION>
% of Total
Options/SARs
Granted to Exercise or
Options/ Employees in Base Price
Name SARs Granted(#) Fiscal Year ($/share) Expiration Date
---- --------------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Daniel M. Mulvena 1,300,000(a) 26% $0.22 700,000 11/16/04
200,000 11/16/05
200,000 11/16/06
200,000 11/16/07
Lawrence A. Minkoff, Ph. D. 2,200,000(a) 46% $0.22 1,300,000 11/16/04
300,000 11/16/05
300,000 11/16/06
300,000 11/16/07
</TABLE>
-----------------
(a) All of which are subject to shareholder approval of an increase in the
options available under the Company's 1992 Stock Option Plan.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
The following table sets forth certain information with respect to stock
option exercises by the Named Executive Officers during the fiscal year ended
February 29, 2000 and the value of unexercised options held by them at the
fiscal year-ended February 29, 2000.
6
<PAGE>
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the Money
Shares Options/SARs at Options/SARs
Acquired F/Y End (#) at F/Y End ($)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable(1)
---- ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Daniel M. Mulvena 0 0 1,050,000/600,000 $169,200/$111,600
Lawrence A. Minkoff, Ph. D. 0 0 1,550,000/900,000 $280,800/$167,400
</TABLE>
---------------
(1) Based on a closing price of $0.406 per share of Class A Common Stock on
February 29, 2000, less the exercise price.
Employment Agreements
There are no employment agreements with any of the Company's employees.
Dr. Minkoff continued to receive compensation at the rate of compensation
indicated in his prior contract ($112,000 per year) until December 31, 1999 at
which time his annual compensation was increased to $195,000 and he received a
performance bonus of $100,000 in the fiscal year ended February 29, 2000 which
was paid in May 2000. Mr. Mulvena and Mr. Riscica provide services to the
Company based upon consulting agreements which call for payment based upon time
expended on the affairs of the Company. Mr. Mulvena and Mr. Riscica agree to
spend such time as is necessary to advance the affairs of the Company. Mr.
Perres is compensated based upon a base salary and incentive compensation
related to his efforts in raising capital for the Company. See "Certain
Relationships and Related Transactions."
Directors' Compensation
The Company does not presently pay cash compensation to its outside
Directors for attendance at Board or committee meetings. Outside Directors may
be reimbursed for expenses incurred by them in acting as a Director or as a
member of any committee of the Board of Directors.
During the fiscal year ended February 29, 2000, Mssrs. Feldman, Kanter and
Kessler were each granted options to purchase 75,000 shares, and Mr. Rosenthal
was granted an option to purchase 225,000 shares, at $0.22 prior to November 16,
2000. Such options are fully vested.
7
<PAGE>
CERTAIN TRANSACTIONS
Mr. Rosenthal is a senior partner in a law firm which provides legal
services to the Company from time to time. During the fiscal year ended February
29, 2000, such firm billed the Company approximately $103,000 principally
related to financing transactions.
In December 1999, the Company entered into a letter agreement with Noga
Investments in Technology Ltd. (successor in interests to Noga Electrotechnica
Limited, "Noga") pursuant to which Noga agreed to purchase $3,000,000 worth of
common stock at $0.22 per share payable in installments over a five month period
ending in May 2000. To secure its commitment, Noga paid $250,000 as a
non-refundable deposit. In January and February 2000, Noga purchased a total of
$500,000 worth of common stock toward its commitment. In May 2000, the agreement
was amended to permit Noga to purchase the balance of its commitment prior to
July 27, 2000 in exchange for an additional $100,000 paid by Noga to the Company
as an additional non-refundable deposit to secure the timely payment of the
balance ($2,150,000). If Noga fails to timely pay the balance, the Company is
entitled to keep the $350,000 in non-refundable deposits it has received and all
rights that Noga is entitled to under the letter agreement terminate. According
to the letter agreement, as amended, the Company agreed to provide Noga with an
option to purchase 3,500,000 shares of the Company's common stock at $0.02 per
share and an option, exercisable prior to July 27, 2000, to purchase the number
of additional shares that are necessary, at $0.22 per share, to satisfy the
requirements for listing of the Company's stock on the NASDAQ SmallCap market.
