SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRELIMINARY PROXY STATEMENT
PURSUANT TO SECTION 14A OF THE SECURITIES EXCHANGE ACT OF 1934
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[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
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BIOCONTROL TECHNOLOGY, INC.
(Name of Registrant as Specified in its Charter)
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PRELIMINARY
BIOCONTROL TECHNOLOGY, INC. 300 Indian Springs Road
Indiana, PA 15701 Telephone 412-349-1811
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 30, 1998
The Annual Meeting (the "Annual Meeting") of Stockholders of Biocontrol
Technology, Inc., a Pennsylvania corporation (the "Company"), will be held at
the Holiday Inn, Indiana, Pennsylvania, on December 30, 1998 at 9:00 a.m., local
time, for the following purposes:
1. To amend the Company's Articles of Incorporation, as amended, to
increase the number of authorized shares to 900,000,000, as set forth
in the Proxy Statement.
2. To elect members to the Board of Directors, as set forth in the Proxy
Statement.
By Order of the Board of Directors
___________________________________
David E. Staudenmaier, Secretary
Date: __________________
PLEASE NOTE: ONLY BONA FIDE STOCKHOLDERS WILL BE ADMITTED TO THE ANNUAL
SHAREHOLDERS MEETING; PHOTO IDENTIFICATION AND PROOF OF OWNERSHIP AS OF THE
RECORD DATE WILL BE REQUIRED FOR ADMITTANCE.
Those stockholders who are unable to attend the Annual Meeting in person are
respectfully urged to indicate their choices, execute and return the enclosed
proxy card at their earliest convenience to Proxy Tabulation Dept., Chase
Mellon Shareholder Services, 450 West 33rd Street, 15th Floor, New York, New
York 10001. Promptness in returning the enclosed proxy card will be
appreciated. Proxies must be returned no later than ________________. Proxies
may be revoked by the Stockholder before it is voted at the Annual Meeting by
either: written notice to the Secretary, by submission of a Proxy bearing a
later date, or by attending the Annual Meeting and voting in person.
Biocontrol Technology, Inc.
The Bourse, Building 2500, Second Floor
2275 Swallow Hill Road | Pittsburgh, PA 15220
(412) 429-0673 Fax: (412) 279-1367
PRELIMINARY
BIOCONTROL TECHNOLOGY, INC.
The approximate mailing date of this Proxy Statement is November 30, 1998
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
December 30, 1998
The accompanying proxy and copy of Annual Report on Form 10-K is furnished
by Biocontrol Technology, Inc. (the "Company") in connection with the
solicitation of proxies by the Board of Directors on all matters and may be
revoked by the Shareholder at any time before it is voted by giving written
notice to the Secretary of the Company or by executing and delivering a proxy
with a later date. The expense of this solicitation is to be borne by the
Company, and the Company will reimburse persons holding stock in their name or
in the names of their nominees for the expenses incurred in sending proxies
and proxy materials to their principals.
The Company had outstanding __________ shares of common stock, par value $.10
per share, as of October_____ , 1998, the date for determining the security
holders of record entitled to vote at the meeting (the "Record Date"). Each
share of common stock is entitled to one vote in all matters brought before the
Shareholders, without cumulative voting.
DESCRIPTION OF SECURITIES
BICO's authorized capital currently consists of 600,000,000 shares of common
stock, par value $.10 per share and 500,000 shares of cumulative preferred
stock, par value $10.00 per share. As of November ___ , 1998, there were
________________ shares of common stock and _______ shares of preferred stock
outstanding. In addition, there were $_______________ of the Company's 4%
Convertible Debentures outstanding as of November _____, 1998.
Preferred Stock
The Articles of Incorporation of BICO authorize the issuance of a maximum of
500,000 shares of non-voting cumulative convertible preferred stock, and
authorize the Board of Directors of BICO to divide such class of preferred
stock into series and to fix and determine the relative rights and preferences
of the shares.
As of November____, 1998, the Company had ____________ outstanding shares of
preferred stock.
Common Stock
All outstanding shares of the Company's common stock are fully paid and
nonassessable. All shares of common stock to be received by holders will be
fully paid and nonassessable. All the shares of common stock will be equal to
each other with respect to liquidation rights and dividend rights and there are
no preemptive rights to purchase any additional shares of common stock.
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of shareholders, but are not entitled to cumulate their
votes in the election of directors. Accordingly, the holders of over 50% of the
outstanding common stock voting for the election of directors, could elect the
entire slate of the Board of Directors of BICO, and the holders of the
remaining common stock would not be able to elect any member to the Board of
Directors.As of November ___, 1998, there were _____________ shares of common
stock outstanding.
In the event of liquidation or dissolution of BICO, holders of the common stock
are entitled to receive on a pro rata basis all assets of BICO remaining after
satisfaction of all liabilities including liquidation preferences granted to
holders of the preferred stock of BICO.
Convertible Debentures
As of November____, 1998, the Company had outstanding $____________ in
Convertible Debentures, which are due between __________, 1999 and
_________, 1999.
Dividends
The Company has not paid cash dividends on its common stock or preferred stock
(with the exception of a cash dividend on its preferred stock in 1983, and a
common stock dividend on its preferred stock in 1988) since its inception, and
cash dividends are not presently contemplated at any time in the foreseeable
future. The Company anticipates that any excess funds generated from
operations in the foreseeable future will be used for working capital and for
investment in research and new product development, rather than to pay
dividends.
In accordance with the Company's Articles of Incorporation, cash dividends are
restricted under certain circumstances. Holders of common stock are entitled
to cash dividends only when and if declared by the Board of Directors out of
funds legally available for payment thereof. Any such dividends are subject to
the prior right of holders of the Company's preferred stock to receive any
accrued but unpaid dividends. Further, common stock dividends may be paid only
to the extent the net assets of BICO exceed the liquidation preference of any
outstanding preferred stock.
