UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
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|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-12
Biophan Technologies, Inc.
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(Name of Registrant as Specified in Its Charter)
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|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
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previously. Identify the previous filing by registration statement number, or
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June ______, 2005
To Our Stockholders:
I am pleased to invite you to attend the 2005 Annual Meeting of Stockholders of
Biophan Technologies, Inc. at The Lodge at Woodcliff, 199 Woodcliff Drive,
Fairport, New York 14450 on Wednesday, July 27, 2005, 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 meeting. Also
contained in this package is the Company's 2005 Annual Report to Stockholders,
which includes the Company's Form 10-KSB for the fiscal year ended February 28,
2005 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.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 2005
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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 July
27, 2005, at 10:00 a.m., local time, at The Lodge at Woodcliff, 199 Woodcliff
Drive, Fairport, New York 14450.
1. To elect six (6) members of the Board of Directors to serve until
the 2006 Annual Meeting of Stockholders or until a successor is
elected.
2. To amend and restate the 2001 Stock Option Plan.
3. To approve certain stock option grants made to the non-employee
Board members under the 2001 Stock Option Plan.
4. To ratify the appointment of Goldstein Golub Kessler LLP as the
independent registered public accounting firm for the fiscal year
ending February 28, 2006.
5. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments 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 24, 2005 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
Guenter H. Jaensch
Chairman of the Board
West Henrietta, New York
Date: June ____, 2005
Biophan Technologies, Inc.
150 Lucius Gordon Drive
West Henrietta, New York 14586
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PROXY STATEMENT
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2005 ANNUAL MEETING OF STOCKHOLDERS
JULY 27, 2005
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
General
This Proxy Statement is being furnished to the stockholders of BIOPHAN
TECHNOLOGIES, INC. ("Biophan" or the "Company", "we", "us" and "our") 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, July 27, 2005, at 10:00
a.m., local time, or at any adjournment thereof (the "Annual Meeting"). The
Annual Meeting will be held at The Lodge at Woodcliff, 199 Woodcliff Drive,
Fairport, New York 14450.
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. Attending the Annual Meeting in and of
itself will not constitute a revocation of a proxy.
The shares represented by your proxy will be voted as indicated on your properly
executed proxy. If no directions are given on the proxy, the shares represented
by your proxy will be voted:
(i) FOR the election of the director nominees named herein (Proposal No.
1),t 0 6 unless you specifically withhold authority to vote for one
or more of the director nominees;
(ii) FOR amending and restating the 2001 Stock Option Plan (Proposal No.
2);
(iii) FOR the approval of certain stock option grants made to the
non-employee Board members under the 2001 Stock Option Plan
(Proposal No. 3);
(iv) FOR the ratification of the appointment of Goldstein Golub Kessler
LLP as the Company's independent registered public accounting firm
for the fiscal year ending February 28, 2006 (Proposal No. 4); and
(v) In the discretion of the persons named in the enclosed form of
proxy, on any other paper which may properly come before the Annual
Meeting or any adjournment thereof.
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.
These proxy solicitation materials and the Annual Report on Form 10-KSB for the
fiscal year ended February 28, 2005 (the "Last Fiscal Year") are first being
mailed to stockholders on or about June ______, 2005.
Record Date and Voting Securities
Stockholders of record at the close of business on June 24, 2005 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. At the
Record Date, ______________ shares of the Company's Common Stock, $.005 par
value (the "Common Stock"), were issued and outstanding and held of record by
approximately _____ stockholders.
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 will 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. Directors will be elected by a plurality of the votes cast at the
Annual Meeting. All other proposals set forth in this Proxy Statement, other
than the election of directors or as otherwise required by Nevada law, require a
majority of the votes cast and entitled to vote at the Annual Meeting and will
be approved if the number of votes cast in favor of the proposal exceeds the
number of votes cast in opposition to the proposal.
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.
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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
Proposals No. 2 and No. 3). With respect to a proposal that requires a majority
of the outstanding shares (none of the proposals in this Proxy Statement),
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 2006 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 2006 Annual Meeting of Stockholders, such proposal must be received by the
Company no later than February [ ], 2006. 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 2006 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 May [ ], 2006.
Annual Report on Form 10-KSB
Our Annual Report on Form 10-KSB for the last Fiscal Year (the "Annual Report")
which is mailed to stockholders with this Proxy Statement, contains financial
and other information about us, and such financial information is incorporated
by reference into this Proxy Statement. See "Other Information" below.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board currently consists of six directors each of whom serves until the
Annual Meeting and until his successor is elected and has qualified. The
Company's By-Laws provide that the Board consist of three to nine persons. The
Board has fixed six as the number of directors for purposes of this year's
Annual Meeting who will serve a one year term until the Annual Meeting of
Stockholders to be held in 2006, 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, Ross B.
Kenzie and Michael H. Friebe. 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 a quorum, six 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 16, 2005.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE NOMINEES NAMED
BELOW.
Served as a
Position Within Director
Name Age the Company Since
------------------------------------- ---------- ----------------------------------- ---------------
Guenter H. Jaensch............... 66 Chairman of the Board 2002
Michael L. Weiner................ 57 Chief Executive Officer and
Director 2000
Robert S. Bramson................ 66 Director 2001
Steven Katz...................... 57 Director 2001
Ross B. Kenzie................... 73 Director 2000
Michael H. Friebe................ 40 Director 2005
The principal occupations and business experience for at least the past five
years of each director and nominee is as follows.
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Guenter H. Jaensch, Ph.D. is the former Chairman and CEO of Siemens Pacesetter,
Inc., a manufacturer of pacemakers. During his more than twenty-five 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 Masters 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 of MRV Communications, a publicly traded
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 1982, he
received the President's Award, the top honor at Xerox for an invention
benefiting a major product line. In 1985, Mr. Weiner founded Microlytics, a
Xerox spin-off company which developed technology from the Xerox Palo Alto
Research Center into a suite of products, including the award winning Word
Finder thesaurus, with licenses out to over 150 companies, including Apple,
Microsoft, and Sony. Microlytics was acquired by a merger with a public company
in 1990, which Mr. Weiner then headed up through 1993. In January 1993, Mr.
Weiner co-founded TextWise, a company developing natural language search
technologies for the intelligence community. In 1995, Mr. Weiner co-founded and
served as CEO of Manning & Napier Information Services (MNIS), a Rochester-based
company providing patent analytics, prior art searches, and other services, for
the U.S. Patent and Trademark Office and many large corporations, and which
subsequently acquired TextWise. He held this position until January of 1999.
MNIS remains private, and has generated several spin-off companies (Talavara and
IP.COM). TextWise won the Department of Commerce Tibbet's Award for SBIR
research in 1998. In February 1999, Mr. Weiner founded Technology Innovations,
LLC to develop intellectual property assets. In August 2000, Technology
Innovations created a subsidiary, Biomed Solutions, LLC, to pursue biomedical
and nanotechnology opportunities, investing in embryonic-to-seed stage
innovations which generate new ventures and/or licenses. These companies are
holding companies for intellectual property assets and equities in other
ventures.
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), OncoVista, Inc.,
NaturalNano, Inc., Myotech, LLC, TE Bio, LLC and Nanoset, LLC. Mr. Weiner holds
seventeen U.S. patents. Mr. Weiner has been 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. He is 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.
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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.
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 the 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.
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Michael H. Friebe, Ph.D. is the Chief Executive Officer and President of
Tomovation GmbH (since 2003) and BIOPHAN Europe GmbH (since 2005). Tomovation is
a German company that owns and operates imaging centers in Germany and makes
investments in early stage European medical technology companies. Prior to
forming Tomovation, Dr. Friebe was the founder of Neuromed AG (from 1993 to
2001) and the president of UMS-Neuromed (from 2001 to 2003). These companies
operated mobile MRI, CT and PET systems in a number of European Countries. Dr.
Friebe received his degrees in Electrical Engineering from the University of
Stuttgart in Germany (1988), and a Ph.D. in medical engineering from the
University of Witten in Germany (1995). He also holds a Masters degree in
Management from Golden Gate University in San Francisco (1992). He is a member
of several professional engineering and medical societies. Dr. Friebe is also a
member of the board of INTRAOPMEDICAL, Inc., Santa Clara, CA (since 2004) and
was elected to Biophan's board in February 2005.
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.
Corporate Governance Guidelines
Our Board has long believed that good corporate governance is important to
ensure that we are managed for the long-term benefit of our stockholders. The
Company is currently quoted on the OTC Bulletin Board. The OTC Bulletin Board
currently does not have any corporate governance rules similar to the NASDAQ
Stock Market, Inc. ("NASDAQ"), the American Stock Exchange, Inc. ("AMEX") or any
other national securities exchange or national securities association. However,
the Company intends to apply for listing on NASDAQ or AMEX during this current
fiscal year provided the Company meets the new listing standards of either
NASDAQ or AMEX. Accordingly, during the past year, our Board has continued to
review our governance practices in light of the Sarbanes-Oxley Act of 2002, the
new rules and regulations of the Securities and Exchange Commission (the "SEC")
and the new listing standards of NASDAQ and AMEX, and it has implemented certain
of the foregoing rules and listing standards during this past fiscal year. The
Company has also adopted a Code of Ethics for Senior Financial Officers that is
applicable to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. Our Board is also considering adopting during this current fiscal
year corporate governance guidelines to assist it in the exercise of its duties
and responsibilities and to serve the best interests of Biophan and its
stockholders.
Board Determination of Independence
Under NASDAQ and AMEX rules, generally speaking, a director will only qualify as
an "independent director" if, in the opinion of our Board, that person does not
have a relationship which would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. Our Board has
determined that each of Dr. Jaensch and Messrs. Bramson, Katz and Kenzie do not
have a relationship which would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director and that each of
these directors is an "independent director" as defined under Rule 4200(a)(15)
of the NASDAQ Marketplace Rules and similar AMEX rules.
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The Board and Committees of the Board
The Board held six (6) meetings during the Company's fiscal year ended February
28, 2005. The standing committees of the Board are the Audit Committee and the
Compensation Committee. The Board does not currently have a nominating committee
and has not established any specific procedure for selecting candidates for
director. However, directors are currently nominated by a majority vote of the
Board. There is also no established procedure for shareholder communications
with members of the Board or the Board as a whole. However, shareholders may
communicate with the investor relations department of the Company, and such
communications are either responded to immediately or are referred to the chief
executive officer or chief financial officer of the Company for a response. The
Board intends to form a nominating and corporate governance committee during
this current fiscal year. During fiscal 2005, 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 responsibilities of the Audit Committee as
more fully set forth in the Audit Committee Charter adopted in July 2003 and as
previously provided and posted on our website at www.biophan.com, include
appointing, retaining, replacing, compensating and overseeing the work of the
independent accountants, who report to, and are directly accountable to, the
Committee. The Audit Committee reviews with the independent accountants the
results of the audit engagement, approves professional services provided by the
accountants including the scope of non-audit services, if any, and reviews the
adequacy of our internal accounting controls. The Audit Committee met formally
two (2) times during the Company's fiscal year ended February 28, 2005, but also
met informally on several other occasions. Each member of the Audit Committee
attended all of the meetings. The Board has determined that Messrs. Katz and
Kenzie meet the qualifications as an "audit committee financial expert".
However, currently, each member of the Audit Committee, other than Mr. Kenzie,
is not "independent" as such term is used in Section 10A(m)(3) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"). The Board intends to
reconstitute the Audit Committee during this current fiscal year to provide that
each member will be an "independent" director as such term is used in Section
10A(m)(3) of the Exchange Act.
Compensation Committee. During fiscal 2005, the Compensation Committee was
composed of Messrs. Kenzie (Chairman), Bramson and Katz, and as of June [ ],
2005, it is currently composed of Dr. Jaensch, and Messrs. Kenzie (Chairman),
Bramson and Katz. The responsibilities of the Compensation Committee as more
fully set forth in the Compensation Committee Charter adopted in June 2005 and
as previously provided and posted on our website at www.biophan.com , include
reviewing the Company's compensation policies and establishing executive officer
compensation, and the subcommittee of Dr. Jaensch and Mr. Kenzie will administer
the Company's Stock Option Plan. The Compensation Committee met three (3) times
during the Company's fiscal year ended February 28, 2005. Each member of the
Compensation Committee attended the meetings. All of the members of the
Committee are independent, as independence for Compensation Committee members is
defined under the NASDAQ rules, and all of the members of the Compensation
Committee, except for Messrs. Bramson and Katz are deemed to be non-employee
directors for purposes of Section 162(m) and Rule 16b-3 of the Exchange Act.
-12-
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 $8,000. Dr. Jaensch
received an additional $1,800 per month for serving as Chairman of the Board in
fiscal 2005, and effective June 2005, he will receive $2,000 per month for
serving in such position. In addition, non-employee directors are also eligible
to receive option grants under the Company's Stock Option Plan. The option
grants made to the non-employee directors during the fiscal year ended February
28, 2005 are indicted below. All directors are reimbursed for their reasonable
expenses incurred in attending Board meetings. Steven Katz receives 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.
Options Granted To Directors In Fiscal 2005
The following table sets forth the options granted to the non-employee directors
on our Board in fiscal 2005:
Number of Shares
Underlying Exercise Price Per
Director Options Granted Grant Date Share
--------------------------------- ------------------- ----------------------- ---------------------
Guenter H. Jaensch 190,000 5/10/04 $.97
Guenter H. Jaensch 20,000 7/13/04 $.95
Robert S. Bramson 190,000 5/10/04 $.97
Robert S. Bramson 20,000 7/13/04 $.95
Steven Katz 190,000 5/10/04 $.97
Steven Katz 20,000 7/13/04 $.95
Ross B. Kenzie 190,000 5/10/04 $.97
Ross B. Kenzie 20,000 7/13/04 $.95
Michael H. Friebe 115,000 2/24/05 $1.18
Each option grant for 20,000 shares was made pursuant to the automatic option
grant program in effect for the non-employee directors under the 2001 Option
Plan and is fully vested and exercisable for all of the option shares. Each
option for 190,000 shares will vest and become exercisable in three separate
increments only if certain pre-established Company milestones are attained
during the directors' period of Board service. Further information concerning
the 190,000-share option grants may be found in Proposal No. 3 which seeks
stockholder approval of the grants.
