THE MED-DESIGN
CORPORATION
2810 Bunsen Avenue
Ventura, California 93003
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The
Med-Design Corporation (the "Company") will be held at The Union League, Broad
and Sansom Streets, Philadelphia, Pennsylvania, on Friday, July 30, 1999, at
1:00 p.m. local time, for the following purposes:
1. To elect eight directors of the Company to serve for the following
year, or until their successors have been elected and qualified.
2. To act upon a proposal to increase the shares in the Stock Option Plan
by 500,000 shares.
3. To act upon a proposal to issue warrants to certain officers and
directors of the Company for compensation and services rendered.
4. To act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants
for the fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
A proxy, if properly executed and received in time for the voting, will
be voted in the manner directed therein. If no direction is made, such proxy
will be voted FOR all proposals therein. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board of Directors has fixed June 1, 1999, as the record date for
determining stockholders entitled to notice of the Annual Meeting and to vote at
such adjournments thereof. Only stockholders of record as of the close of
business on June 1, 1999, are entitled to notice of, and to vote at, such
meeting or any adjournments thereof.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend, you are urged to complete, date and sign the enclosed proxy
and return it promptly. If you receive more than one form of proxy, it is an
indication that your shares are registered in more than one account, and each
such proxy must be completed and returned if you wish to vote all your shares
eligible to be voted at the Annual Meeting.
By Order of the Board of Directors
Joseph N. Bongiovanni, III, Secretary
Dated: June 7, 1999
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
<PAGE>
THE MED-DESIGN
CORPORATION
2810 Bunsen Avenue
Ventura, California 93003
----------------------
PROXY STATEMENT
----------------------
GENERAL
The enclosed proxy is solicited pursuant to this Proxy Statement to be mailed on
or about June 7, 1999 by the Board of Directors of The Med-Design Corporation, a
Delaware corporation [for use at the Annual Meeting of Stockholders (the "Annual
Meeting")] to be held at the time and place shown in the attached Notice of
Annual Meeting of Stockholders and at any adjournment or adjournments thereof.
The Company's telephone number is (805) 339-0375.
INFORMATION CONCERNING VOTING AND PROXIES
Proxies
Shares represented by proxies, if properly signed, dated and received in
time for the voting, will be voted at the Annual Meeting as specified, or, if
not otherwise specified, FOR the election as directors of the nominees named
herein and FOR each other proposal described in the attached Notice of Annual
Meeting of Stockholders. Such proxies are revocable at anytime before they are
exercised by written notice to the Secretary of the Company. Attendance at the
Annual Meeting will not, without delivery of the written notice described in the
immediately preceding sentence, constitute revocation of a proxy. Management is
not aware at the date hereof of any matter to be presented at the Annual Meeting
other than the election of directors and the other proposals described in the
attached Notice of Annual Meeting of Stockholders. If any other matter is
properly presented, the persons named in the proxy will vote thereon according
to their best judgement.
The expense of soliciting proxies for the Annual Meeting, including the
cost of preparing, assembling and mailing the notice, proxy and Proxy Statement,
will be paid by the Company. The solicitation will be made by directors,
officers and regular employees of the Company without additional compensation.
In addition, banks, brokers, and other nominees will be reimbursed for their
customary expenses incurred in connection with the forwarding of such materials.
The Company may employ an outside firm to assist in the solicitation of proxies
and the cost, if any, for such services will be paid by the Company. Proxies may
be solicited by personal interview, mail, telephone or facsimile transmission.
Record Date
The record date for determining the holders of the common stock, $.01 par
value per share, of the Company ("Common Stock"), the only voting class of
capital stock of the Company that is issued and outstanding, who are entitled to
notice of, and to vote at, the Annual Meeting is June 1, 1999.
Voting Securities
As of the close of business on April 29, 1999, there were 7,951,570
shares of Common Stock outstanding, each of which will entitle its holder to one
vote at the Annual Meeting. There is no cumulative voting.