The Company also agreed that for a period of two years from the date of this
letter agreement, Noga has the right to nominate a number of directors to the
Company's board such that the total number of non-Noga nominated directors
exceeds the number of Noga-nominated directors by one. Mr. Feldman was
designated by Noga as its initial nominee. Additionally, the Company agreed that
any payment or withdrawal from the Company's bank account of at least $2,000
requires the approval of Mr. Feldman. In March 2000, the Company and Noga agreed
that Noga would not have the right to nominate any additional directors to the
Company's Board until its $3,000,000 financing commitment was completed. At the
completion of the funding commitment, Mr. Adereth will be Noga's second
designated director. The Company has agreed to hold meetings of its Board at
least once per month or at such intervals as is reasonably acceptable to the
Noga-nominated directors.
On July 27, 2000, in exchange for new investment undertakings by Noga, the
Company and Noga have agreed that Noga will provide the additional $2,150,000
under the original $3,000,000 commitment as follows: $750,000 on July 28, 2000,
$700,000 by September 15, 2000 and $700,000 by October 15, 2000. Upon completion
of the full $3,000,000 commitment, Noga will have purchased 13,363,363 shares of
Class A Common Stock. In addition, the July 27, 2000 agreement replaces Noga's
right to purchase such additional shares as would be necessary to satisfy
minimum capital requirements for listing on Nasdaq SmallCap with Noga's
commitment to purchase for $3,000,000, and with the commitment by an officer of
the Company (Mr. Perres, see below) to purchase for $2,000,000 (after a portion
is offered first to certain investors and management), an aggregate of
22,727,272 shares of Class A common stock of the Company ($0.22 per share).
Noga's $3,000,000 new investment is secured by a non-interest bearing note
payable to the Company and is to be paid as follows: $1,000,000 prior to
September 30, 2000 and the remaining $2,000,000 prior to October 31, 2000. As
Noga makes payments under the note, the Company will issue the proportionate
number of shares. The officer's new investment of $2,000,000 is required to be
paid by him (after a portion is offered first to current investors and
management) prior to September 30, 2000 and is secured by a note payable to the
Company. In addition, Noga has agreed to exercise its option to purchase 3.5
million shares of Class A common stock for $70,000 at the conclusion of their
initial financing commitment in October 2000 and the officer has agreed to
exercise his option to purchase 3.5 million shares for $70,000.
In December 1999, the Company entered into a letter agreement and an
amendment to the letter agreement with Mr. Perres, an officer of the Company, in
connection with Mr. Perres' assistance in raising financing for the Company in
its $2,000,000 private placement. Under the agreement, as amended, the Company
agreed to elect Mr. Kessler as a member of its Board to fill a vacancy. The
Company also agreed to nominate Mr. Perres as a director in the event that Mr.
Perres assists the Company in raising funds in excess of $2,000,000 in its
private placement. Upon completion of the private placement, Mr. Perres has
declined the Company's invitation to serve as a director. Additionally, the
Company has agreed that any increase in the size of its Board must be approved
by Messrs. Perres and Kessler so long as they are directors. Under the letter
agreement, as amended, the Company agreed to create an Executive Committee
consisting of Messrs. Kessler, Minkoff, and Mulvena. The Company agreed to pay
Mr. Perres
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for his services a base salary of $90,000 per year for two years (of which,
$164,000 has been paid) and to provide him with options to purchase 3,500,000
shares of the Company's common stock at $0.02 per share. In August 2000, Mr.
Perres was granted a discretionary bonus of $100,000 in cash.
Dr. Minkoff, a director and officer of the Company, was awarded a
performance bonus of $100,000 during fiscal year ended February 29, 2000 which
was paid during May 2000. See "Executive Compensation - Employment Agreements."
The Company pays consulting fees to Riscica Associates, Inc. in connection
with the services of Mr. Riscica for financial planning, control, mangement,
administrative and reporting services. Riscica Associates Inc. billed the
Company $61,550 for the fiscal year ended February 29, 2000 in connection with
such services.
The Company is currently negotiating a consulting agreement with Mr.
Jonathan Adereth, a director of the Company. As presently contemplated, Mr.
Adereth would provide various business strategy and development consulting
services in exchange for cash compensation in the amount of $3,500 per month
plus $500 per day spent on Company business when he is in the United States and
options to purchase 2,500,000 shares of Class A common stock at an exercise
price of $0.49.