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If Proposal No. 2 is approved by the stockholders, then the automatic option
grant program in effect for the non-employee directors will be enhanced, and
each such director may receive an option grant for up to 50,000 shares of our
common stock at each annual stockholders meeting over his or her period of
continued Board service.
PROPOSAL NO. 2
APPROVAL OF THE AMENDED AND RESTATED 2001 STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve the
Company's amended and restated 2001 Stock Option Plan (the "2005 Restatement").
The 2005 Restatement was adopted by the Board on June 9, 2005, subject to
stockholder approval at the Annual Meeting.
The Company believes that equity-based incentives play a pivotal role
in its efforts to attract and retain the key personnel essential to its
long-term growth and financial success. The 2005 Restatement will provide
additional flexibility to the Company in designing equity-based compensation and
will also enhance the automatic grant program for the non-employee Board members
pursuant to which they will receive equity-based awards at periodic intervals in
accordance with express guidelines approved by the Company's stockholders. The
Company believes that the enhanced program is necessary in order to attract and
retain highly-qualified Board members in light of their increased duties and
responsibilities under recently enacted laws and regulations, including the
Sarbanes-Oxley Act of 2002.
The purpose of the 2005 Restatement is to effect the following changes
to the 2001 Stock Option Plan (the "Plan")
(i) revise the automatic grant program in effect for the
non-employee Board members by increasing the maximum number of shares for which
awards may be made per Board member each year, imposing a vesting schedule on
each such award, authorizing the Compensation Committee to determine whether the
awards are to be made in the form of stock option or restricted stock units and
increasing the maximum term of any option granted under such program from five
(5) to ten (10) years and the post-service exercise period for such option from
three (3) months to one year;
(ii) eliminate the ability of the Compensation Committee as
plan administrator to grant options with an exercise price less than the fair
market value per share of the Company's common stock on the grant date;
(iii) expand the class of individuals eligible to receive
discretionary awards under the Plan to include the non-employee Board members so
that the Compensation Committee will have the authority to make additional
equity-based awards to non-employee Board members who provide exceptional
services to the Company in carrying out their Board responsibilities;
-14-
(iv) provide the Compensation Committee with the authority as
plan administrator to grant restricted stock units which provide for the vesting
and issuance of the underlying shares of common stock following the attainment
of pre-established performance goals or the satisfaction of specified service
requirements;
(v) include a series of performance criteria which the
Compensation Committee as plan administrator may utilize in establishing
specific targets to be attained as a condition to the vesting of one or more
restricted stock or restricted stock unit awards under the Plan so as to qualify
the compensation attributable to those awards as performance-based compensation
for purposes of Section 162(m) of the Internal Revenue Code (the "Code"), as
explained in more detail below; and
(vi) effect a series of technical revisions to the Plan in
order to facilitate the administration of the Plan and comply with recent
changes in the laws and regulations applicable to the Plan and the awards made
thereunder.
The changes effected by the 2005 Restatement will not become
effective unless approved by the Company's stockholders at the Annual Meeting
and will, upon such stockholder approval, apply only to awards made on or after
the Annual Meeting and will not affect any awards previously made under the
Plan.
Summary Description of the Plan
The principal terms and provisions of the Plan, as amended and modified
by the 2005 Restatement, are summarized below. The summary, however, is not
intended to be a complete description of all the terms of the 2005 Restatement
and is qualified in its entirety by reference to the complete text of the 2005
Restatement. Any stockholder who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company's Secretary at the
Company's headquarters: 150 Lucius Gordon Drive, Suite 215, West Henrietta, NY
14586, or by calling (585) 214-2441.
Administration. The Compensation Committee of the Board will have the
exclusive authority to make option grants and other awards under the Plan with
respect to the Company's executive officers and Board members and will also
have the authority to grant options and other awards to all other eligible
individuals. However, if the Board chooses to do so, it may at any time
appoint a secondary committee to make option grants or other awards to
individuals other than executive officers and Board members. In such event,
the secondary committee will be comprised of one or more Board members and
have separate but concurrent authority with the Compensation Committee to
administer the Plan with respect to those individuals.
The term "plan administrator," as used in this summary, will mean the
Compensation Committee and any secondary committee, to the extent each such
entity is acting within the scope of the administrative authority conveyed to
such entity under the Plan.
Eligibility. Executive officers and key employees, non-employee Board
members and independent consultants and contractors (including the members of
the Company's Scientific Advisory Board) in the employ or service of the Company
or any subsidiary (whether now existing or subsequently established) will be
eligible to receive awards under the Plan. The non-employee members of the Board
will also be eligible to receive automatic grants under the Plan as explained in
more detail below. As of May 31, 2005, approximately 42 persons (including five
executive officers and four non-employee Board members) were eligible to receive
option grants and other awards under the Plan.
-15-
Securities Subject to the Plan. 13,000,000 shares of common stock have
been reserved for issuance over the term of the Plan, subject to adjustment for
subsequent stock splits, stock dividends and similar transactions. The 2005
Restatement will not result in any increase to that share reserve.
As of May 31, 2005, options for 8,187,355 shares were outstanding under
the Plan, 11,761,519 shares had been issued, and 1,238,481 shares were available
for future grants.
No participant in the Plan may receive option grants or other stock
awards for more than 2,000,000 shares of common stock in any calendar year,
subject to adjustment for subsequent stock splits, stock dividends and similar
transactions. Stockholder approval of this proposal will also constitute
re-approval of that 2,000,000-share limitation for purposes of Internal Revenue
Code Section 162(m). This limitation will assure that any deductions to which
the Company would otherwise be entitled upon the exercise of stock options
granted under the Plan will not be subject to the $1 million limitation on the
income tax deductibility of compensation paid per executive officer imposed
under Section 162(m).
The shares of common stock issuable under the Incentive Plan may be
drawn from shares of the Company's authorized but unissued common stock or from
shares of the Company's common stock that the Company repurchases, including
shares purchased on the open market or in private transactions.
Shares subject to any outstanding options or other awards under the
Plan that expire or otherwise terminate prior to the issuance of the shares
subject to those options or awards will be available for subsequent issuance
under the Plan. Any unvested shares issued under the Plan that are subsequently
forfeited or that the Company repurchases, at a price not greater than the
original issue price paid per share, pursuant to its repurchase rights under the
Plan will be added back to the number of shares reserved for issuance under the
Plan and will accordingly be available for subsequent issuance.
Discretionary Grant Program. The plan administrator will have complete
discretion to determine which eligible individuals are to receive option grants,
the time or times when those options are to be granted, the number of shares
subject to each such grant, the vesting schedule (if any) to be in effect for
the grant, the maximum term for which the granted option is to remain
outstanding and the status of any granted option as either an incentive stock
option or a non-statutory option under the federal tax laws. The plan
administrator will also have the discretion to determine which eligible
individuals may receive restricted stock awards or restricted stock units and
the terms and conditions of each such award or unit, (including, without
limitation, the applicable vesting schedule and any vesting acceleration
provisions).
-16-
Each granted option will have an exercise price per share determined by
the plan administrator, but the exercise price for each option granted under the
2005 Restatement will not be less than one hundred percent of the fair market
value of the option shares on the grant date. No option will have a term in
excess of ten (10) years. The shares subject to each option will generally vest
in one or more installments over a specified period of service measured from the
grant date. Upon cessation of service, the optionee will have a limited period
of time in which to exercise his or her outstanding options to the extent
exercisable for vested shares.
The plan administrator will have complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. The plan administrator may exercise
such discretion at any time while the options are outstanding.
In order to assure that the compensation attributable to one or more
restricted stock awards or restricted stock units under the Plan will qualify as
performance-based compensation which will not be subject to the $1 million
limitation on the income tax deductibility of the compensation paid per
executive officer which is imposed under Internal Revenue Code Section 162(m),
the plan administrator will also have the discretionary authority to structure
one or more restricted stock awards or restricted stock units so that the shares
of common stock subject to those awards or units will vest only upon the
achievement of certain pre-established corporate performance goals based on one
or more of the following criteria: (1) return on total stockholder equity; (2)
earnings per share; (3) net income (before or after taxes); (4) earnings before
interest, taxes, depreciation and amortization; (5) sales or revenue targets;
(6) return on assets, capital or investment; (7) cash flow: (8) market share;
(9) cost reduction goals; (10) budget comparisons; (11) measures of customer
satisfaction; (12) any combination of, or a specified increase in, any of the
foregoing; (13) implementation or completion of projects or processes strategic
or critical to the Company's business operations; (14) achievement of advances
in research; new product development; development of products to pre-clinical
phase; commencement, advancement or completion of clinical trials for a product;
FDA or other regulatory body approval for commercialization of products; (15)
the listing of shares of the Company's common stock for trading on a national
securities exchange or national securities association and (16) the formation of
joint ventures, research or development collaborations, the execution of
strategic licensing arrangements, the consummation of a major financing
transaction or the completion of other corporate transactions intended to
enhance the Company's revenue or profitability or expand its customer base. In
addition, such performance goals may be based upon the attainment of specified
levels of the Company's performance under one or more of the measures described
above relative to the performance of other entities and may also be based on the
performance of any of the Company's business units or divisions or any
subsidiary. Performance goals may include a minimum threshold level of
performance below which no award will be earned, levels of performance at which
specified portions of an award will be earned and a maximum level of performance
at which an award will be fully earned.
The plan administrator may in its discretion also waive the forfeiture
and cancellation of one or more unvested shares of common stock or restricted
stock units which would otherwise occur upon the cessation of the recipient's
service or the non-attainment of the performance objectives applicable to those
shares or units. Any such waiver will result in the immediate vesting of the
recipient's interest in the shares or units as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the recipient's
cessation of service or the attainment or non-attainment of the applicable
performance objectives. However, no vesting requirements tied to the attainment
of performance objectives may be waived with respect to shares of Common Stock
or restricted stock units which were intended at the time of issuance to qualify
as performance-based compensation under Section 162(m), except in the event of
certain changes in control or ownership.
-17-
Automatic Option Grant Program: Non-Employee Board Members. The 2005
Restatement includes an enhanced automatic option grant program for the
non-employee Board members. Under the revised program, individuals who continue
to serve as non-employee Board members will receive automatic grants at periodic
intervals. Accordingly, on the date of each annual stockholders meeting,
beginning with the Annual Meeting, each individual serving as a non-employee
Board member at that time will automatically be granted an option to purchase a
specified number of shares of the Company's common stock, provided such
individual has not received any other award under the Plan within the preceding
six months. The specific number of shares subject to each such annual option
grant will be determined by the Compensation Committee prior to the annual
stockholders meeting at which that grant will be made, but no such option grant
will cover more 50,000 shares, subject to adjustment for subsequent stock
splits, stock dividends and similar transactions. The number of shares subject
to the annual option grants may vary from year to year, and it is expected that
the size of the option grant to be made under the program will initially be set
at 35,000 shares per continuing non-employee Board member.
The revised automatic grant program will not have any effect upon
options previously granted under the Plan to the non-employee Board members.
Those options will remain outstanding in accordance with their existing terms
and conditions until exercised or until they terminate or expire by their terms.
Each automatic grant under the revised program will have an exercise
price per share equal to the fair market value per share of the Company's common
stock on the grant date and will have a term of ten years, subject to earlier
termination following the optionee's cessation of Board service. The option will
become exercisable for the option shares upon the earlier of (i) the optionee's
completion of one year of Board service measured from the grant date or (ii) his
or her continuation in Board service through the day immediately preceding the
date of the next annual stockholders meeting following such grant date. However,
the option will immediately vest in full upon the optionee's death or disability
while a Board member or upon the occurrence of certain changes in ownership or
control.
The option grants under the automatic option grant program will be
taxable as non-statutory options under the Federal income tax laws.
The Compensation Committee will have the authority to award to one or
more non-employee Board members, in lieu of the annual automatic option grants,
unvested shares of the Company's common stock or restricted stock units covering
such shares which in each instance have an aggregate fair market value
substantially equal to the fair value (as determined for financial reporting
purposes in accordance with Financial Accounting Standard 123R or any successor
standard) of the automatic option grant which such award replaces. Any such
alternative award will be made at the same time the automatic option grant which
it replaces would have been made, and the vesting provisions (including vesting
acceleration) applicable to such award will be substantially the same as in
effect for the automatic option grant so replaced.
-18-
Stockholder approval of this Proposal will constitute pre-approval of
each option or other award granted pursuant to the provisions of the automatic
grant program and, for each option granted under such program, the subsequent
exercise of that option in accordance with its terms, as summarized above.
Automatic Option Grant Program: Scientific Advisory Board Members. The
2005 Restatement also includes an automatic option grant program for the members
of the Company's Scientific Advisory Board. Under the revised program,
individuals who continue to serve as members of the Scientific Advisory Board
will receive automatic grants at periodic intervals. Accordingly, on the first
business day of February each year, beginning February 1, 2006, each individual
serving as a Scientific Advisory Board member at that time will automatically be
granted an option to purchase 8,333 shares of the Company's common stock.
However, if such individual has not been a member of the Scientific Advisory
Board for the entire 12-month period ending immediately prior to the grant date,
then the number of shares subject to the grant will be pro-rated to reflect the
portion of such period in which he or she actually served in that capacity.
Each such automatic grant will have an exercise price per share equal
to the fair market value per share of the Company's common stock on the grant
date and will have a term of ten years, subject to earlier termination following
the optionee's cessation of service on the Scientific Advisory Board. The option
will fully vested upon grant will be immediately exercisable for any or all of
the option shares.
