June 27, 2006
To Our Stockholders:
I am pleased to invite you to attend the 2006 Annual Meeting of Stockholders of
Biophan Technologies, Inc. at the Dryden Theatre at George Eastman House, 900
East Avenue, Rochester, New York 14607-2298 on Tuesday, July 18, 2006, 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 2006 Annual Report to Stockholders,
which includes the Company's Form 10-K/A for the fiscal year ended February 28,
2006 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 18, 2006
-------------------------------
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
18, 2006, at 10:00 a.m., local time, at the Dryden Theatre at George Eastman
House, 900 East Avenue, Rochester, New York 14607-2298.
1. To elect five (5) members of the Board of Directors to serve until
the 2007 Annual Meeting of Stockholders or until their successors
are elected.
2. To approve the 2006 Incentive Stock Plan.
3. To ratify the appointment of Goldstein Golub Kessler LLP as the
Company's independent registered public accounting firm for the
fiscal year ending February 28, 2007.
4. 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 1, 2006 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
Darryl L. Canfield
Chief Financial Officer and Secretary
West Henrietta, New York
Date: June 27, 2006
Biophan Technologies, Inc.
--------------------------
150 Lucius Gordon Drive
West Henrietta, New York 14586
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PROXY STATEMENT
---------------------------
2006 ANNUAL MEETING OF STOCKHOLDERS
JULY 18, 2006
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 Tuesday, July 18, 2006, at 10:00 a.m.,
local time, or at any adjournment thereof (the "Annual Meeting"). The Annual
Meeting will be held at the Dryden Theatre at George Eastman House, 900 East
Avenue, Rochester, New York 14607-2298.
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), unless you specifically withhold authority to vote for one or
more of the director nominees;
(ii) FOR approval of the 2006 Incentive Stock Plan (Proposal No. 2);
(iii) 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, 2007 (Proposal No. 3); and
(iv) In the discretion of the persons named in the enclosed form of
proxy, on any other matter 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 Company's Annual Report on Form
10-K/A for the fiscal year ended February 28, 2006 are first being mailed to
stockholders on or about June 27, 2006.
Record Date and Voting Securities
Stockholders of record at the close of business on June 1, 2006 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 82,809,199 shares of the Company's Common Stock, $.005 par
value (the "Common Stock"), were issued and outstanding and held of record by
approximately 250 stockholders. The aggregate number of votes entitled to be
cast at the Meeting is 82,809,199.
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.
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.
2
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).
Deadline for Receipt of Stockholder Proposals to be Presented at the 2007 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 2007 Annual Meeting of Stockholders, such proposal must be received by the
Company no later than February 28, 2007. 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 2007 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 15, 2007.
Annual Report on Form 10-K
Our Annual Report on Form 10-K/A for our most recently completed 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.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board currently consists of seven 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 shall consist of three to nine persons.
The Board has fixed the number of directors at five for purposes of this year's
Annual Meeting and each director elected will serve a one-year term until the
Annual Meeting of Stockholders to be held in 2007, 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, Steven Katz, Ross B. Kenzie and
Theodore A. Greenberg. Each of these nominees has consented to serve, and the
Board has no reason to believe that any of the nominees will be unable or
unwilling to serve as a director 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 will 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, five 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.
3
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 67 Chairman of the Board 2002
Michael L. Weiner 58 Chief Executive Officer and 2000
Director
Steven Katz 58 Director 2001
Ross B. Kenzie 74 Director 2000
Theodore A. Greenberg 46 Director 2006
The principal occupations and business experience for at least the past
five years of each director and nominee is as follows.
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 is President, Chief Executive Officer and co-founder of
Biophan Technologies, Inc. He 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 February 1999, Mr.
Weiner founded Technology Innovations, LLC to develop intellectual property
assets. In August 2000, Technology Innovations, LLC created a subsidiary, Biomed
Solutions, LLC, to pursue certain biomedical and nanotechnology opportunities,
investing in embryonic-to-seed stage innovations which generate new ventures
and/or licenses. Mr. Weiner is the CEO and a director of Biophan Technologies,
Inc., a medical research and development company located in West Henrietta, New
York engaged in providing technology to enable implantable medical devices and
interventional devices to be used safely and effectively in conjunction with
Magnetic Resonance Imaging (MRI), since December 2000. Mr. Weiner serves on the
Boards of Biophan Technologies, Inc., Biomed Solutions, LLC, Technology
Innovations, LLC, Stem Capture, Inc., OncoVista, 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.
4
Steven Katz is President of Steven Katz & Associates, Inc., a health care and
technology-based management consulting firm specializing in strategic planning,
corporate development, new product planning, technology licensing, and
structuring and securing various forms of financing. Mr. Katz has been President
of Steven Katz & Associates, Inc. since 1982. From January 2000 to October 2001
Mr. Katz was President, Chief Operating Officer and a director of Senesco
Technologies, Inc., an American Stock Exchange listed company engaged in the
identification and development of proprietary gene technology with application
to human, animal and plant systems. From 1983 to 1984 he was a co-founder and
Executive Vice President of S.K.Y. Polymers, Inc., a bio-materials company.
Prior to this, Mr. Katz was Vice President and General Manager of a non-banking
division of Citicorp. From 1976 to 1981 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 Bachelors 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 NaturalNano, Inc., Health
Systems Solutions, Inc., Nanoscience Technologies, Inc., USA Technologies, Inc.,
and Vivid Learning Systems, Inc. as well as several 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.
Theodore A. Greenberg has more than 20 years experience in investment
management, consulting, and public accounting. In 2005, he joined Infinity
Capital Group, Inc., a business development company. He currently serves as
Chief Investment Officer, Chief Financial Officer, Secretary, and is a member of
Infinity's board. Since 2004 he has been, and continues to be, a project
consultant and advisor and has provided services to various companies, including
a private equity fund, a children's entertainment company, a real estate
development fund, a software development company and an internet company. In
1999, Mr. Greenberg co-founded Park Avenue Equity Partners, LP, a $100 million
middle market private equity fund and he was a general partner until 2003. From
1998 to 1999, Mr. Greenberg was the Chief Financial Officer of Development
Capital, LLC. Mr. Greenberg has also held senior positions at various accounting
firms. Mr. Greenberg was appointed to the Board in April 2006.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL 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 NOMINEES.
5
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,
our Board believes that the corporate governance rules of NASDAQ and AMEX
represent good governance standards and, 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 additional 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. Greenberg 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, consequently, each of these directors is an "independent director" as
defined under Rule 4200(a)(15) of the NASDAQ Marketplace Rules and similar AMEX
rules.
The Board and Committees of the Board
The Board held six meetings during the Company's fiscal year ended
February 28, 2006. 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
stockholder communications with members of the Board or the Board as a whole.
However, stockholders 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 2006, 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.
6
Audit Committee. The Audit Committee is composed of Messrs. Jaensch
(Chairman), Kenzie and Greenberg. 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
four times during the Company's fiscal year ended February 28, 2006, but also
met informally on several other occasions. Messrs. Bramson and Katz resigned
from the Committee on January 12, 2006. Mr. Greenberg was appointed to the
Committee in February 2006. On the occasion of two of the four meetings, Mr.
Bramson was absent. Otherwise, each member of the Audit Committee attended all
of the meetings. The Board has determined that each of Dr. Jaensch and Messrs.
Kenzie and Greenberg meets the qualifications as an "audit committee financial
expert". Each member of the Audit Committee is "independent" as such term is
used in Section 10A(m)(3) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act").
Compensation Committee. The Compensation Committee is composed of Dr.
Jaensch and Messrs. Kenzie (Chairman), Bramson (an incumbent director who is not
standing for election) 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 administers the Company's 2001 Stock Option Plan. The
Compensation Committee met three times during the Company's fiscal year ended
February 28, 2006. 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.