Employment Agreement Provisions Related to Changes in Control
BICO has entered into agreements (the "Agreements") with Fred E. Cooper, David
L. Purdy, Anthony J. Feola, Glenn Keeling, and two non-executive officer
employees. The Agreements provide that in the event of a "change of control"
of BICO, BICO is required to issue to Mr. Cooper and Mr. Purdy shares of common
stock equal to five percent (5%), to issue to Mr. Feola four percent (4%), to
issue Mr. Keeling three percent (3%), and to issue the two non-executive
officer employees two percent (2%) each of the outstanding shares of common
stock of the Company immediately after the change in control. In general, a
"change of control" is deemed to occur for purposes of the Agreement: (i) when
20% or more of BICO's outstanding voting stock is acquired by any person, (ii)
when one-third (1/3) or more of BICO's directors are not Continuing Directors
(as defined in the Agreements), or (iii) when a controlling influence over the
management or policies of BICO is exercised by any person or by persons acting
as a group within the meaning of Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
Warrants
As of November____, 1998, there were outstanding warrants to purchase ________
shares of the Company's common stock at exercise prices of between $0.25 and
$4.03 per share. These warrants are held by members of the Company's
Scientific Advisory Board, certain employees, officers, directors, loan
guarantors, lenders and consultants.
The holders of warrants are not entitled to vote, to receive dividends or to
exercise any of the rights of the holders of shares of common stock for any
purpose until such warrants have been duly exercised and payment of the
exercise price has been made.
Voting Procedures
Each share of common stock outstanding as of the Record Date is entitled to one
vote on each matter submitted to the stockholders for a vote at the Annual
Meeting. The matter submitted to a vote at the meeting will be decided by
the vote of a majority of all votes cast in person or by proxy at the meeting.
Abstentions will be treated as shares present and entitled to vote for purposes
of determining the presence of a quorum, but will not be considered as votes
cast in determining whether a matter has been approved by the stockholders. If
a broker or other record holder or nominee indicates on a proxy that it does
not have authority as to certain shares to vote on a particular matter
(commonly referred to as "broker non-votes"), those shares will not be
considered as present and entitled to vote with respect to that matter.
Transfer Agent
Chase-Mellon Shareholder Services in New York, New York acts as the Company's
Registrar and Transfer Agent for its common and preferred stock. The Company
acts as its own warrant transfer agent.
DIRECTORS AND EXECUTIVE OFFICERS
Director
Name Age Since Position
David L. Purdy 70 1972 President, Chairman of the
Board, Treasurer, Director
Fred E. Cooper 52 1989 Chief Executive
Officer, Executive
Vice President, Director
Anthony J. Feola 50 1990 Senior Vice President, Director
Glenn Keeling 47 1991 Vice President, Director
Stan Cottrell 55 1998 Director
Paul W. Stagg 51 1998 Director
______________________________
DAVID L. PURDY, 70 is President, Chairman of the Board, Treasurer and a
director of the Company. Mr. Purdy has been a director and Chairman of the
Board since its organization in 1972 and is considered the organizer and
founder of the Company; he devotes 60% of his time to the business of the
Company, and 40% of his time to Diasense. He has also served as President of
the Company from 1972 through December 1990, with the exception of five months
in 1980, when he served as Chairman and full-time Program Director of the
Company's implantable medicine dispensing device program with St. Jude Medical,
Inc., and from October 1, 1987 through July 15, 1988, when he served as
Chairman and Director of Research and Development for the Company. Prior to
founding the Company, he was employed by various companies in the medical
technology field, including Arco Medical, Inc. Mr. Purdy is also an officer and
director of Diasense and Coraflex.
FRED E. COOPER, 52, is the Chief Executive Officer, Executive Vice President
and a director of the Company; he devotes approximately 60% of his time to the
business of the Company, and 40% to Diasense. Prior to joining the Company,
Mr. Cooper co-founded Equitable Financial Management, Inc. of Pittsburgh, PA, a
company in which he served as Executive Vice President until his resignation
and divestiture of ownership in August 1990. In 1972, Mr. Cooper founded
Cooper Leasing Corp., Pittsburgh, Pennsylvania, a company specializing in
equipment and venture financing. Mr. Cooper was appointed Chief Executive
Officer in January 1990. He is also an officer and director of Diasense and
Barnacle Ban, and a director of Petrol Rem and Coraflex.
ANTHONY J. FEOLA, 50, rejoined the Company as its Senior Vice President in
April, 1994, after serving as Diasense's Vice President of Marketing and Sales
from January, 1992 until April, 1994. Prior to January, 1992, he was the
Company's Vice President of Marketing and Sales. Prior to joining the Company
in November 1989, Mr. Feola was Vice President and Chief Operating Officer with
Gateway Broadcasting in Pittsburgh in 1989, and National Sales Manager for
Westinghouse Corporation, also in Pittsburgh, from 1980 until 1989. He was
elected a director of the Company in February 1990, and also serves as a
director of Diasense, Coraflex, Petrol Rem and Barnacle Ban.
GLENN KEELING, 47, joined the Board of Directors in April 1991. Mr. Keeling
currently is a full-time employee of BICO in the position of Vice President of
Marketing; his primary responsibilities during 1994 through 1997 have been the
management and operation of IDT's Whole-Body Extracorporeal Hyperthermia
project. From 1976 through 1991, he was a Vice President in charge of new
business development at Equitable Financial Management, Inc., a regional
equipment lessor. His responsibilities included initial contacts with banks
and investment firms to open new lines of business referrals in connection with
financing large equipment transactions. He is also President and a director of
IDT.
STAN COTTRELL, 55, was appointed to the Board of Directors in 1998. Mr.
Cottrell is the Chairman and Founder of Cottrell Associates International,
Inc., which provides international business development, brokerage, specialty
marketing and promotional services. He is a former director of marketing for
Inhalation Therapy Services and was employed by Boehringer Ingelheim , Ltd. as
a national product manager. Mr. Cottrell is a world ultra- distance runner and
the author of several books.