The option grants will be taxable as non-statutory options under the
Federal income tax laws.
Stock Awards. The following table sets forth, as to the Company's Chief
Executive Officer and the four other most highly compensated executive officers
with base salary and bonus for the 2005 fiscal year in excess of $100,000
(collectively referred to herein as the "Named Executive Officers") and the
other individuals and groups indicated, the number of shares of common stock
subject to option grants made under the Plan from inception through May 31,
2005, together with the weighted average exercise price per share in effect for
such option grants.
-19-
Number of Shares Weighted Average
Underlying Options Exercise Price
Name and Position Granted(#) Per Share($)
----------------- ---------- ------------
Named Executive Officers:
Michael L. Weiner ........................................ 1,800,000 $ .70
Chief Executive Officer
Robert J. Wood ........................................... 700,000 $ .78
Chief Financial Officer
Stuart G. MacDonald ...................................... 850,000 $ .71
Vice-President-Research and Development
Jeffrey L. Helfer ........................................ 850,000 $ .71
Vice-President-Engineering
John F. Lanzafame ........................................ 250,000 $ .71
Vice-President-Business Development
All current executive officers as a group (5 persons) ...... 4,450,000 $ .72
Non-Employee Directors:
Guenter H. Jaensch ....................................... 640,000 $ .45
Robert S. Bramson ........................................ 320,000 $ .73
Steven Katz .............................................. 375,000 $ .68
Ross B. Kenzie ........................................... 320,000 $ .73
All current non-employee directors as a group (4 persons) .. 1,655,000 $ .61
All employees, including current officers who are not
executive officers, as a group (approximately 33 persons) .. 2,082,355 $ 1.03
Named Executive Officers:
No awards of restricted stock or restricted stock units have to date
been made under the Plan.
New Plan Benefits
No stock options or other awards will be made pursuant to the 2005
Restatement unless and until the stockholders approve the 2005 Restatement at
the Annual Meeting. If such stockholder approval is obtained, then the following
non-employee Board members will each receive an option grant for 35,000 shares
of common stock upon their election to the Board at the Annual Meeting: Dr.
Guenter Jaensch and Messrs. Robert Bramson, Steven Katz and Ross B. Kenzie. Each
such grant will have an exercise price per share equal to the fair market value
per share of the Company's common stock on the grant date and will vest upon the
earlier of (i) the individual's completion of one year of Board service measured
from the grant date or (ii) such individual's continuation in Board service
through the day immediately preceding the date of the 2006 annual stockholders
meeting. However, the options will immediately vest in full upon the optionee's
death or disability while a Board member or upon the occurrence of certain
changes in ownership or control.
-20-
General Provisions
Vesting Acceleration. In the event the Company experiences a change in
control, each outstanding option will automatically vest in full and become
exercisable for all the option shares, and all unvested shares and restricted
stock units will immediately vest. A change in control will be deemed to occur
in the event (a) the Company is acquired by merger or similar transaction in
which the Company is not the surviving corporation, (b) there occurs a
stockholder-approved sale, transfer or other disposition of all or substantially
all of the Company's assets, (c) any person becomes the beneficial owner of more
than 50% of the outstanding voting securities of the Company or there occurs a
tender or exchange offer for any or all of the Company's common stock or (d)
during any period of two consecutive years a majority of the Board no longer
consists of individuals who were Board members at the beginning of such period,
unless the election of each Board member who was not a director at the beginning
of the period is approved by a vote of at least two-thirds of the Board members
still in office who were directors at the beginning of the period.
Changes in Capitalization. In the event any change is made to the
outstanding shares of the Company's common stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the Company's
receipt of consideration, appropriate adjustments will be made to: (i) the
maximum number and/or class of securities issuable under the Plan; (ii) the
maximum number and/or class of securities for which any one person may be
granted stock options, restricted stock and restricted stock units under the
Plan per calendar year, (iii) the maximum number and/or class of securities for
which grants may subsequently be made under the automatic grant program for the
non-employee Board members, (iv) the number and/or class of securities for which
grants may subsequently be made under the automatic grant program for continuing
Scientific Advisory Board members, (v) the number and/or class of securities and
the exercise price per share in effect under each outstanding option under the
Plan and (vii) the number and/or class of securities subject to each outstanding
restricted stock or restricted stock unit award under the Plan and the issue
price (if any) payable per share. Such adjustments will be designed to preclude
any dilution or enlargement of benefits under the plan or the outstanding awards
thereunder.
Valuation. The fair market value per share of the Company's common
stock on any relevant date under the Plan will be determined as follows:
(i) if the shares are listed on a national exchange,
then the closing price of the share on such stock exchange on such date will be
determinative of fair market value, or
-21-
(ii) if the shares are not at the time listed on a
national exchange, then the last reported sale price for the share in the
over-the-counter market on such date, as reported by the National Association of
Securities Dealers, Inc. OTC Bulletin Board, the National Quotation Bureau
Incorporated or any similar organization or agency reporting prices in the
over-the-counter market will determine the fair market value.
On May 31, 2005, the fair market value per share of the Company's
common stock determined on such basis was $2.76.
Stockholder Rights and Transferability. No optionee will have any
stockholder rights with respect to the option shares until such optionee has
exercised the option and paid the exercise price for the purchased shares.
Options are not assignable or transferable other than by will or the laws of
inheritance following optionee's death, and during the optionee's lifetime, the
option may only be exercised by the optionee.
An individual to whom shares of restricted stock are awarded under the
Plan will have certain stockholder rights with respect to those unvested
shares. Accordingly, the participant will have the right to vote such shares
and to receive regular cash dividends paid on such shares, but will not have
the right to transfer such shares prior to vesting.
Amendment and Termination. The Board may amend or modify the Plan at
any time, subject to any stockholder approval requirements under applicable
law or regulation or pursuant to the listing standards of the stock exchange
(or the NASDAQ National Market) on which the Company's common stock is at the
time primarily traded. Unless sooner terminated by the Board, the Plan will
terminate on the earliest of (i) June 1, 2011, (ii) the date on which all
shares available for issuance under the Plan have been issued as fully-vested
shares or (iii) the termination of all outstanding options in connection with
certain changes in control or ownership.
Summary of Federal Income Tax Consequences
The following is a summary of the Federal income taxation treatment applicable
to us and the participants who receive awards under the 2005 Restatement.
Option Grants. Options granted under the discretionary grant program
may be either incentive stock options which satisfy the requirements of
Section 422 of the Internal Revenue Code or non-statutory options which are
not intended to meet such requirements. The Federal income tax treatment for
the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is recognized for regular
tax purposes at the time the option is exercised, although taxable income may
arise at that time for alternative minimum tax purposes. The optionee will
recognize taxable income in the year in which the purchased shares are sold or
otherwise made the subject of certain other dispositions. 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 more than two (2) years after the date the option for the shares
involved in such sale or disposition is granted and more than one (1) year after
the date the option is exercised for those shares. If the sale or disposition
occurs before these two periods are satisfied, then a disqualifying disposition
will result.
-22-
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 or (if less) the amount realized upon such sale or disposition
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain recognized upon the disposition will
be a capital gain.
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 amount of ordinary
income recognized by the optionee as a result of the disposition. The Company
will not be entitled to any income tax deduction if the optionee makes a
qualifying disposition of the 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 Company will be required to
collect the withholding taxes applicable to such income from the optionee.
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
Company's taxable year in which such ordinary income is recognized by the
optionee.
Restricted Stock Issuances. The recipient will not recognize any
taxable income at the time the shares of restricted stock are issued but will
have to report as ordinary income, as and when those shares vest, an amount
equal to the excess of (i) the fair market value of the shares on the vesting
date over (ii) the price (if any) paid for the shares. The recipient may,
however, elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year the shares of restricted stock are issued an amount
equal to the excess of (i) the fair market value of those shares on the issue
date over (ii) the price (if any paid) paid for such shares. If the Section
83(b) election is made, the recipient will not recognize any additional income
as and when the shares subsequently vest.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the recipient with respect to the issued
shares. The deduction will in general be allowed for the Company's taxable year
in which ends the calendar year in which such ordinary income is recognized by
the recipient.
Restricted Stock Units. No taxable income is recognized upon receipt of
a restricted stock unit. The holder will recognize ordinary income in the year
in which the shares subject to that unit are actually issued to the holder.
The amount of that income will be equal to the fair market value of the shares
on the date of issuance. The Company will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by the holder at
the time the shares are issued. The deduction will be allowed for the taxable
year in which such ordinary income is recognized.
-23-
Deductibility of Executive Compensation. Any compensation deemed paid
by the Company in connection with the disqualifying disposition of incentive
stock option shares or the exercise of non-statutory options granted under the
2005 Restatement should qualify as performance-based compensation for purposes
of Internal Revenue Code Section 162(m) and will not have to be taken into
account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain of the Company's
executive officers. Accordingly, the compensation deemed paid with respect to
options granted under the 2005 Restatement should be deductible by the Company
without limitation under Section 162(m). However, any compensation deemed paid
by the Company in connection with certain option grants made under the Plan
prior to the 2005 Restatement will not qualify as performance-based
compensation and will be subject to the $1 million limitation. In addition,
the compensation attributable to restricted stock awards or restricted stock
units will also be subject to the $1 million limitation, unless the vesting of
the shares is tied solely to one or more of the performance milestones
described above.
Accounting Treatment. Under the accounting principles currently in
effect, option grants made under the Plan to employees and non-employee Board
members will not result in any direct charge to the Company's reported
earnings. However, the fair value of those options is required to be disclosed
in the notes to the Company's financial statements, and the Company must also
disclose, in footnotes to its financial statements, the pro-forma impact those
options would have upon the Company's reported earnings were the fair value of
those options at the time of grant treated as a compensation expense.
Option grants made to employees or non-employee Board members which
vest solely on the basis of performance milestones will be subject to variable
price accounting under current accounting rules. As a result, any appreciation
in the value of the underlying option shares between the grant date and the
milestone achievement date will result in a direct charge to the Company's
reporting earnings. Option grants made to non-employee consultants under the
Plan, such as the Scientific Advisory Board members, will also will result in
a direct charge to our reported earnings based upon the fair value of the
option measured initially as of the grant date and then subsequently on the
vesting date of each installment of the underlying option shares. Such charge
will accordingly include the appreciation in the fair value of the option over
the period between the grant date of the option and the vesting date of each
installment of that option.
The number of outstanding options will be a factor in determining the
Company's earnings per share on a fully-diluted basis.
Shares issuable upon the vesting of restricted stock units awarded
under the Plan will result in a direct charge to the Company's reported
earnings equal to the excess of the fair value of those shares on the date of
the restricted stock unit award over the cash consideration (if any) payable
for such shares. The charge must be recognized against the Company's earnings
ratably over the applicable vesting periods. However, if the vesting of the
shares is tied solely to performance milestones, then the restricted stock
unit award will be subject to variable price accounting, and the Company will
have to accrue compensation expense not only for the value of the shares on
the date of the restricted stock unit award but also for all subsequent
changes in the value of those shares that occurs prior to the vesting date.
Similar accounting treatment will be in effect for any restricted stock
issuances made under the Plan.
-24-
In December 2004 and as revised in April 2005, the Financial Accounting
Standards Board ("FASB") released Statement of Financial Accounting Standards
No. 123R (revised 2004). The accounting standards established by that
statement will require the expensing of stock options, commencing with the
Company's fiscal year beginning March 1, 2006. Accordingly, the foregoing
summary of the applicable accounting treatment for stock options will change,
effective with the Company's fiscal year beginning March 1, 2006, and the
stock options which are granted to the Company's employees and non-employee
Board members, whether vesting is tied to service requirements or performance
milestones, will have to be valued as of the grant date under an appropriate
valuation formula, and that value will then have to be charged as a direct
compensation expense against the Company's reported earnings over the
designated vesting period of the award. Similar option expensing will be
required for any unvested options on the March 1, 2006 effective date, with
the grant date fair value of those unvested options to be expensed against the
Company's earnings over the remaining vesting period. For shares issuable upon
the vesting of restricted stock units awarded under the Plan or for shares
issued as restricted stock, the Company would continue to accrue a
compensation cost equal to the excess of the fair market value of the shares
on the date of the restricted stock unit award over the cash consideration (if
any) paid for such shares. However, such accounting treatment for the
restricted stock units and the restricted stock issuance would be applicable
whether vesting were tied to service periods or performance goals.
Required Vote. The affirmative vote of the holders of a majority of
the Votes Cast on Proposal No. 2 is required for approval of the 2005
Restatement. Should such approval not be obtained, then the 2005 Restatement
will not be implemented. However, the Plan as in effect immediately prior to
the 2005 Restatement will continue in full force and effect until its June 1,
2011 expiration date, and option grants and restricted stock awards may
continue to be made under the Plan until such expiration date or until the
currently existing share reserve is issued.
RECOMMENDATION OF THE BOARD
THE BOARD BELIEVES THAT THIS PROPOSAL IS IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE
2005 RESTATEMENT OF THE 2001 STOCK OPTION PLAN.
PROPOSAL NO. 3
APPROVAL OF NON-EMPLOYEE DIRECTOR OPTION GRANTS
The stockholders are being asked to vote on a proposal to approve
certain stock option grants made to the non-employee Board members on May 10,
2004 under the Company's 2001 Stock Option Plan (the "Plan"), which will only
vest upon the achievement of certain milestones as more fully described below,
-25-
such as the execution of a licensing agreement, the consummation of a
substantial financing transaction and the listing of the Company's common stock
on a national securities exchange or national securities association. At the
same time, options were also granted to the executive officers and key employees
of the Company with the same provision that the options will only vest upon the
achievement of the foregoing milestones.
