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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
BIOPHAN TECHNOLOGIES, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
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and 0-11.
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
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the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
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BIPH LETTERHEAD
July 31, 2003
To Our Stockholders:
I am pleased to invite you to attend the 2003 Annual Meeting of Stockholders
of Biophan Technologies, Inc. at 150 Lucius Gordon Drive, West Henrietta, New
York 14586, on Wednesday, August 20, 2003, at 10:00 a.m. (local time).
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
describe in detail the matters expected to be acted upon at the Annual
Meeting. Also contained in this package is the Company's 2003 Annual Report
to Stockholders, which consists of the Company's Form 10-KSB/A for the fiscal
year ended February 28, 2003 that sets forth important business and financial
information concerning the Company.
We hope you are able to attend this year's Annual Meeting.
Very truly yours,
Guenter H. Jaensch
Chairman of the Board
Biophan Technologies, Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 20, 2003
TO THE STOCKHOLDERS OF BIOPHAN TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of BIOPHAN
TECHNOLOGIES, INC., a Nevada corporation (the "Company"), will be held on
August 20, 2003, at 10:00 a.m., local time, at the Company's principal
executive offices, 150 Lucius Gordon Drive, West Henrietta, NY 14586, for the
following purposes (as more fully described in the Proxy Statement
accompanying this Notice):
1. To elect five (5) members of the Board of Directors to serve until
the 2004 Annual Meeting of Stockholders or until a successor is
elected.
2. To increase the number of common shares authorized to be issued from
60,000,000 to 80,000,000 shares.
3. To increase the number of shares reserved for issuance under the 2001
Stock Option Plan from 2,500,000 to 7,000,000 shares.
4. To amend the formula for the grant of options to non-employee
directors under the 2001 Stock Option Plan.
5. To ratify the appointment of Goldstein Golub Kessler LLP as the
independent auditors of the Company for the fiscal year ending
February 29, 2004.
6. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on June 23, 2003 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
WE HOPE YOU WILL ATTEND THIS ANNUAL MEETING IN PERSON, BUT IF YOU CANNOT,
PLEASE SIGN AND DATE THE ENCLOSED PROXY. RETURN THE PROXY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE RETURNED A
PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
David Miller
Secretary
West Henrietta, New York
Date: July 31, 2003
Biophan Technologies, Inc.
150 Lucius Gordon Drive
West Henrietta, New York 14586
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
AUGUST 20, 2003
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
General
This Proxy Statement is being furnished to the stockholders of BIOPHAN
TEHNOLOGIES, INC. ("Biophan" or the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company (the
"Board"). The proxies are for use at the Annual Meeting of Stockholders of
the Company to be held on Wednesday, August 20, 2003 at 10:00 a.m., local
time, or at any adjournment thereof (the "Annual Meeting"). The Annual
Meeting will be held at the Company's principal executive offices, 150 Lucius
Gordon Drive, West Henrietta, New York 14586. The telephone number at the
meeting location is (585) 214-2441.
The shares represented by your proxy, if the proxy is properly executed and
returned, and not revoked, will be voted at the Annual Meeting as therein
specified. You may revoke your proxy at any time before the proxy is exercised
by delivering to the Secretary of the Company a written revocation or a duly
executed proxy bearing a later date. You may also revoke your proxy by
attending the Annual Meeting and voting in person.
The shares represented by your proxy will be voted FOR the election of the
director nominees named herein (Proposal No. 1), unless you specifically
withhold authority to vote for one or more of the director nominees. Also,
the shares represented by your proxy will be voted FOR increasing the number
of common shares authorized to be issued from 60,000,000 to 80,000,000 shares
(Proposal No. 2). Additionally, the shares represented by your proxy will be
voted FOR increasing the number of shares reserved for issuance under the
2001 Stock Option Plan from 2,500,000 to 7,000,000 shares (Proposal No. 3).
The shares represented by your proxy will be voted FOR amending the formula
for granting options to non-employee directors under the 2001 Stock Option
Plan (Proposal No. 4). Further, unless you indicate otherwise, the shares
represented by your proxy will be voted FOR the ratification of the
appointment of Goldstein Golub Kessler LLP as the Company's
independent auditors for the fiscal year ending February 29, 2004 (Proposal
No. 5).
These proxy solicitation materials and the Annual Report on Form 10-KSB/A for
the fiscal year ended February 28, 2003 (the "Last Fiscal Year") are first
being mailed to stockholders on or about July 31, 2003.
Record Date and Voting Securities
Stockholders of record at the close of business on June 23, 2003 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. At the
Record Date, 38,903,314 shares of the Company's common stock, $.005 par value
(the "Common Stock"), were issued and outstanding and held of record by
approximately 1,500 stockholders.
1
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person. Attending
the Annual Meeting in and of itself may not constitute a revocation of a
proxy.
Voting and Solicitation
Each stockholder is entitled to one vote for each share held as of the Record
Date. Stockholders will not be entitled to cumulate their votes in the
election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing
beneficial owners of shares for their expense in forwarding solicitation
material to such beneficial owners. Proxies may be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, in person or by telephone, e-mail or facsimile.
Quorum; Abstentions; Broker Non-Votes
Holders of a majority of the outstanding shares entitled to vote must be
present, in person or by proxy, at the Annual Meeting in order to have the
required quorum for the transaction of business. Votes Cast by proxy or in
person at the Annual Meeting will be tabulated by the Inspector of Elections,
appointed for the Annual Meeting, who, with the assistance of Continental
Stock Transfer & Trust Company, the Company's transfer agent, will determine
whether or not a quorum is present. If the shares present, in person and by
proxy, at the Annual Meeting do not constitute the required quorum, the Annual
Meeting may be adjourned to a subsequent date for the purpose of obtaining a
quorum.
Shares that are voted "FOR," "AGAINST" or "ABSTAIN" are treated as being
present at the Annual Meeting for purposes of establishing a quorum. Shares
that are voted "FOR," "AGAINST" or "ABSTAIN" with respect to a matter will
also be treated as shares entitled to vote (the "Votes Cast") with respect to
such matter. While no definitive statutory or case law authority exists in
Nevada as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the
presence or absence of a quorum for the transaction of business and (ii) the
number of Votes Cast with respect to a proposal (other than the election of
directors). In the absence of a controlling precedent to the contrary, the
Company intends to treat abstentions in this manner. Accordingly, abstentions
will have the same effect as a vote "AGAINST" the proposal.
Broker non-votes (i.e., votes from shares held of record by brokers as to
which the beneficial owners have given no voting instructions) will be
counted for purposes of determining the presence or absence of a quorum for
the transaction of business, but will not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal
on which the broker has expressly not voted. Accordingly, broker non-votes
will not affect the outcome of the voting on a proposal that requires a
majority of the Votes Cast (such as the approval of an amendment to an option
plan). Thus, a broker non-vote will make a quorum more readily obtainable,
but the broker non-vote will not otherwise affect the outcome of the vote on
a proposal. With respect to a proposal that requires a majority of the
outstanding shares (such as an amendment to the certificate of
incorporation), however, a broker non-vote has the same effect as a vote
"AGAINST" the proposal.
Deadline for Receipt of Stockholder Proposals to be Presented at the 2004
Annual Meeting
In order for any stockholder proposal submitted pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended (the "Act"),
to be included in the Company's Proxy Statement to be issued in connection
with the 2004 Annual Meeting of Stockholders, such proposal must be received
by the Company no later than February 29, 2004. Any notice of a proposal
submitted outside the processes of Rule 14a-8 promulgated under the Act,
which a stockholder intends to bring forth at the Company's 2004 Annual
Meeting of Stockholders, will be untimely for purposes of Rule 14a-4 of the
Act and the By-laws of the Company, if received by the Company after February
29, 2004.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board currently consists of five directors. The Company's By-laws provide
that the Board consist of three (3) to nine (9) persons. The Board has fixed
five (5) as the number of directors for purposes of this year's Annual Meeting
who will serve a one (1) year term until the Annual Meeting of Stockholders to
be held in 2004, or until a successor is elected or appointed and qualified or
until such director's earlier resignation or removal. The Board reserves the
right to increase the size of the Board as provided in the Company's By-laws.