PAUL W. STAGG, 51, was appointed to the Board of Directors in 1998. Mr. Stagg
is the marketing manager for the Wholesale Division of First Financial
Resources, Inc., where he is responsible for marketing, underwriting, sorting
and coordinating various types of financing for institutional investors. Prior
to his current position, he was District Distributor of Marketing for Ginger
Mae, a division of United Companies of Baton Rouge, LA.
Pursuant to the disclosure requirements of Item 405 of Regulation S-K regarding
timely filings required by Section 16(a) of the Securities and Exchange Act,
the Company represents the following. Based solely on its review of copies of
forms received and written representations from certain reporting persons, the
Company believes that all of its officers, directors and greater than ten
percent beneficial owners complied with applicable filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Relationships
The Board of Directors of the Company approved employment agreements on
November 1, 1994 for its officers, David L. Purdy, Fred E. Cooper, Anthony J.
Feola and Glenn Keeling (See "Employment Agreements").
David L. Purdy, President, Treasurer and a director of the Company, is a
director of Diasense and Coraflex. He is also the chairman and Chief
Scientist of Diasense, and the President and Treasurer of Coraflex. Mr. Purdy
devotes 60% of his time to BICO, and 40% to Diasense. In addition to his
salary paid by BICO, Mr. Purdy was paid $87,500 and $100,000 by Diasense in
1997 and 1996, respectively. Fred E. Cooper, Chief Executive Officer,
Executive Vice President and a director of the Company, is a director of
Diasense, Coraflex, Petrol Rem, and Barnacle Ban. He is also the President of
Diasense, and Barnacle Ban. Mr. Cooper devotes approximately 60% of his time
to BICO and 40% to Diasense. In addition to his salary and bonus paid by BICO,
he was paid $150,000 by Diasense in 1996 and 1997. Anthony J. Feola, Senior
Vice President and a director of the Company, is also a director of Diasense,
Coraflex, Petrol Rem, and Barnacle Ban. Glenn Keeling, Vice President and a
director of the Company, was employed on January 1, 1992 as BICO's manager of
product development. Mr. Keeling is also the President and a director of IDT.
Gary Keeling, the brother of Glenn Keeling, resigned as an officer and director
of Diasense in August, 1997.
Property
Three of the Company's current executive officers and/or directors and two
former directors of the Company are members of the nine-member 300 Indian
Springs Road Real Estate Partnership (the "Partnership") which in July 1990,
purchased the Company's real estate in Indiana, Pennsylvania, and each has
personally guaranteed the payment of lease obligations to the bank providing
the funding. The five members of the Partnership who are also current or
former officers and/or directors of the Company, David L. Purdy, Fred E.
Cooper, Glenn Keeling, Jack H. Onorato and C. Terry Adkins, each received
warrants on June 29, 1990 to purchase 100,000 shares of the Company's common
stock at an exercise price of $.33 per share until June 29, 1995 (those
warrants still outstanding as of the original expiration date were extended
until June 29, 1999). Mr. Adkins, who was a director at the time of the
transaction, resigned from the Board of Directors on March 30, 1992. Mr.
Keeling, who was not a director at the time of the transaction, joined the Board
of Directors on May 3, 1991. Mr. Onorato, who was not a director at the time
of the transaction, was a BICO director from September 1992 until April 1994.
In all instances where warrants were issued in connection with the transactions
set forth above, the exercise price of the warrants was equal to or above the
current quoted market price of the Company's common stock on the date of
issuance.
In April 1992, Diasense purchased an office condominium located at the Bourse
Office Park, Virginia Manor, Building 2500, Second Floor, Pittsburgh,
Pennsylvania 15220 for $190,000. The Company has entered into a lease with
Diasense and pays rent in the amount of $3,544 per month, plus one-half of the
utilities.
Warrants
The following paragraphs, along with the notes to the financial statements,
include disclosure of the warrants which were granted to executive officers and
directors of the Company from 1995 through 1997. These warrants were accounted
for in accordance with Accounting Principles Board Opinion 25 (based on the
spread, if any, between the exercise price and the quoted market price of the
stock on the date that the warrants were granted). No value was recorded for
these warrants since they were all granted at exercise prices which were equal
to or above the current quoted market price of the stock on the date issued
(See, Note J to the Financial Statements). In 1995 and 1996, the Company
extended warrants granted in 1990 and 1991, which were scheduled to expire in
1995 and 1996, until 1998-2000. Because the exercise price of the warrants,
which remained unchanged, was less than the market price of the common stock on
the dates of the extensions, charges were made against operations (See,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", and Note J to the Financial Statements).
On August 26, 1996, the Board of Directors approved the granting of warrants to
purchase 100,000 shares of common stock at $1.48 per share to Glenn Keeling, an
officer and director of the Company.
Loans
On October 1, 1990, the Board of Directors approved a $75,000 loan from the
Company to Fred E. Cooper. Mr. Cooper signed a promissory note promising to
pay the principal amount plus twelve percent (12%) simple interest. Mr. Cooper
repaid $66,500 of the $75,000 principal balance during 1991. During 1991, the
Company granted loans to Fred E. Cooper in the aggregate amount of $57,400.
Mr. Cooper signed promissory notes promising to pay the principal amounts upon
demand plus ten percent (10%) simple interest. In January 1992, the Company
granted a loan to Fred E. Cooper in the amount of $25,000. Mr. Cooper signed a
promissory note promising to pay the principal amount upon demand plus ten
percent (10%) simple interest. In 1997, the Companies granted loans to Fred E.
Cooper aggregating $158,000; Mr. Cooper signed promissory notes promising to
pay the principal amounts upon demand plus 8.25% simple interest. In 1998,
the Company granted loans to Fred E. Cooper aggregating $275,000; Mr. Cooper
signed a promissory note promising to pay the principal amount upon demand plus
8.25% simple interest. Except for the joint liability set forth below, the
aggregate balance of the loans as of October 31, 1998, including accrued
interest, was $_______.