The Company is seeking stockholder approval because the provisions of
the Plan in effect at the time the grants were made were not entirely clear as
to whether such discretionary option grants to the non-employee Board members
were permissible. Those option grants will not become exercisable unless
approved by the stockholders at the Annual Meeting and will terminate if not so
approved.
The Company believes that the foregoing option grants to the
non-employee Board members were necessary in order to assure their continued
service on the Board. The options have been structured so as to provide
substantial incentives tied to the Company's financial success and will,
accordingly, vest only if major Company milestones tied to the creation of
stockholder value are attained or a substantial change in control or ownership
of the Company occurs during the Board member's continued service with the
Company.
The principal terms of the option grants which are subject to such
stockholder approval may be summarized as follows:
The option grants were made to the following non-employee
Board members: Dr. Guenter Jaensch and Messrs. Robert Bramson, Steven Katz
and Ross B. Kenzie.
Each option grant consists of three separate increments, with
each increment to vest upon the attainment of the specific performance milestone
assigned to that increment. Accordingly, the option will vest and become
exercisable for a 66,500-share increment upon the Company's consummation of a
substantial financing transaction; the option will vest and become exercisable
for an additional 47,500-share increment should the Company's common stock
become listed on the NASDAQ National Market, NASDAQ Smallcap Market or the
American Stock Exchange; and the option will vest and become exercisable for
another 76,000 shares should the Company consummate a substantial licensing or
other strategic transaction having a material effect upon its earnings and/or
revenue and will produce significant cash payments to the Company in the near
term. As of May 31, 2005, only the performance milestone for the 66,500-share
increment had been attained.
Each grant has an exercise price per share of $0.97, the fair
market value per share of the Company's common stock on the grant date, and a
maximum term of ten years, subject to earlier termination one year after the
non-employee Board member's cessation of Board service or three (3) months after
such cessation of Board service if occasioned by his death.
Although it is generally a condition to the vesting of each
increment of the option grant that the non-employee Board member continue in
Board service until the date the performance milestone applicable to that
increment is attained, the Compensation Committee will have the discretionary
authority to accelerate the vesting, in whole or in part, of any or all of those
increments upon the non-employee Board member's cessation of Board service under
circumstances where the Compensation Committee deems such accelerated vesting is
warranted.
-26-
The option will vest and become exercisable as to all the
option shares on an accelerated basis upon certain changes in control or
ownership of the Company.
Each option will be taxable as a non-statutory option under
the federal tax laws and will be treated as a performance vesting option grant
for financial reporting purposes. For further information concerning the tax and
accounting implications of the grant, please see the following sections in
Proposal No. 2 above: "Summary of Federal Income Tax Consequences--Non-Statutory
Options" and "Accounting Treatment."
The remaining terms of the option are substantially the same
as those set forth in Proposal No. 2 with respect to option grants made pursuant
to the automatic grant program for non-employee Board members in effect under
the Company's 2001 Stock Option Plan.
Any stockholder who wishes to obtain a copy of the actual stock option
agreements for these grants may do so upon written request to the Company's
Secretary at the Company's headquarters: 150 Lucius Gordon Drive, Suite 215,
West Henrietta, NY 14586, or by calling (585) 214-2441.
The Company believes that the foregoing option grants to the
non-employee Board members were necessary in order to assure their continued
service on the Board, and such options have been structured so as to provide
substantial incentives tied to the Company's financial success.
Required Vote. The affirmative vote of the holders of a majority of
the Votes Cast on Proposal No. 3 is required for approval of the May 10, 2004
option grants to the non-employee Board members. Should such approval not be
obtained, then those May 10, 2004 stock option grants will be cancelled, and
no shares of the Company's common stock will be issued with respect to those
cancelled options. If the stockholders approve those grants, then the grants
will be treated as authorized option grants under the Plan and will continue
to remain outstanding in accordance with their terms.
RECOMMENDATION OF THE BOARD
A DISINTERESTED MAJORITY OF THE BOARD BELIEVES THAT THIS PROPOSAL IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
FOR THE APPROVAL OF THE MAY 10, 2004 OPTION GRANTS TO THE NON-EMPLOYEE BOARD
MEMBERS.
PROPOSAL NO. 4
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Based on the recommendation of the Audit Committee, the Board has appointed
Goldstein Golub Kessler LLP as the Company's independent registered public
accounting firm, to audit the financial statements of the Company for the fiscal
year ending February 28, 2006 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
registered public accounting firm at any time during the year.
-27-
It is not anticipated that a representative from Goldstein Golub Kessler LLP,
which is located in New York City, will be present at the Annual Meeting.
Members of the Company's Audit Committee are expected to attend the Meeting and
will be available to answer questions.
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.
Principal Accountant Fees and Services
Our principal accountant is Goldstein Golub Kessler LLP (the Firm) which has a
continuing relationship with American Express Tax and Business Services Inc.
(TBS) from which it leases auditing staff who are full time, permanent employees
of TBS and through which its partners provide non-audit services. As a result of
this arrangement, the Firm has no full time employees and therefore, none of the
audit services performed for us were provided by permanent full-time employees
of the Firm. The Firm manages and supervises the audit and audit staff, and is
exclusively responsible for the opinion rendered in connection with its
examination.
1) Audit Fees
The aggregate fees billed by Goldstein Golub Kessler LLP for
professional services rendered for the audits of the Company's
annual financial statements for the last two fiscal years and
for the reviews of the financial statements included in the
Company's quarterly reports on Form 10-QSB and for services in
connection with SEC registration statements during the last
two fiscal years ended February 28, 2005 and February 29, 2004
was $50,584 and $69,386, respectively.
2) Audit-Related Fees
The Company did not engage its principal accountants to
provide assurance and related services during the last two
fiscal years.
3) Tax Fees
-28-
The Company did not engage its principal accountants to
provide tax compliance, tax advice and tax planning services
during the last two fiscal years.
4) All Other Fees
The Company did not engage its principal accountants to render
services to the Company during the last two fiscal years,
other than as reported above.
5) Pre-approval Policies and Procedures
In accordance with its charter, the Audit Committee is
required to approve all audit and non-audit services provided
by the independent registered public accounting firm and shall
not engage the independent registered public accounting firm
to perform the specific non-audit services proscribed by law
or regulation.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE
RATIFICATION OF THE APPOINTMENT OF GOLDSTEIN GOLUB KESSLER LLP AS THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING
FEBRUARY 28, 2006. UNLESS OTHERWISE DIRECTED THEREIN, THE SHARES REPRESENTED BY
YOUR PROXY, IF PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, WILL BE VOTED
FOR SUCH PROPOSAL.
-29-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The table below lists the beneficial ownership of our common stock, as of May
25, 2005, by each person known by us to be the beneficial owner of more than 5%
of our common stock, by each of our directors and executive officers and by all
of our directors and executive officers as a group.
Number of Shares
Name and Address of Beneficially Owned
Beneficial Owner (1) (2) Percent of Class(2)
------------------------------------ ------------------- -------------------
+Guenter H. Jaensch (3) 870,000 1.16%
964 Allamanda Drive
Delray Beach, FL 33483
+Michael L. Weiner (4) 6,916,362 9.06%
693 Summit Drive
Webster, NY 14580
+Robert S. Bramson (5) 100,000 *
1100 East Hector Street
Suite 410
Conshohocken, PA 19428
+Ross B. Kenzie (6) 100,000 *
Cyclorama Bldg. Suite 100
369 Franklin Street
Buffalo, NY 14202
+Steven Katz (7) 155,000 *
20 Rebel Run Drive
East Brunswick, NJ 08816
+Michael Friebe(8) 200,000 *
Paul-Schuerholz-Str. 7
D-45657 Recklinhausen
Germany
Robert J. Wood (9) 282,500 *
12 Peachtree Lane
Pittsford, NY 14534
Stuart G. MacDonald (10) 370,000 *
4663 East Lake Road
Pultneyville, NY 14538
-30-
Jeffrey H. Helfer (11) 410,700 *
1153 Hidden Valley Trail
Webster, NY 14580
John F. Lanzafame (12) 62,500 *
1500 Malone Road
Victor, NY 14564
Technology Innovations, LLC(13) 5,656,501 7.08%
150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586
Biomed Solutions, LLC(14) 5,355,857 7.48%
150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586
All Officers and Directors as 9,467,062 12.15%
a group (10 persons)
------------------
* Denotes less than one percent.
+ Denotes Member of the Board.
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 74,471,997 shares
outstanding as of May 25, 2005, 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 February 28, 2005 are
included in the number of shares beneficially owned and 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 stockholder.
3) Includes 420,000 shares issuable upon exercise of options granted to
Dr. Jaensch.
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 4,175,857 shares owned beneficially and of record by Biomed
and 300,644 shares owned beneficially and of record by Technology
Innovations. Includes 1,180,000 shares issuable upon exercise of
warrants held by Biomed and 650,000 shares issuable upon exercise of
options held by Mr. Weiner.
-31-
5) Includes 100,000 shares issuable upon exercise of options held by Mr.
Bramson.
6) Includes 100,000 shares issuable upon exercise of options held by Mr.
Kenzie. 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.
7) Includes 155,000 shares issuable upon exercise of options held by Mr.
Katz.
8) Includes 100,000 shares owned beneficially and of record by a MRIs
Patent GmbH, of which Dr. Friebe is a 50% owner.
9) Includes 192,500 shares issuable upon exercise of options held by Mr.
Wood.
10) Includes 280,000 shares issuable upon exercise of options held by Mr.
MacDonald.
11) Includes 280,000 shares issuable upon exercise of options held by Mr.
Helfer.
12) Includes 62,500 shares issuable upon exercise of options held by Mr.
Lanzafame.
13) Includes 4,175,857 shares owned beneficially and of record by Biomed
and 1,180,000 shares issuable upon exercise of warrants held by Biomed.
Technology Innovations, LLC is the majority owner of Biomed Solutions,
LLC.
14) Includes 1,180,000 shares issuable upon exercise of warrants held by
Biomed.
-32-
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category Number of securities to be Weighted average Number of securities
issued upon exercise of exercise price of remaining available for
outstanding options, outstanding options, future issuance under equity
warrants and rights warrants and rights compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c) *
-------------------------------- ---------------------------- ------------------------- ------------------------------
Equity compensation plans 7,924,853 $.69 1,980,148
approved by security holders
Equity compensation plans not
approved by security holders -0- -0- -0-
-------------------------------- ---------------------------- ------------------------- ------------------------------
Total 7,924,853 $.69 1,980,148
-------------
* The shares are issuable under the Company's 2001 Stock Option Plan. Such
shares may be issued upon the exercise of stock options or pursuant to
restricted stock awards or restricted stock units which vest upon the attainment
of prescribed performance milestones or the completion of designated service
periods. For further information concerning the 2001 Option Plan, please see
Proposal No. 2.
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 4,175,857
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 Solutions, and with which we have 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 and their members.
3) 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 obligation bears interest at 8% per annum from
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. Since November 30, 2002, this entire
obligation has been 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. On February 10, 2004,
Biomed transferred $300,000 of this obligation to SBI Brightline
Consulting, LLC and converted the remaining balance of $200,000 into
shares of our common stock common. On the same date, SBI converted the
$300,000 obligation transferred to it into shares of our common stock.
-33-
4) On June 4, 2002, we executed a line of credit agreement with Biomed
providing for borrowings up to $250,000. On August 19, 2002, the line
was increased by $100,000 and the expiration date thereof for that
portion of the line was set at August 19, 2003. The payment date of
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 Spectrum stock
purchase agreement commenced. It was later extended to June 1, 2004. On
February 10, 2004, all outstanding balances under the line of credit
were converted to common stock in accordance with the terms of the
credit agreement.
5) Biomed holds warrants to purchase a total of 1,180,000 shares of our
common stock. On March 1, 2001, it received warrants to purchase
200,000 shares at an exercise price of $1.00 in consideration of
management effort and expense incurred on our behalf. On June 4, 2002,
it received warrants to purchase 100,000 shares at an exercise price of
$1.00 in consideration of the extension of the due date for the
Transfer Agreement payment, and warrants to purchase 75,000 shares at
an exercise price of $1.00 in consideration of the grant of the line of
credit. (Wilson Greatbatch also received 150,000 warrants in
consideration of the extension of the due date of the Transfer
Agreement payment). On August 19, 2002, Biomed received warrants to
purchase 30,000 shares in consideration of the increase in the line of
credit commitment, and warrants to purchase 275,000 shares for
additional extensions of the payment terms of the Transfer Agreement
payment. On that date, the exercise price for all 680,000 warrants then
held by 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 another extension
of the Transfer Agreement payment. Each extension of the Transfer
Agreement payment enabled us to retain the MRI-compatible technology
that we acquired under the Transfer Agreement. In connection with each
issuance of warrants to Biomed, our Board determined, without the vote
of Mr. Weiner or Mr. Kenzie, that the consideration received by us was
fair and adequate consideration for the warrants issued.
6) The Company has affiliations with three entities, Biomed Solutions, LLC
("Biomed"), Technology Innovations, LLC ("TI") and Myotech, LLC
("Myotech"), that are related by virtue of common management personnel
and stock ownership. During the current year ended February 28, 2005,
the Company charged Biomed and Myotech for services of certain Company
personnel and charged Biomed, TI and Myotech for expenses allocable to
and paid on their behalf. The total of these charges was $404,754.
During the year ended February 29, 2004 the Company paid expenses on
behalf of Biomed and TI aggregating $120,081. At February 28, 2005, the
combined balances due from these related parties was $220,959. The
amounts do not bear interest and the Company received payment within
forty-five days.
-34-
7) During the year ended February 28, 2005, the Company was billed $9,000
for legal services provided by Bramson & Pressman of which Robert S.
Bramson, a director of the Company, is a partner.
All transactions discussed above are considered by the Board to have been
consummated on terms approximately equivalent to those that might have prevailed
in arms-length transactions with unaffiliated parties under similar
circumstances.