Compensation of the Board
Directors who are also our employees 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 $2,000 per month for serving as Chairman of the
Board through July 31, 2005. Commencing August 2005, the monthly fee was
increased to $2,500 per month. In addition, non-employee directors have received
options under our 2001 Stock Option Plan and will receive options under our 2006
Incentive Stock Plan. All directors are reimbursed for their reasonable expenses
incurred in attending Board meetings. An additional $3,000 per year is paid to
the Chairman of the Audit Committee. Otherwise, no additional compensation is
paid to any director for serving as a member of any committee of the Board. We
maintain directors and officers liability insurance.
Options Granted To Directors In Fiscal 2006.
The following table sets forth the options granted to the non-employee
directors on our Board in fiscal 2006:
Number of Shares
Underlying Exercise Price
Director Options Granted Grant Date Per Share
-------- --------------- ---------- ---------
Guenter H. Jaensch 35,000 7/27/05 $2.97
Robert S. Bramson 35,000 7/27/05 $2.97
Steven Katz 35,000 7/27/05 $2.97
Ross B. Kenzie 35,000 7/27/05 $2.97
Theodore A. Greenberg -0- - -
7
Each option grant for 35,000 shares was made pursuant to the automatic
option grant program in effect for the non-employee directors under the 2001
Stock Option Plan as amended and restated in 2005. These options become
exercisable upon the earlier of (i) the optionee's completion of one year of
Board service measured from the grant date or (ii) his 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.
PROPOSAL NO. 2
APPROVAL OF THE 2006 INCENTIVE STOCK PLAN
The stockholders are being asked to vote on a proposal to approve the
Company's 2006 Incentive Stock Plan (the "2006 Plan"). The 2006 Plan was adopted
by the Board on June 16, 2006 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 2006 Plan 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 following is a brief summary of the 2006 Plan, a copy of which is
attached hereto as Appendix A. The following summary is qualified in its
entirety by reference to the 2006 Plan.
Types of Awards
The 2006 Plan provides for the grant of non-statutory stock options,
restricted stock, restricted stock units, stock appreciation rights, incentive
stock options intended to qualify under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") and other stock-based awards. No more than 50%
of the total number of shares of common stock covered by the 2006 Plan may be
issued pursuant to awards that are not options or stock appreciation rights.
Incentive Stock Options and Non-statutory Stock Options. Optionees receive
the right to purchase a specified number of shares of common stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant. Options may not be granted for a term in excess of ten years.
Outstanding options may not be amended to provide an exercise price per share
which is lower than the then current exercise price per share of such
outstanding options. The Board of Directors may not cancel any outstanding
options and grant in substitution for such options new options under the 2006
Plan covering the same or a different number of shares of common stock and
having an exercise price per share lower than the then current exercise price
per share of the cancelled options. The Board of Directors will, however, have
the power to amend stock options to convert them into stock appreciation rights
and make other amendments to options, provided that the optionee must consent to
such action unless the board determines that the action would not materially and
adversely affect the optionee.
8
Restricted Stock and Restricted Stock Unit Awards. Restricted stock awards
entitle recipients to acquire shares of common stock, subject to our right to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable award are not satisfied prior to the end
of the applicable restriction period established for such award. Restricted
stock unit awards entitle the recipient to receive shares of common stock to be
delivered in the future subject to such terms and conditions on the delivery of
the shares as the Board of Directors may determine.
Restricted stock and restricted stock unit awards granted under the 2006
Plan may vest (a) solely on the basis of passage of time, (b) solely based on
achievement of specified performance criteria or (c) upon the passage of time,
subject to accelerated vesting if specified performance criteria are met. The
Board of Directors may determine, at the time of grant, that restricted stock or
restricted stock unit award being made to an officer will vest solely upon
achievement of specified performance criteria designed to qualify for deduction
under Section 162(m) of the Code. The performance criteria for each restricted
stock or restricted stock unit award intended to so qualify for purposes of
Section 162(m) of the Code will be based on one or more of ten performance
measures specified in the 2006 Plan.
Except as noted below, (a) restricted stock and restricted stock units
that vest solely on the basis of passage of time may vest no faster than ratably
over three years; and (b) restricted stock and restricted stock units that vest
based on achievement of specified performance criteria, or provide for
accelerated vesting based upon achievement of specified performance criteria,
may not vest earlier than the first anniversary of the date of grant. These
vesting restrictions do not apply to restricted stock and restricted stock unit
awards collectively with respect to up to 5% of the total number of shares of
common stock covered by the 2006 Plan. In addition, the Board of Directors may
make exceptions to the vesting limitations described above in the event of the
recipient's death, a change in control or other extraordinary circumstances
specified in the 2006 Plan.
Stock Appreciation Rights. A stock appreciation right, or SAR, is an award
entitling the holder on exercise to receive, at the election of the Board of
Directors, an amount in cash or common stock or a combination thereof determined
in whole or in part by reference to appreciation, from and after the date of
grant, in the fair market value of a share of common stock. SARs may be based
solely on appreciation in the fair market value of common stock or on a
comparison of such appreciation with some other measure of market growth such as
(but not limited to) appreciation in a recognized market index.
Other Stock-Based Awards. Under the 2006 Plan, the Board of Directors has
the right to grant other awards of common stock or awards otherwise based upon
common stock or other property, including without limitation rights to purchase
shares of common stock, having such terms and conditions as the board may
determine.
Eligibility to Receive Awards
Employees, officers, directors, consultants, advisors and other service
providers are eligible to be granted awards under the 2006 Plan. The maximum
number of shares with respect to which awards may be granted to any participant
under the 2006 Plan may not exceed 1,000,000 shares per calendar year.
Stock Available for Awards
Awards may be made under the 2006 Plan for up to 7,500,000 shares of
common stock, which represents approximately 9% of the total number of shares of
common stock issued and outstanding as of June 1, 2006.
9
Awards to Non-Employee Directors
Although the granting of awards under the 2006 Plan is generally at the
discretion of the Compensation Committee of the Board of Directors, the plan
provides for automatic grants of stock options to the members of the Board of
Directors who are not employees of the Company. When a person who is not an
employee of the Company is first elected or appointed to the Board of Directors,
he or she will receive an option to purchase 40,000 shares of common stock.
Thereafter, each non-employee director who is re-elected to the Board of
Directors at an annual stockholders meeting will receive an additional options
to purchase 40,000 shares of common stock. Each option issuable to a
non-employee director will vest and become fully exercisable on the upon the
earlier of (i) the completion by such non-employee director of one year of Board
service measured from the date of grant or (ii) the date of the first annual
meeting of stockholders occurring after the end of the fiscal year of the
Company during which such option was granted and will have a term of 10 years.
Administration
The 2006 Plan is administered by the Compensation Committee of the Board
of Directors. The Committee has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the 2006 Plan and to
interpret the plan's provisions. To the extent permitted by law, the Committee
may delegate authority under the 2006 Plan to one or more officers, except that
no officer will be authorized to grant awards to himself or herself.
Subject to any applicable delegation by the Committee and any applicable
limitations contained in the 2006 Plan, the Committee selects the recipients of
awards and determines:
(i) the number of shares of common stock covered by options and the
dates upon which such options become exercisable;
(ii) the exercise price of options, which may not be less than 100% of
the fair market value of common stock;
(iii) the duration of options, which may not exceed 10 years;
(iv) the terms of stock appreciation rights and the dates or conditions
upon which such stock appreciation rights become exercisable;
(v) the number of shares of common stock subject to any restricted
stock, restricted stock unit or other stock-based awards and the
terms and conditions of such awards, including, if applicable,
conditions for repurchase, issue price and repurchase price.
We are required to make appropriate adjustments or substitutions in
connection with the 2006 Plan and any outstanding awards to reflect stock
splits, stock dividends, recapitalizations, spin-offs and other similar changes
in capitalization to the extent the Board of Directors deems such adjustment or
substitution to be necessary and appropriate. The 2006 Plan also contains
provisions addressing the consequences of any "reorganization event," which is
defined as:
(i) any merger or consolidation of with or into another entity as a
result of which all of the common stock is converted into or
exchanged for the right to receive cash, securities or other
property; or
10
(ii) any exchange of all of common stock for cash, securities or other
property pursuant to a share exchange transaction.