At this year's Annual Meeting, you are requested to vote for the election of
Guenter H. Jaensch, Michael L. Weiner, Robert S. Bramson, Steven Katz and
Ross B. Kenzie. Each of these nominees has consented to serve, and the Board
has no reason to believe that the nominees will be unable or unwilling to
serve as nominees or as directors if elected. However, if any nominee is
unable or unwilling to serve as a director, the Board may, by resolution,
provide for a lesser number of directors or designate a substitute. If the
Board designates a substitute, shares represented by proxies may be voted for
the substitute nominee. Proxies received will be voted "FOR" the election of
all nominees unless otherwise directed. Pursuant to applicable Nevada
corporation law, assuming the presence of quorum, five (5) directors will be
elected from among those persons duly nominated for such positions by
a plurality of the votes actually cast by stockholders entitled to vote at the
Annual Meeting who are present in person or by proxy. The age of each
nominee is as of June 23, 2003.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE NOMINEES NAMED
BELOW.
Director
Name Age Position Since
------ ----- ---------- -------
Guenter H. Jaensch 64 Chairman of the Board 2002
Michael L. Weiner 55 Chief Executive Officer and
Director 2000
Robert S. Bramson 64 Director 2001
Steven Katz 55 Director 2001
Ross B. Kenzie 71 Director 2000
Guenter H. Jaensch, Ph.D. is the former Chairman and CEO of Siemens
Pacesetter, Inc., a manufacturer of pacemakers. During his more than 25
years at Siemens, Dr. Jaensch held various senior executive positions prior
to running Siemens Pacesetter, including President of Siemens Communications
Systems, Inc. from August 1983 to March 1985, Chairman and President of
Siemens Corporate Research and Support, Inc. from April 1982 to September
1991 and Chairman and CEO of Siemens Pacesetter, Inc. and Head of the Cardiac
Systems Division of Siemens AG Medical Engineering Group from October 1991 to
September 1994. Dr. Jaensch holds a Master's Degree in Business
Administration and a Ph.D. in Business and Finance from the University of
Frankfurt and taught business and statistics at the University prior to
joining Siemens in 1969. In 1994, he joined St. Jude Medical as Chairman and
CEO of Pacesetter, Inc., a St. Jude Medical Company, and retired in 1995 to
manage his personal investments. Since December 1997, he has been a director
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of MRV Communications, a publicly traded company which is a leading company
in the fiber-optic technology business. Dr. Jaensch has been a director of
Biophan since March 2002.
Michael L. Weiner began his career at Xerox Corporation in 1975, where he
served in a variety of capacities in sales and marketing, including Manager
of Software Market Expansion and Manager of Sales Compensation Planning. In
1985, after a ten-year career at Xerox, Mr. Weiner founded Microlytics, a
Xerox spin-off company which developed technology from the Xerox Palo Alto
Research Center into a suite of products with licenses to many companies. In
January 1995, Weiner co-founded and became CEO of Manning & Napier
Information Services, a Rochester-based company providing patent analytics,
prior art searches, and other services. He held this position until January
of 1999. In February 1999, he formed Technology Innovations, LLC to develop
and expand certain intellectual property assets. In August, 2000, Technology
Innovations, LLC created a subsidiary, Biomed Solutions, LLC, to pursue
certain biomedical and nanotechnology opportunities. Mr. Weiner serves on the
Boards of Biomed Solutions, LLC, Technology Innovations, LLC, Speech
Compression Technologies, LP (an R&D partnership commenced in 1989 to pursue
compression technologies), Nanoset, LLC, and Nanocomp, LLC. Mr. Weiner holds
six issued patents for inventions prior to the formation of Biophan which are
owned by other companies that employed Mr. Weiner prior to the formation of
Biophan. These patents do not involve technology that is competing or will
compete with Biophan. Mr. Weiner has been the CEO and a director of Biophan
since December 2000.
Robert S. Bramson is an engineer and patent attorney and, since 1996, has
been a partner in Bramson & Pressman, a law firm that focuses on patent and
technology licensing matters. Since 1996, he has also been President of VAI
Management Corp., a consulting firm that specializes in patent and technology
licensing. He is a former head of the Computer and Technology law group of
Schnader, Harrison, Segal & Lewis (where he worked from 1968 to 1989); former
Vice President and General Patent and Technology Counsel for Unisys (from
1989 to 1990); founder and former CEO of InterDigital Patents Corporation, a
patent licensing company (from 1992 to 1995); former Licensing Counsel for
Abbott Laboratories (from 1963 to 1966); and has been Adjunct Professor of
Patent Law, Computer Law and (presently) Licensing Law at Temple Law School,
Rutgers Law School and Villanova Law School at different times (from 1980 to
date). Mr. Bramson has been a director of Biophan since July 2001.
Steven Katz is President of Steven Katz & Associates, Inc., a technology-
based management consulting firm specializing in strategic planning,
corporate development, new product planning, technology licensing, and
structuring and securing various forms of financing since 1982. From January
2000 until October 2001, Mr. Katz was President and Chief Operating Officer
of Senesco Technologies, Inc., a public company engaged in the development of
proprietary genes with application to agro-biotechnology. From 1983 to 1984,
he was the co-founder and Executive Vice President of S.K.Y. Polymers, Inc.,
a biomaterials company. Prior to S.K.Y. Polymers, Inc., Mr. Katz was Vice
President and General Manager of a non-banking division of Citicorp. From
1976 to 1980, he held various senior management positions at National Patent
Development Corporation, including President of three subsidiaries. Prior
positions were with Revlon, Inc. (1975) and Price Waterhouse & Co. (1969 to
1974). Mr. Katz received a Bachelor of Business Administration degree in
Accounting from the City College of New York in 1969. He is presently a
member of the Board of Directors of USA Technologies, Inc., a publicly held
corporation, and several other private companies. Mr. Katz has been a
director of Biophan since July 2001.
4
Ross B. Kenzie is a former Chairman and Chief Executive Officer of Goldome
Bank, from which he retired in June 1989. He was previously Executive Vice
President of Merrill Lynch & Co., in its New York worldwide headquarters, and
is a former member of the Merrill Lynch & Co. Board of Directors. He is a
former director of the Federal Home Loan Bank of New York (from 1984 to 1988)
and served on the boards of the National Council of Savings Institutions
(from 1982 to 1986), the Federal Reserve Bank of New York, Buffalo Branch
(from 1985 to 1987), and the Savings Banks Association of New York State
(from 1984 to 1987). Mr. Kenzie was a director of Millard Fillmore Hospitals
(from 1982 to 1995)and is currently Past Chairman Emeritus. He served on the
Board of the Kaleida Health, Education and Research Foundation (from 1998 to
2000) and is currently on its Investment Committee. He was a director of the
Health Systems Agency of Western New York (from 1988 to 1991) and was a
member of the Western New York Commission on Health Care Reform (from 1987 to
1990). Mr. Kenzie was a member of the College Council of the State
University College at Buffalo (from 1981 to 1998) and served as Chairman. He
was a director of the College's Foundation and a member of its Finance
Committee (from 1984 to 1998) and is currently on its Investment Committee.
He served on the Council of the Burchfield-Penney Art Center (from 1990 to
2001) and the Albright Knox Art Gallery (from 1983 to 1985). He is also a
member of the Board and the Chairman of the Investment Committee of the
State University at Buffalo Foundation. Mr. Kenzie currently serves on the
boards of several companies, including the publicly held Rand Capital
Corporation and many entrepreneurial ventures that are privately held,
including the Boards of Members of Biomed Solutions, LLC and Technology
Innovations, LLC. Mr. Kenzie has been a director of Biophan since December
2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE NOMINEES.
UNLESS AUTHORITY TO VOTE FOR ONE OR MORE OF THE NOMINEES IS SPECIFICALLY
WITHHELD, THE SHARES REPRESENTED BY YOUR PROXY, IF PROPERLY EXECUTED AND
RETURNED, AND NOT REVOKED, WILL BE VOTED FOR THE ELECTION OF ALL THE NOMINEES
FOR WHOM YOU ARE ENTITLED TO VOTE.