STOCK PERFORMANCE GRAPH
The Company's Common Stock is listed for trading on the OTC Bulletin Board under
the symbol BIPH. The Stock Price Performance Graph set forth below compares the
cumulative total stockholder return on the Company's Common Stock for the period
from [ ] through [ ], with the cumulative total return of the [NASDAQ U.S. Stock
Index] and the [NASDAQ Health Services Index] over the same period. The
comparison assumes $100 was invested on [ ] in the Company's Common Stock, in
the [U.S. Stock Index] and in the [NASDAQ Health Services Index] and assumes
reinvestment of dividends, if any.
[Performance Chart]
December 31, December 31, December 31, December 31, December 31, December 31,
1999 2000 2001 2002 2003 2004
---------------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Biophan
NASDAQ U.S. Stock
Index
NASDAQ Health
Services Index
-35-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board or compensation
committee, or other committee serving as equivalent function, of any other
entity that has one or more of its executive officers serving as a member of our
Board or Compensation Committee. None of the members of our Compensation
Committee has ever been our employee.
EXECUTIVE COMPENSATION
The following table summarizes the annual compensation paid to our named
executive officers during each of the last three fiscal years:
Securities Underlying
Name and Principal Position Year Salary options/SARs
--------------------------- ---- ------ ------------
Michael L. Weiner, CEO 2/28/05 $198,269 1,000,000
Michael L. Weiner, CEO 2/29/04 $175,000 300,000
Michael L. Weiner, CEO 2/28/03 $175,000 250,000
Robert J. Wood, CFO 2/28/05 $134,654 400,000
Robert J. Wood, CFO 2/29/04 $129,000 125,000
Robert J. Wood, CFO 2/28/03 $109,461 50,000
Stuart G. MacDonald,
Vice-President-Research 2/28/05 $149,711 425,000
Stuart G. MacDonald,
Vice-President-Research 2/29/04 $153,846 200,000
Stuart G. MacDonald,
Vice-President-Research 2/28/03 $116,057 100,000
Jeffrey L. Helfer,
Vice-President-Engineering 2/28/05 $149,711 425,000
Jeffrey L. Helfer,
Vice-President-Engineering 2/29/04 $153,846 200,000
Jeffrey L. Helfer,
Vice-President-Engineering 2/28/03 $113,461 100,000
John F. Lanzafame,
Vice-President-Business Development 2/28/05 $53,308* 250,000
---------------
* partial year.
Columnar information required by Item 402(a)(2) of Regulation S-K has been
omitted for categories where there has been no compensation awarded to, earned
by, or paid to, the named executive officers required to be reported in the
table during fiscal years 2003 through 2005.
-36-
Stock Options
On June 22, 2001, the Board adopted the Biophan Technologies, Inc. 2001 Stock
Option Plan. Prior to the 2005 restatement which is the subject of Proposal No.
2, the Option Plan was last amended on July 13, 2004. The Option Plan provides
for the grant of incentive and non-qualified stock options to selected
employees, the grant of non-qualified options to selected consultants and to
directors and advisory board members. The Option Plan is administered by the
Compensation Committee of the Board and authorizes the grant of options or
restricted stock awards for 13,000,000 shares. The Compensation Committee
determines which eligible individuals are to receive options or other awards
under the Plan, the terms and conditions of those awards, the applicable vesting
schedule, the option price and term for any granted options, and all other terms
and conditions governing the option grants and other awards made under the
Option Plan. Non-employee directors will also receive periodic option grants
pursuant to the automatic grant program in effect for them under the Option
Plan. Prior to the 2005 restatement which is the subject of Proposal No. 2, each
such director received an initial grant of options to purchase 20,000 shares,
vesting on the first anniversary of the grant, and additional grants of options
to purchase 20,000 shares on each succeeding anniversary of such director's
election.
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes information concerning stock options granted to
the named executive officers during the last completed fiscal year ended
February 28, 2005:
Percent of Potential Realizable Value at
Number of total Assumed Annual Rates of Stock
securities options/SARs Price Appreciation for Option
underlying granted to Exercise or Term (1)
options/SARs employees in base price Expiration -------------------------------
Name granted (#) fiscal year ($/Sh) date 5% ($) 10% ($)
---------- ----------- ----------- ------ ---------- --------------- ---------------
Michael L. Weiner 1,000,000 24.10% $.97 10/31/13 610,028 1,545,930
Robert J. Wood 400,000 9.64% $.97 10/31/13 244,011 618,372
Stuart G. MacDonald 425,000 10.24% $.97 10/31/13 259,262 657,020
Jeffrey L. Helfer 425,000 10.24% $.97 10/31/13 259,262 657,020
John F. Lanzafame 100,000 2.41% $.67 7/19/14 42,136 106,781
John F. Lanzafame 150,000 3.61% $.74 9/3/14 69,807 176,905
-----------
(1) The dollar amounts under these columns are the result of calculations at
rates set by the Securities and Exchange Commission and, therefore, are not
intended to forecast possible future appreciation, if any, in the price of
the underlying Common Stock.
-37-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
No named executive officer exercised options in the fiscal year ended February
28, 2005. The following table presents the number and values of exercisable and
unexercisable options as of February 28, 2005:
Number of Securities Value of unexercised
underlying unexercised in-the-money
options/SARs at FY-end options/SARs at FY-end
Shares (#) ($)
acquired on Value Exercisable/ Exercisable/
Name exercise realized Unexercisable Unexercisable(1)
---------- -------- -------- ------------- -------------
Michael L. Weiner None - 650,000/1,150,000 $748,000/$205,500
Robert J. Wood None - 192,500/482,500 $225,625/$106,625
Stuart G. MacDonald None - 280,000/545,000 $333,000/$158,000
Jeffrey L. Helfer None - 280,000/545,000 $333,000/$158,000
John F. Lanzafame None - 62,500/187,500 $52,375/$157,125
-----------
(1) As permitted by the rules of the Securities and Exchange Commission, we
have calculated the value of the unexercised in-the-money options at fiscal
year end on the basis of the closing price of $1.55 per share of our Common
Stock as quoted on the OTC Bulletin Board on the last day of the fiscal
year, or February 28, 2005, less the applicable exercise price multiplied
by the number of shares which may be acquired on exercise. NO EXERCISES
Employment Agreements
Each of Michael L. Weiner, President and Chief Executive Officer; Robert J.
Wood, Treasurer, Secretary and Chief Financial Officer; Stuart G. MacDonald,
Vice President of Research and Development; Jeffrey L. Helfer, Vice President of
Engineering; and John F. Lanzafame, Vice President of Business Development, has
entered into employment agreements with Biophan.
Mr. Weiner's employment agreement has an initial term of three years with
subsequent one-year renewal periods. His employment agreement may be terminated
by us for cause or upon his death or disability. In the event of the disability
of Mr. Weiner, termination of his employment agreement by us following a change
in control or termination of his employment agreement by him for good reason,
Mr. Weiner is entitled to receive (i) the unpaid amount of his 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) a material change of Mr. Weiner's duties, (ii) a material breach by us
under the employment agreement, or (iii) a termination of Mr. Weiner's
employment in connection with a change in control.
-38-
As used in Mr. Weiner's employment agreement, "change in control" means: (1) our
merger or consolidation with another entity where the members of our Board do
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
immediately prior to the merger or consolidation, or (2) the sale or other
disposition of all or substantially all of our assets.
In the event of termination for cause, all of Mr. Weiner's unexercised warrants
and options, whether or not vested, will be canceled, and Mr. Weiner will not be
eligible for severance payments. In the event of voluntary termination, Mr.
Weiner's vested warrants and options remain exercisable for one year from the
date of such termination, but he will not be eligible for severance payments.
The employment agreements for each of Messrs. Wood, MacDonald, Helfer and
Lanzafame are terminable by either us or the employee upon 30 days' notice or by
us for cause (as defined in their employment agreements) or upon the death or
disability of the employee. However, each of them is entitled to receive
severance equal to six months' base salary, payable in six equal consecutive
monthly installments in the event that the employee is terminated by us within
ninety (90) days following a change in control. In addition, under such
circumstances each of them will be immediately vested in any options, warrants,
retirement plan or agreements then in effect.
For purposes of the employment agreements for Messrs. Wood, MacDonald, Helfer
and Lanzafame "change in control" means (1) on the date of the merger or
consolidation of Biophan 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 Biophan.
In the event of termination for cause, all unexercised warrants and options held
by the applicable employee, whether or not vested, will be canceled and the
employee will not be eligible for severance payments. In the event of voluntary
termination, all vested warrants and options remain exercisable for one year
from the date of such termination.
-39-
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON 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.
General
The Board's Compensation Committee (the "Compensation Committee") reviews the
Company's compensation policies, establishes executive officer compensation and
administers the Company's Stock Option Plan. 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 and Restricted Stock
In connection with the executive compensation program, long-term incentive
awards in the form of stock options 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, incentive
stock options and restricted stock. This flexibility enables the Company to
fine-tune its grants in order to maximize the alignment of the interests of the
stockholders and management.
Awards of stock options were made to executive officers of the Company in fiscal
year 2004, including the Company's Chief Executive Officer, in order to provide
appropriate incentive to such persons.
-40-
Compensation of Chief Executive Officer
For fiscal year 2005, 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
received a stock option grant in fiscal 2005. Mr. Weiner's base salary for
fiscal 2005 was $200,000 per year, and effective June 1, 2005, it is $225,000,
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 Internal Revenue Code generally disallows a tax deduction
to publicly held companies for compensation exceeding $1 million paid to certain
of the Company's executive officers, unless such compensation is
performance-based pursuant to certain milestones established under a
stockholder-approved plan. The compensation paid to the Company's executive
officers during the 2005 fiscal year did not exceed the $1 million limit per
covered officer. However, the Compensation Committee believes that in
establishing the cash and equity incentive compensation programs for the
Company's executive officers, the potential deductibility of the compensation
payable under those programs should be only one of a number of relevant factors
taken into consideration, and not the sole governing factor. For that reason the
Compensation Committee may provide one or more executive officers with the
opportunity to earn incentive compensation, whether through cash bonus programs
tied to the Company`s financial performance or equity awards tied to the value
of the Company's common stock, which may be in excess of the amount deductible
by reason of Section 162(m) or other provisions of the Internal Revenue Code.
The Compensation Committee believes it is important to maintain cash and equity
incentive compensation at the requisite level to attract and retain the
executive officers essential to the Company's financial success, even if all or
part of that compensation may not be deductible by reason of the Section 162(m)
limitation.
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 DEEMED "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.
-41-
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. 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 Company's independent registered public
accounting firm, 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.
The Audit Committee has discussed with the independent registered public
accounting firm the registered public accounting firm's independence from
management and the Company, including receiving the written disclosures and
letter from the independent registered public accounting firm and discussing the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1, and has considered the compatibility of any non-audit services
with the registered public accounting firm's independence.
The Audit Committee discussed with the Company's independent registered public
accounting firm the overall scope and plans for their audit and such other
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees," as currently in effect. In addition, the
Audit Committee meets with the independent registered public accounting firm,
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 for the
year ended February 29, 2004 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 registered public accounting firm.
Respectfully submitted,
The Audit Committee of the Board of Directors
Steven Katz, Chairman
Ross B. Kenzie
Robert S. Bramson
-42-
THE FOREGOING AUDIT COMMITTEE REPORT SHALL NOT BE "SOLICITING MATERIAL" OR BE
DEEMED "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.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating in the
practice of "householding" proxy statements and annual reports. This means that
only one copy of our proxy statement or annual report may have been sent to
multiple stockholders in your household. We will promptly deliver a separate
copy of either document to you if you call or write us at the following address
or phone number: Biophan Technologies, Inc., 150 Lucius Gordon Drive, Suite 215,
West Henrietta, New York 14586, or by calling (585) 214-2441. If you want to
receive separate copies of the annual report and proxy statement in the future
or if you are receiving multiple copies and would like to receive only one copy
for your household, you should contact your bank, broker, or other nominee
record holders, or you may contact us at the above address and phone number.
OTHER INFORMATION
The Company filed its Annual Report on Form 10-KSB with the Securities and
Exchange Commission on May 27, 2005. A copy of the Annual Report is included
with this Proxy Statement.
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). Filings which the Company makes with the
Securities and Exchange Commission also contain additional information and may
be obtained on the SEC's website at www.sec.gov.
By Order of the Board of Directors
Guenter H. Jaensch
Chairman of the Board
Dated: June ____, 2005
West Henrietta, New York
-43-
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 July 27, 2005 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 and 3. In addition, the shares will be voted as the Board of
Directors of the Company may recommend with respect to any other business as may
properly come before the meeting or any adjournment thereof.
1. Election of six (6) 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
Michael H. Friebe
(Continued and to be signed on reverse side)
FOR AGAINST ABSTAIN
------------------------------------------------
2. To amend and restated the 2001 Stock Option Plan. [__] [__] [__]
3. To approve certain stock option grants made to the non-employee Board
members under the 2001 Stock Option Plan. FOR AGAINST ABSTAIN
------------------------------------------------
[__] [__] [__]
4. To ratify the appointment of Goldstein Golub Kessler LLP as the independent
registered public accounting firm for the fiscal year ending FOR AGAINST ABSTAIN
February 28, 2006. ------------------------------------------------
[__] [__] [__]
5. Transaction of such other business as may properly come before the meeting
or any adjournment thereof. FOR AGAINST ABSTAIN
------------------------------------------------
[__] [__] [__]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Dated: _________________, 2005
-------------------------------- ------------------------------
Signature Signature
I will [_] will not [_] attend the Meeting.
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.
-44-
APPENDIX A
BIOPHAN TECHNOLOGIES, INC.