If any award expires or is terminated, surrendered or canceled without
having being fully exercised, is forfeited in whole or in part, or results in
any common stock not being issued because (a) the award is settled for cash, or
(b) shares are used to satisfy the exercise price or tax withholding obligation,
the unused shares of common stock covered by such award will again be available
for grant under the 2006 Plan, subject, however, in the case of incentive stock
options, to any limitations under the Code.
Termination or Amendment
No award may be made under the 2006 Plan after the completion of ten years
from the date on which the plan is approved by our stockholders, but awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2006 Plan, except that no award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested,
to the extent such amendment was required to grant such award, unless and until
such amendment shall have been approved by our stockholders. In addition,
without the approval of our stockholders, no amendment may:
(i) increase the number of shares authorized under the 2006 Plan;
(ii) materially increase the benefits provided under the 2006 Plan;
(iii) materially expand the class of participants eligible to participate
in the 2006 Plan;
(iv) expand the types of awards provided under the 2006 Plan; or
(v) make any other changes which require stockholder approval under the
rules of the national securities market on which the shares of
common stock are quoted.
No award may be made that is conditioned on the approval of our stockholders of
any amendment to the 2006 Plan.
Federal Income Tax Consequences
The following generally summarizes the United States federal income tax
consequences that generally will arise with respect to awards granted under the
2006 Plan. This summary is based on the tax laws in effect as of the date of
this Information Statement. Changes to these laws could alter the tax
consequences described below.
Incentive Stock Options. A participant will not have income upon the grant
of an incentive stock option. Also, except as described below, a participant
will not have income upon exercise of an incentive stock option if the
participant has been employed by our company or any 50% or more-owned corporate
subsidiary at all times beginning with the option grant date and ending three
months before the date the participant exercises the option. If the participant
has not been so employed during that time, then the participant will be taxed as
described below under "Nonstatutory Stock Options." The exercise of an incentive
stock option may subject the participant to the alternative minimum tax.
11
A participant will have income upon the sale of the stock acquired under
an incentive stock option at a profit if sales proceeds exceed the exercise
price. The type of income will depend on when the participant sells the stock.
If a participant sells the stock more than two years after the option was
granted and more than one year after the option was exercised, then all of the
profit will be long-term capital gain. If a participant sells the stock prior to
satisfying these waiting periods, then the participant will have engaged in a
disqualifying disposition and a portion of the profit will be ordinary income
and a portion may be capital gain. This capital gain will be long-term if the
participant has held the stock for more than one year and otherwise will be
short-term. If a participant sells the stock at a loss (sales proceeds are less
than the exercise price), then the loss will be a capital loss. This capital
loss will be long-term if the participant held the stock for more than one year
and otherwise will be short-term.
Nonstatutory Stock Options. A participant will not have income upon the
grant of a nonstatutory stock option. A participant will have compensation
income upon the exercise of a nonstatutory stock option equal to the value of
the stock on the day the participant exercised the option less the exercise
price. Upon sale of the stock, the participant will have capital gain or loss
equal to the difference between the sales proceeds and the value of the stock on
the day the option was exercised. This capital gain or loss will be long-term if
the participant has held the stock for more than one year and otherwise will be
short-term.
Restricted Stock. A participant will not have income upon the grant of
restricted stock unless an election under Section 83(b) of the Code is made
within 30 days of the date of grant. If a timely 83(b) election is made, then a
participant will have compensation income equal to the value of the stock less
the purchase price. When the stock is sold, the participant will have capital
gain or loss equal to the difference between the sales proceeds and the value of
the stock on the date of grant. If the participant does not make an 83(b)
election, then when the stock vests the participant will have compensation
income equal to the value of the stock on the vesting date less the purchase
price. When the stock is sold, the participant will have capital gain or loss
equal to the sales proceeds less the value of the stock on the vesting date. Any
capital gain or loss will be long-term if the participant held the stock for
more than one year from the vesting date and otherwise will be short-term.
Restricted Stock Units. A participant will have income from a restricted
stock unit equal to the difference of the fair market value of the stock on the
date of delivery of the stock less the purchase price. A participant is not
permitted to make a Section 83(b) election for a restricted stock unit.
Stock Appreciation Rights and Other Stock-Based Awards. The tax
consequences associated with stock appreciation rights and any other stock-based
awards granted under the 2006 Plan will vary depending on the specific terms of
such award. Among the relevant factors are whether or not the award has a
readily ascertainable fair market value, whether or not the award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the award and the participant's holding
period and tax basis for the award or underlying common stock.
Tax Consequences to Us. There will be no tax consequences to us except
that we will be entitled to a deduction when a participant has compensation
income. Any such deduction will be subject to the limitations of Section 162(m)
of the Code.
Stock Awards. The following table sets forth, as to the Company's Chief
Executive Officer and the other most highly compensated executive officers with
base salary and bonus for the 2006 fiscal year in excess of $100,000
(collectively referred to herein as the "Named Executive Officers") and the
other individuals and groups indicated, the number of shares of common stock
subject to option grants made under the 2001 Stock Option Plan from inception
through May 31, 2006, together with the weighted average exercise price per
share in effect for such option grants.
12
Number of Shares Weighted Average
Underlying Options Exercise Price
Name and Position Granted(#) Per Share($)
----------------- ------------------ ----------------
Named Executive Officers:
Michael L. Weiner
Chief Executive Officer 1,800,000 $.70
Robert J. Wood
Chief Financial Officer (retired 1/20/06) 700,000 $.78
Darryl L. Canfield
Chief Financial Officer (appointed 1/20/06) 600,000 $1.87
Stuart G. MacDonald
Vice-President-Research and Development 850,000 $.71
Jeffrey L. Helfer
Vice-President-Engineering 850,000 $.71
John F. Lanzafame
Vice-President-Business Development 825,000 $.71
All current executive officers as a group (6 persons) 4,715,000 $1.39
Non-Employee Directors:
Guenter H. Jaensch 675,000 $.58
Robert S. Bramson 355,000 $.96
Steven Katz 410,000 $.87
Ross B. Kenzie 355,000 $.96
All current non-employee directors as a group (4 persons) 1,795,000 $.80
All employees, including current officers who are not
executive officers, as a group (approximately 31 persons) 1,817,355 $.89
No awards of restricted stock or restricted stock units have to date been
made under the 2001 Stock Option Plan.
New Plan Benefits
No stock options or other awards will be made pursuant to the 2006 Plan
unless and until the stockholders approve the 2006 Plan at the Annual Meeting.
If such stockholder approval is obtained, then the following non-employee Board
members will each receive an option grant for 40,000 shares of common stock upon
their election to the Board at the Annual Meeting: Dr. Guenter Jaensch and
Messrs. Steven Katz, Ross B. Kenzie and Theodore A. Greenberg. 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 date of the 2007 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.
13
The granting of future awards under the 2006 Plan is discretionary and we
cannot now determine the number or type of awards to be granted in the future to
any particular person or group.
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
(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.
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.
14
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, 2016, (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 and awards in connection with certain
changes in control or ownership.
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 2006
Plan 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 2006 Plan 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 2006 Plan 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 will
also result in a direct charge to the Company's 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.
15
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 2006 Plan. Should
such approval not be obtained, then the 2006 Plan will not be implemented.
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 2006
INCENTIVE STOCK PLAN.
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee 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, 2007 and the
Board recommends that the stockholders vote FOR confirmation of such
appointment. In the event of a negative vote on such ratification, the Audit
Committee will reconsider their appointment. Even if the appointment is
ratified, the Audit Committee in its discretion may direct the appointment of a
different independent registered public accounting firm at any time during the
year.
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.
16
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"). Through
September 30, 2005, the Firm had a continuing relationship with American Express
Tax and Business Services Inc. ("TBS") from which it leased auditing staff who
were full time, permanent employees of TBS and through which its partners
provided non-audit services. Subsequent to September 30, 2005, this relationship
ceased and the Firm established a similar relationship with RSM McGladrey, Inc.