The Board and Committees of the Board
The Board held six (6) meetings during the Company's fiscal year ended
February 28, 2003. The standing committees of the Board are the Audit
Committee and the Compensation Committee. During fiscal 2003, each of the
incumbent directors, during his period of service, attended at least 75% of
the total number of meetings held by the Board and each committee of the Board
on which he served.
Audit Committee. The Audit Committee is currently composed of Messrs. Katz
(Chairman), Bramson and Kenzie. The Audit Committee makes recommendations
concerning the engagement of independent auditors, reviews with the
independent auditors the results of the audit engagement, approves
professional services provided by the auditors, including the scope of non-
audit services, if any, and reviews the adequacy of our internal accounting
controls.
Compensation Committee. The Compensation Committee is currently composed of
Messrs. Kenzie (Chairman), Bramson and Katz. The Compensation Committee
reviews the Company's compensation policies, establishes executive officer
compensation and administers the Company's SOP.
Compensation of the Board
Directors who are employees of Biophan do not receive additional compensation
for serving on the Board or its committees. Non-employee directors, for
their services as directors, are paid an annual cash fee of $3,500 and a per-
meeting fee of $1,000. Mr. Jaensch receives an additional $1,000 per month for
serving as Chairman of the Board. In addition, non-management directors
receive options under the Company's Stock Option Plan. All directors are
reimbursed for their reasonable expenses incurred in attending Board meetings.
Steven Katz will receive an additional $3,000 per year for serving as Chairman
of the Audit Committee. Otherwise, no additional compensation is paid to
directors for serving as members of committees of the Board.
The Company maintains directors and officers liability insurance.
5
PROPOSAL NO. 2
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
COMMON SHARES AUTHORIZED TO BE ISSUED FROM 60,000,000 TO 80,000,000 SHARES.
The Company's Certificate of Incorporation, as currently in effect (the
"Certificate"), provides that the Company is authorized to issue sixty
million (60,000,000) Common Shares, with a par value of $.005 per share. In
July 2003, the Board of Directors authorized an amendment to the Certificate
to increase the authorized number of Common Shares to eighty million
(80,000,000) shares (the "Amendment"). The stockholders are being asked to
approve the Amendment at the Annual Meeting.
As of June 23, 2003, there were 38,903,314 Common Shares issued and
outstanding. If all outstanding rights to acquire common shares were
exercised, including options, warrants, conversion of convertible debt and
drawdowns under an existing equity line of credit, there would be an
insufficient number of shares available for other corporate purposes.
The additional Common Shares which would be authorized by the proposed
Amendment would have the same rights and privileges as the Common Shares
currently authorized and outstanding.
In the opinion of the Board, the additional authorized Common Shares will
benefit the Company by providing flexibility to the Board, without requiring
further action or authorization by the Company's stockholders (except as may
be required by law or the rules of any stock exchange on which the Company's
securities may then be listed), to issue additional Common Shares from time to
time in responding to business needs and opportunities as they arise, or for
other proper corporate purposes. These opportunities, needs and purposes
might include, for example, the obtaining of capital funds through public and
private offerings of Common Shares or of securities convertible into Common
Shares and the use of Common Shares in connection with structuring possible
acquisitions of businesses and assets. Additionally, the Board, in its
discretion, could in the future declare stock splits or stock dividends or,
subject to shareholder approval, increase, establish or extend stock option
and other stock award plans. The Company evaluates potential acquisitions
from time to time. However, the Company has no present plans, arrangements or
understandings with respect to possible acquisitions and has no present plans
for financings other than our existing equity line with Spectrum Advisors
Ltd. No stock splits, dividends or other actions requiring the availability
of the additional authorized shares of Common Shares are currently planned.
There are no preemptive rights with respect to the Company's Common Shares,
and, accordingly, existing stockholders would not have any preferential right
to purchase any of the additional shares of Common Shares if and when issued.
Although the Board would only authorize the issuance of additional Common
Shares based on its judgment as to the best interests of the Company and its
stockholders, the issuance of additional authorized shares could have the
effect of diluting the voting power or book value per share of the outstanding
Common Shares. The Board (if consistent with its fiduciary responsibilities)
could also attempt to deter future takeover attempts by using additional
Common Shares to dilute the ownership of persons seeking to gain control of
the Company. The Company, however, is aware of no such attempt and has no
plans or arrangements with respect to the same. The issuance of any
additional shares will be on terms deemed to be in the best interests of the
6
Company and its stockholders.
If the Amendment is approved by the stockholders at the Annual Meeting, the
increase in the number of Common Shares would become effective upon the
filing of the Certificate of Amendment to the Certificate of Incorporation
with the Nevada Secretary of State, which filing would take place shortly
after the Annual Meeting.
Approval of the proposal to increase the number of authorized Common Shares
requires the affirmative vote of the holders of a majority of the outstanding
Common Shares entitled to vote at the Annual Meeting. Abstentions and broker
non-votes are not considered Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED
AMENDMENT TO THE CERTIFICATE OF INCORPORATION. UNLESS OTHERWISE DIRECTED
THEREIN, THE SHARES REPRESENTED BY YOUR PROXY, IF PROPERLY EXECUTED AND
RETURNED, AND NOT REVOKED, WILL BE VOTED FOR SUCH PROPOSAL.
7
PROPOSAL NO. 3
INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER THE 2001 STOCK OPTION PLAN
The Company's stockholders are being asked to approve two amendments to the
Company's 2001 Stock Option Plan (the "Plan"). The first proposal, Proposal
No. 3, will increase the number of shares reserved for issuance under the
Plan from 2,500,000 shares to 7,000,000 shares. On July 14, 2003, the Board
adopted a resolution to increase the shares allocated to the
Plan. The second proposal, Proposal No. 4, is described in detail under the
heading "PROPOSAL NO. 4".
The Plan, which provides for the granting of options to purchase up to an
aggregate of 2,500,000 shares of the Company's authorized but unissued Common
Stock (subject to adjustment in certain cases, including stock splits,
recapitalization and reorganizations) to the Company's officers, directors,
employees and consultants, was adopted at the Annual Meeting of Stockholders
held on July 19, 2001.
The Plan is intended to enhance the Company's ability to provide individuals
with awards and incentives commensurate with their contributions to the
Company and compete with those offered by other employers, and to increase
stockholder value by further aligning the interests of these individuals with
the interests of the Company's stockholders by providing an opportunity to
benefit from stock price appreciation that generally accompanies improved
financial performance. The Company believes that this amendment to increase
the number of shares of Common Stock authorized for issuance under the Plan is
necessary to ensure that a sufficient reserve of Common Stock is available
under the Plan. The Board believes that the Company's long-term success is
dependent upon the ability of the Company to attract and retain highly
qualified individuals who, by virtue of their ability and qualifications, make
important contributions to the Company.
The following summary of the Plan, including the proposed amendments, is
subject in its entirety to the specific language of the 2001 Plan. A copy of
the Plan is available to any stockholder upon request.
Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by strengthening the Company's ability
to attract and retain individuals of training, experience and ability
as officers, key employees, directors and consultants and to furnish
additional incentives to such key individuals to promote the Company's
financial success by providing them with an equity ownership in the
Company commensurate with Company performance, as reflected in increased
shareholder value. It is the intent of the Company that such individuals
be encouraged to obtain and retain an equity interest in the Company, and
each Participant will be specifically apprised of said intent.
Administration. The Plan will be administered by the Compensation
Committee, composed of not less than two directors appointed by the
Board. Each member of the Compensation Committee shall, at all times
during their service as such, be a "non-employee director" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934. The
Compensation Committee shall have conclusive authority to construe and
interpret the Plan and any Award Agreement (as defined in the Plan)
entered into thereunder, and to establish, amend and rescind
administrative policies for the administration of the Plan and such
additional authority as the Board may from time to time determine is
8
necessary or desirable.
Eligibility. Those persons eligible to participate in the Plan shall
include officers and other key employees, directors and consultants of
the Company and its subsidiaries..
Shares Subject to the Plan. Subject to adjustment as provided in the
Plan, the total number of shares of Common Stock available under the Plan
shall be 7,000,000.
Participation. The Compensation Committee shall select, from time to
time, key employees and consultants who, in the opinion of the
Compensation Committee, can further the Plan's purposes, and the
Compensation Committee shall determine the type or types of awards to be
made to the participants. The terms, conditions and restrictions of each
award shall be set forth in an award agreement.