In November 1997, the Companies granted a loan to Anthony J. Feola in the
amount of $50,000. Mr. Feola signed a promissory note promising to pay the
principal amount upon demand plus 8.25% simple interest. In February 1998, the
Company granted a loan to Anthony J. Feola in the amount of $185,000. Mr.
Feola signed a promissory note promising to pay the principal upon demand plus
8.25% simple interest. Except for the joint liability set forth below, the
aggregate balance of the loans as of October 31, 1998, including accrued
interest, was $________.
In December 1991, the Company granted a loan to Glenn Keeling in the amount of
$5,000. Mr. Keeling signed a Promissory Note promising to pay the principal
amount upon demand plus ten percent (10%) simple interest. In December 1996,
the Company granted a loan to Glenn Keeling in the amount of $50,000. Mr.
Keeling signed a promissory note promising to pay the principal amounts upon
demand plus 8.25% simple interest. In November, 1997, the Company granted a
loan to Glenn Keeling in the amount of $20,000. Mr. Keeling signed a
promissory note promising to pay the principal upon demand plus 8.25% simple
interest. In February 1998, the Company granted a loan to Glenn Keeling in the
amount of $190,000. Mr. Keeling signed a promissory note promising to pay the
principal upon demand plus 8.25% simple interest. Except for the joint
liability set forth below, the aggregate balance of the loans as of October 31,
1998, including accrued interest, was $_______.
In September 1995, the Company granted a loan in the amount of $250,000 to
Allegheny Food Services in the form of a one-year renewable note bearing
interest at prime rate as reported by the Wall Street Journal plus one percent
1%). Interest and principal payments have been made on the note, and as of
November ____, 1998, the balance was $_________. Joseph Kondisko, a former
director of Diasense, is a principal owner of Allegheny Food Services.
Each of the loans made to officers or directors and their affiliates was made
for a bona fide business purpose. All future loans to officers, directors and
their affiliates will be made for bona fide business purposes only.
Intercompany Agreements
Management of the Company believes that the agreements between BICO and
Diasense, which are summarized below, were based upon terms which were as
favorable as those which may have been available in comparable transactions
with third parties. However no unaffiliated third party was retained to
determine independently the fairness of such transactions.
License and Marketing Agreement. Diasense acquired the exclusive marketing
rights for the Noninvasive Glucose Sensor and related products and services
from BICO in August 1989 in exchange for 8,000,000 shares of its common stock.
That agreement was canceled pursuant to a Cancellation Agreement dated November
18, 1991, and superseded by a Purchase Agreement dated November 18, 1991. The
Cancellation Agreement provides that BICO will retain the 8,000,000 shares of
Diasense common stock which BICO received pursuant to the License and Marketing
Agreement.
Purchase Agreement. BICO and Diasense entered into a Purchase Agreement dated
November 18, 1991 whereby BICO conveyed to Diasense its entire right, title and
interest in the Noninvasive Glucose Sensor and its development, including its
extensive knowledge, technology and proprietary information. Such conveyance
includes BICO's patent received in December 1991.
In consideration of the conveyance of its entire right in the Noninvasive
Glucose Sensor and its development, BICO received $2,000,000. In addition,
Diasense may endeavor, at its own expense, to obtain patents on other
inventions relating to the Noninvasive Glucose Sensor. Diasense also
guaranteed BICO the right to use such patented technology in the development of
BICO's proposed implantable closed-loop system, a related system in the early
stages of development.
In December 1992, BICO and Diasense executed an amendment to the Purchase
Agreement which clarified terms of the Purchase Agreement. The amendment
defines "Sensors" to include all devices for the noninvasive detection of
analytes in mammals or in other biological materials. In addition, the
amendment provides for a royalty to be paid to Diasense in connection with any
sales by BICO of its proposed closed-loop system.
Research and Development ("R&D") Agreement. Diasense and BICO entered into an
agreement dated January 20, 1992 in connection with the research and
development of the Noninvasive Glucose Sensor. Pursuant to the agreement, BICO
will continue the development of the Noninvasive Glucose Sensor, including the
fabrication of prototypes, the performance of clinical trials, and the
submission to the FDA of all necessary applications in order to obtain market
approval for the Noninvasive Glucose Sensor. BICO will also manufacture the
models of the Noninvasive Glucose Sensor to be delivered to Diasense for sale
(See, "Manufacturing Agreement"). Upon the delivery of the completed models,
the research and development phase of the Noninvasive Glucose Sensor will be
deemed complete.
Diasense has agreed to pay BICO $100,000 per month for indirect costs beginning
April 1, 1992, during the 15 year term of the agreement, plus all direct costs,
including labor. BICO also received a first right of refusal for any program
undertaken to develop, refine or improve the Noninvasive Glucose Sensor, and
for the development of other related products. In July 1995, BICO and Diasense
agreed to suspend billings, accruals of amounts due and payments pursuant to
the R&D Agreement pending the FDA's review of the Sensor.
Manufacturing Agreement. BICO and Diasense entered into an agreement dated
January 20, 1992, whereby BICO will act as the exclusive manufacturer of the
Noninvasive Glucose Sensor and other related products. Diasense will provide
BICO with purchase orders for the products and will endeavor to provide
projections of future quantities needed. The original Manufacturing Agreement
called for the products to be manufactured and sold at a price to be determined
in accordance with the following formula: Cost of Goods (including actual or
275% of overhead, whichever is lower) plus a fee of 30% of Cost of Goods. In
July 1994, the formula was amended to be as follows: Costs of Goods Sold
(defined as BICO's aggregate cost of materials, labor and associated
manufacturing overhead) + a fee equal to one third (1/3) of the difference
between the Cost of Goods Sold and Diasense's sales price of each Sensor.
Diasense's sales price of each Sensor is defined as the price paid by any
purchaser, whether retail or wholesale, directly to Diasense for each Sensor.