("RSM"). The Firm has no full time employees, and, therefore, none of the audit
services performed 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. Other
services, which do not include financial information systems design and
implementation fees, have been provided by TBS or RSM.
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 reviews of the financial statements included in the Company's quarterly
reports on Form 10-Q and Form 10-QSB and other services normally provided in
connection with statutory and regulatory filings during the last two fiscal
years ended February 28, 2006 and February 28, 2005 was $172,775 and $50,584,
respectively. A substantial portion of the increase in audit fees in 2006
compared to 2005 is attributable to opinions on management's assessment of and
our effectiveness regarding internal controls over financial reporting in
connection with our compliance with Section 404 of the Sabanes Oxley Act of
2002.
2) Audit-Related Fees
The Company did not engage its principal accountant to provide assurance and
related services during the last two fiscal years.
3) Tax Fees
The Company did not engage its principal accountant 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 accountant to render services to the
Company during the last two fiscal years, other than as reported above.
5) Pre-approval Policies and Procedures
17
In accordance with its charter, the Audit Committee is required to approve all
audit and non-audit services provided by the independent auditors and shall not
engage the independent auditors to perform the specific non-audit services
proscribed by law or regulation.
THE 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, 2007. UNLESS OTHERWISE DIRECTED THEREIN, THE SHARES REPRESENTED BY
YOUR PROXY, IF PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, WILL BE VOTED
FOR SUCH PROPOSAL.
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
12, 2006, 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 officers and by all of our
directors and officers as a group.
--------------------------------- -------- -------------------------- ----------
Name and Address of Number of Shares Percent of
Beneficial Owner Notes Beneficially Owned (1)(2) Class (2)
--------------------------------- -------- -------------------------- ----------
+Guenter H. Jaensch
16065 Bristol Isle Way
Delray Beach, FL 33446 (3) 1,027,500 1.25%
--------------------------------- -------- -------------------------- ----------
+Michael L. Weiner
693 Summit Drive
Webster, NY 14580 (4) 7,426,136 8.73%
--------------------------------- -------- -------------------------- ----------
+Robert S. Bramson
1100 East Hector Street
Suite 410 (5) 257,500 *
Consohocken, PA 19428
--------------------------------- -------- -------------------------- ----------
+Ross B. Kenzie
Cyclorama Bldg. Suite 100
369 Franklin Street
Buffalo, NY 14202 (6) 257,500 *
--------------------------------- -------- -------------------------- ----------
+Steven Katz
20 Rebel Run Drive
East Brunswick, NJ 08816 (7) 257,500 *
--------------------------------- -------- -------------------------- ----------
+Michael Friebe
Paul-Schuerholz-Str. 7
D-45657 Recklinhausen (8) 324,125 *
Germany
--------------------------------- -------- -------------------------- ----------
+Theodore A. Greenberg
530 F Grand Street
New York, NY 10002 0 *
--------------------------------- -------- -------------------------- ----------
Stuart G. MacDonald
4663 East Lake Road
Pultneyville, NY 14538 (9) 805,000 *
--------------------------------- -------- -------------------------- ----------
Jeffrey H. Helfer
4 Highland Green
Victor, NY 14564 (10) 845,700 1.02%
--------------------------------- -------- -------------------------- ----------
John F.
Lanzafame
10 Alameda Drive (11) 315,000 *
Fairport, NY
14450
--------------------------------- -------- -------------------------- ----------
Darryl L. Canfield
32 Merryhill Lane
Pittsford, NY 14534 (12) 200,000 *
--------------------------------- -------- -------------------------- ----------
Technology Innovations, LLC
150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586 (13) 3,312,786 3.97%
--------------------------------- -------- -------------------------- ----------
Biomed Solutions, LLC
150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586 (14) 3,012,142 3.61%
--------------------------------- -------- -------------------------- ----------
Myotech, LLC
150 Lucius Gordon Drive
Suite 218
West Henrietta, NY 14586 4,923,080 6.02%
--------------------------------- -------- -------------------------- ----------
All Officers and Directors as
a group (10 persons) 11,715,961 13.16%
--------------------------------- -------- -------------------------- ----------
18
* Denotes less than one percent.
+ Denotes Member of the Board of Directors.
1) Except as may be set forth below, the persons named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them.
2) Applicable percentage of ownership is based on 81,805,243 shares outstanding
as of May 12, 2006, 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
May 12, 2006 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 577,500 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 3,394,501 shares owned
beneficially and of record by Biomed and 300,644 shares owned beneficially and
of record by Technology Innovations. Also includes 1,698,630 shares issuable
upon exercise of warrants held by Biomed and 1,525,000 shares issuable upon
exercise of options held by Mr. Weiner.
5) Includes 257,500 shares issuable upon exercise of options held by Mr.
Bramson.
6) Includes 257,500 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 257,500 shares issuable upon exercise of options held by Mr. Katz.
8) Includes 50,000 shares owned beneficially and of record by aMRIs Patente GmbH
and 50,000 shares owned beneficially and of record by aMRIs Patente Verwaltungs
GmbH & Co. KG. These entities are controlled by Drs. Michael Friebe and Andreas
Melzer who are employees and minority owners of Biophan Europe GmbH, our 51%
owned subsidiary. Dr. Friebe is also a member of our Board of Directors. aMRIs
Patente GmbH is owned 50% by Tomovation GmbH and 50% by Dr. Melzer. Tomovation
is a German company which is owned 80.8% by Dr. Friebe and 19.2% by four
individuals. aMRIs Patente Verwaltungs GmbH & Co KG is owned 50% each by Dr.
Friebe and Dr. Melzer.
9) Includes 715,000 shares issuable upon exercise of options held by Mr.
MacDonald.
10) Includes 715,000 shares issuable upon exercise of options held by Mr.
Helfer.
11) Includes 315,000 shares issuable upon exercise of options held by Mr.
Lanzafame.
12) Includes 200,000 shares issuable upon exercise of options held by Mr.
Canfield.
13) Includes 3,394,501 shares owned beneficially and of record by Biomed and
1,698,630 shares issuable upon exercise of warrants held by Biomed. Technology
Innovations, LLC is the majority owner of Biomed Solutions, LLC. Biomed reports
ownership of a smaller number of shares.
19
14) Includes 1,698,630 shares issuable upon exercise of warrants held by Biomed.
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. 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 656,756 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. Mr. Weiner is also on the Board of Myotech, LLC which is the record
owner of 4,923,080 shares of Biophan common stock. Biophan owns 45.7% of the
Class A (voting) units of Myotech, LLC.
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. On the same date, SBI converted the
$300,000 obligation transferred to it into shares of our common stock.
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.
On May 27, 2005, we entered into an unsecured loan agreement with Biomed
Solutions, LLC, a related company, whereby Biomed agreed to provide us with a
line of credit facility of up to $2 million. Borrowings under the line bear
interest at 8% per annum (compounded monthly) and are payable on demand on or
after November 27, 2005. In June 2005 the entire facility was drawn down. The
outstanding principal and interest are convertible into shares of our Common
Stock at 90% of the average market closing price per share of our Common Stock
for the 20 trading days preceding the date of borrowings under the line ($2.12
per share for the first $1 million and $2.19 per share for the second $1
million). Additionally, Biomed received pro-rata warrant coverage of 500,000
shares, with the warrants priced at 110% of the average market closing price per
share of our Common Stock for the 20 trading days preceding the date of
execution of the loan agreement ($2.49 per share). On August 31, 2005, Biomed
elected to convert $1,000,000 of the outstanding debt plus accrued interest into
480,899 shares of our Common Stock. On October 7, 2005, we repaid $500,000 of
the outstanding debt plus the entire accrued interest to date, leaving an
outstanding principal balance of $500,000. The loan agreement requires us to use
our best efforts to include the shares issued and issuable upon conversion of
the loan in any registration statement we file covering resale of shares of our
Common Stock.