Stock Options. Awards may be granted in the form of non-statutory stock
options and incentive stock options.
Restricted Stock Awards. Awards may be granted in the form of Restricted
Stock Awards (as defined in the Plan). Restricted Stock Awards are
subject to such terms, conditions, restrictions or limitations as the
Compensation Committee deems appropriate.
Change in Control. In the event of a "change in control" of the Company,
stock options not otherwise exercisable shall become fully exercisable
and all restrictions previously established with respect to Restricted
Stock Awards will conclusively be deemed to have been satisfied.
Tax Matters. Section 162(m) of the Internal Revenue Code (the "Code")
prohibits a publicly held corporation, such as the Company, from claiming
a deduction on its federal income tax return for compensation in excess
of $1 million paid for a given fiscal year to the chief executive officer
(or person acting in that capacity) at the end of the corporation's
fiscal year and the four most highly compensated officers of the
corporation, other than the chief executive officer, at the end of the
corporation's fiscal year. The $1 million compensation deduction
limitation does not apply to "performance-based" compensation under
Section 162(m) of the Code. Awards under the Plan qualify as
"performance-based" for purposes of Section 162(m).
Federal Income Tax Consequences
The following is a brief summary of the principal anticipated federal income
tax consequences of grants under the Plan to recipients and the Company.
This summary is not intended to be exhaustive and does not describe all
federal, state or local tax laws.
Option Grants. Options granted under the Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Code or non-
statutory options which are not intended to meet such requirements. The
federal income tax treatments for the two types of options are as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised, provided that the
optionee may incur alternative minimum tax liability upon exercise. The
optionee will, however, recognize taxable income in the year in which the
9
purchased shares are sold or otherwise made the subject of a taxable
disposition. For federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two (2) years after the option
grant date and more than one (1) year after the exercise date. If either
of these two holding periods is not satisfied, then a disqualifying
disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized
upon the sale or other disposition of the purchased shares over (ii) the
exercise price paid for the shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value
of those shares on the exercise date over (ii) the exercise price paid
for the shares will be taxable as ordinary income to the optionee. Any
additional gain or loss recognized upon the disposition will be
recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal to the excess of
(i) the fair market value of such shares on the option exercise date over
(ii) the exercise price paid for the shares. In no other instance will
the Company be allowed a deduction with respect to the optionee's
disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised,
equal to the excess of the fair market value of the purchased shares on
the exercise date over the exercise price paid for the shares, and the
optionee will be required to satisfy the tax withholding requirements
applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then
the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (i)
the fair market value of the shares on the date the repurchase right
lapses over (ii) the exercise price paid for the shares. The optionee
may, however, elect under Section 83(b) of the Code to include as
ordinary income in the year of exercise of the option an amount equal to
the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed
for the taxable year of the Company in which such ordinary income is
recognized by the optionee.
Restricted Stock. Generally, a recipient will not recognize income and the
Company will not be entitled to a deduction with respect to an award of
Restricted Stock until the first to occur of the vesting or the free
10
transferability of such shares. The amount to be included in the recipient's
income (and, subject to the discussion of Section 162(m) of the Code below,
which may be deductible by the Company) will equal the fair market value of
the Restricted Stock on the first day it is freely transferable or vested,
not when it is first issued to a recipient, over the amount, if any, paid for
such stock. The Company will be entitled to withhold tax from a recipient's
salary or from the shares that are no longer subject to restriction in order
to satisfy any tax withholding obligation arising from the taxability of the
Restricted Stock. A recipient receiving Restricted Stock can elect to
include the value of the Restricted Stock, over the amount, if any, paid for
such stock, in income at the time it is awarded by making a "Section 83(b)
Election" within 30 days after the Restricted Stock is transferred to the
recipient.
Plan Benefits. As of June 23, 2003, a total of 2,399,995 options have been
awarded under the Plan. Approval of the amendment to increase the share
allocation to the Plan requires the affirmative vote of a majority of Votes
Cast. Abstentions and broker non-votes are not considered Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED THE
AMENDMENT TO THE 2001 STOCK OPTION PLAN INCREASING THE NUMBER OF SHARES
RESERVED FOR ISSUANCE FROM 2,500,000 SHARES TO 7,000,000 SHARES UNLESS
OTHERWISE DIRECTED THEREIN. THE SHARES REPRESENTED BY YOUR PROXY, IF
PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, WILL BE VOTED FOR SUCH
PROPOSAL.
11
PROPOSAL NO. 4
AMEND THE FORMULA FOR THE GRANT OF OPTIONS
TO NON-EMPLOYEE DIRECTORS
The Company's stockholders are being asked to approve an amendment to the
Plan to amend the formula by which options are awarded to non-employee
directors. Based on the recommendation of the Compensation Committee, on
July 14, 2003, the Board adopted a resolution, subject to shareholder
approval, to change the formula by which options are awarded to non-employee
directors. The Board and the Compensation Committee believe the increase in
the non-cash compensation paid to non-employee directors is necessary to
attract and retain qualified Board members, given the increased responsibility
directors now have following the approval of the Sarbanes-Oxley Act of 2002,
as amended.
A summary of the Plan is provided under the discussion of Proposal No. 3, and
a copy of the entire Plan is available to any stockholder upon written
request to the Company's Secretary.
Under the current Plan, non-employee directors each receive a grant to
purchase 30,000 shares of the Company's Common Stock vesting at a rate of
10,000 shares per year and receive additional grants of 10,000 shares per
each year of service after the third year. As amended, the Plan would
provide that non-employee directors would each receive grants to purchase
20,000 shares per year of the Company's Common Stock. The exercise price for
the option would be equal to the fair market value of the option on the date
of grant. Specifically, Section 8.3 of the Plan shall be amended to read as
follows:
"8.3 Option Formula. Each Non-Employee Director shall receive an
initial NEDSO to purchase 20,000 shares of Common Stock vesting on
the first anniversary following the date of grant without further
action by the Board or Committee and additional grants to purchase
20,000 shares of Stock each succeeding anniversary date thereafter
in which the Participant is a Non-Employee Director. The initial
NESDO granted to qualified board members elected at the 2003 Annual
Meeting shall have an exercise price of $.30 and shall vest fully
on the date of grant. Each member of the Scientific Advisory Board
shall receive a NEDSO to purchase 8,333 shares of Stock on each
grant date without further action by the Board or Committee."
NEW PLAN BENEFITS
BIOPHAN TECHNOLOGIES INC. 2001 STOCK OPTION PLAN
Name and Position Dollar Value Number of Units
--------------------------------------------------------------------
Non-Employee Director Not Applicable 80,000 Options
Group
* Currently, there are four non-employee directors; however, that number is
subject to change. The information set forth in the above table is based on
having four non-employee directors and calculates the plan benefits for one
year of service.
Approval of the proposal to amend the formula for the grant of options to
non-employee directors under the Plan requires the affirmative vote of a
majority of Votes Cast. Abstentions and broker non-votes are not considered
Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO
AMEND THE FORMULA FOR THE GRANT OF OPTIONS TO NON-EMPLOYEE DIRECTORS. UNLESS
OTHERWISE DIRECTED THEREIN, THE SHARES REPRESENTED BY YOUR PROXY, IF PROPERLY
EXECUTED AND RETURNED, AND NOT REVOKED, WILL BE VOTED FOR SUCH PROPOSAL.
12
PROPOSAL NO. 5
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Based on the recommendation of the Audit Committee, the Board has appointed
Goldstein Golub Kessler LLP, independent auditors, to audit the financial
statements of the Company for the fiscal year ending February 29, 2004 and
recommends that the stockholders vote FOR confirmation of such appointment.
In the event of a negative vote on such ratification, the Audit Committee and
the Board will reconsider their appointment. Even if the appointment is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year.
It is not anticipated that a representative from Goldstein Golub Kessler LLP
will be attending the annual meeting.
Goldstein Golub Kessler LLP has audited the Company's financial statements
annually since the year ended February 28, 2001. The Company has not
consulted with Goldstein Golub Kessler LLP regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed or the type of audit opinion that might be rendered on
the Company's financial statements, and neither a written report nor oral
advice was provided to the Company that was an important factor considered by
the Company in reaching a decision as to the accounting, auditing or
financial reporting issue or (ii) any matter that was either the subject of
a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation
S-K and the related instructions to Item 304 of Regulation S-K, or a
reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation
S-K.