Transactions between the Company and its directors, officers and principal
shareholders are approved by the disinterested directors of the Company and
determined to be on terms no less favorable than those available from
independent third parties.
2. APPROVAL OF AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF
CLASS A COMMON STOCK TO 100,000,000
The Board has unanimously adopted a resolution to submit to the
shareholders a proposal to amend the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Class A Common
Stock, par value $.001 per share, from 40,000,000 to 100,000,000. Approval of
such an amendment is necessary in order to ensure a continued adequate supply of
Class A Common Stock for future issuances, including for issuances in connection
with pending financing transactions and existing option grants.
The Company presently has 39,279,261 shares of Class A common stock and
408,821 shares of Class B common stock outstanding. An additional 47,431,817
shares of Class A common stock are issuable as follows: (i) 37,681,817 shares
upon satisfaction of the financing arrangements described under Certain
Transactions above (25,090,908 for Noga and 12,590,909 for Mr. Perres or other
investors, including options held by each of Noga and Mr. Perres to purchase
3,500,000 shares) and (ii) 9,750,000 shares upon exercise of outstanding options
(including options the grant of which is subject to shareholder approval as
provided in proposal #3 below). If all of the foregoing shares were issued, the
Company would have outstanding approximately 86,643,000 shares of Class A Common
stock, an excess of approximately 46,643,000 over the currently available
authorized amount. Without an increase in the authorized shares, the Company
would be unable to complete the raise of the additional capital that has been
committed or any further equity capital to support its business development
plans. Without such additional capital, the Company would need to significantly
alter its development plans.
In December 1999, when the Company first entered into the financing
arrangements described above under Certain Transactions, the Company was in need
of immediate funding. Management believed that it would not have been in the
best interests of the Company or its shareholders to postpone, and potentially
risk, the financings in order to first seek shareholder approval of the proposed
increase in authorized shares.
Approval of the proposed increase in authorized shares will generally
empower the directors of the Company to issue the additional shares without
first obtaining shareholder approval. Except as described herein, the Company
has no plans or proposals to use any portion of the additional shares that would
be made available upon adoption of the proposed amendment. The equity interests
of current shareholders will be significantly diluted upon the issuance of the
proposed additional authorized common stock, whether such issuance occurs in the
pending transactions or in the future transactions. In limited circumstances,
such as certain types of mergers and business combinations, shareholders would
be entitled, under New York law, to vote on transactions involving the issuance
of additional shares. The Company is not presently subject to the rules of a
securities exchange or association, such as Nasdaq, that require shareholder
approval prior to issuing securities in certain types of transactions.
In addition to the authorized common stock, the Company's Restated
Certificate of Incorporation authorizes the issuance of a maximum of 5,000,000
shares of preferred stock on terms which may be fixed by the Company's Board of
Directors without further shareholder action. The terms of any series of
preferred stock which may include priority claims to assets and dividends, and
special voting rights, could adversely affect the rights of holders of the
common stock. No preferred stock has been issued to date and the Company has no
current plans to issue such preferred stock. The issuance of such preferred
stock could make the possible takeover of the Company or the removal of
management of the Company more difficult, discourage hostile bids for control of
the Company in which shareholders may receive premiums for their shares of
common stock, or otherwise dilute the rights of holders of common stock. The
proposal to increase the authorized shares has not been submitted as a result of
or in response to any accumulation of stock or threatened takeover. The Company
has no present plans to implement measures having antitakeover effects following
adoption of the proposed amendment.
The full text of paragraph 1 of Article Third of the Company's Restated
Certificate of Incorporation is proposed to be amended in its entirety as
follows:
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"THIRD:
1. The aggregate number of shares which the Corporation shall have
the authority to issue is one hundred eight million seven hundred
fifty thousand (108,750,000), divided into three classes: (i) five
million (5,000,000) shares of preferred stock, $.01 par value per
share (the "Preferred Stock"), (ii) three million seven hundred
fifty thousand (3,750,000) shares of Class B common shares, $.001
par value per share (the "Class B Common Stock"), and (iii) one
hundred million shares of Class A common stock, $.001 par value per
share (the "Class A common stock")."
If the proposed amendment is approved, the additional shares of Class A
Common Stock of the Company shall entitle holders thereof to identical rights,
privileges and duties as present holders of the Company's Class A Common Stock.