2001 STOCK OPTION PLAN
(As Amended and Restated Effective July 27, 2005)
1. Title and Purpose. The plan described herein shall be known as the
"Biophan Technologies, Inc. 2001 Stock Option Plan" (the "Plan"). The purpose of
the Plan is to advance the interests of Biophan Technologies, Inc. (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 incentive 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.
This July 27, 2005 Restatement was adopted by the Board on
June 9, 2005 to become effective on July 27, 2005 upon stockholder approval at
the 2005 Annual Meeting. The purpose of this July 27, 2005 Restatement is to
effect the following changes to the Plan:
(i) revise the automatic grant program in effect for the
Non-Employee Directors by increasing the maximum number of shares for which
Awards may be made per Non-Employee Director each year, imposing a vesting
schedule on each such Award, authorizing the Committee to determine whether the
Awards are to be made in the form of Options, Restricted Stock or Restricted
Stock Units and increasing the maximum term of any Option granted under such
program from five (5) to ten (10) years and the post-service exercise period for
such option from three (3) months to one year.
(ii) eliminate the ability of the Committee as plan
administrator to grant Options with an option price less than the Fair Market
Value per share of Common Stock on the grant date;
(iii) expand the class of individuals eligible to receive
discretionary Awards under the Plan to include the Non-Employee Directors;
(iv) provide the Committee with the authority as plan
administrator to grant restricted stock units which provide for the vesting and
issuance of the underlying shares of Common Stock following, the attainment of
pre-established performance goals or the satisfaction of specified service
requirements;
(v) include a series of performance criteria which the
Committee as plan administrator may utilize in establishing specific targets to
be attained as a condition to the vesting of one or more restricted stock or
restricted stock unit awards under the Plan so as to qualify the compensation
attributable to those awards as performance-based compensation under Code
Section 162(m); and
(vi) effect a series of technical revisions to the Plan in
order to facilitate the administration of the Plan and comply with recent
changes in the laws and regulations applicable to the Plan and the Awards made
hereunder.
The changes effected by the July 27, Restatement 2005 shall not
become effective unless and until approved by the Company's stockholders at the
2005 Annual Stockholders Meeting and shall, upon such stockholder approval,
apply only to Awards made on or after that date and shall not affect any
previously granted Awards made the Plan.
2. Definitions. As used herein, the following words or terms have the
meaning set forth below.
2.1 "Award" means an award granted to any key employee,
officer, consultant, or Non-Employee Director in accordance with the provisions
of the Plan in the form of Options, Restricted Stock or Restricted Stock Units.
2.2 "Award Agreement" means the written agreement evidencing
each Award of Restricted Stock or Restricted Stock Units made under the Plan.
2.3 "Board" means the Board of Directors of the Company,
except that, whenever action is to be taken under the Plan with respect to a
Reporting Person, "Board" shall mean only such directors who are disinterested
persons within the meaning of Rule 16b-3 under the Exchange Act or any successor
rule.
2.4 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
2.5 "Committee" means the Compensation Committee of the Board
and any other committee of one or more Board members as may be designated by the
Board to administer the Plan with respect to eligible individuals other than
Reporting Persons. Accordingly, the term "Committee" shall mean the Compensation
Committee and such other committee, to the extent each such entity is acting
within the scope of its administrative authority under the Plan.
2.6 "Common Stock" or "Stock" means the Company's $.005 par
value Common Shares.
2.7 "Company" means Biophan Technologies, Inc., a corporation
established under the laws of the State of Nevada, and its subsidiaries;
provided that with respect to Incentive Stock Options, "subsidiary" shall mean a
"subsidiary corporation" as defined in Section 424(f) of the Code.
2.8 "Designated Beneficiary" means the beneficiary designated
by a Participant, in a manner determined by the Committee, to receive amounts
due or to exercise rights of the Participant in the event of the Participant's
death. In the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
2.9 "Disability means the inability of the Participant to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which is or can be expected to last for a period of not less than
twelve months, all as verified by a physician acceptable to, or selected by, the
Company. However, solely for purposes of the option grants made under Section 8
of the Plan, Disability shall mean the inability of the Non-Employee Director to
perform his or her usual duties in such capacity by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
2.10 "Disinterested Person" means a Non-Employee Director who
satisfies the requirements set forth in Rule 16b-3(b)(3) promulgated by the
Securities and Exchange Commission pursuant to its authority under the Exchange
Act.
2.11 "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any successor statute.
2.12 "Fair Market Value" means the fair market value per share
of Common Stock on a given date, which shall be (i) if the shares of Common
Stock are listed on a national exchange, then the closing price per share of
Common Stock on such stock exchange on such date, provided at least one sale of
Common Stock took place on such exchange on such date, and, if not, then on the
basis of the closing price on the last preceding date on which at least one sale
on such exchange did occur, or (ii) if the shares of Common Stock are not listed
on a national exchange, then the last reported sale price per share of Common
Stock in the over-the-counter market on such date, as reported by the National
Association of Securities Dealers, Inc. OTC Bulletin Board, the National
Quotation Bureau Incorporated or any similar organization or agency reporting
prices in the over-the-counter market, or (iii) if the shares of Common Stock
are not publicly traded, then the value as determined by the Board in good
faith.
2.13 "Incentive Stock Option" ("ISO") means an Option which is
intended to satisfy the requirements of Section 422 of the Code or any successor
provision.
2.14 "Non-Employee Director" means a member of the Board who
is not an employee of the Company.
2.15 "Nonstatutory Stock Option" ("NSO") means an Option which
is not intended to qualify as an Incentive Stock Option.
2.16 "Option" means any Option granted under the Plan and
includes an Incentive Stock Option and a Nonstatutory Stock Option.
2.17 "Option Agreement" means the written agreement evidencing
each Option granted under the Plan.
2.18 "Option Price" means the purchase price per share of
Common Stock upon the exercise of an Option.
2.19 "Outside Director" shall have the same meaning as defined
or interpreted for purposes of Section 162(m) of the Code.
2.20 "Participant" means an individual who has been granted an
Award under the Plan.
2.21 "Reporting Person" means a person required to file
reports under Section 16(a) of the Exchange Act or any successor statute.
2.22 "Restricted Stock" means Stock awarded under Section 10
of the Plan which is subject to certain forfeiture provisions or restrictions on
transfer.
2.23 "Restricted Stock Units" mean the right to receive shares
of Common Stock upon, or after the expiration of a designated time period
following, the attainment of pre-established performance goals or the
satisfaction of specified service requirements
2.24 "Retirement" means termination of employment with the
Company if such termination of employment constitutes normal retirement, early
retirement, disability retirement or other retirement as provided for at the
time of such termination of employment under the applicable retirement program
then maintained by the Company, provided that the Participant does not continue
in the employment of the Company.
2.25 "Scientific Advisory Board" means the advisory board
consisting of noted scientists who advise the Company on the development of its
technology.
3. Shares Subject to the Plan. Subject to adjustment as provided in
Section 12 below, an aggregate of 13,000,000 shares of Common Stock shall be
available for Awards under the Plan. Such shares may be authorized but
previously unissued shares or shares reacquired by the Company, including shares
purchased in the open market. In the event that any outstanding Option granted
under the Plan for any reason expires or is terminated without having been
exercised in full, or any shares of Restricted Stock or any Restricted Stock
Units are forfeited, the shares allocable to the unexercised portion of such
Option or subject to the forfeited Restricted Stock Units, together with any
forfeited shares of such Restricted Stock, shall (unless the Plan shall have
been terminated) become available for subsequent Awards under the Plan; provided
that in no event may the number of shares issued hereunder exceed the total
number of shares reserved for issuance. Subject to adjustment as provided in
Section 12 below, no one person participating in the Plan may receive stock
options, Restricted Stock or Restricted Stock Units for more than 2,000,000
shares of Common Stock in the aggregate per calendar year.
4. Administration of the Plan.
4.1 The Plan shall be administered by the Compensation
Committee of the Board. Except in instances where not otherwise administratively
practicable, each individual appointed to the Compensation Committee shall be
both a Disinterested Person and an Outside Director. The Board may appoint a
secondary Committee of one or more Board members with separate but concurrent
authority with the Compensation Committee to administer the Plan with respect to
eligible individuals other than Reporting Persons. All automatic grants to
Non-Employee Directors and Scientific Advisory Board Members under Sections 8
and 9 shall be made in strict accordance with the express terms and provisions
of those sections of the Plan. Subject to the preceding sentence and the
provisions set forth herein, each Committee acting within the scope of its
administrative authority under the Plan shall have full authority to determine
which eligible individuals are to be granted Awards under the Plan and the time
or times at which those Awards are to be made, to determine the provisions of
Awards, to interpret the terms of the Plan and of Awards made under the Plan, to
adopt, amend and rescind rules and guidelines for the administration of the Plan
and for its own acts and proceedings and to decide all questions and settle all
controversies and disputes which may arise in connection with the Plan. The
Committee shall report any action taken by it to the meeting of the Board next
following such action.
4.2 The decision of the Committee on any matter as to which
the Committee is given authority shall be final and binding on all persons
concerned. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award made
under it.
4.3 Any Award made to a member of the Compensation Committee
other than pursuant to the automatic grants made pursuant to Section 8 of the
Plan must be approved by a disinterested majority of the Board.
5. Indemnification of the Committee. In addition to such other rights
of indemnification as they may have as directors of the Company or as members of
the Committee or otherwise, the members of the Committee shall be indemnified by
the Company as and to the fullest extent permitted by law, including without
limitation, indemnification against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Awards
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is liable
for negligence, bad faith or misconduct in the performance of his duties;
provided that within 60 days after institution of such action, suit or
proceeding a Committee member shall, in writing, offer the Company the
opportunity, at its own expense, to handle and defend the same.
6. Types of Awards Under the Plan. Awards under the Plan may be in the
form of any one or more of the following:
Incentive Stock Options (ISOs)
Nonstatutory Stock Options (NSOs)
Restricted Stock
Restricted Stock Units
All Awards shall be subject to the terms and conditions set
forth herein and to such other terms and conditions as may be established by the
Committee. Determinations by the Committee under the Plan (including without
limitation, determinations of the Participants, the form, amount and timing of
Awards, the terms and provisions of Awards, and the agreements evidencing Awards
need not be uniform and may be made selectively among Participants who receive,
or are eligible to receive, Awards hereunder, whether or not such Participants
are similarly situated. Except as otherwise provided by the Plan or a particular
Award, any determination with respect to an Award may be made by the Committee
at the time of grant of the Award or any time thereafter.
7. Incentive Stock Options and Nonstatutory Stock Options.
7.1 Eligibility. The persons eligible to receive Options under the
Plan are as follows:
(i) officers and key employees of the Company or any
Subsidiary,
(ii) the Non-Employee Directors and the non-employee members
of the board of directors of any Subsidiary, and
(iii) consultants and other independent advisors (including,
without limitation, members of the Scientific Advisory Board) who provide
services to the Company or any Subsidiary.
An employee owning stock possessing more than 10% of the total
combined voting power or value of all classes of stock of the Company or any
parent or subsidiary corporation ("Ten Percent Stockholder") is not eligible to
receive an ISO unless the option price is at least 110% of the Fair Market Value
of the Common Stock at the time the ISO is granted and the ISO option by its
terms is not exercisable more than five years from the date it is granted.
Restricted Stock and Common Stock which a grantee may purchase under outstanding
Options or which is subject to an outstanding Restricted Stock Units awarded to
such grantee shall be treated as stock owned by such grantee for purposes of
this calculation. The Committee also may authorize the granting of ISOs and NSOs
to prospective employees. In the case of a prospective employee, the grant of an
ISO or NSO shall be on the condition of employment by the Company in a key
position, and the date of the grant of the ISO or NSO shall be the date such
employment begins or such later date as the Committee may have specified when
authorizing the grant.
7.2 Grant of ISOs and NSOs
7.2.1 From time to time while the Plan is in effect, the
Committee may, in its absolute discretion, select from among persons eligible to
receive ISOs and NSOs (including persons to whom ISOs and NSOs were previously
granted) those persons to whom ISOs and NSOs are to be granted.
7.2.2 The Committee shall, in its absolute discretion,
determine the number of shares of Common Stock to be subject to each ISO and NSO
made by it under the Plan.
7.2.3 The Committee shall determine at the time of each grant
hereunder whether the option is an ISO or NSO. The terms and conditions of ISOs
shall be subject to and comply with Section 422 of the Code or any successor
provision, and any regulations thereunder.
7.3 Option Price. The option price per share of Common Stock with
respect to each ISO and NSO shall not be less than 100% of the Fair Market Value
per share at the time the ISO or NSO is granted.
7.4 Period of Options. An ISO and NSO shall be exercisable during
such period of time as the Committee may specify, subject, in the case of ISOs,
to any limitation required by the Code. No ISO or NSO shall be exercisable after
the expiration of 10 years from the date the ISO or NSO is granted.
7.5 Vesting of Options. Each ISO and NSO shall be exercisable at
such time or times as the Committee shall determine. In the case of an ISO or
NSO exercisable in installments, the Committee may later determine to accelerate
the time at which one or more of such installments may be exercised. The
Committee may impose such conditions with respect to the exercise of ISOs and
NSOs, including conditions relating to the attainment of specific pre-determined
stock price goals or other performance criteria or conditions relating to
applicable federal or state tax or securities laws, as it considers necessary or
advisable and such conditions may differ with respect to each Participant.
7.6 Limitation on Grant of ISOs. The aggregate Fair Market Value
(determined as of the date the ISO is granted) of the shares with respect to
which ISOs are exercisable for the first time by a grantee during any calendar
year (under all such plans of the Company) shall not exceed $100,000.
7.7 Options Non-Transferable. No ISO or NSO granted under the Plan
shall be transferable other than by will or by the laws of descent and
distribution. No interest of a Participant under an ISO or NSO or the Plan shall
be subject to the attachment, execution, garnishment, sequestration, the laws of
bankruptcy or any other legal equitable process. During the lifetime of the
Participant, ISOs and NSOs shall be exercisable only by the Participant who
received them.