Fees billed to Company by Goldstein Golub Kessler LLP during the Year Ended
February 28, 2003
Audit Fees:
Audit fees billed to the Company by Goldstein Golub Kessler LLP for audit of
the Company's annual financial statements included in the Company's Annual
Report on Form 10-KSB/A and review of the financial statements included in
the Company's quarterly reports on Form 10-QSB during the fiscal year ended
February 28, 2003 totaled $34,500.
Financial Information System and Design Fees:
The Company did not engage Goldstein Golub Kessler LLP to provide services to
the Company regarding financial information systems design and implementation
during the fiscal year ended February 28, 2003.
All Other Fees:
During fiscal 2003 and to date, the Company has been billed a total of
$12,974 by Goldstein Golub Kessler LLP in connection with a Registration
Statement filed with the Securities and Exchange Commission ("SEC") on Form
SB-2.
Approval of the auditors requires the affirmative vote of a majority of Votes
Cast. Abstentions and broker non-votes are not considered Votes Cast
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTNG "FOR" THE
RATIFICATION OF THE APPOINTMENT OF GOLDSTEIN GOLUB KESSLER LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING FEBRUARY 29, 2004.
UNLESS OTHERWISE DIRECTED THEREIN, THE SHARES REPRESENTED BY YOUR PROXY, IF
PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, WILL BE VOTED FOR SUCH
PROPOSAL.
13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below lists the beneficial ownership of our Common Stock by each
person known by us to be the beneficial owner of more than 5% of such
securities, as well as the shares of Biophan beneficially owned by each
director and officer and by all directors and officers as a group.
Title of Class: Common
Shares
Name and Address of Beneficially
Beneficial Owner Owned(1)(2) Percent of Class
---------------------- ------------ ----------------
*Guenter H. Jaensch (3)
964 Allamanda Drive
Delray Beach, FL 33483 733,334 1.86%
*Michael L. Weiner (4)
693 Summit Drive
Webster, NY 14580 8,145,144 20.18%
Edward F. Cowle
99 Park Avenue
Suite 2230
New York, NY 10016 2,898,600 7.4%
Geoffrey Williams
56 West 400 Street
Suite 200
Salt Lake City, UT 84101 2,389,701 6.14%
Wilson Greatbatch (5)
5935 Davison Road
Akron, NY 14001 5,856,210 14.91%
*Robert S. Bramson (6)
1100 East Hector Street
Suite 410
Consohocken, PA 19428 20,000 .05%
*Ross B. Kenzie (7)
Cyclorama Bldg. Suite 100
369 Franklin Street
Buffalo, NY 14202 20,000 .05%
*Steven Katz (8)
20 Rebel Run Drive
East Brunswick 70,000 .18%
Robert J. Wood (9)
12 Peachtree Lane
Pittsford, NY 14534 146,667 .38%
Stuart G. MacDonald (10)
4663 East Lake Road
Pultneyville, NY 14538 163,334 .42%
14
Jeffrey H. Helfer (11)
1153 Hidden Valley Trail
Webster, NY 14580 203,334 .52%
David A. Miller
4004 Sunnyside Road
Sandpoint, ID 83864 100,500 .26%
All Officers and Directors as a
group (9 persons) 9,602,313 23.33%
* Member of the Board of Directors
(1) Except as may be set forth below, the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Applicable percentage of ownership is based on 38,904,314 shares
outstanding as of July 11, 2003, together with applicable options
for such shareholder. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting and
investment power with respect to shares. Shares subject to options
or warrants currently exercisable or exercisable within 60 days after
July 11, 2003 are deemed outstanding for purposes of computing the
percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage of any
other shareholder.
(3) Includes 433,334 shares issuable upon exercise of options and
warrants granted to Dr. Jaensch which shares he has the right to
acquire within 60 days.
(4) Michael L. Weiner is a member and the manager of Technology
Innovations, LLC, which is the majority owner of Biomed Solutions,
LLC . Mr. Weiner is also the Manager of Biomed. Mr. Weiner's
calculation includes 662,857 shares owned beneficially and of record
by Biomed and 300,644 shares owned beneficially and of record by
Technology Innovations. Includes 1,145,172 shares issuable to Biomed
upon exercise of warrants issued to Biomed, 2,068,966 shares issuable
to Biomed upon conversion of $166,050 outstanding as of July 11,
2003 on the line of credit described in Note 4 under Certain
Transactions, and 3,448,276 shares issuable to Biomed upon conversion
of the $500,000 transfer agreement payment, as described in Note 5
under Certain Transactions. It also includes 283,334 shares issuable
upon exercise of options granted to Mr. Weiner, which shares Mr.
Weiner has the right to acquire within 60 days.
(5) Includes 5,379,550 shares owned of record and beneficially by
Greatbatch Gen-Aid, Ltd., an entity owned by Wilson Greatbatch, and
109,993 shares owned by E. & W.G. Foundation, a private foundation of
which Mr. Greatbatch is co-trustee. Also includes 216,667 shares
issuable upon exercise of options granted to Mr. Greatbatch, which
shares Mr. Greatbatch has the right to acquire within 60 days, and
includes 150,000 warrants issued in connection with the Transfer
Agreement with Biomed.
(6) Includes 20,000 shares issuable upon exercise of options granted to
Mr. Bramson, which shares he has the right to acquire within 60
days.
15
(7) Includes 20,000 shares issuable upon exercise of options granted to
Mr. Kenzie, which shares he has the right to acquire within 60 days.
Does not include shares owned beneficially or of record by Biomed or
by Technology Innovations. Mr. Kenzie is the Manager and an equity
member of Biophan Ventures, LLC, which is the 43% equity member in
Biomed; he is also the Manager of Patent Ventures LLC, which is the
Class A Member of Technology Innovations. Mr. Kenzie and Mr. Weiner
comprise the Board of Members of Biomed; Mr. Kenzie serves on the
Board of Members of Technology Innovations.
(8) Includes 20,000 shares issuable upon exercise of options granted to
Mr. Katz, which shares he has the right to acquire within 60 days.
(9) Includes 86,667 shares issuable upon exercise of options and warrants
granted to Mr. Wood, which shares he has the right to acquire within
60 days.
(10) Includes 103,334 shares issuable upon exercise of options and
warrants granted to Mr. MacDonald, which shares he has the right to
acquire within 60 days.
(11) Includes 103,334 shares issuable upon exercise of options and
warrants granted to Mr. Helfer, which shares he has the right to
acquire within 60 days.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our executive officers and directors and persons
who own more than ten percent of our Common Stock to file reports of
ownership and changes in ownership with the SEC. Such executive officers,
directors and greater than ten percent stockholders are also required by SEC
rules to furnish us with copies of all Section 16(a) forms they file. Based
upon our records and other information, the Company believes that, with
respect to the year ended February 28, 2003, all filings applicable to our
executive officers, directors and greater than ten percent stockholders
required by Section 16(a) have been made in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(1) Michael L. Weiner, President and Chief Executive Officer of Biophan, is
the Manager and a 42.7% equity member of Technology Innovations, LLC., a 57%
equity member of Biomed Solutions, LLC (formerly Biophan, LLC). Mr. Weiner
is also the Manager of Biomed. He and Ross Kenzie make up the Board of
Members of Biomed. Biomed is the record owner of 662,857 shares of Common
Stock of Biophan; Technology Innovations is the record owner of 300,644
shares of Common Stock of Biophan. As Manager of Technology Innovations and
Biomed, Mr. Weiner has control over these entities. Mr. Weiner is also on
the Board of Nanoset, LLC, an entity owned in part by Biomed and with which
the Company has entered into a technology license agreement.
(2) On December 1, 2000, Biomed received 10,759,101 shares of Biophan's
Common Stock in exchange for its shares of LTR Antisense Technology, Inc.
Most of those shares have been distributed to the members of Biomed.