20
On January 24, 2006, we entered into a Line of Credit Agreement (the "Line of
Credit Agreement") with Biomed Solutions, LLC, a New York limited liability
company ("Biomed"), pursuant to which Biomed has committed to make advances to
us, in an aggregate amount of up to $5,000,000. Under the Line of Credit
Agreement, advances may be drawn down in such amounts and at such times as we
determine upon 15 days' prior notice to Biomed, except that we may not draw down
more than $1,500,000 in any 30-day period. As of April 19, 2006, we had borrowed
an aggregate of $3,200,000 under the Line of Credit Agreement. We are obligated
to utilize the entire credit facility. Amounts borrowed will bear interest at
the rate of 8% per annum and are convertible into shares of our Common Stock at
the rate of $1.46 per share. Any amounts drawn down and repaid may be reborrowed
at any time (subject to a requirement of 15 days' notice and the limitation that
not more than $1,500,000 may be drawn down during any 30-day period). Biomed's
obligation to lend to us under the Line of Credit Agreement expires on June 30,
2007, on which date the entire amount borrowed by us (and not converted into
shares of our Common Stock) becomes due and payable. Our obligations with
respect to borrowings under the credit facility are governed by a Convertible
Promissory Note issued by us to Biomed on January 24, 2006. In connection with
the establishment of the credit facility under the Line of Credit Agreement, on
January 24, 2006 we issued to Biomed a Stock Purchase Warrant (the "Warrant")
entitling Biomed to purchase up to 1,198,630 shares of our Common Stock at an
exercise price of $1.89 per share. Biomed's purchase rights under the Warrant
expire on January 23, 2011.
5) Biomed holds warrants to purchase a total of 1,698,630 shares of our common
stock. On November 7, 2002, Biomed was granted warrants to purchase 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.
Pursuant to the Line of Credit Agreement, on January 24, 2006 the Company issued
warrants to Biomed. These warrants entitles Biomed to purchase, at any time or
times prior to January 23, 2011, up to 1,198,630 shares at an exercise price of
$1.89 per share. If all the warrants are exercised, the Company will receive, in
cash, aggregate consideration upon exercise in the amount of $2,265,411.
In connection with each issuance of warrants to Biomed, our board of directors
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, 2006, 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 approximately $959,000 for the year ended February 28, 2006 and
$404,754 for the year ended February 28, 2005. At February 28, 2006, the
combined balances due from these related parties was $42,063. The amounts do not
bear interest and the Company received payment within forty-five days.
7) During the years ended February 28, 2006 and 2005, the Company was billed
$93,000 and $9,000 respectively, for legal services provided by Bramson &
Pressman of which Robert S. Bramson, a director of the Company, is a partner.
8) During the year ended February 28, 2006, the Company was billed $110,500 for
consulting services provided by Steven Katz, a director of the Company.
9) All transactions discussed above are considered by the Board of Directors to
have been consummated on terms approximately equivalent to those that might have
prevailed in arms-length transactions with unaffiliated parties under similar
circumstances.
21
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 October 11, 2001 through February 28, 2006, with the
cumulative total return of the NASDAQ U.S. Stock Index NASDAQ Health Services
Index and Amex Market Index over the same period. The comparison assumes $100
was invested on October 11, 2001 (when active trading began) in the Company's
Common Stock, in the U.S. Stock Index, NASDAQ Health Services Index and Amex
Market Index, and assumes reinvestment of dividends, if any.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
BIOPHAN TECHNOLOGIES, INC. NASDAQ U.S. MARKET INDEX,
NASDAQ HEALTH INDEX AMD AMEX MARKET INDEX
[DATA BELOW REPRESENTED IN LINE CHART]
October 11, February 28, February 28, February 29, February 28, February 28,
Company/Market Index 2001 2002 2003 2004 2005 2006
------------------------------- -------------- --------------- -------------- --------------- -------------- ---------------
Biophan Technologies, Inc. $100.00 $36.74 $7.44 $18.84 $24.03 $25.43
NASDAQ Health Services Index $100.00 $94.97 $82.91 $144.05 $163.02 $223.41
NASDAQ U.S. Only $100.00 $116.23 $90.35 $140.84 $143.95 $161.87
Amex Market Index $100.00 $113.48 $111.85 $157.79 $170.21 $196.30
22
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 an 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 2/28/06 $ 237,115 -0-
Michael L. Weiner, CEO 2/28/05 $ 198,269 1,000,000
Michael L. Weiner, CEO 2/29/04 $ 175,000 300,000
Robert J. Wood, CFO (1) 2/28/06 $ 160,817 25,000
Robert J. Wood, CFO 2/28/05 $ 134,654 400,000
Robert J. Wood, CFO 2/29/04 $ 129,000 125,000
Darryl L. Canfield, CFO (2) 2/28/06 $ 50,192 600,000
Stuart G. MacDonald,
Vice-President-Research 2/28/06 $ 175,384 25,000
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
Jeffrey L. Helfer,
Vice-President-Engineering 2/28/06 $ 176,153 25,000
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
John F. Lanzafame,
Vice-President-Business
Development 2/28/06 $ 159,039 575,000
John F. Lanzafame,
COO, Vice-President-Business
Development (3) 2/28/05 $ 53,308 250,000
23
(1) Retired effective January 20, 2006
(2) Hired November 9, 2005, appointed Chief Financial Officer effective January
20, 2006
(3) Hired September 4, 2004, appointed Chief Operating Officer effective April
12, 2006.
Columnar information required by Item 402(a)(2) of Regulation SK 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 2004 through 2006.
Stock Options
In 2001, the Board adopted, and the stockholders approved, the Biophan
Technologies, Inc. 2001 Stock Option Plan (as subsequently amended, the "2001
Option Plan"). The 2001 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
2001 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. 235,982 shares remain available for future option grants under the 2001
Option Plan. The Compensation Committee determines which eligible individuals
are to receive options or other awards under the 2001 Option 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 2001 Option Plan. Non-employee
directors are entitled to receive periodic option grants pursuant to the
automatic grant program in effect for them under the 2001 Option Plan. 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 up to 50,000 shares on each succeeding anniversary of such director's
election. If the 2006 Plan, which is the subject of Proposal No. 2, is approved,
non-employee directors will receive automatic annual option grants under that
plan and will no longer be entitled to automatic option grants under the 2001
Option Plan.
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, 2006:
24
Percent of
total Potential Realizable Value at
Number of options/SARs Assumed Annual Rates of Stock
securities granted to Price Appreciation for Option
underlying employees Exercise or Term (1)
options/SARs in fiscal base price Expiration -------------------------------
Name granted (#) year ($/Sh) date 5% ($) 10% ($)
----------------------- ----------------- ------------- -------------- --------------- --------------- ---------------
Michael L. Weiner -0- - - - - -
Robert J. Wood 25,000 1.27% $2.60 5/27/15 $40,878 $103,593
Darryl L. Canfield 600,000 30.48% $1.87 11/9/15 $705,620 $1,788,179
Stuart G. MacDonald 25,000 1.27% $2.60 5/27/15 $40,878 $103,593
Jeffrey L. Helfer 25,000 1.27% $2.60 5/27/15 $40,878 $103,593
John F. Lanzafame 300,000 15.24% $1.80 3/10/15 $339,603 $860,621
John F. Lanzafame 275,000 13.97% $1.56 1/6/16 $269,796 $683,716
-----------
(1) The dollar amounts under these columns are the result of calculations at
rates set by the Securities and Exchange Commission and, therefore, are
not intended to forecast possible future appreciation, if any, in the
price of the underlying Common Stock.