The shares of Class A Common Stock do not have any preemptive rights with
respect to the issuance of Class A Common Stock of the Company.
Recommendation and Vote Required
The Board has approved the amendment to the Restated Certificate of
Incorporation. Adoption of the amendment requires the affirmative vote of the
holders of a majority of the voting power of the outstanding shares of Class A
Common Stock and Class B Common Stock. If it is adopted, the amendment will
become effective as soon after the Meeting as practicable upon filing of the
Certificate of Amendment to the Restated Certificate of Incorporation with the
Secretary of the State of New York.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
3. PROPOSAL TO AMEND THE COMPANY'S 1992 STOCK OPTION PLAN
The Board of Directors has adopted an amendment to the 1992 Stock Option
Plan, subject to the approval of shareholders pursuant to Section 22 of the
Plan, to increase the total number of shares of Class A Common Stock with
respect to which options and SARs may be granted thereunder to 14,000,000 shares
(the "Amendment"). The Amendment will enable the 1992 Stock Option Plan to
continue to achieve its purpose to retain and motivate the human resources of
the Company. At August 24, 2000, without the Amendment, no shares would be
available for grant under the Stock Option Plan. Options for an aggregate of
5,247,500 shares have been granted subject to shareholder approval of the
Amendment, including options for 1,371,774, 2,243,065, 1,021,532, 268,065,
75,000, 75,000 and 75,000 shares granted to Daniel M. Mulvena, Lawrence A.
Minkoff, Kenneth C. Riscica, Irwin M. Rosenthal, J. M. Feldman, Joel Kanter and
Seymour Kessler. In addition, the Company intends to grant Mr. Adereth options
to purchase 2,500,000 shares of Class A Common Stock, all of which would be
subject to shareholder approval of the Amendment.
In December 1992, the Directors of the Company adopted, and the
shareholders of the Company approved, the 1992 Stock Option Plan. The purpose of
the 1992 Stock Option Plan is to enable the Company to attract and retain
competent employees, to make service on the Board of Directors of the Company
more attractive to present and prospective non-employee directors and to provide
a means to encourage stock ownership and proprietary interest in the Company by
officers, non-employee directors and valued employees and other individuals upon
whose judgment, initiative, and efforts the financial success and growth of the
Company largely depend.
The complete text of the 1992 Stock Option Plan, as proposed to be amended
by the Amendment (which is reflected in Section 2(a) thereof), will be
furnished, upon request, without charge to each person whose proxy is being
solicited. The complete text of the Plan as amended at the 1994 Annual Meeting
of Shareholders was set forth in Exhibit A to the Proxy Statement for that
meeting. The following summary of material features of the 1992 Stock Option
Plan as proposed to be amended by the Amendment does not purport to be complete
and is qualified in its entirety by reference to the complete text of the 1992
Stock Option Plan.
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The 1992 Stock Option Plan may be administered by either the Board or a
committee (the "Committee") of two or more Directors appointed by the Board.
Members of the Committee must by "disinterested" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934. The Board or the
Committee, as the case may be, shall determine, among other things, the
recipients of grants, whether a grant will consist of incentive stock options
("ISOs"), non qualified stock options or SARs (in tandem with an option or
free-standing) or combination thereof, and the number of shares to be subject to
such options. In the event that a duly constituted Committee is not in existence
at any time the Board of Directors is to administer the 1992 Stock Option Plan.
Options designated as ISOs may be granted only to officers and key
employees and consultants of the Company. Directors who are not otherwise
employees of the Company shall not be eligible to be granted ISOs pursuant to
the Plan. SARs and options designated as non-qualified options may be granted to
(i) officers and key employees of the Company, or (ii) agents, medical advisors
and directors of and consultants to the Company, whether or not otherwise
employees of the Company.
In determining the eligibility of an individual to be granted an option or
SAR, as well as in determining the number of shares to be optioned to any
individual, the Board of Directors or the Committee shall take into account the
position and responsibilities of the individual being considered, the nature and
value to the Company of his or her services and accomplishments, his or her
present and potential contribution to the success of the Company and such other
factors as the Board of Directors or the Committee may deem relevant.
The 1992 Stock Option Plan provides for the granting of ISOs to purchase
the Company's Class A Common Stock at not less than the fair market value on the
date of the option grant and the granting of nonqualified options and SARs at
such price as shall be determined by the Board of Directors or the Committee.