Subject to certain restrictions, BICO may assign its manufacturing rights to a
subcontractor with Diasense's written approval. The term of the agreement is
fifteen years.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1997, 1996 and 1995, of those persons who were, at December
31, 1997 (i) the Chief Executive Officer, and (ii) the other most highly
compensated executive officers of the Company whose remuneration exceeded
$100,000 (the "Named Executives").
SUMMARY COMPENSATION TABLE
==============================================================================
Annual Compensation | (1)Long Term Compensation
- ------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal (2) | Underlying (2) All other
Position Year Salary($) Bonus($) Other($) | Warrants(#) Compensation
==============================================================================
David L. |
Purdy , 1997 $154,167 $0 $0 | 0 $0
President, 1996 $300,000 $0 $0 | 0 $0
Treasurer (4) 1995 $300,000 $0 $0 | 820,000 (3) $0
- ------------------------------------------------------------------------------
Fred E. 1997 $442,000 $0 $0 | 0 $0
Cooper, 1996 $442,000 $0 $0 | 0 $0
CEO (5) 1995 $330,000 $0 $0 | 575,000 (3) $0
- ------------------------------------------------------------------------------
Anthony J. 1997 $300,000 $0 $0 | 0 $0
Feola , Sr. 1996 $300,000 $0 $0 | 350,000 (3) $0
Vice Pres.(6) 1995 $250,000 $93,125 $0 | 200,000 (3) $0
- ------------------------------------------------------------------------------
Glenn 1997 $200,000 $0 $0 | 0 $0
Keeling, VP 1996 $200,000 $0 $0 | 100,000 (8) $0
(7) 1995 $175,000 $0 $0 | 0 $0
==============================================================================
(1) The Company does not currently have a Long-Term Incentive Plan ("LTIP"),
and no payouts were made pursuant to any LTIP during the years 1997, 1996,
or 1995. The Company did not award any restricted stock to the Named
Executives during any year, including the years 1997, 1996 or 1995. The
Company did not award any warrants, options or Stock Appreciation Rights
("SARs") to the Named Executives during the years ended December 31, 1997,
1996 or 1995; however, the Company did extend warrants owned by the Named
Executives, which would have expired during 1995 and 1996 (See Note 3,
below). The Company has no retirement, pension or profit-sharing programs
for the benefit of its directors, officers or other employees.
(2) During the year ended December 31, 1997, the Named Executives received
medical benefits under the Company's group insurance policy, including
disability and life insurance benefits. The aggregate amount of all
perquisite compensation was less than 10% of the total annual salary and
bonus reported for each Named Executive.
(3) During 1995 and 1996, the Company extended warrants previously issued to
the Named Executives which would have otherwise expired. Although the
extensions were in connection with warrants already held by the Named
Executives, they are shown in the table set forth above as "awards" for
executive compensation disclosure purposes because at the time of the
extension, the exercise price of the warrants (which remained unchanged)
was less than the "market price" of the common stock.
(4) In November, 1994, Mr. Purdy's employment agreement was renegotiated to
provide for an annual salary of $250,000 effective November 1, 1994
through October 31, 1999. All other terms of the contract remained
substantially the same (See, "Employment Agreements"). During 1995, Mr.
Purdy's salary was increased by $50,000. In 1997, 1996 and 1995, Mr.
Purdy was paid $87,500; $100,000 and $100,000 by Diasense.
(5) In November, 1994, Mr. Cooper's employment agreement was renegotiated to
provide for an annual salary of $250,000 effective November 1, 1994
through October 31, 1999. All other terms of the contract remained
substantially the same (See, "Employment Agreements"). In addition, in
1997, 1996 and 1995, Mr. Cooper was paid $96,000; $96,000; and $40,000
respectively by both Petrol Rem and IDT, both of which are subsidiaries of
BICO. In 1997, 1996, and 1995, Mr. Cooper was paid $150,000 in salary by
Diasense.
(6) In April, 1994, Mr. Feola's employment agreement with Diasense was
assigned to BICO when he left Diasense to rejoin BICO as its Senior Vice
President. In November, 1994, Mr. Feola's employment agreement was
renegotiated, provides for an annual salary of $200,000 and is effective
November 1, 1994 through October 31, 1999. All other terms of the
contract remained substantially the same (See, "Employment Agreements").
During 1996 and 1995, Mr. Feola's salary was increased by $50,000 per
year.
(7) In November, 1994, Mr. Keeling entered into an employment agreement with
the Company which provides for an annual salary of $150,000 effective
November 1, 1994 through October 31, 1999 (See, "Employment Agreements").
During 1996 and 1995, Mr. Keeling's salary was increased by $25,000 per
year.
(8) On August 26, 1996, Mr. Keeling was granted warrants to purchase 100,000
shares of the Company s common stock at a price of $1.48 per share (the
market price as of that date) until August 26, 2001.
Option/Warrant/SAR Grants in Last Fiscal Year
No options, warrants or SARs were granted or extended to the Named Executives
during 1997.
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/WARRANT/SAR VALUE TABLE
=========================================================================
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs 12/31/97 ($)
at 12/31/97 (#)
Shares Value
Acquired on Realized ($) Exercisable Exercisable/
Exercise (2) Unexercisable(3) Unexercisable (4)
Name (#)(1)
- -------------------------------------------------------------------------------
David L. 52,800 $ 8,239 767,200 $ 0
Purdy (5) (6) (7) (13)
- -------------------------------------------------------------------------------
Fred E. 100,000 $33,440 300,000 $ 0
Cooper (8) (9) (10) (13)
- -------------------------------------------------------------------------------
Anthony J. 0 $ 0 550,000 $ 0
Feola (11) (13)
- -------------------------------------------------------------------------------
Glenn 0 $ 0 100,000 $ 0
Keeling (12) (13)
===============================================================================
__________________
(1) This figure represents the number of shares of common stock acquired by
each named executive officer upon the exercise of warrants.