25
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
No named executive officer exercised options in the fiscal year ended
February 28, 2006. The following table presents the number and values of
exercisable and unexercisable options as of February 28, 2006:
Number of Securities Value of unexercised
underlying unexercised in-the-money
options/SARs at FY-end options/SARs at FY-end
Shares (#) ($)
acquired on Value Exercisable/ Exercisable/
Name exercise realized Unexercisable Unexercisable(1)
---------- ----------- -------- ---------------------- ----------------------
Michael L. Weiner None - 1,525,000/275,000 $1,452,000/$243,500
Robert J. Wood None - 528,750/171,250 $485,575/$139,425
Darryl L. Canfield None - 100,000/500,000 -0-
Stuart G. MacDonald None - 715,000/135,000 $681,800/$129,950
Jeffrey L. Helfer None - 715,000/135,000 $681,800/$129,950
John F. Lanzafame None - 365,000/460,000 $116,000/$138,000
-----------
(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 $1.64 per share of
our Common Stock as quoted on the OTC Bulletin Board on the last day of
the fiscal year, or February 28, 2006, less the applicable exercise price
multiplied by the number of shares which may be acquired on exercise. We
have calculated the value realized of exercised options based on the
difference between the per share option exercise price and the fair market
value per share of our Common Stock on the date of exercise, multiplied by
the number of shares for which the option was exercised.
Employment Agreements
Each of Michael L. Weiner, President and Chief Executive Officer; Darryl L.
Canfield, 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, Chief Operating Officer and Vice President
of Business Development, has entered into an employment agreement 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.
As used in Mr. Weiner's employment agreement, "change in control" means:
26
(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 Directors 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 the life of the
applicable agreement but he will not be eligible for severance payments.
The employment agreements for Messrs. Canfield, 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. Canfield, 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 of
Directors, immediately prior to the merger or consolidation, would not,
immediately after the merger or consolidation, constitute a majority of the
Board of Directors 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 the life of
the applicable agreement.
27
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. During fiscal 2006, the
Compensation Committee was composed of Dr. Jaensch and 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 2006, other than the Company's Chief Executive Officer, in order to
provide appropriate incentive to such persons.
Compensation of Chief Executive Officer
For fiscal year 2006, 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 no stock option grants in fiscal 2006. Mr. Weiner's annual base salary
for fiscal 2006 was $200,000 through May 27, 2005, increased to $225,000
effective May 29, 2005 and increased again to $260,000 effective August 7, 2005.
The increases were made in accordance with the achievement of certain milestones
established by the Compensation Committee. Mr. Weiner's current base salary is
believed to be in line with salaries of executives of similar companies and
chief executive officers with similar responsibilities.
28
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
Guenter H. Jaensch
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.
29
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-K/A for the
year ended February 28, 2006 for filing with the SEC. The Audit Committee and
the Board have also recommended, subject to stockholder approval, the
appointment of the Company's independent registered public accounting firm.
Respectfully submitted,
The Audit Committee of the Board of Directors
Guenter H. Jaensch, Chairman
Ross B. Kenzie
Theodore A. Greenberg
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.
30
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-K with the Securities and
Exchange Commission on May 15, 2006 and filed an amended 10-K on June 9, 2006. 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 150 Lucius Gordon Drive, Suite 215, West Henrietta, New York
14586). 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.
Dated: June 27, 2006
West Henrietta, New York
31
PROXY
BIOPHAN TECHNOLOGIES, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Michael L. Weiner and Darryl L. Canfield, 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 18, 2006 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 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 five (5) directors (INSTRUCTION:
TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN THE LIST BELOW)
FOR all nominees listed to the right [__] Theodore A. Greenberg
(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 Michael L. Weiner
(Continued and to be signed on reverse side)
2. To approve the 2006 Incentive Stock Plan. FOR AGAINST ABSTAIN
-------------------------
[__] [__] [__]
3. To ratify the appointment of Goldstein FOR AGAINST ABSTAIN
Golub Kessler LLP as the independent -------------------------
registered public accounting firm for [__] [__] [__]
the fiscal year ending February 28,
2007.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Dated: _________________, 2006
-------------------------- -------------------------
Signature Signature
I will [_] will not [_] attend the Meeting.
IMPORTANT: Sign this 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.
Exhibit A
Biophan Technologies, Inc.
2006 Incentive Stock Plan
TABLE OF CONTENTS
Page
Article 1. Establishment, Objectives, and Duration..........................1
Article 2. Definitions......................................................1
Article 3. Administration...................................................5
Article 4. Shares Subject to this Plan and Maximum Awards...................6
Article 5. Eligibility and Participation....................................7
Article 6. Stock Options....................................................8
Article 7. Stock Appreciation Rights........................................9
Article 8. Restricted Stock................................................10
Article 9. Performance Units and Performance Shares........................11
Article 10. Performance Measures............................................12
Article 11. Rights of Participants..........................................13
Article 12. Termination of Employment/Directorship..........................13
Article 13. Change in Control...............................................14
Article 14. Amendment, Modification, and Termination........................15
Article 15. Withholding.....................................................15
Article 16. Successors......................................................15
Article 17. General Provisions..............................................15
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of Plan. Biophan Technologies, Inc., a Nevada
corporation (the "Company"), hereby adopts the "Biophan Technologies, Inc. 2006
Incentive Stock Plan" (hereinafter referred to as the "Plan"), as set forth in
this document. This Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares and Performance Units. Subject to approval by the Company's
stockholders, this Plan shall become effective as of the date on which this Plan
is approved by the Board of Directors (the "Effective Date"); provided, however,
that if this Plan is not approved by the Company's stockholders prior to the
first anniversary of the Effective Date, this Plan and all Awards made hereunder
shall be null and void.
1.2 Objectives of Plan. The objectives of this Plan are to optimize the
profitability and growth of the Company through incentives that are consistent
with the Company's goals and that link the personal interests of Participants to
those of the Company's stockholders, to provide Participants with an incentive
for excellence in individual performance, and to promote teamwork among
Participants.
This Plan is further intended to provide flexibility to the Company and
its Subsidiaries in their ability to motivate, attract, and retain the services
of Participants who make significant contributions to the Company's success and
to allow Participants to share in that success.
1.3 Duration of Plan. This Plan shall remain in effect, subject to the
right of the Committee to amend or terminate this Plan at any time pursuant to
Article 14 hereof, until all Shares subject to it shall have been purchased or
acquired according to this Plan's provisions. However, in no event may an Award
of an Incentive Stock Option be granted under this Plan on or after the tenth
(10th) anniversary of the Effective Date.
Article 2. Definitions
Whenever used in this Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1 "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.
2.2 "Award Agreement" means a written or electronic agreement entered into
by the Company and a Participant setting forth the terms and provisions
applicable to an Award granted under this Plan.
2.3 "Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.5 "Change in Control" shall be deemed to have occurred under any one or
more of the following conditions:
i. if, within one year of any merger, consolidation, sale of a
substantial part of the Company's assets, or contested election, or
any combination of the foregoing transactions (a "Transaction"), the
persons who were Directors of the Company immediately before the
Transaction shall cease to constitute a majority of the Board of
Directors (x) of the Company or (y) of any successor to the Company,
or (z) if the Company becomes a subsidiary of or is merged into or
consolidated with another corporation, of such corporation (the
Company shall be deemed a subsidiary of such other corporation if
such other corporation owns or controls, directly or indirectly, a
majority of the combined voting power of the outstanding shares of
the capital stock of the Company entitled to vote generally in the
election of directors ("Voting Stock"));
ii. if, as a result of a Transaction, the Company does not survive as an
entity, or its shares are changed into the shares of another
corporation unless the stockholders of the Company immediately prior
to the Transaction own a majority of the outstanding shares of such
other corporation immediately following the Transaction;
iii. if any Person becomes, after the date this Plan is adopted, a
beneficial owner directly or indirectly of securities of the Company
representing 50% or more of the combined voting power of the
Company's Voting Stock;
iv. the dissolution or liquidation of the Company is approved by its
stockholders; or
v. if the members of the Board as of the date this Plan is adopted (the
"Incumbent Board") cease to represent at least two-thirds of the
Board; provided, that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by at least two-thirds of the
members comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement in which such person is named as
a nominee for director without objection to such nomination) shall
be, for purposes of this paragraph (v), treated as though such
person were a member of the Incumbent Board.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 "Committee" means the Compensation Committee of the Board or such
other committee appointed from time to time by the Board to administer this
Plan. The full Board of Directors, in its discretion, may act as the Committee
under this Plan, whether or not a Committee has been appointed, and shall do so
with respect to grants of Awards to Non-Employee Directors. To the extent
permitted by law, the Committee may delegate to one or more members of the
Committee or officers of the Company, individually or acting as a committee, any
portion of its authority, except as otherwise expressly provided in this Plan.