1
<PAGE>
ITEM 1 - ELECTION OF DIRECTORS
At December 31, 1998, the Board of Directors consisted of eight persons,
James M. Donegan, John A. Botich, Joseph N. Bongiovanni, III, Gilbert M. White,
John F. Kelley, William A. Jolly, Pasquale L. Vallone and Vincent J. Papa. The
nominating committee, which has the task of nominating members for the Board,
has nominated Messrs. Donegan, Botich, Bongiovanni, White, Kelley, Jolly,
Vallone and Papa. The Stockholders are being asked to elect eight directors, who
will comprise the Board of Directors of the Company, to serve for the ensuing
year and until their successors are duly elected and qualified. All of the
nominees are currently directors of the Company. If elected, each nominee will
serve until the next annual meeting of stockholders of the Company or until his
successor is elected and qualified.
The persons named in the proxy intend to vote, unless otherwise
instructed, FOR the election as director of each nominee. Each nominee has
expressed his willingness to serve as a director if elected and the Company
knows of no reason why any nominee would be unable to serve. If any nominee is
not available for election at the time of the Annual Meeting, however, the proxy
holders may vote for any other person in their discretion or may refrain from
electing or voting to elect anyone to fill the position. The directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 10, 1999, certain information
with respect to the beneficial ownership of Common Stock by each person known to
the Company to own beneficially five percent or more of the outstanding Common
Stock (the only voting class outstanding), by each director, and by all officers
and directors as a group.
<TABLE>
<CAPTION>
Number of Shares Percent of Class
Name and Address (1) Beneficially Owned (2) Beneficially Owned
- -------------------- ---------------------- ------------------
<S> <C> <C>
James M. Donegan................................. 1,394,865(3) 17.27%
Thor R. Halseth.................................. 426,546(4) 5.36%
Michael J. Botich................................ 361,822(4) 4.54%
John A. Botich................................... 266,134(5) 3.34%
Joseph N. Bongiovanni, III....................... 122,000(6) 1.51%
Gilbert M. White................................. 178,250(7) 2.22%
2
<PAGE>
John F. Kelley................................... 703,750(8) 8.16%
William A. Jolly................................. 24,000(9) *
Pasquale L. Vallone.............................. 91,026
Vincent J. Papa.................................. 0
Hathaway & Associates, Ltd....................... 477,000(10) 6.00%
*
All Directors and Officers as a Group (13 persons) 3,603,193(11) 39.95%
</TABLE>
- ----------
*Less than one percent (1%)
3
<PAGE>
(1) Unless otherwise indicated, the address of each named holder is c/o The
Med-Design Corporation, 2810 Bunsen Avenue, Ventura, California 93003.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting on
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within sixty (60) days of April
10, 1999, are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the person named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
(3) Includes 1,600 shares of Common Stock held by Mr. Donegan as custodian for
Derek Donegan, his son, under Pennsylvania Uniform Gifts to Minor Act and
warrants to purchase 125,000 shares of Common Stock. The warrants are
included in Item 4 to be approved by shareholder vote.
(4) Includes options to purchase 10,800 shares of Common Stock granted pursuant
to the Compan's Option Plan.
(5) Includes 5,446 shares of Common Stock owned by Mr. Botich's spouse, Nina
Dominguez and Jacqueline Treguboff as joint tenants and options to purchase
15,600 shares of Common Stock granted pursuant to the Option Plan.
(6) Includes Options to purchase 12,000 shares of Common Stock granted pursuant
to the Companys Option Plan and warrants granted to purchase 100,000 shares
of Common Stock. The warrants are included in Item 4 to be approved by
shareholder vote.
(7) Includes 1,400 shares of Common Stock held by Mr. Whites spouse, options to
purchase 13,600 shares of Common Stock granted pursuant to the Option Plan
and warrants to purchase 50,000 shares of Common Stock. The warrants are
included in Item 4 to be approved by shareholder vote.
(8) Includes options to purchase 48,000 shares of Common Stock pursuant to the
Companys Option Plan, warrants to purchase 550,000 shares of the Companys
Common Stock granted by the Company and $100,000 in convertible debenture
bonds with the rights to convert to 80,000 shares of common stock. The
warrants are included in Item 4 to be approved by shareholder vote.
(9) Includes options to purchase 20,000 shares of Common Stock pursuant to the
Companys Option Plan.