(3) Also on December 1, 2000, Biomed transferred its MRI-compatible
pacemaker patent pending and related technology to Biophan for a future
payment of $500,000. This payment bears interest at 8% per annum from
16
February 28, 2002 and has been extended several times, to June 1, 2004.
After June 1, 2004, principal and interest are payable in 12 equal monthly
installments. After November 30, 2002, this entire obligation is convertible
into Common Shares of Biophan at a conversion price equal to the lowest of
(i) the closing bid price on June 4, 2002; (ii) the closing bid price on the
date of exercise; or (iii) the lowest per share purchase price paid by any
third party between June 4, 2002 and the exercise date.
(4) On June 4, 2002, the Company executed a line of credit agreement with
Biomed providing for borrowings of up to $250,000 (the "Line"). On August 19,
2002, the Line was increased $100,000 and the expiration date thereof for that
portion of the Line was set at August 19, 2003. The payment date for amounts
borrowed under the original line was extended to December 1, 2002. On
November 7, 2002, the maturity date of the Line was extended until such time
as the financing contemplated by the common stock purchase agreement
commences; thereafter, it is payable over time as Biophan receives proceeds
from the equity line.
(5) Biomed also holds a total of 1,180,000 warrants to purchase shares of
Biophan Common Stock. On March 1, 2001, it received options to purchase
200,000 shares at an exercise price of $1.00 in consideration of management
effort and expense incurred on behalf of Biophan. On June 4, 2002, it
received 100,000 warrants at an exercise price of $1.00 in consideration of
the extension of the due date for the Transfer Agreement payment, and 75,000
warrants with an exercise price of $1.00 for the grant of the Line. (Wilson
Greatbatch also received 150,000 warrants in consideration of the extension of
the due date of the Transfer Agreement. On August 19, 2002, Biomed received
30,000 warrants in consideration of the increase in the Line commitment, and
275,000 warrants for additional extensions of the payment terms of the
Transfer Agreement payment. On that date, the exercise price for all 680,000
warrants then outstanding to Biomed was set at the lowest of (i) the closing
bid price on June 4, 2002; (ii) the closing bid price on the date of exercise;
or (iii) the lowest per share purchase price paid by any third party between
June 4, 2002 and the exercise date. On November 7, 2002, Biomed was granted
warrants to purchase an additional 500,000 shares at an exercise price of $.50
per share in consideration of the final extension of the Transfer Agreement
payment approved that day. The number of warrants will be reduced by 16,667
for each month prior to June 1, 2005 that the Transfer Agreement obligation
is paid in full. Each extension of the Transfer Agreement payment enabled the
Company to retain the MRI-compatible technology that it acquired under the
Transfer Agreement. In each foregoing case, the Board determined, without
the vote of Messrs. Weiner and Kenzie, that the consideration received by the
Company was fair and adequate consideration for the warrants issued.
(6) During the years ended February 28, 2003 and 2002, Biomed and Technology
Innovations paid expenses on behalf of Biophan aggregating $128,411 and
$253,014, respectively. These advances did not bear interest and were
subsequently repaid.
(7) On January 1, 2001, Wilson Greatbatch was granted 250,000 options for
his consulting services to us and 8,333 options as former Chairman of the
Scientific Advisory Board. As a consultant, Mr. Greatbatch assisted Biophan
in the development of its photonic pacemaker by providing design and
engineering services. The Board determined that the value of the consulting
services was fair and adequate consideration for the options issued; Biophan
recorded compensation expense of $9,200 with respect to those options.
Through his ownership of Greatbatch Gen-Aid, Ltd. and his co-trusteeship of a
private foundation, E.&W.G. Foundation, he is the beneficial owner of
5,489,543 Common Shares of Biophan. He is also entitled to receive 60% of the
17
consideration payable to Biomed ($500,000) for the transfer of the MRI-
compatible pacemaker technology to Biophan; on June 4, 2002, he received
150,000 warrants with an exercise price of $1.00 per share in consideration of
the extension of the payment due under the Transfer Agreement. Greatbatch Gen-
Aid holds a 3.5% membership interest (11 Units) in Technology Innovations.
On February 28, 2001, the Company entered into a research and development
agreement with Greatbatch Enterprises Corporation. Wilson Greatbatch, a
beneficial owner of more than 5% of the Company's Common Stock, is the CEO and
majority stockholder of Greatbatch Enterprises. Under the agreement,
Greatbatch Enterprises undertook certain technology development and testing,
for which the Company paid Greatbatch Enterprises an aggregate of $297,000.
The agreement terminated in December 2002 with the completion of animal
testing by Greatbatch Enterprises.
(8) On March 1, 2002, Dr. Guenter H. Jaensch was granted options to purchase
250,000 shares and on July 16, 2002 was granted an additional 100,000 options
for his consulting services to us. As a consultant, Dr. Jaensch assisted us
in developing our strategic plan, attended trade shows, and arranged and met
with potential customers and strategic partners. The Board determined that
the value of the consulting services was fair and adequate consideration for
the options issued; Biophan valued the options at $36,900 and $592,500,
respectively.
EXECUTIVE COMPENSATION
The following table summarizes the annual compensation paid to our executive
officers ("Named Executives") during the three years ended February 28, 2003:
Name
and Year Salary Securities
principal underlying
position options/SARs
(a) (b) (c) (d)
------------------------------------------------------------
Michael L. Weiner, 2/28/01 $ -0- 250,000
CEO
Michael L. Weiner, 2/28/02 $150,600 -0-
CEO
Michael L. Weiner, 2/28/03 $175,000 250,000
CEO
Robert J. Wood 2/28/03 $109,461 50,000
CFO
Stuart G. MacDonald 2/28/03 $116,057 100,000
Vice-President-Research
Jeffrey L. Helfer 2/28/03 $113,461 100,000
Vice-President-Engineering
Columnar information required by Item 402(a)(2) has been omitted for
categories where there has been no compensation awarded to, earned by or paid
to the Named Executive required to be reported in the table during fiscal
years 2001 through 2003. The securities underlying the stock options consist
of Common Shares.
Stock Options
As of June 22, 2001, the Board adopted the Biophan Technologies, Inc. 2001
Stock Option Plan (the "Plan"). The Option Plan provides for the grant of
18
incentive and non-qualified stock options to selected employees and the grant
of non-qualified options to selected consultants and to directors and Advisory
Board members. The Plan is administered by the Compensation Committee of the
Board and currently authorizes the grant of options for 2,500,000 shares. The
Compensation Committee determines the individual employees and consultants who
participate under the Plan, the terms and conditions of options, the option
price, the vesting schedule of options and other terms and conditions of the
options granted pursuant thereto. Non-employee directors participate pursuant
to the formula set forth in the Plan. Currently, each director receives an
initial grant of 30,000 options vesting over three years. Currently, the
company has commitments to issue options to purchase 2,349,997 shares of
Common Stock under the Plan.
No stock options or stock options or stock appreciation rights ("SARs") were
granted to any of the Named Executives, and no shares were acquired by a Named
Executive upon the exercise of options during the fiscal year ended February
28, 2003.
The following table summarizes information concerning stock options granted
to the Named Executives through the last completed fiscal year ended February
28, 2003:
Number of
securities Value of
underlying unexercised in-
Shares unexercised the-money
acquired Value options/SARS at options/SARs at
Name on realized FY-end (#) FY-end ($)
exercise ($) Exercisable/Unexer- Exercisable/Unexer-
(#) cisable cisable
(a) (b) (c) (d) (e)
-----------------------------------------------------------------------------
Michael L. None $-0- 266,668/233,332 $4,167/$8,333
Weiner, CEO
Robert J. None $-0- 56,667/93,333 $833 /$1,667
Wood
CFO
Stuart G. None $-0- 73,334/126,666 $1,667/$3,333
MacDonald
Vice-President-R&D
Jeffrey L. None $-0- 73,334/126,666 $1,667/$3,333
Helfer
Vice-President-Eng.
(1) The securities consist of shares of Common Stock underlying stock
options that were granted pursuant to the Plan that was approved by its
stockholders
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Each of Michael L. Weiner, President and Chief Executive Officer; Stuart G.
MacDonald, Vice President of Research and Development; Robert J. Wood,
Treasurer and Chief Financial Officer; and Jeffrey L. Helfer, Vice President
of Engineering has entered into Employment Agreements with the Company.