SARs granted in tandem with an option have the same exercise price as the
related option. The closing bid price of the Class A Common Stock on the OTC
Bulletin Board on August 24, 2000 was $0.56. The 1992 Stock Option Plan contains
certain limitations applicable only to ISOs granted thereunder. To the extent
that the aggregate fair market value, as of the date of grant, of the shares to
which ISOs become exercisable for the first time by an optionee during the
calendar year exceeds $100,000, the portion of such option which is in excess of
the $100,000 limitation will be treated as a nonqualified option. In addition,
if an optionee owns more than 10% of the total voting power of all classes of
the Company's stock at the time the individual is granted an ISO, the option
price per share cannot be less than 110% of the fair market value per share and
the term of the ISO cannot exceed five years from the date of grant. No option
or SAR may be granted under the 1992 Stock Option Plan after ten years from the
effective date of the 1992 Stock Option Plan and no option or SAR may be
outstanding for more than ten years after its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash, by check or, under certain
circumstances, in shares of the Company's Class A or Class B Common Stock, or in
any combination thereof. The 1992 Stock Option Plan permits the Company to lend
to the holder of an option funds sufficient to pay the exercise price. SARs
which give the holder the privilege of surrendering such rights for the
appreciation in the Class A Common Stock between the time of the grant and the
surrender, may be settled, in the discretion of the Board or Committee, as the
case may be in cash, Class A Common Stock, or in any combination thereof. The
exercise of an SAR granted in tandem with an option cancels the option to which
it related with respect to the same number of shares as to which the SAR was
exercised. The exercise of an option cancels any related SAR with respect to the
same number of shares as to which the option was exercised. Generally, options
and SARs may be exercised while the recipient is performing services for the
Company and within three months after termination of such services provided the
term has not expired. In the event that the employment of an option holder
terminates due to death or disability, the option or SAR may generally be
exercised by the holder or the holder's beneficiary until twelve months after
termination of employment provided that the term of the option or SAR at such
time has not expired. In the event an option holder is terminated for cause or
for breach of an employment agreement, the option or SAR will terminate on the
date the holder ceases to perform services for the Company.
The 1992 Stock Option Plan may be terminated at any time by the Board of
Directors, which may also amend the 1992 Stock Option Plan, except that without
shareholder approval it may not increase the number of shares subject to the
1992 Stock Option Plan or change the class of persons eligible to receive
options and SARs under the 1992 Stock Option Plan.
Plan Benefits
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The specific future benefits or amounts to be received by executive
officers and employees under the 1992 Stock Option Plan as proposed to be
amended by the Amendment is not determinable. However, the following executive
officers, directors and consultants have received option grants which are
subject to the approval of the Amendment: Daniel M. Mulvena, (Chairman and CEO),
1,371,774 shares, Lawrence A. Minkoff (President, Chief Scientific Officer and
Director), 2,243,065 shares; Kenneth C. Riscica (Consultant), 1,021,532 shares;
Irwin M. Rosenthal (Director) 268,065 shares, J.M. Feldman (Director) 75,000
shares, Joel Kanter (Director) 75,000 shares, Seymour Kessler (Director) 75,000
shares. The exercise prices of the options granted to these individuals range
from $0.22 to $0.25 per share and such options expire at various times beginning
in May 2002 and ending in November 2007. All executive officers, directors and
consultants as a group and all other employees as a group (a "group" made up of
one consultant and one part-time administrative employee) received options for
5,247,500 shares and 75,000 shares, respectively, subject to shareholder
approval of the Amendment with the exercise price in all cases being between
$0.22 to $0.25 per share. For information on the options received during the
fiscal year ended February 29, 2000 by the Named Executive Officers and
directors, see the "Option/SAR Grants in Last Fiscal Year" table and "Directors
Compensation", above. No SARs have been granted under the 1992 Stock Option
Plan. In addition to the above, the Company is currently negotiating a
consulting agreement with Mr. Jonathan Adereth (Director) which contemplates his
being granted options to purchase 2,500,000 shares of Class A Common Stock at an
exercise price of $0.49 per share.