(10) Based on a Schedule 13G filed with the Securities and Exchange Commission
on January 31, 1997 by Hathaway & Associates, Ltd., whose address is 119
Rowayton Avenue, Rowayton, CT 06853.
(11) Includes options, warrants and convertible notes to purchase 1,068,600
shares of Common Stock granted to directors and officers of the Company.
4
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Identification and Business Experience
The following table sets forth the names and certain information about
each of the nominees for election as a director of the Company and the executive
officers of the Company.
<TABLE>
<CAPTION>
Director/
Name Age Position(s) Officer Since
- ---- --- ----------- -------------
<S> <C> <C> <C>
James M. Donegan (3) 48 Chairman of the Board, Chief Executive 1994
Officer and President
John A. Botich 75 Director 1994
Lawrence D. Ellis 48 Vice President, Chief Financial Officer 1996
Joseph N. Bongiovanni, III (3) 55 Vice President, Secretary and Director 1994
Gilbert M. White (2) 63 Director 1994
Michael J. Botich 51 Senior Vice President, Research and 1994
Development
Thor R. Halseth 46 Senior Vice President, Design 1994
Donald M. Shea 63 Vice President, Manufacturing and 1994
Automation Engineering
John F. Kelley (3) 55 Director 1995
William A. Jolly 45 Director 1997
Pasquale L. Vallone (1)(2)(3) 71 Director 1998
Vincent J. Papa (1)(2)(3) 49 Director 1998
</TABLE>
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Nominating Committee of the Board of Directors
There are no family relationships among any of the Directors, executive
officers and significant employees of the Company, other than John A. Botich and
Michael J. Botich, who are father and son.
Mr. Donegan is the Chairman of the Board of Directors of the Company and
is the Chief Executive Officer and President of the Company. From 1991 to 1995,
Mr. Donegan served as the marketing executive for the Structured Investment
Division of Chase Manhattan Bank and most recently as the Managing Director of
Chase Futures Management, Inc.
Mr. Botich is a director of the Company. From 1995 to 1997, Mr. Botich
served as Executive Vice President and Chief Operating Officer of the Company.
From 1990 to 1995, Mr. Botich served as the Chief Executive Officer of
Med-Design, Inc., the predecessor of the Company.
Mr. Ellis is the Company's Vice President, and Chief Financial Officer.
From 1991 to 1995 Mr. Ellis served as Controller for Phonotics, Inc., a company
engaged in the research and development and manufacturing of fiber optic test
equipment. In addition to Controller and Treasurer experience, Mr. Ellis has six
years of public accounting experience with Ernst & Young, LLP.
5
<PAGE>
Mr. Bongiovanni is a director and is a Vice President and the Secretary
of the Company. Since 1978, Mr. Bongiovanni has been the senior partner of the
law firm Bongiovanni & Berger.
Mr. White is a director and was an Executive Vice President of the
Company. Prior to joining the Company in 1995, Mr. White had been a Senior Vice
President of Rollins Hudig Hall, a large international insurance firm, where he
designed, marketed and serviced complex insurance programs for large national
and international clients since 1984.
Mr. Botich is the Senior Vice President, Research and Development of the
Company, from 1990 to 1995, Mr. Botich was the Senior Vice President of MDI,
where he assisted in developing, engineering and designing the Company's safety
needle technology.
Mr. Halseth is the Company's Senior Vice President, Design. From 1990 to
1995, Mr. Halseth served as President and Director of Design for MDI, where he
assisted in developing, engineering and designing the Company's safety needle
technology. In addition, Mr. Halseth was a Senior Product Designer for
Designworks U.S.A. from 1984 to 1995, where he directed and implemented the
design of new and innovative products from the concept phase through models,
prototypes and final product configuration. In addition, he was the principal
designer of various products for the automotive, electronics, computer,
recreational and consumer products industries.
Mr. Shea is the Vice President, Manufacturing and Automation Engineering
of the Company. From October, 1992, to 1995, Mr. Shea was the owner of Cimarron
Automation Services, a manufacturing consulting firm, where he provided
consulting services to MDI and other companies for the planning of manufacturing
processes and automated assembly systems.