7.8 Termination of Employment.
7.8.1 Death During or After Employment. If a Participant dies
during employment or within three (3) months after terminating employment, and
at a time when the Participant is entitled to exercise an ISO or NSO, then at
any time or times within one year after death (or such greater or lesser period
after death as the Committee may authorize for inclusion in the documentation
evidencing the ISO or NSO) such ISO or NSO may be exercised, but only as to any
or all of those shares which the Participant was entitled to purchase
immediately prior to the Participant's death (unless the Committee within thirty
(30) days after the Participant's death shall have accelerated the vesting of
the ISO or NSO). ISOs or NSOs exercisable after death may be exercised by the
Participant's Designated Beneficiary, and except as so exercised, shall expire
at the end of the specified post-death exercise period. In no event, however,
may any ISO or NSO granted under the Plan be exercised after the expiration date
of the maximum term established for the ISO or NSO at the time of grant.
7.8.2 Retirement or Disability. In the event of a
Participant's Retirement or Disability at a time when the Participant is
entitled to exercise an ISO or NSO, then within three months after Retirement or
one year after Disability (or such greater or lesser period after Retirement or
Disability as the Committee may authorize for inclusion in the documentation
evidencing the ISO or NSO) the Participant may exercise such ISO or NSO only as
to those shares which the Participant was entitled to purchase immediately prior
to such Retirement or Disability (unless the Committee within thirty (30) days
after the Participant's Retirement or Disability shall have accelerated the
vesting of the ISO or NSO). If the Participant dies within the specified
post-Retirement or post-Disability exercise period, the Participant's ISO or NSO
may be exercised by the Participant's Designated Beneficiary, to the same extent
as if the deceased Participant had survived, during the greater of (i) one year
from the date of his death or, if a post-Retirement or post-Disability exercise
period greater than three months or one year, respectively, was specified in the
ISO or NSO documentation, (ii) the remainder of that longer period.
Except as exercised within the applicable period described above, each
ISO or NSO shall expire at the end of such period. In no event, however, may any
ISO or NSO granted under the Plan be exercised after the expiration date of the
maximum term established for the ISO or NSO at the time of grant.
7.8.3 Other Terminations of Employment. If the employment of a
Participant is terminated for cause, the Participant's option rights, both
accrued and future, under any then outstanding ISO or NSO shall be forfeited and
terminated immediately and may not thereafter be exercised to any extent.
If the employment of a Participant is terminated for any reason other than
cause, death, Retirement or Disability at a time when the Participant is
entitled to exercise an ISO or NSO, then within three months after such
termination of employment (or such greater or lesser period after termination of
employment as the Committee may authorized for inclusion in the documentation
evidencing the ISO or NSO), the Participant may exercise such ISO or NSO only as
to those shares which the Participant was entitled to purchase immediately prior
to such termination of employment (unless the Committee within thirty (30) days
after the Participant's termination of employment shall have accelerated the
vesting of the ISO or NSO). If the Participant dies within the specified
post-termination of employment exercise period, the Participant's ISO or NSO may
be exercised by the Participant's Designated Beneficiary, to the same extent as
if the deceased Participant had survived, during a period equal to the greater
of one year from the date of the Participant's death or the remainder of such
specified post-termination of employment exercise period. In no event, however,
may any ISO or NSO granted under the Plan be exercised after the expiration date
of the maximum term established for the ISO or NSO at the time of grant.
If the Committee so decides, an ISO or NSO may provide that a leave of
absence granted by the Company is not a termination of employment for the
purpose of this subsection 7.8.3 and, in the absence of such a provision, the
Committee may, in any particular case, determine that such a leave of absence is
not a termination of employment for such purpose.
7.8.4 Notwithstanding the terms and provisions of Sections
7.8.1, 7.8.2, and 7.8.3, the Committee, at any time, may establish such other
terms and provisions with respect to the exercise of an ISO or NSO by a
Participant upon the death, Disability, or other termination of employment of
such person as it, in its sole discretion, deems advisable.
7.9 Discretionary Authority to Effect Certain Changes. The Committee
shall have complete discretion, exercisable either at the time while an Option
granted under this Section 7 remains outstanding, to effect any or all of the
following changes to that Option:
(i) extend the period of time for which the Option is to
remain exercisable following the Participant's termination of employment from
the limited exercise period otherwise in effect for that Option to such greater
period of time as the Committee Administrator shall deem appropriate, but in no
event beyond the expiration of the option term,
(ii) include an automatic extension provision whereby the
specified post-employment exercise period in effect for the Option shall
automatically be extended by an additional period of time equal in duration to
any interval within the specified post-employment exercise period during which
the exercise of that Option or the immediate sale of the shares acquired under
such Option could not be effected in compliance with applicable federal and
state securities laws, but in no event shall such an extension result in the
continuation of such Option beyond the expiration date of the term of that
Option, and/or
(iii) accelerate the vesting and exercisability of the Option
in whole or in part.
8. Non-Employee Director Stock Options.
8.1 Restatement of Automatic Grant Program. The provisions of this
amended and restated Section 8 automatic grant program for the Non-Employee
Directors shall become effective upon stockholder approval of the July 27, 2005
restatement of the Plan at the 2005 Stockholders Meeting, and the initial grants
under the amended and restated program will be made at the 2005 Stockholder
Meeting if the restatement is approved by the stockholders. All Options
previously granted under the Plan to the Non-Employee Directors, whether
pursuant to Section 8 as in effect prior to the July 27, 2005 restatement or any
other provision of the Plan, which are outstanding under that Plan on date of
the 2005 Annual Stockholders Meeting shall continue in full force and effect in
accordance with their terms, and no provision of the July 27, 2005 restatement
of the Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of those Options with respect to their acquisition of
shares of Common Stock thereunder.
8.2 Automatic Grants. On the date of each annual stockholders
meeting, beginning with the 2005 Annual Meeting, each individual who is to
continue to serve as a Non-Employee Director, whether or not that individual is
standing for re-election to the Board at that particular annual meeting, shall
automatically be granted a NSO to purchase not more than fifty thousand (50,000)
shares of Common Stock, provided such individual has not otherwise received an
Award under the Plan within the preceding six (6) months. There shall be no
limit on the number of such annual Option grants any one continuing Non-Employee
Director may receive over his or her period of Board service. The actual number
of shares for which such annual Option grants are made to each continuing
Non-Employee Director shall (subject to the 50,000-share limit) be determined by
the Committee on or before the date of the annual stockholders meeting at which
those grants are to be made.
8.3 Option Price. The option price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
8.4 Option Term. Each Option shall have a maximum term of ten (10)
years measured from the option grant date, subject to earlier termination
following the Non-Employee Director's cessation of service as a Board member.
8.5 Vesting. Each Option shall vest and become exercisable for all
the option shares upon the earlier of (i) the Non-Employee Director's completion
of the one (1)-year period of service as Board member measured from the grant
date or (ii) his or her continuation in such Board service through the day
immediately preceding the next annual stockholders meeting following such grant
date.
8.6 Options Non-Transferable. No Option granted under this Section 8
shall be transferable other than by will or by the laws of descent and
distribution. No interest of a Non-Employee Director under such Option or the
Plan shall be subject to attachment, execution, garnishment, sequestration, the
laws of bankruptcy or any other legal or equitable process. During the lifetime
of the Non-Employee Director, the Options under this Section 8 shall be
exercisable only by the Non-Employee Director who received them.
8.7 Termination of Board Service. The following provisions shall
govern the exercise of any Options granted to a Non-Employee Director under this
Section 8 and outstanding at the time of his or her cessation of Board service:
(i) The Non-Employee Director (or, in the event of the
Non-Employee Director's death while holding the Option, the personal
representative of his or her estate or his or her Designated Beneficiary) shall
have a twelve (12)-month period following the date of his or her cessation of
Board service in which to exercise such Option.
(ii) During the twelve (12)-month exercise period, the Option
may not be exercised in the aggregate for more than the number of shares of
Common Stock for which the Option is exercisable at the time of the Non-Employee
Director's cessation of Board service. However, should the Non-Employee Director
cease to serve as a Board member by reason of death or Disability, then the
Option shall immediately become exercisable for all of the option shares, and
such Option may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for any or all of those shares as fully
vested shares of Common Stock.
(iii) In no event shall the Option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
Option shall terminate and cease to be outstanding for any shares for which the
Option has not been exercised. However, the Option shall, immediately upon the
Non-Employee Director's cessation of Board service for any reason (other than
cessation of Board service by reason of death or Disability), terminate and
cease to be outstanding to the extent the Option is not otherwise at that time
exercisable for one or more of the option shares.
8.8 Remaining Terms. The remaining terms of each grant shall be the
same as the terms in effect for all other NSO grants made under the Plan,
including (without limitation) the vesting acceleration provisions of Section
12.2.
8.9 Alternative Awards. The Committee shall have full power and
authority to award, in lieu of one or more annual automatic Option grants under
this Section 8, shares of Restricted Stock or Restricted Stock Units which in
each instance have an aggregate Fair Market Value substantially equal to the
fair value (as determined for financial reporting purposes in accordance with
Financial Accounting Standard 123R or any successor standard) of the automatic
Option grant which such award replaces. Any such alternative award shall be made
at the same time the automatic Option grant which it replaces would have been
made, and the vesting provisions (including vesting acceleration in accordance
with Section 12.2) applicable to such award shall be substantially the same as
in effect for the automatic Option grant so replaced.
9. Scientific Advisory Board Member Stock Options.
9.1 Restatement of Automatic Grant Program. The provisions of this
amended and restated Section 9 automatic grant program for the Scientific
Advisory Board Members shall become effective upon stockholder approval of the
July 27, 2005 restatement of the Plan at the 2005 Stockholders Meeting, and the
initial grants under the amended and restated program will be made on February
1, 2006 if the restatement is approved by the stockholders. All Options
previously granted under the Plan to the Scientific Advisory Board Members which
are outstanding under that Plan on date of the 2005 Annual Stockholders Meeting
shall continue in full force and effect in accordance with their terms, and no
provision of the July 27, 2005 restatement of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of those Options
with respect to their acquisition of shares of Common Stock thereunder.
9.2 Automatic Grants. On the first business day in February each
year, beginning February 1, 2006, each individual who is to continue to serve as
a Scientific Advisory Board Member shall automatically be granted a NSO to
purchase eight thousand three hundred thirty three (8,333) shares of Common
Stock. However, if such individual has not been a Scientific Advisory Board
Member for the entire twelve (12)-month period ending immediately prior to the
grant date, then the number of shares subject to the grant shall be pro-rated to
reflect the portion of such period during which such individual actually served
in that capacity. There shall be no limit on the number of such annual share
Option grants any one continuing Scientific Advisory Board Member receive over
his or her period of service in such capacity.
9.3 Option Price. The option price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
9.4 Option Term. Each Option shall have a maximum term of ten (10)
years measured from the option grant date, subject to earlier termination
following the Scientific Advisory Board Member's cessation of service in such
capacity.
9.5 Vesting. Each Option granted under this Section 9 to a
Scientific Advisory Board Member shall be fully vested and immediately
exercisable for any or all of the option shares.
9.6 Options Non-Transferable. No Option granted under this Section 9
shall be transferable other than by will or by the laws of descent and
distribution. No interest of a Scientific Advisory Board Member under such
Option or the Plan shall be subject to attachment, execution, garnishment,
sequestration, the laws of bankruptcy or any other legal or equitable process.
During the lifetime of the Scientific Advisory Board Member, the Options under
this Section 9 shall be exercisable only by the Scientific Advisory Board Member
who received them.
9.7 Termination of Service. The following provisions shall govern
the exercise of any Options granted to a Scientific Advisory Board Member under
this Section 9 and outstanding at the time of his or her cessation of service in
such capacity:
(i) Should the Scientific Advisory Board Member cease service
in such capacity for any reason (other than for cause), then such Scientific
Advisory Board Member (or, in the event of the Scientific Advisory Board
Member's death while holding the option, the personal representative of his or
her estate or his or her Designated Beneficiary) shall have a twelve (12)-month
period following the date of such cessation of service in which to exercise such
Option.
(ii) In no event shall the Option remain exercisable after the
expiration of the option term. Upon the expiration of the applicable twelve
(12)-month exercise period or (if earlier) upon the expiration of the option
term, the Option shall terminate and cease to be outstanding for any shares for
which the Option has not been exercised.
(iii) Should the Scientific Advisory Board Member be
discharged from service for cause, then all Options granted to such individual
shall immediately terminate and cease to be exercisable for any of the option
shares.
9.8 Remaining Terms. The remaining terms of each grant shall be the
same as the terms in effect for all other NSO grants made under the Plan,
including (without limitation) the vesting acceleration provisions of Section
12.2.
10. General Provisions Applicable to All Options.
10.1 Exercise of Options; Payment of Option Price. Options may be
exercised (in full or in part) only by written notice of exercise delivered to
the Company at its principal executive office, accompanied by payment equal to
the full Option Price for the shares of Stock which are exercised, unless the
Option is to be exercised pursuant to the same day exercise and sale procedure
described in the next sentence. The Option Price of each share of Common Stock
purchased upon exercise of an Option shall be paid in full in cash at the time
of exercise; by delivery to the Company shares of Common Stock owned by the
Participant, by delivering to the Company (i) irrevocable instructions to
deliver the stock certificates representing the shares of Stock for which the
Option is being exercised, directly to a broker, and (ii) instructions to the
broker to sell such shares of Stock and deliver to the Company on the settlement
date the portion of the proceeds equal to the total Option Price; or in any
combination thereof. For purposes of making payment in shares of Common Stock,
such shares shall be valued at their Fair Market Value on the date of exercise
of the Option and shall have been held by the Participant for the requisite
period (if any) necessary to avoid any resulting charge to the Company's
earnings for financial reporting purposes.