Mr. Weiner's Employment Agreement (the "Employment Agreement") has an initial
term of three years with subsequent one-year renewal periods. The Employment
19
Agreement may be terminated by the Company for cause (as defined in the
Agreement) or upon his death or disability (as defined in the Agreement). In
the event of the disability of Mr. Weiner, termination of the Employment
Agreement by the Company following a change in control or termination of the
Employment Agreement by the Employee for Good Reason, the employee is entitled
to receive (i) the unpaid amount of the base salary earned through the date of
termination; (ii) any bonus compensation earned but not yet paid; and (iii) a
severance payment equal to one (1) year of his then current salary. In
addition, Mr. Weiner will be immediately vested in any options, warrants,
retirement plan or agreements then in effect. Good Reason means (i) material
change of employee's duties, (ii) material breach by the Company, or (iii)
termination of Mr. Weiner related to a change in control.
As used in Mr. Weiner's Employment Agreement, "change in control" means (1)
on the date of the merger or consolidation of the Company with another entity
where the members of the Board, immediately prior to the merger or
consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the Board of the entity issuing cash or securities in
the merger or consolidation or (2) on the date of the sale or other
disposition of all or substantially all of the assets of the Company.
In the event of termination for cause, all unexercised warrants and options,
whether or not vested, shall be canceled, and Mr. Weiner will not be eligible
for severance payments. In the event of voluntary termination, all unvested
warrants and options shall be canceled and he shall have three (3) months
from the date of termination to exercise his rights with respect to any
unexercised but vested options. He will not be eligible for severance
payments
The Employment Agreements for each of Mr. MacDonald, Mr. Wood and Mr. Helfer
are terminable by either the employee or the Company upon thirty (30) days'
notice or by the Company for cause (as defined in their Employment Agreements)
or upon the death or disability of the employee. However, each of the
aforementioned employees is entitled to receive severance equal to six (6)
months' base salary, payable in six (6) equal consecutive monthly installments
in the event that the employee is terminated by the Company within ninety (90)
days following a change in control. In addition, the employee will be
immediately vested in any options, warrants, retirement plan or agreements
then in effect.
For purposes of the Employment Agreements for Mr. MacDonald, Mr. Wood and Mr.
Helfer, "change in control" means (1) on the date of the merger or
consolidation of the Company with another entity where the members of the
Board, immediately prior to the merger or consolidation, would not,
immediately after the merger or consolidation, constitute a majority of the
Board of the entity issuing cash or securities in the merger or consolidation;
2) on the date Michael L. Weiner is terminated as CEO of the Company; or (3)
on the date of the sale or other disposition of all or substantially all of
the assets of the Company.
In the event of termination for cause, all unexercised warrants and options,
whether or not vested, shall be canceled, and the employee will not be
eligible for severance payments. In the event of voluntary termination, all
unvested warrants and options shall be canceled and the employee shall have
three (3) months from the date of termination to exercise his rights with
respect to any unexercised but vested options.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
20
EXECUTIVE COMPENSATION
The following report is required by the SEC's executive compensation rules in
order to standardize the reporting of executive compensation by public
companies. This information shall not be deemed incorporated by reference in
any filing under the federal securities laws by virtue of any general
incorporation of this Proxy Statement by reference and shall not otherwise be
treated as filed under the securities laws.
General
The Board's Compensation Committee (the "Compensation Committee") reviews the
Company's compensation policies, establishes executive officer compensation and
administers the Company's SOP. The Compensation Committee is composed of
Messrs. Kenzie (Chairman), Bramson and Katz, each of whom is a non-employee
director. None of these individuals has ever been an officer or employee of
the Company.
The objectives of the Company's executive compensation policies are (i) to be
competitive with pay practices of other companies of comparable size and
status, including those in the biotechnology industry and (ii) to attract,
motivate and retain key executives who are vital to the long-term success of
the Company. The Company's executive compensation currently consists of both
fixed annual salary and stock based compensation which align the interests of
the Company's executives with the interests of its stockholders.
Base Salary
With respect to annual compensation, the fundamental objective in setting
base salary levels for the Company's senior management is to pay competitive
rates to attract and retain high quality, competent executives. Competitive
pay levels are determined based upon independent industry surveys, proxy
disclosures, individual leadership, level of responsibility, management
skills and industry activities. The Company does not currently have a bonus
program for its executives.
Stock Options, SARs and Restricted Stock
In connection with the executive compensation program, long-term incentive
awards in the form of stock options, SARs and Restricted Stock are available
for grant under the Plan. Awards have been solely in the form of non-
qualified stock options granted under the Plan. The Compensation Committee
and the Board grant these stock-based incentive awards from time to time for
the purpose of attracting and retaining key executives, motivating them to
attain the Company's long-range financial objectives, and closely aligning
their financial interests with long-term stockholder interests and share value.
The Company believes that, through the use of stock options, executives'
interests are directly tied to enhanced stockholder value. The Compensation
Committee has the flexibility of awarding non-qualified stock options,
restricted stock, SARs and other stock-based awards under the Plan. This
flexibility enables the Company to fine-tune its grants in order to maximize
the alignment of the interests of the stockholders and management.
No awards were made to any executive officer of the Company in fiscal year
2003, including the Company's Chief Executive Officer. The executives of the
Company had received awards in previous years and no additional grants were
necessary in order to provide appropriate incentive to such persons.
21
Compensation of Chief Executive Officer
For fiscal year 2003, the compensation of Michael L. Weiner, the Company's
President and Chief Executive Officer, consisted of the same components as
the compensation of the other senior executives. As described above, Mr.
Weiner did not receive a stock option grant or bonus in fiscal 2003. Mr.
Weiner's base salary is $175,000, which is believed to be in line with
salaries of executives of similar companies and chief executive officers with
similar responsibilities.
Deductibility of Executive Compensation
Section 162(m) of the Code provides that certain compensation in excess of $1
million per year paid to a company's chief executive office and the four
other most highly paid executive officers may not be deductible by a
company unless it qualifies as performance-based compensation. The
Compensation Committee recognizes the benefits of structuring executive
compensation so that Section 162(m) does not limit the Company's tax
deductions for such compensation, and the Plan has been designed so that the
Compensation Committee may award performance-based compensation that is not
subject to the limits imposed by Section 162(m). Under certain
circumstances, the Compensation Committee may decide to award executive
compensation in an amount and form that is not deductible under Section
162(m), but it has not done so to date.
The foregoing report is given by the members of the Compensation Committee.
Respectfully submitted,
The Compensation Committee of the Board of Directors
Ross B. Kenzie, Chairman
Steven Katz
Robert S. Bramson
THE FOREGOING COMPENSATION COMMITTEE REPORT SHALL NOT BE "SOLICITING
MATERIAL" OR BE "FILED" WITH THE SEC, NOR SHALL SUCH INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
22
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Board's Audit Committee ("Audit Committee") oversees the Company's
financial reporting process on behalf of the Board. The Audit Committee is
governed by a written charter approved by the Board. (A copy of this charter
is included as Appendix) Management has the primary responsibility for the
financial statements and the reporting process, including the systems of
internal controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed with management the audited financial statements in the
Annual Report, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments and the clarity of disclosures in the financial statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards.
In addition, the Audit Committee has discussed with the independent auditors
the auditors' independence from management and the Company, including the
matters in the written disclosures required by the Independence Standards
Board Standard No.1 and has considered the compatibility of non-audit services
with the auditors' independence.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form
10-KSB/A for the year ended February 28, 2003 for filing with the SEC.
The Audit Committee and the Board have also recommended, subject to
shareholder approval, the appointment of the Company's independent
auditors.
Respectfully submitted,
The Audit Committee of the Board of Directors
Steven Katz, Chairman
Ross B. Kenzie
Robert S. Bramson
THE FOREGOING AUDIT COMMITTEE REPORT SHALL NOT BE "SOLICITING MATERIAL" OR BE
"FILED" WITH THE SEC, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE
INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT
BY REFERENCE INTO SUCH FILING.