Mr. Kelley is a director of the Company. Since January, 1996, Mr. Kelley
has been engaged in consulting services as an independent contractor. From 1988
to January, 1996, Mr. Kelley was employed by Chase Manhattan Bank where he
served as the President and a director of Chase Manhattan Futures Corporation,
the President of Chase Futures Management Inc., and the President of Chase
Futures Advisors Inc.
Mr. Jolly is a Director of the Company. Since 1996, Mr. Jolly has served
as a partner of Fine Equities, Inc., a New York Investment Bank. From 1994 to
1996, he served as Vice President Worldwide Consumer Products, Asia-Pacific
Region, for Scott Worldwide, Inc., where he was responsible for consumer
products operation in 16 countries with 2,000 employees. The Company has
previously retained Fine Equities, Inc. for investment banking services and may
do so in the future.
Mr. Vallone is a Director of the Company. Mr. Vallone is a consultant for
U.S. Aviation Underwriters, Inc. Mr. Vallone served in the underwriting and
technical areas at U.S. Aviation Underwriters for 50 years, until his retirement
in June, 1997.
Mr. Papa is a Director of the Company. Mr. Papa is the Managing Director
and General Counsel for P.M.G. Capital Corp., a wholly owned affiliate of the
Pennsylvania Merchant Group, where he has been since 1995. Prior to joining
P.M.G., Mr. Papa was counsel for the Metallgesellschaft Group. The Company has
previously retained P.M.G. for investment banking services and may do so in the
future.
The Board of Directors, William A. Jolly dissenting except for himself,
recommends that stockholders vote FOR the election of Messrs. Donegan, Botich,
Bongiovanni, White, Kelley, Jolly, Vallone and Papa.
6
<PAGE>
Board Committees and Meetings
The Board of Directors has an Audit Committee, a Compensation Committee
and a Nominating Committee. The Audit Committee has the authority and duty to
recommend to the Board the auditors to be engaged as the Company's independent
public accountants and to review the scope and results of the audit and other
services provided by the Company's independent accountants and to take such
other action as it deems appropriate to insure the appropriate safeguarding of
the Company's assets and appropriate accounting of its assets and liabilities.
The Compensation Committee has all powers of and the authority to exercise all
duties of the Board in matters relating to executive compensation and
administration of all stock option and other employee benefit plans of the
Company, subject to the terms of such plans. The Nominating Committee has the
authority and duty to nominate directors of the Company to fill vacancies and to
nominate directors of the Company's various subsidiaries, with such nomination
to be approved by the Board in each case.
During the fiscal year ended December 31,1998, twelve meetings of the
Board of Directors were held, at which all directors were present. The Audit
Committee and the Compensation Committee each held one meeting during the fiscal
year ended December 31,1998. The Nominating Committee did not meet during the
fiscal year ended December 31, 1998. Its functions, however, were performed by
the Board as a whole. No Director who was a Director or member of a committee
during 1998 attended fewer than 75% of the Board meetings or committee meetings
held during fiscal year 1998.
ITEM 2 - INCREASE SHARES IN THE STOCK OPTION PLAN
The Company issued options to each of its outside Directors to purchase
16,000 shares of stock pursuant to the terms of the Company's Employee Stock
Option Plan as compensation for their services as directors for the year 1999.
Options with respect to the purchase of 16,000 shares were given on June 3, 1998
to each of William Jolly, Vincent Papa, Pasquale Vallone, Gilbert White, John
Botich and John Kelley at an exercise price of $0.81per share, the market price
on the date of issue. The options are valid for five years from the date of
issuance. Issuance of these options exceeded the shares present in the pool
previously approved by the shareholders.
While the issuance of said options is a valid corporate action, the
Company is now informed that options granted to Officers and Directors must
either be part of the authorization under a shareholder approved plan, as
requested herein, or otherwise be approved as separate grants apart from the
plan in order to comply with NASDAQ listing requirement.
The Company now seeks approval to increase the options authorized under
the Plan by an additional 500,000 shares to a total of 1,000,000 shares, to
provide sufficient authorized option shares to cover the grant of the above
options, to enable future grants to outside directors, to provide a continuing
pool for incentives for Officers and employees.
The Board of Directors recommends that stockholders vote FOR the increase
shares in the Stock Option Plan.