In the event of a delegation to one or more members of the Committee or an
officer, the term "Committee" as used herein shall include the member or members
of the Committee or officer with respect to the delegated authority.
Notwithstanding any such delegation of authority, the Committee comprised of
members of the Board of Directors and appointed by the Board of Directors shall
retain overall responsibility for the operation of this Plan.
-2-
2.8 "Company" means Biophan Technologies Inc., a Nevada corporation,
together will all subsidiaries thereof, and any successor thereto as provided in
Article 16 hereof.
2.9 "Covered Employee" means a Participant who, as of the date of vesting
and/or payout of an Award, or the date the Company or any of its Subsidiaries is
entitled to a tax deduction as a result of the Award, as applicable, is one of
the group of "covered employees," as defined in the regulations promulgated
under Code Section 162(m), or any successor statute.
2.10 "Director" means any individual who is a member of the Board of
Directors of the Company; provided, however, that any Director who is employed
by the Company shall be treated as an Employee under this Plan.
2.11 "Disability" shall mean a condition whereby the Participant is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical impairment which can be expected to result in death or
which is or can be expected to last for a continuous period of not less than
twelve months, all as verified by a physician acceptable to, or selected by, the
Company.
2.12 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "Employee" means any employee of the Company or its Subsidiaries.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.15 "Fair Market Value" as of any date and in respect of any Share means
(i) if the shares of Common Stock are listed on a national exchange, the closing
price per share of the Company's 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, 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 Committee in good faith.
2.16 "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 hereof and that is designated as an Incentive Stock
Option and that is intended to meet the requirements of Code Section 422.
2.17 "Independent Contractor" means a person, including without limitation
a member of the Company's Scientific Advisory Board or a consultant, engaged by
the Company for a specific task, study or project who is not an Employee.
2.18 "Insider" shall mean an individual who is, on the relevant date, an
executive officer, director or ten percent (10%) beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
-3-
2.17 "Key Employee" shall mean an individual as defined in Code Section
416(i) without regard to paragraph (5) thereof) of the Company.
2.20 "Non-Employee Director" shall mean any member of the Board of who is
not an employee of the Company or a member of the immediate family of an
employee of the Company.
2.21 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 hereof that is not intended to meet the
requirements of Code Section 422, or that otherwise does not meet such
requirements.
2.22 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.23 "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.24 "Participant" means an Employee, Director or Independent Contractor
who has been selected to receive an Award or who has an outstanding Award
granted under this Plan.
2.25 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.26 "Performance Share" means an Award granted to a Participant, as
described in Article 9 hereof.
2.27 "Performance Unit" means an Award granted to a Participant, as
described in Article 9 hereof.
2.28 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other events as
determined by the Committee, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, pursuant to the Restricted Stock Award
Agreement, as provided in Article 8 hereof.
2.29 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof and the
rules promulgated thereunder, including a "group" as defined in Section 13(d)
thereof and the rules promulgated.
2.30 "Restricted Stock" means an Award granted to a Participant pursuant
to Article 8 hereof.
2.31 "Retirement" means termination of a Participant's 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.
2.32 "Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor act thereto.
-4-
2.33 "Shares" means shares of the Company's common stock, par value $.0005
per share.
2.34 "Stock Appreciation Right" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the terms
of Article 7 hereof.
2.35 "Subsidiary" means any corporation, partnership, joint venture, or
other entity in which the Company, directly or indirectly, has a majority voting
interest. With respect to Incentive Stock Options, "Subsidiary" means any
entity, domestic or foreign, whether or not such entity now exists or is
hereafter organized or acquired by the Company or by a Subsidiary that is a
"subsidiary corporation" within the meaning of Code Section 424(d) and the rules
thereunder.
2.36 "Ten Percent Stockholder" means an employee who at the time an ISO is
granted owns Shares possessing more than ten percent of the total combined
voting power of all classes of Shares of the Company or any Subsidiary, within
the meaning of Code Section 422.
Article 3. Administration
3.1 General. Subject to the terms and conditions of this Plan, this Plan
shall be administered by the Committee. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors. The Committee shall have the authority to delegate administrative
duties to officers of the Company. For purposes of making Awards intended to
qualify for the Performance Based Exception under Code Section 162(m), to the
extent required under such Code Section, the Committee shall be comprised solely
of two or more individuals who are "outside directors", as that term is defined
in Code Section 162(m) and the regulations thereunder.
3.2 Authority of the Committee. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions hereof, the Committee shall have full power to select Employees,
Directors and Independent Contractors who shall be offered the opportunity to
participate in this Plan; determine the sizes and types of Awards; determine the
terms and conditions of Awards in a manner consistent with this Plan; construe
and interpret this Plan and any agreement or instrument entered into under this
Plan; establish, amend, or waive rules and regulations for this Plan's
administration; and amend the terms and conditions of any outstanding Award as
provided in this Plan. Further, the Committee shall make all other
determinations that it deems necessary or advisable for the administration of
this Plan. As permitted by law and the terms of this Plan, the Committee may
delegate its authority herein to officers of the Company. No member of the
Committee shall be liable for any action taken or decision made in good faith
relating to this Plan or any Award granted hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of this Plan and all related orders and
resolutions of the Committee shall be final, conclusive, and binding on all
persons, including the Company, its stockholders, Directors, Employees,
Participants, and their estates and beneficiaries, unless changed by the Board.
-5-
Article 4. Shares Subject to this Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 hereof, the number of Shares hereby reserved for
issuance to Participants under this Plan shall be seven million five hundred
thousand (7,500,000). Any Shares covered by an Award (or portion of an Award)
granted under this Plan which is forfeited or canceled or expires shall be
deemed not to have been delivered for purposes of determining the maximum number
of Shares available for delivery under this Plan. Shares may be authorized,
unissued shares or Treasury shares. The Committee shall determine the
appropriate methodology for calculating the number of Shares issued pursuant to
this Plan.
The following limitations shall apply to the grant of any Award to a
Participant in a fiscal year:
(a) Stock Options: The maximum aggregate number of Shares that may be
granted in the form of Stock Options pursuant to Awards granted in
any one fiscal year to any one Participant shall be 1,000,000.
(b) SARs: The maximum aggregate number of Shares that may be granted in
the form of Stock Appreciation Rights pursuant to Awards granted in
any one fiscal year to any one Participant shall be 1,000,000.
(c) Restricted Stock: The maximum aggregate of Shares that may be
granted with respect to Awards of Restricted Stock granted in any
one fiscal year to any one Participant shall be 1,000,000.
(d) Performance Shares/Performance Units Awards: The maximum aggregate
grant with respect to Awards of Performance Shares made in any one
fiscal year to any one Participant shall be equal to the Fair Market
Value of 500,000 Shares (measured on the date of grant); the maximum
aggregate amount awarded with respect to Performance Units to any
one Participant in any one fiscal year may not exceed $1,000,000.
4.2 Adjustments in Authorized Shares. Upon a change in corporate
capitalization, such as a stock split, stock dividend or a corporate
transaction, such as any merger, consolidation, combination, exchange of shares
or the like, separation, including a spin-off, or other distribution of stock or
property of the Company, any reorganization (whether or not such reorganization
comes within the definition of such term in Code Section 368) or any partial or
complete liquidation of the Company, a proportionate adjustment shall be made in
(i) the number and class of Shares available under this Plan, in the number and
class of and/or price of Shares subject to outstanding Awards granted under this
Plan, and in all references to numbers of Shares set forth in this Plan, as may
be determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights.