10.2 Documentation of Options. Each Option Agreement shall specify
the terms and conditions of the Option and contain such other terms and
conditions not inconsistent with the provisions of the Plan as the Committee
considers necessary or advisable to achieve the purposes of the Plan or comply
with applicable tax and regulatory laws and accounting principles. The Option
Agreement with respect to ISOs shall provide, among other things, that the
Participant shall advise the Company immediately upon any sale or transfer of
shares of Common Stock received upon exercise of the Option to the extent such
sale or transfer takes place prior to the later of two (2) years from the date
of grant or one (1) year from the date of exercise.
10.3 Tax Withholding. The Committee shall require, on such terms as
it deems necessary, that the Participant pay to the Company or make other
satisfactory provision for payment of, any federal, state or local taxes
required by law to be withheld in respect to Options under the Plan. In the
Committee's discretion, such tax withholding obligations may be paid in whole or
in part in shares of Common Stock, including shares retained from the Option
creating the withholding tax obligation, valued at their Fair Market Value on
the date of delivery. The Company may, to the extent permitted by law, deduct
any such withholding tax obligations from any payment of any kind otherwise due
to the Participant.
10.4 Amendment of Options. The Committee may modify or amend any
outstanding Option if it determines, in its sole discretion, that amendment is
necessary or advisable in the light of any addition to or change in the Code or
in the regulations issued thereunder, or any federal or state securities laws or
other law or regulation, which change occurs after the date of grant of the
Option and by its terms applies to the Option. In addition, subject to the terms
and conditions and within the limitations of the Plan, the Committee may modify,
amend, extend or renew outstanding Options granted under the Plan, or accept the
surrender of outstanding Options under the Plan or under any other stock option
plan of the Company (to the extent not theretofore exercised) and authorize the
granting of new Options under the Plan in substitution therefor (to the extent
not theretofore exercised). No amendment of an outstanding Option, however, may,
without the consent of the Participant, make any changes which would adversely
affect the rights of such Participant.
11. Restricted Stock.
11.1 The Committee may, in its discretion, make Awards of Restricted
Stock or Restricted Stock Units to such officers, key employees, Non-Employee
Directors, Scientific Advisory Board Members and any other individuals eligible
to receive ISO or NSO grants under Section 7.1 of the Plan, with such Awards to
made in the manner provided in Section 6 of this Plan. Such Awards shall be
evidenced by an Award Agreement in such form, and containing such terms and
conditions as are not inconsistent with this Plan, as the Committee shall, from
time to time, determine. Restricted Stock awarded hereunder shall be subject to
such restrictions as may be determined by the Committee and set out in the Award
Agreement.
11.2 Restricted Stock shall be subject to a restriction period
(after which restrictions will lapse) which shall mean a period commencing on
the date the Award is granted and ending on such date as the Committee shall
determine (the "Restriction Period"). The Committee may provide for the lapse of
restrictions in installments where deemed appropriate.
11.3 Except when the Committee determines otherwise pursuant to
Section 11.5, if a Participant terminates employment with the Company for any
reason before the expiration of the Restriction Period, all shares of Restricted
Stock still subject to the restriction shall be forfeited by the Participant and
shall be reacquired by the Company.
11.5 Except as otherwise provided in this Section 11, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
11.5 In cases of death, Disability or Retirement or in cases of
special circumstances, the Committee may, in its sole discretion when it finds
that a waiver would be in the best interests of the Company, elect to waive any
or all remaining restrictions with respect to such Participant's Restricted
Stock. However, no vesting requirements tied to the attainment of performance
goals may be waived with respect to Restricted Stock Awards which were intended,
at the time those Awards were made, to qualify as performance-based compensation
under Code Section 162(m), except otherwise provided in Section 12.2.
11.6 The Committee may require, under such terms and conditions as
it deems appropriate or desirable, that the certificates for the shares of
Restricted Stock delivered under the Plan may be held in custody by a bank or
other institution, or that the Company may itself hold such shares in custody
until the Restriction Period expires or until restrictions thereon otherwise
lapse, and may require, as a condition of any Award of Restricted Stock that the
Participant shall have delivered a stock power endorsed in blank relating to the
Restricted Stock.
11.7 Subject to Section 11.6, each Participant entitled to receive
shares of Restricted Stock under the Plan shall be issued a certificate for
those shares. Such certificate shall be registered in the name of the
Participant and shall bear an appropriate legend reciting the terms, conditions
and restrictions, if any, applicable to such Award and shall be subject to
appropriate stop-transfer orders.
11.8 The restrictions imposed under this Section 11 shall apply as
well to all shares or other securities issued in respect of the Restricted Stock
in connection with any stock split, stock dividend, recapitalization,
reclassification, merger, consolidation or reorganization, but such restrictions
shall expire or terminate at such time or times as may be specified therefor in
the Award Agreement.
11.9 Shares of Common Stock may also be issued under this Section 11
pursuant to Restricted Stock Units which entitle the recipients to receive the
shares underlying those units upon the attainment of designated performance
goals or the satisfaction of specified service requirements or upon the
expiration of a designated time period following the vesting of those units.
11.10 Outstanding Restricted Stock Units shall automatically
terminate, and no shares of Common Stock shall actually be issued in
satisfaction of those units, if the performance goals or service requirements
established for such units are not attained or satisfied. The Committee,
however, shall have the discretionary authority to issue vested shares of Common
Stock under one or more outstanding Restricted Stock Units as to which the
designated performance goals or service requirements have not been attained or
satisfied. However, no vesting requirements tied to the attainment of
performance goals may be waived with respect to Restricted Stock Units which
were intended, at the time those units were granted, to qualify as
performance-based compensation under Code Section 162(m), except otherwise
provided in Section 12.2
11.11 The Committee shall also have the discretionary authority,
consistent with Code Section 162(m), to structure one or more Awards of Restrict
Stock or Restricted Stock Units so that the shares of Common Stock subject to
those Awards shall vest (or vest and become issuable) upon the achievement of
certain pre-established corporate performance goals based on one or more of the
following criteria: (1) return on total stockholder equity; (2) earnings per
share of Common Stock; (3) net income (before or after taxes); (4) earnings
before interest, taxes, depreciation and amortization; (5) sales or revenue
targets; (6) return on assets, capital or investment; (7) cash flow; (8) market
share; (9) cost reduction goals; (10) budget comparisons; (11) measures of
customer satisfaction; (12) any combination of, or a specified increase in, any
of the foregoing; (13) implementation or completion of projects or processes
strategic or critical to the Company's business operations; (14) achievement of
advances in research; new product development; development of products to
pre-clinical phase; commencement, advancement or completion of clinical trials
for a product; FDA or other regulatory body approval for commercialization of
products; (15) the listing of shares of the Company's common stock for trading
on a national securities exchange or national securities association; and (16)
the formation of joint ventures, research or development collaborations, the
execution of strategic licensing arrangements, the consummation of a major
financing transaction or the completion of other corporate transactions intended
to enhance the Company's revenue or profitability or expand its customer base.
In addition, such performance goals may be based upon the attainment of
specified levels of the Company's performance under one or more of the measures
described above relative to the performance of other entities and may also be
based on the performance of any of the Company's business units or divisions or
any Subsidiary. Performance goals may include a minimum threshold level of
performance below which no award will be earned, levels of performance at which
specified portions of an award will be earned and a maximum level of performance
at which an award will be fully earned.
12. Adjustment Upon Changes in Capitalization; Changes in Control.
12.1 If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration, appropriate adjustments shall be
made by the Compensation Committee to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted Options, Restricted Stock and
Restricted Stock Units under the Plan per calendar year, (iii) the maximum
number and/or class of securities for which grants may subsequently be made
under Section 8 to continuing Non-Employee Directors, (iv) the number and/or
class of securities for which grants may subsequently be made under Section 9 to
continuing Scientific Advisory Board Members, (v) the number and/or class of
securities and the option price per share in effect under each outstanding
Option under the Plan and (vi) the number and/or class of securities subject to
each outstanding Restricted Stock or Restricted Stock Unit Award under the Plan
and the issue price (if any) payable per share. Such adjustments to the
outstanding Options and Restricted Stock and Restricted Stock Unit Awards are to
be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under those Options and Awards. The adjustments determined
by the Compensation Committee shall be final, binding and conclusive.
12.2 Notwithstanding any provisions contained in this Plan or in an
Option Agreement deferring the rights of a Participant to exercise the Option,
the Option shall become fully vested and the Participant shall be entitled to
exercise such Option, in whole or in part, (i) immediately following the first
purchase of Common Stock pursuant to a tender offer or exchange offer (other
than an offer by the Company) for all, or any part of, the Common Stock; or (ii)
commencing on the date of approval by the shareholders of the Company of an
agreement for (a) a merger or consolidation or similar transaction in which the
Company is not the surviving corporation or (b) a sale or exchange or other
disposition of all or substantially all of the Company's assets; or (iii)
immediately following a "change of control" of the Company (as such term is
defined in Section 12.3 hereinafter); provided, however, that the Option may be
cancelled by the Company as of the effective day of any such reorganization,
merger, consolidation, plan of exchange or of any dissolution or liquidation of
the Company by giving notice to the Participant of its intention to do so and by
permitting the purchase of all of the Shares then subject to the Option, for a
period of approximately thirty (30) days thereafter.
12.3 For the purposes of this Plan, a "change in control" of the
Company shall be deemed to have occurred if (i) any "person" (as that term is
used in Sections 12(d) and 14(d)(2) of the Exchange Act) is or becomes the
"beneficial owner" (as that term is defined by the Securities and Exchange
Commission for purposes of Section 13(d) of the Exchange Act), directly or
indirectly, of more than 50% of the outstanding voting securities of the Company
or its successors; or (ii) during any period of two consecutive years a majority
of the Board of Directors no longer consists of individuals who were members of
the Board of Directors at the beginning of such period, unless the election of
each director who was not a director at the beginning of the period was approved
by a vote of at least two-thirds of the directors still in office who were
directors at the beginning of the period.
12.4 The restrictions applicable to outstanding Awards of Restricted
Stock issued pursuant to Section 11 shall lapse, and the shares of Common Stock
subject to outstanding Restricted Stock Units shall vest and become immediately
issuable, upon the occurrence of an event specified in Section 12.2, and the
Company shall issue stock certificates for such vested shares without a
restrictive legend.
13. Miscellaneous.
13.1 No Right to Employment. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Company expressly
reserves the right at any time to terminate the employment of a Participant,
free from any liability or claim under the Plan except as may be expressly
provided in the applicable Award.
13.2 No Right to Continue as a Director or Advisor. The granting of
any Award under the Plan shall not constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain a Non-Employee
Director or Scientific Advisory Board Member for any period of time.
13.3 No Rights as Shareholder. Subject to the provisions of the
applicable Option or other Award, no Participant or Designated Beneficiary shall
have any rights as a shareholder with respect to any shares of Common Stock to
be distributed under the Plan until such person becomes the holder thereof.
13.4 No Fractional Shares. No fractional shares of Common Stock
shall be issued under the Plan, and cash shall be paid in lieu of any fractional
shares in settlement of Options or other Awards granted under the Plan.
13.5 Unfunded Plan. The Plan shall be unfunded, shall not create (or
be construed to create) a trust or a separate fund or funds, and shall not
establish any fiduciary relationship between the Company and any Participant or
other person.
13.6 Successors and Assigns. The Plan shall be binding on all
successors and assigns of the Participant, including without limitation the
Participant's Designated Beneficiary or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
13.7 Compliance With Other Laws and Regulations. The Plan, the grant
and exercise of Awards under the Plan, and the obligation of the Company to
transfer shares under such Awards shall be subject to all applicable federal and
state laws, rules and regulations, including those related to disclosure of
financial and other information to Participants, and to any approvals by any
government or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to (a) the listing of such shares on any stock exchange on which the Common
Stock may then be listed, where such listing is required under the rules or
regulations of such exchange, and (b) the compliance with applicable federal and
state securities laws and regulations relating to the issuance and delivery of
such certificates; provided, however, that the Company shall make all reasonable
efforts to so list such shares and to comply with such laws and regulations.
13.8 Compliance with Rule 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
13.9 Amendment of Plan. The Board shall have complete and exclusive
power and authority to amend or modify the Plan in any or all respects. However,
no such amendment or modification shall adversely affect the rights and
obligations with respect to Options and other Awards at the time outstanding
under the Plan unless the affected Participant consents to such amendment or
modification. In addition, amendments to the Plan will be subject to stockholder
approval to the extent required under applicable law or regulation or pursuant
to the listing standards of the stock exchange (or the Nasdaq National Market)
on which the Common Stock is at the time primarily traded.
13.10 Governing Law. To the extent not superseded by federal law,
the provisions of the Plan shall be governed by and interpreted in accordance
with the laws of the State of New York.
13. Effective Date of Plan; Term of Plan. The July 27, 2005 restatement of
the Plan shall become effective upon stockholder approval at the 2005 Annual
Stockholders Meeting. The Plan shall terminate on June 1, 2011, and no Awards
shall be granted under the Plan after that date, provided, however, that the
Plan and all Awards granted under the Plan prior to such date shall remain in
effect until such Awards have been satisfied or terminated in accordance with
the Plan and the terms of such Awards.
Date Plan adopted by Board of Directors: June 22, 2001
Date Plan approved by Shareholders: July 19, 2001
Date First Amendment to the Plan approved by Board of Directors: July 14, 2003
Date First Amendment to the Plan approved by Shareholders: August 20, 2003
Date Second Amendment to Plan approved by Board of Directors: May 10, 2004
Date Second Amendment to the Plan approved by Shareholders: July 13, 2004
Date Amended and Restated Plan approved by Board of Directors June 9, 2005
Date Amended and Restated Plan approved by Shareholders July 27, 2005