7
<PAGE>
ITEM 3 - ISSUE WARRANTS TO CERTAIN OFFICERS AND DIRECTORS
In addition to the option grants proposed to be included in an increased
pool under the Company's Plan proposed above, the Company, through its
Compensation Committee comprised of outside disinterested Directors, and/or the
majority of the Board with any Director receiving a warrant not voting
previously issued Warrants, as described below, to Officers and Directors for
services performed which were deemed by said Committee to be fair and reasonable
compensation for said services. Pursuant to the advise of the Company's current
advisors, the issuance of said Warrants, though valid and enforceable corporate
action of the Company, require shareholder approval pursuant to pertinent
listing requirements of NASDAQ. Absent shareholder approval, in order to
maintain its listing, the Company will be required to cancel said Warrants and
negotiate a cash equivalent settlement with the Warrant holders. Such actions
are not deemed fiscally prudent by management. Therefore, management seeks
explicit shareholder approval of the Warrants described below, the grant of
which had been disclosed on a timely basis in the Company's reports filed with
the Securities and Exchange Commission.
John F. Kelley was issued a Warrant to purchase 100,000 shares at an
exercise price of $7.50 on March 19, 1997 when the closing price was $8.50 as
sole compensation for consulting services for the year 1996. This Warrant was
repriced pursuant to action by the Board of Directors on January 14, 1998 to
$2.88.
John F. Kelley was issued a Warrant to purchase 100,000 shares at an
exercise price of $5.44 on October 10, 1997 as sole compensation for consulting
services for the year 1997. This Warrant was repriced pursuant to action by the
Board of Directors on January 14, 1998 to $2.88.
John F. Kelley was issued a Warrant for 100,000 shares on 1/14/98 at the
exercise price of $2.88 per share for consulting services for the year 1998.
John F. Kelley was issued a Warrant for 200,000 shares on 9/9/98 at the
exercise price of $1.25 per share for negotiating the Becton Dickinson
Agreement.
John F. Kelley was issued a Warrant for 50,000 shares on 1/21/99 at the
exercise price of $3.25 per share for consulting services for the year 1999.
Gilbert M. White was issued a Warrant for 50,000 shares on 1/14/98 at the
exercise price of $2.88 per share as an exit package upon his retirement as
Officer and relinquishment of his employment contract upon the Company's
consolidation to California.
James M. Donegan was granted a Warrant for 25,000 shares on 2/14/97 at
the exercise price of $3.25 per share as part of his 1996 compensation package.
James M. Donegan was granted a Warrant for 100,000 shares on 3/5/99 at the
exercise price of $3.94 per share as part of his 1999 compensation package.
The law firm Bongiovanni & Berger received a Warrant for 100,000 shares
on 3/5/99 at the exercise price of $3.94 per share as compensation for
professional services, use of its offices and secretarial staff, storage and
maintenance of corporate files and records, use of conference room and its
services as the Company's registered Philadelphia office.
The Board of Directors, William A. Jolly dissenting, recommends that
stockholders vote FOR the issuance of Warrants to certain Officers and
Directors.
ITEM 4 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected, subject to the stockholders'
approval, PricewaterhouseCoopers LLP, as independent accountants, to audit the
financial statements of the Company for the fiscal year ending December 31,
1999. PricewaterhouseCoopers LLP, was the Company's independent accountants for
the fiscal year ended December 31, 1998. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting and
will have an opportunity to make a statement if he or she desires to do so and
to answer appropriate questions with respect to that firm's examination of the
Company's financial statements and records for the fiscal year ended December
31, 1998.
Vote Required for Approval of Independent Accountant
Under Delaware law, the affirmative vote of a majority of the votes cast
by the holders of the Company's shares present in person or represented by proxy
and entitled to vote at the Annual Meeting is required to approve the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants. Under Delaware law abstentions are counted in determining the
number of votes cast and, thus, will have the effect of a vote against the
proposal. Under Delaware law, a broker non-vote will not be counted in
determining the number of votes cast and, thus, will have no effect on the
outcome of the vote.
8
<PAGE>
The Board of Directors recommends that stockholders vote FOR the approval
of the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants.