23
FINANCIAL MATTERS AND OTHER INFORMATION
The Company knows of no other matters to be submitted to the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the accompanying form of proxy to vote the
shares they represent as the Board may recommend. The Company filed an Annual
Report on Form 10-KSB with the Securities and Exchange Commission on May 29,
2003 and filed an amended Report on Form 10-KSB/A on June 13, 2003. A copy of
the Amended Annual Report is included with these materials. Additional
information concerning the Company is available on the Company's website,
www.biophan.com. These materials are also available free of charge in print
to investors who request them in writing from the Company's Secretary (at the
address on the cover page).
By Order of the Board of Directors
David A. Miller
Secretary
Dated: July 31, 2003
Rochester, New York
24
APPENDIX
BIOPHAN TECHNOLOGIES, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Organization
This charter governs the operations of the Audit Committee. The Committee
shall review and reassess the charter at least annually and obtain the
approval of the Board of Directors. The Committee shall be members of, and
appointed by, the Board of Directors and shall comprise at least three
Directors, each of whom is independent of management and the Company. Members
of the Committee shall be considered independent as long as they do not
accept any consulting, advisory, or other compensatory fee from the Company
and are not an affiliated person of the Company or its subsidiaries, and meet
the independence requirements of the stock exchange listing standards. All
Committee members shall be financially literate, and at least one member
shall be a "financial expert," as defined by SEC regulations.
Purpose
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the stockholders, potential
stockholders, the investment community, and others relating to the integrity
of the Company's financial statements, the financial reporting process, the
systems of internal accounting and financial controls, the performance of the
Company's independent auditors, the independent auditors' qualifications and
independence, and the Company's compliance with ethics policies and legal
and regulatory requirements. In so doing, it is the responsibility of the
Committee to maintain free and open communication between the Committee, the
independent auditors, and management of the Company.
In discharging its oversight role, the Committee is empowered to investigate
any matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and the authority to engage
independent counsel and other advisors as it determines necessary to carry
out its duties.
Duties and Responsibilities
The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. While the Audit Committee has the
responsibilities and powers set forth in this Charter, it is not the duty of
the Audit Committee to plan or conduct audits or to determine that the
Company's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. Management is
responsible for the preparation, presentation, and integrity of the Company's
financial statements and for the appropriateness of the accounting principles
and reporting policies that are used by the Company. The independent auditors
are responsible for auditing the Company's financial statements and for
reviewing the Company's unaudited interim financial statements.
The Committee, in carrying out its responsibilities, believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and circumstances. The Committee should take appropriate actions
25
to set the overall corporate "tone" for quality financial reporting, sound
business risk practices, and ethical behavior. The following shall be the
principal duties and responsibilities of the Audit Committee. These are set
forth as a guide with the understanding that the Committee may supplement
them as appropriate.
The Committee shall be directly responsible for the appointment and
termination (subject, if applicable, to stockholder ratification),
compensation, and oversight of the work of the independent auditors,
including resolution of disagreements between management and the auditors
regarding financial reporting. The Committee shall pre-approve all audit and
non-audit services provided by the independent auditors and shall not engage
the independent auditors to perform the specific non-audit services
proscribed by law or regulation. The Committee may delegate pre-approval
authority to a member of the Audit Committee. The decisions of any Audit
Committee member to whom pre-approval authority is delegated must be
presented to the full Audit Committee at its next scheduled meeting.
At least annually, the Committee shall obtain and review a report by the
independent auditors describing:
* The firm's internal quality control procedures.
* Any material issues raised by the most recent internal quality control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits
carried out by the firm, and any steps taken to deal with any such
issues.
* All relationships between the independent auditors and the Company (to
assess the auditors' independence).
In addition, the Committee shall set clear Company hiring policies for
employees or former employees of the independent auditors that meet the SEC
regulations and stock exchange listing standards.
The Committee shall discuss with the independent auditors the overall scope
and plans for their audits, including the adequacy of staffing and
compensation. Also, the Committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's policies and procedures to
assess, monitor, and manage business risk, and legal and ethical compliance
programs.
The Committee shall meet separately periodically with management and the
independent auditors to discuss issues and concerns warranting Committee
attention. The Committee shall provide sufficient opportunity for the
independent auditors to meet privately with the members of the Committee. The
Committee shall review with the independent auditors any audit problems or
difficulties and management's response.
The Committee shall receive regular reports from the independent auditors on
the critical policies and practices of the Company, and all alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management.
The Committee shall review management's assertion on its assessment of the
effectiveness of internal controls as of the end of the most recent fiscal
26
year and the independent auditors' report on management's assertion.
The Committee shall review and discuss earnings press releases, as well as
financial information and earnings guidance provided to analysts and rating
agencies. The Committee shall review the interim financial statements and
disclosures under Plan of Operation or Management's Discussion and Analysis
of Financial Condition and Results of Operations with management and the
independent auditors prior to the filing of the Company's Quarterly Report on
Form IO-QSB. Also, the Committee shall discuss the results of the quarterly
review and any other matters required to be communicated to the Committee by
the independent auditors under generally accepted auditing standards. The
Chair of the Committee may represent the entire Committee for the purposes of
this review.
The Committee shall review with management and the independent auditors the
financial statements and disclosures under Plan of Operation or Management's
Discussion and Analysis of Financial Condition and Results of Operations to
be included in the Company's Annual Report on Form IO-KSB, including their
judgment about the quality, not just the acceptability, of accounting
principles, the reasonableness of significant judgments, and the clarity of
the disclosures in the financial statements. Also, the Committee shall
discuss the results of the annual audit and any other matters required to be
communicated to the Committee by the independent auditors under generally
accepted auditing standards.
The Committee shall establish procedures for the receipt, retention, and
treatment of complaints received by the issuer regarding accounting, internal
accounting controls, or auditing matters, and the confidential, anonymous
submission by employees of the issuer of concerns regarding questionable
accounting or auditing matters.
The Committee shall receive corporate attorneys' reports of evidence of a
material violation of securities laws or breaches of fiduciary duty.
The Committee also prepares its report to be included in the Company's annual
Proxy Statement, as required by SEC regulations.
The Committee shall perform an evaluation of its performance at least
annually to determine whether it is functioning effectively.
27
PROXY
BIOPHAN TECHNOLOGIES, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Michael L. Weiner and Robert J. Wood, or
either of them, with full power of substitution, as proxies to vote at the
Annual Meeting of Stockholders of BIOPHAN TECHNOLOGIES, INC. (the "Company")
to be held on August 20, 2003 at 10:00 a.m., local time, and at any
adjournment or adjournments thereof, hereby revoking any proxies heretofore
given, to vote all shares of common stock of the Company held or owned by the
undersigned as directed on the reverse side of this proxy card, and, in their
discretion, upon such other matters as may come before the meeting. If no
direction is made, shares will be voted FOR the election of directors named in
the proxy and FOR Proposals 2, 3, 4, 5 and 6.
1. Election of five (5) directors (INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE
LIST BELOW)
FOR all nominees listed to the right [__] Michael L. Weiner
(except as marked to the contrary) Guenter H. Jaensch
Steven Katz
WITHHOLD AUTHORITY to vote [__] Ross B. Kenzie
for all nominees listed to the right Robert S. Bramson
(Continued and to be signed on reverse side)
FOR AGAINST ABSTAIN
----- --------- ---------
2. Proposal to amend the Company's Certificate [__] [__] [__]
of Incorporation to increase the number of
authorized shares.
3. Proposal to increase the stock allocation to [__] [__] [__]
the Company's 2001 Stock Option Plan.
4. Proposal to amend the formula for granting [__] [__] [__]
options to non-employee directors
5. Proposal to ratify the appointment of [__] [__] [__]
Goldstein Golub Kessler LLP as the
Company's independent auditors for
the year ending February 29, 2004.
6. Transaction of such other business as may [__] [__] [__]
properly come before the meeting or any
adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS.
Dated:_____________, 2003
___________________________________
Signature
___________________________________
Signature
IMPORTANT: Sign the Proxy exactly as
your name or names appear on your
Common Stock certificate; in the case
of Common Stock held in joint
tenancy, each joint tenant must sign.
Fiduciaries should indicate their
full titles and the capacity in which
they sign. Please complete, sign,
date, and return this Proxy promptly
in the enclosed envelope.
I will [ ] will not [ ] attend the Meeting.