NEW PLAN BENEFITS TABLE
The following table sets forth, for the named executive, for executives and
executive consultants as a group, and for the non-executive director group the
new plan benefits which will accrue to these parties if the proposal to increase
the shares available under the Company's 1992 Stock Option Plan is approved. The
Company has no full time employees other than executive officers. The Dollar
Value is computed to be the difference between the exercise price of the
underlying option and the closing bid price on August 24, 2000 of $0.56.
Name and position Dollar Value ($) Number of Units
----------------- ---------------- ---------------
Daniel M. Mulvena, CEO $ 466,403 1,371,774
Lawrence A. Minkoff, Ph.D., President
and Chief Scientific Officer $ 762,642 2,243,065
Executive Group $1,601,886 4,711,371
Non-Executive Director Group $ 142,142 418,065
Non-Executive Officer Employee Group
(none) $ 25,500 75,000
Federal Income Tax Consequences
Neither the receipt nor the exercise of an ISO is a taxable event, and if
the optionee does not dispose of stock acquired under an ISO prior to the
expiration of the requisite holding periods, any gain resulting from the sale of
the stock is long term capital gain. In such case the Company is not entitled to
any tax deduction with respect to the grant or the exercise of the option.
However, the amount by which the fair market value of shares at the time of
exercise of the option exceeds the option price will constitute an item of tax
preference for purposes of the alternative minimum tax. The statutory holding
period is at least two years from the date the ISO is granted and one year from
the date the optionee receives his shares of Class A Common Stock pursuant to
the exercise. If the stock is disposed of before the end of the statutory
holding period, the lesser of the difference between the exercise price and the
fair market value of the stock on the date of exercise or the total amount of
gain realized on the sale must be reported by the optionee as ordinary income
and the Company is entitled to a tax deduction in that amount. The remaining
gain, if any, is taxed to the optionee as long or short term capital gain.
The receipt of a nonqualified stock option issued under the 1992 Stock
Option Plan will not result in any taxable income to the optionee or a tax
deduction to the Company at the time the option is granted. Generally, the
optionee will recognize ordinary income at the time the nonqualified stock
option is exercised in an amount equal to the excess of the fair market value on
the date of exercise of the shares received over the exercise price, and the
Company will be entitled to a tax deduction of an equal amount in the year the
optionee recognizes such income. The optionee will have a tax basis for his
shares equal to their fair market value at the time the optionee recognizes
ordinary income and any additional gain or loss recognized by the optionee on
disposition of the shares will
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generally be a short or long term capital gain or loss and will not result in
any additional tax deduction to the Company.
The holder of an SAR will not realize any taxable income upon the grant of
such right. The holder will realize ordinary income in the tax year in which
payment is realized in an amount equal to the amount of cash and/or the then
fair market value of the shares of Class A Common Stock received upon exercise,
and the Company will normally be entitled to a tax deduction for an equal amount
for the same year.
Further Information
To become effective, the Amendment requires the affirmative vote of a
majority of the outstanding voting power of the Company's Shares.
The Board recommends that the shareholders vote FOR the proposal to
approve the Amendment.
4. RATIFICATION OF THE INDEPENDENT AUDITORS
Rothstein Kass & Co., P. C. has served as the Company's independent
accountants for the fiscal years ended February 28, 1992 through 2000. The
Company has requested that a representative of Rothstein Kass & Company, P.C.
attend the Meeting. Such representative will have the opportunity to make a
statement, if he or she desires, and will be available to respond to appropriate
questions of shareholders.
The Board of Directors of the Company recommends a vote FOR the
ratification of Rothstein Kass & Company, P. C. as the independent auditors for
the Company.
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the Meeting. If, however, further business properly comes
before the Meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder
action at annual meetings in accordance with regulations adopted by the
Securities and Exchange Commission. To be considered for inclusion in the proxy
statement and form of proxy relating to the 2001 annual meeting, such proposals
must be received by the Company not later than March 6, 2001. Proposals should
be directed to the attention of the Secretary of the Company.
ANNUAL REPORT ON FORM 10-KSB
The Company has enclosed with this Proxy Statement to each person whose
proxy is being solicited a copy of the Company's annual report on Form 10-KSB
for the fiscal year ended February 29, 2000, including the financial statements,
but excluding the exhibits.
By order of the Board of Directors,
Daniel M. Mulvena
Chairman of the Board
Dated: September 5, 2000