(2) The value realized of the warrants exercised was computed by determining
the spread between the market value of the underlying securities at the
time of exercise minus the exercise price of the warrant.
(3) All warrants held by the Named Executives are currently exercisable.
(4) The value of unexercised warrants was computed by subtracting the exercise
price of the outstanding warrants from the closing sales price of the
Company's common stock on December 31, 1997 as reported by Nasdaq
($.1875).
(5) During the year ended December 31, 1997, Mr. Purdy exercised warrants to
purchase 52,800 shares of common stock at $.25 per share.
(6) The closing sales price as reported by Nasdaq on May 1, 1997, the date of
the warrant exercise set forth in note (5) was $.406 per share.
(7) Includes warrants to purchase: 187,200 shares of common stock at $.25 per
share until April 24, 1995 (extended until April 24, 1998); 500,000 shares
of common stock at $.25 per share until May 1, 1995 (extended until May 1,
1998); and 80,000 shares of common stock at $.33 per share until June 29,
1995 (extended until June 29, 1998) (See, "Warrants").
(8) During year ended December 31, 1997, Mr. Cooper exercised warrants to
purchase 100,000 shares of common stock at $.25 per share.
(9) The closing sales price as reported by Nasdaq on April 21, 1997, the date
of the warrant exercise set forth in note (8), was $.594.
(10) Includes warrants to purchase: 300,000 shares of common stock at $.25 per
share until May 1, 1995 (extended until May 1, 1998) (See, "Warrants").
(11) Includes warrants to purchase: 100,000 shares of common stock at $.25 per
share until May 1, 1995 (extended until May 1, 1998); 100,000 shares of
common stock at $.25 per share until November 26, 1995 (extended until
November 26, 1998); and 350,000 shares of common stock at $.50 per share
until October 11, 1996 (extended until October 11, 1999) (See,
"Warrants").
(12) Includes warrants to purchase: 100,000 shares of common stock at $1.48 per
share until August 26, 2001.
(13) Because the market price as of December 31, 1997 was less than the
exercise price of the warrants, such warrants were not in-the-money .
Employment Agreements
BICO has entered into employment agreements (the "Agreements") with its Named
Executives Fred E. Cooper, David L. Purdy, Anthony J. Feola and Glenn Keeling
effective November 1, 1994, pursuant to which they are currently entitled to
receive annual salaries of $250,000, $300,000, $300,000 and $200,000
respectively, which are subject to review and adjustment. The initial term of
the Agreements with Messrs. Cooper and Purdy expires on October 31, 1999, and
continues thereafter for additional three-year terms unless any of the parties
give proper notice of non-renewal. The initial term of the Agreements with
Messrs. Feola and Keeling expires on October 31, 1999, and continues thereafter
for additional two-year terms unless either of the parties give proper notice
of non- renewal. The Agreements also provide that in the event of a "change of
control" of BICO, BICO is required to issue the following shares of common
stock, represented by a percentage of the outstanding shares of common stock of
the Company immediately after the change in control: five percent (5%) to Mr.
Cooper and Mr. Purdy; four percent (4%) to Mr. Feola; and three percent (3%) to
Mr. Keeling. In general, a "change of control" is deemed to occur for purposes
of the Agreements (i) when 20% or more of BICO's outstanding voting stock is
acquired by any person, (ii) when one-third (1/3) or more of BICO's directors
are not Continuing Directors (as defined in the Agreement), or (iii) when a
controlling influence over the management or policies of BICO is exercised by
any person or by persons acting as a group within the meaning of Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In addition, in the event of a change in control within the term of the
Agreements or within one year thereafter, Messrs. Cooper, Purdy, Feola and
Keeling are entitled to receive severance payments in amounts equal to: 100% of
their most recent annual salary for the first three years following
termination; 50% of their most recent annual salary for the next two years; and
25% of their most recent salary for the next five years. BICO is also required
to continue medical insurance coverage for Messrs. Cooper, Purdy, Feola and
Keeling and their families during such periods. Such severance payments will
terminate in the event of the employee's death.
In the event that either Mr. Purdy or Mr. Cooper becomes disabled, as defined
in their Agreements, he will be entitled to the following payments, in lieu of
salary, such payments to be reduced by any amount paid directly to him pursuant
to a disability insurance policy provided by the Company or its affiliates:
100% of his most recent annual salary for the first three years; and 70% of his
most recent salary for the next two years. In the event that either Mr. Feola
or Mr. Keeling becomes disabled, as defined in their Agreements, he will be
entitled to the following payments, in lieu of salary, such payments to be
reduced by any amount paid directly to him pursuant to a disability insurance
policy provided by the Company or its affiliates: 100% of his most recent
annual salary for the first year; and 70% of his most recent salary for the
second year.
The Agreements also generally restrict the disclosure of certain confidential
information obtained by Messrs. Cooper, Purdy, Feola and Keeling during the
term of the Agreements and restricts them from competing with BICO for a eriod
of one year in specified states following the expiration or termination of the
Agreements.
In addition to the Employment Agreements described above, BICO also entered
into employment agreements with two of its non-executive officer employees
effective November 1, 1994. The terms of such agreements are similar to those
described for Messrs. Feola and Keeling above, with the following amendments:
the term of one agreement is from November 1, 1994 through October 31, 2002,
and is renewable for successive two-year terms; the term of the other agreement
is from November 1, 1994 through October 31, 1999, and is renewable for
successive two-year terms; in the event of a "change in control", BICO is
required to issue both employees shares of common stock equal to two percent
(2%) of the outstanding shares of the common stock of the Company immediately
after the change in control.