EXECUTIVE COMPENSATION
Compensation Table
The following table set forth information on the annual compensation of
the Chief Executive Officer whose salary exceeded $100,000 for the fiscal year
ended December 31, 1998 for service rendered in all capacities during the fiscal
year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Position Year Salary
- --------------------------- ---- ------
<S> <C> <C>
James M. Donegan 1998 185,000
Chairman of the Board, Chief Executive Officer and President . . . . . 1997 182,692
</TABLE>
Compensation of Directors
The Independent Directors receive $500 per meeting attended and annually
receive options to purchase 16,000 shares of Common Stock pursuant to the Plan
as compensation for services on the Board of Directors and any committees
thereof. No other directors receive cash or other compensation for services on
the Board of Directors or any committee thereof. All directors are entitled to
reimbursement for reasonable expenses incurred in the performance of their
duties as Board members.
Employment Agreements
On April 5, 1995, the Company entered into an employment agreement with
James M. Donegan, as Chief Executive Officer and President, for an initial term
of five years. The agreement provided for a base compensation of $160,000 for
the first year and bonuses and additional compensation as may be determined by
the Board of Directors in its sole discretion. The Board of Directors may also
in its sole discretion increase such base compensation, bonuses and additional
compensation in each subsequent year. The agreement may be terminated for cause
and contains a non-competition provision extending for three years after
termination of employment. For the fiscal year ending December 31, 1998, Mr.
Donegan's base compensation was increased to $185,000, and was increased to
$225,000 in 1999.
8
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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 ("ten-percent holders") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors, and ten-percent holders are required
by regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that, during the fiscal year ended December 31,
1998, all Section 16(a) filing requirements applicable to its officers,
directors, and ten- percent holders were satisfied, except: Mr. Donegan filed a
report with regard to a transaction after the due date. Mr. Michael Botich filed
a report with regard to a transaction after the due date. Mr. Halseth filed a
report with regard to a transaction after the due date
CERTAIN TRANSACTIONS WITH MANAGEMENT,
BOARD MEMBERS AND PROMOTERS
James M. Donegan, Chairman of the Board, Chief Executive Officer,
pursuant to action by the Board of Directors, was granted a warrant to purchase
100,000 shares of the Company's common stock at $3.94 on March 5, 1999 as
compensation. The warrant is included in Item 4 to be approved by shareholder
vote.
Joseph N. Bongiovanni, III, the senior partner of the law firm
Bongiovanni & Berger, is a director, Vice President and Secretary of the
company. During the fiscal year ended December 31, 1998, Bongiovanni & Berger
received $81,737 for legal services billed to the Company in 1998.
On March 5, 1999, pursuant to action by the Board of Directors, the law
firm Bongiovanni & Berger was granted a warrant to purchase 100,000 shares of
the Company's common stock at $3.94. The warrant is included in Item 4 to be
approved by shareholder vote.
John F. Kelley, a director of the Company, performed consulting services
to the Company during 1998 by evaluating and negotiating strategic alliances on
behalf of the Company as well as provided substantial ongoing administrative
support functions, for which the Company issued to Mr. Kelley warrants on March
19, 1997 to purchase 100,000 shares of Common Stock at an exercise price of
$7.50. On March 19, 1997, the closing price of the Common Stock was $8.50. In
addition, the Company issued to Mr. Kelley warrants to purchase 100,000 shares
of the Company's common stock on each of October 10, 1997 and January 14, 1998.
The exercise prices of these warrants was $5.44 and $2.88, respectively, per
share. On October 10, 1997 the exercise price of the stock option issued to Mr.
Kelley on June 3, 1996, was reset, pursuant to the action of the Board of
Directors, to $4.50 per share. Further, on January 14, 1998, the exercise price
of the warrants issued to Mr. Kelley on March 19, 1997 and October 10, 1997 were
reset, pursuant to the action of the Board of Directors, to $2.88 per share. The
warrants are included in Item 4 to be approved by shareholder vote.
9
<PAGE>
On August 25, 1998, pursuant to action by the Board of Directors, Mr.