REPORT ON EXECUTIVE OFFICER COMPENSATION
The Company had no Compensation Committee which determined executive
compensation for 1997. The Company is discussing the formation of a
Compensation Committee made up of its outside directors. During 1997,
the Named Executive Officers' salaries were determined by their employment
contracts, which are negotiated and approved by the Board of Directors. Raises
in salaries and bonuses are recommended by the CEO and approved by the Board of
Directors. The CEO bases his recommendations on a number of subjective factors
which include each executive officer's scope of responsibility and
accountability within the Company, and each individual's performance and
service to the Company.
Deductibility of Executive Compensation Expense Under Federal Tax Laws
When awarding compensation to its executives, the Board of Directors has
considered the impact of recently enacted provisions of the Internal Revenue
Code of 1986, as amended, that in certain circumstances disallow compensation
deductions in excess of $1 million for any year with respect to the Company's
Named Executives ("Section 162(m)"). While the Company does not expect that
these provisions will limit its tax deductions for executive compensation in
the near term, in the future, the Board may determine to adopt a compensation
program which does not satisfy the conditions of Section 162(m) if in the
Board's judgment, after considering the additional costs of not satisfying
Section 162(m), such program is appropriate.
Submitted by the Board of Directors as of December 31, 1997
David L. Purdy
Fred E. Cooper
Anthony J. Feola
Glenn Keeling
Compare 5-Year Cumulative Total Return Among Biocontrol Technology ("BICO"),
Market Index and SIC Code Index
NOTE: the comparative chart will be included in the final proxy materials,
but was unavailable at the time of the filing of the preliminary materials.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the indicated information as of September 30,
1998 with respect to each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding common
stock, each director of the Company, and all directors and executive officers
of the Company as a group. The table excludes disclosure of entities such as
Cede & Co. and other companies which would reflect the ownership of entities
who hold stock on behalf of shareholders.
As of September 30, 1998, there were 398,302,428 shares of the Company's common
stock outstanding. The first column sets forth the common stock currently
owned by each person or group, excluding currently exercisable warrants for the
purchase of common stock. The second column sets forth the percentage of the
total number of shares of common stock outstanding as of September 30, 1998
owned by each person or group, excluding exercisable warrants. The third
column sets forth the total number of shares of common stock which each named
person or group has the right to acquire, through the exercise of warrants,
within sixty (60) days, plus common stock currently owned. The fourth column
sets forth the percentage of the total number of shares of common stock
outstanding as of September 30, 1998 which would be owned by each named person
or group upon the exercise of all of the warrants held by such person or group
together with common stock currently owned, as set forth in the third column.
Except as otherwise indicated, each person has the sole power to vote and
dispose of each of the shares listed in the columns opposite his name.
Amount and Nature Percent of
Name and Address of of Beneficial Percent of Ownership with Class with
Beneficial Owner Ownership(1) Class (2) Warrants (3) Warrants(4)
David L. Purdy (5) 160,000 * 927,200(6) *
300 Indian Springs Road
Indiana, PA 15701
Fred E. Cooper 776,200 * 1,076,200(7) *
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
Anthony J. Feola 354,000 * 904,000(8) *
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
Glenn Keeling 138,500 * 238,500(9) *
200 Julrich Drive
McMurray, PA 15317
All directors and 1,428,700 * 3,145,900(10) *
executive officers
as a group (4 persons)
* Less than one percent
________________________
(1) Excludes currently exercisable warrants set forth in the third column and
detailed in the footnotes below.
(2) Represents current common stock owned by each person, as set forth in the
first column, excluding currently exercisable warrants, as a percentage of
the total number of shares of common stock outstanding as of December 31,
1997.
(3) Includes ownership of all shares of common stock which each named person
or group has the right to acquire, through the exercise of warrants,
within sixty (60) days, together with the common stock currently owned.
(4) Represents total number of shares of common stock owned by each person, as
set forth in the third column, which each named person or group has the
right to acquire, through the exercise of warrants within sixty (60) days,
together with common stock currently owned, as a percentage of the total
number of shares of common stock outstanding as of December 31, 1997. For
computation purposes, the total number of shares of common stock
outstanding as of December 31, 1997 has been increased by the number of
additional shares which would be outstanding if the person or group owned
the number of shares set forth in the third column.
(5) Does not include shares held by Mr. Purdy's spouse or adult children. Mr.
Purdy disclaims any beneficial interest to shares held by members of his
family.
(6) Includes currently exercisable warrants to purchase the following: 187,200
shares of common stock at $.25 per share until April 24, 1995 (extended
until April 24, 1998); 80,000 shares of common stock at $.33 per share
until June 29, 1995 (extended until June 29, 1998); and 500,000 shares of
common stock at $.25 per share until May 1, 1995 (extended until May 1,
1998) pursuant to Mr. Purdy's previous employment agreement. In addition,
Mr. Purdy is entitled to certain shares of Common Stock upon a change of
control of BICO as defined in his employment agreement (See, "Employment
Agreements").
(7) Includes currently exercisable warrants to purchase the following: 300,000
shares of common stock at $.25 per share until May 1, 1995 (extended until
May 1, 1998) pursuant to Mr. Cooper's previous employment agreement. In
addition, Mr. Cooper is entitled to certain shares of Common Stock upon a
change of control of BICO as defined in his employment agreement (See,
"Employment Agreements").
(8) Includes currently exercisable warrants to purchase the following:
100,000 shares of common stock at $.25 per share until November 26, 1995
(extended until November 26, 1998); 100,000 shares of common stock at $.25
per share until May 1, 1995 (extended until May 1, 1998) pursuant to Mr.
Feola's previous employment agreement; and 350,000 shares of common stock
at $.50 per share until October 11, 1996 (extended until October 11,
1999). In addition, Mr. Feola is entitled to certain shares of Common
Stock upon a change of control of BICO as defined in his employment
agreement (See, "Employment Agreements").
(9) Includes currently exercisable warrants to purchase 100,000 shares of
common stock at $1.48 per share until August 26, 2001. In addition, Mr.
Keeling is entitled to certain shares of Common Stock upon a change of
control of BICO as defined in his employment agreement (See, "Employment
Agreements").
(10) Includes shares of common stock, including stock currently owned,
available under currently exercisable warrants as set forth above.
FINANCIAL AND OTHER INFORMATION
For additional information, including Financial Information, Financial
Statements and corresponding notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, please review the Company's Form
Annual Report on Form 10-K, as well as the Company s Quarterly Reports on Form
10-Q, which are available at no charge from the Company or on-line from the SEC
s EDGAR system at www.sec.gov. Information about the Company is also available
on its website at www.bico.com. For information, please contact Diane McQuaide,
the Company s Investor Relations Representative at:
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
(412) 429-0673
INCREASE IN NUMBER OF AUTHORIZED SHARES
The Company's Articles of Incorporation, as amended, authorize the issuance of
600,000,000 shares of common stock, par value $.10 per share. As of November
___, 1998, there were _______________ shares outstanding, and currently
exercisable warrants to purchase ______________ shares of common stock.
All outstanding shares of the Company's common stock are issued fully paid and
nonassessable. All additional shares of common stock will be fully paid and
nonassessable. All the shares of common stock will be equal to each other with
respect to liquidation rights and dividend rights and there are no preemptive
rights to purchase any additional shares of common stock. Holders of common
stock are entitled to one vote per share on all matters submitted to a vote of
shareholders, but are not entitled to cumulate their votes in the election of
directors. Accordingly, the holders of over 50% of the outstanding common stock
voting for the increase in the number of authorized shares of common stock
could determine the outcome of such vote, and the holders of the remaining
common stock would not be able to change the outcome of the vote.
In the event of liquidation, dissolution or winding up of the Company, holders
of the common stock are entitled to receive on a pro rata basis all assets
remaining after satisfaction of all liabilities including liquidation
preferences granted to holders of the preferred stock of the Company.
Holders of common stock are entitled to cash dividends only when and if
declared by the Board of Directors out of funds legally available for payment
thereof, and subject to the prior right of holders of the Company's preferred
stock to receive any accrued but unpaid dividends. Further, common stock
dividends may be paid only to the extent the net assets exceed the liquidation
preference of any outstanding preferred stock. The Company has not paid any
cash dividends on its common stock since its inception and no cash dividends on
the common stock are contemplated at any time in the foreseeable future.
The Board of Directors of the Company unanimously approved a resolution to
propose that the shareholders increase the number of authorized shares of
common stock to 900,000,000 by amending the Company's Articles of
Incorporation. If such an increase is approved, the Board of Directors may,
without additional shareholder approval, authorize the sale of such additional
shares in order to raise additional capital to fund the Company's operations
and research and development projects. The Board will authorize management to
use any such funds raised to fund existing or new research and development
projects as management determines is in the best interest of the Company.
Management does not believe that, until full-scale manufacturing of the
Noninvasive Glucose Sensor begins, or the sale of the Company s other products
generates meaningful revenues, the Company presently has alternative means to
raise additional funds. Because the market price for the stock has remained
low, it has been necessary to sell more shares than originally anticipated in
order to raise sufficient capital; therefore, the authorization of additional
shares is necessary. The proposal to increase the number of authorized shares
is part of management's long-term plan to continue funding the Company's
existing and future research and development projects, and to fund
manufacturing start-up of the Noninvasive Glucose Sensor. Any future sale of
additional shares, whether in a public or private offering, will dilute the
holdings of existing shareholders. The Company has no current specific plans
for any proceeds received from the future sale of the additional shares, but
may use any such proceeds to continue funding existing research and development
projects, manufacturing, and future projects which are deemed by management to
be in the best interest of the Company. Such projects are subject to risks,
and there can be no assurances that any current or future project will be
successful or result in commercially viable products.
The Board of Directors recommends shareholder approval of the proposal to amend
the Company's Articles of Incorporation to increase the number of authorized
shares of common stock to 900,000,000. The affirmative vote of the holders of
a majority of the common stock entitled to vote at the Annual Meeting is
necessary to approve the amendment. If not otherwise specified, properly
executed proxies will be voted in favor of the amendment.
CHANGES IN THE COMPANY'S INDEPENDENT AUDITORS
Effective January 25, 1995, upon a determination by the Board of Directors, the
Company engaged Thompson Dugan, P.C. as its independent auditors and
accountants to replace Grant Thornton LLP. Thompson Dugan, P.C. also serves as
the independent auditors and accountants for Diasense, replacing Grant Thornton
LLP. Neither company had any disagreements with Thompson Dugan, P.C. or Grant
Thornton LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. A representative of
Thompson Dugan, P.C. will not be present at the Annual Meeting to answer
questions.
SHAREHOLDER PROPOSALS
All shareholder proposals to be presented at the next Annual Meeting of the
Company must be received by the Company at its principal executive offices by
January 31, 1999 for inclusion in the proxy materials relating to the next
Annual Meeting.
OTHER MATTERS
The management of the Company does not know of any other matters that are to be
presented for action at the meeting. Should any other matter come before the
meeting, however, the person named in the enclosed Proxy shall have
discretionary authority to vote all shares represented by valid proxies with
respect to such matter in accordance with his judgement.
The enclosed Proxy is solicited on behalf of the Board of Directors. The
expenses of solicitation, including the cost of preparing, handling, printing
and mailing the Notice of Annual Meeting, Proxy and Proxy Statement, the
aggregate of which is estimated to be approximately $80,000, has been or will
be paid by the Company. The Company will pay Chase Mellon Shareholder
Services, its Registrar and Transfer Agent, for its assistance in the
solicitation of proxies and will reimburse brokers and other persons holding
shares in their names or those of their nominees for their expenses for sending
Proxy materials to principals and obtaining their proxies.
Shareholders are urged to specify their choice, date, sign and return the
enclosed proxy in the enclosed envelope. Prompt response is helpful and your
cooperation will be appreciated.
By Order of the Board of Directors
______________________________
David E. Staudenmaier, Secretary