Kelley was appointed Chief Negotiator for the Company and on September 9, 1998
entered into an agreement in which the Company granted a warrant for 200,000
shares of common stock at $1.25 conditional upon the signing of an agreement
with a potential strategic partner. The warrant is included in Item 4 to be
approved by shareholder vote. This condition was met and the warrant became
effective.
In June 1998, Mr. Kelley participated in the private placement of
$1,550,000 of the Company's convertible debentures. Mr. Kelley purchased
$100,000 of convertible debentures which bear an interest rate of 4% and are
convertible into the Companys common stock at a price of $1.25.
On January 21, 1999, pursuant to action by the Board of Directors, the
Company approved a consulting agreement with Mr. Kelley. Under the consulting
agreement Mr. Kelley is paid $220,000, $100,000 in signing bonus and $10,000 per
month, and a warrant to purchase 50,000 shares of the Companys common stock at
$3.25. The warrant is included in Item 4 to be approved by shareholder vote.
Suitable terms for the consulting agreement have not yet been agreed to by the
parties.
William A. Jolly, a director of the Company, is a partner of Fine
Equities, Inc. ("Fine"). Fine was engaged by the Company to serve as the
placement agent for a private placement of $5,000,000 of the Company's Common
Stock (which was consummated on January 23, 1997), for which it received fees
and a reimbursement of expenses approximating $345,000, together with warrants
("Warrants") to purchase 100,000 shares of Common Stock at an exercise price of
$5.50 per share. Fine assigned Warrants to Mr. Jolly to purchase 5,000 shares of
Common Stock.
Gilbert M. White, a director of the Company, resigned as an officer of
the Company on January 30, 1998. In connection with Mr. White's resignation, on
January 14, 1998, the Company granted to Mr. White warrants to purchase 50,000
shares of the Company's stock at an exercise price of $2.88 per share as well as
executed a consulting agreement with Mr. White whereby Mr. White shall provide
insurance-related consulting services to the Company for a one year period at an
hourly rate of $125.00 and a maximum payment to Mr. White of $65,000. The
warrant is included in Item 4 to be approved by shareholder vote. The consulting
contract was not renewed in 1999.
John A. Botich, a director of the Company, resigned as an officer of the
Company on July 31, 1997. In connection with Mr. Botich's retirement, the
Company executed a consulting agreement with him for a six month period, whereby
Mr. Botich would advise the Company on operational issues. In consideration for
these services, Mr. Botich has been paid $50,000. The consulting agreement has
continued to be renewed with compensation increased to $65,000 at January 31,
1999.
10
<PAGE>
Pasquale L. Vallone, a director of the Company, entered into an agreement
to lend the Company $250,000 on May 29, 1998. The loan is unsecured for a period
of 1 year with interest at prime rate. The loan is callable upon change of
control of the Company, the signing of any significant licensing or joint
venture agreement or any refinancing of the Company in excess of $500,000. As a
further condition of the loan, the Company also agreed to issue 33,000 shares of
common stock which is earned ratably over the period of 1 year that the full
amount of the loan remains outstanding.
Vincent J. Papa, a director of the Company, is the Managing Director and
General Counsel for P.M.G. Capital Corp., a wholly owned affiliate of the
Pennsylvania Merchant Group. Pennsylvania Merchant Group was engaged by the
Company to serve as placement agent of $1,550,000 of the Companys convertible
debentures (which was consummated on June 29th and July 22nd of 1998), for which
it received fees and a reimbursement of expense approximating $76,000.
STOCKHOLDER PROPOSALS
Any stockholder proposal to be presented at the Annual Meeting of the
Stockholders to be held in 2000 must be received by the Company on or before
December 31, 1999 in order to be included in the Proxy Statement relating to the
meeting. If a stockholder does not seek to have a proposal included in the Proxy
Statement, but nevertheless wishes to present a proper proposal at the Annual
Meeting of the Stockholders, and the proposal is received by the Company on or
before March 15, 2000, the Company will provide information in the Proxy
Statement relating to that meeting as to the nature of the proposal and how
persons named in the proxy solicited by the Board of Directors intend to
exercise their discretion to vote on the matter.
By Order of the Board of Directors
Dated: June 7, 1999 Joseph N. Bongiovanni, III
Secretary
11