4.3 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under this Plan; provided that, unless the
Committee determines otherwise at the time such adjustment is considered, no
such adjustment shall be authorized to the extent that such authority would be
inconsistent with this Plan's or any Award's meeting the requirements of Section
162(m) of the Code, as from time to time in effect.
-6-
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan include all
Employees, Directors and Independent Contractors of the Company and its
Subsidiaries.
5.2 Actual Participation. Subject to the provisions of this Plan, the
Committee may, from time to time, select from all eligible Employees, Directors
and Independent Contractors, those to whom Awards shall be granted and shall
determine the nature and amount of each Award, provided that Incentive Stock
Options shall only be awarded to Employees of the Company or its Subsidiaries.
5.3 Stock Options for Non-Employee Directors
(a) Each person who, subsequent to the Effective Date, is for the first
time elected or appointed to the Board and who qualifies, at such
time, as a Non-Employee Director, shall automatically be granted a
Nonqualified Stock Option to purchase 40,0000 shares of Common
Stock, effective as of the date of his or her election or
appointment to the Board, on the terms and conditions set forth in
this Plan, at an option price per share equal to the Fair Market
Value of a share of Common Stock on the date of grant or, if the
date of the grant is not a business day on which the Fair Market
Value can be determined, on the last business day preceding the date
of grant on which the Fair Market Value can be determined.
(b) Each Non-Employee Director who is re-elected as a director at an
annual meeting of stockholders shall be granted an additional
Nonqualified Stock Option to purchase 40,000 shares of Common Stock,
on the terms and conditions set forth in this Plan, at an option
price per share equal to the Fair Market Value of a share of Common
Stock on the date of such annual meeting.
(c) Each Option granted to a Non-Employee Director pursuant to this
Section 5.3 shall vest and become fully exercisable upon the earlier
of (i) the completion by such Non-Employee Director of one year of
Board service measured from the date of grant or (ii) the date of
the first annual meeting of stockholders occurring after the end of
the fiscal year of the Company during which such Option was granted.
All Options granted to Non-Employee Directors pursuant to this
Section 5.3 shall expire on the tenth (10th) anniversary of the date
of grant, subject to earlier termination as provided in Article 12.
(d) The right of Non-Employee Directors to receive Options pursuant to
this Section 5.3 shall be in lieu of all rights to receive options
automatically under the Company's 2001 Stock Option Plan (2005
Restatement) or any other plan that does not specifically provide
that such options are in lieu of or in addition to the Options to
which the Non-Employee Directors are entitled under this Plan.
-7-
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of this Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine which are not inconsistent with the terms of this
Plan.
6.3 Option Price. The Option Price for each grant of an Option under this
Plan shall be as determined by the Committee; provided, however, the per-share
exercise price shall not be less than the Fair Market Value of the Shares on the
date of grant. The Option Price for each Option shall equal the Fair Market
Value of the Shares at the time such option is granted. If an ISO is granted to
a Ten Percent Stockholder the Option Price shall be at least 110 percent of the
Fair Market Value of the stock subject to the ISO.
6.4 Duration of Options. Except as otherwise provided in this Plan, each
Option granted to a Participant shall expire at such time as the Committee shall
determine at the time of grant, provided that an ISO must expire no later than
the tenth (10th) anniversary of the date the ISO was granted. However, in the
case of an ISO granted to a Ten Percent Stockholder, the ISO by its terms shall
not be exercisable after the expiration of five years from the date such ISO is
granted.
6.5 Exercise of Options. Options shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or for each
Participant.
6.6 Payment. Options shall be exercised by the delivery of a written,
electronic or telephonic notice of exercise to the Company or its designated
agent, setting forth the number of Shares with respect to which the Option is to
be exercised, accompanied by full payment of the Option Price for the Shares.
Upon the exercise of any Option, the Option Price for the Shares being
purchased pursuant to the Option shall be payable to the Company in full either:
(a) in cash or its equivalent; or (b) subject to the Committee's approval, by
delivery of previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price (provided that the Shares
that are delivered must have been held by the Participant for at least six (6)
months prior to their delivery to satisfy the Option Price); or (c) by a
combination of (a) and (b); or (d) by any other method approved by the Committee
in its sole discretion. Unless otherwise determined by the Committee, the
delivery of previously acquired Shares may be done through attestation. No
fractional shares may be tendered or accepted in payment of the Option Price.
Unless otherwise determined by the Committee, cashless exercises are
permitted pursuant to Federal Reserve Board's Regulation T, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with this Plan's purpose and applicable
law.
-8-
Subject to any governing rules or regulations, as soon as practicable
after receipt of notification of exercise and full payment, the Company shall
deliver to the Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased pursuant to the
Option(s).
Unless otherwise determined by the Committee, all payments under all of
the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, or under any blue sky or state securities laws applicable
to such Shares.
6.8 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under this Plan may be sold,
transferred, pledged, assigned, encumbered or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under this
Plan shall be exercisable during such Participant's lifetime only by
such Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in the
applicable Award Agreement, no NQSO may be sold, transferred,
pledged, assigned, encumbered or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in the
applicable Award Agreement, all NQSOs granted to a Participant shall
be exercisable during such Participant's lifetime only by such
Participant.
6.9 Special Limitation on Grants of Incentive Stock Options. No ISO shall
be granted to an Employee under this Plan or any other ISO plan of the Company
or its Subsidiaries to purchase Shares as to which the aggregate Fair Market
Value (determined as of the date of grant) of the Shares which first become
exercisable by the Employee in any calendar year exceeds $100,000. To the extent
an Option initially designated as an ISO exceeds the value limit of this Section
6.9 or otherwise fails to satisfy the requirements applicable to ISOs, it shall
be deemed a NQSO and shall otherwise remain in full force and effect.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of this Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee.
Subject to the terms and conditions of this Plan, the Committee shall have
complete discretion in determining the number of SARs granted to each
Participant and, consistent with the provisions of this Plan, in determining the
terms and conditions pertaining to such SARs.
The grant price of a SAR shall equal the Fair Market Value of a Share on
the date of grant.
-9-
7.2 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine.
7.3 Term of SARs. The term of an SAR granted under this Plan shall be
determined by the Committee, in its sole discretion.
7.4 Exercise of SARs. SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon them.
7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The amount by which the Fair Market Value of a Share on the date of
exercise exceeds the grant price of the SAR; by
(b) The number of Shares with respect to which the SAR is exercised.
The payment upon SAR exercise shall be in Shares. Any Shares delivered in
payment shall be deemed to have a value equal to the Fair Market Value on the
date of exercise of the SAR.
7.7 Nontransferability of SARs. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under this Plan may be sold,
transferred, pledged, assigned, encumbered, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided in a Participant's Award Agreement, all
SARs granted to a Participant under this Plan shall be exercisable during such
Participant's lifetime only by such Participant.
Article 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and provisions of this
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine which are not inconsistent with the
terms of this Plan.
8.3 Transferability. Except as provided in the Award Agreement, the Shares
of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, encumbered, or otherwise alienated or hypothecated until the end of
the applicable Period of Restriction established by the Committee and specified
in the Restricted Stock Award Agreement, or upon earlier satisfaction of any
other conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under this Plan shall be available
during such Participant's lifetime and prior to the end of the Period of
Restriction only to such Participant.
8.4 Other Restrictions. The Committee may impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted pursuant to this
Plan as it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals,
time-based restrictions on vesting following the attainment of the performance
goals, time-based restrictions, and/or restrictions under applicable federal or
state securities laws.
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To the extent deemed appropriate by the Committee, the Company may retain
the certificates representing Shares of Restricted Stock in the Company's
possession until such time as all conditions and/or restrictions applicable to
such Shares have been satisfied.
Except as otherwise provided in the Award Agreement, Shares of Restricted
Stock covered by each Restricted Stock grant made under this Plan shall become
freely transferable by the Participant after the last day of the applicable
Period of Restriction.
8.5 Voting Rights. If the Committee so determines, Participants holding
Shares of Restricted Stock granted hereunder may be granted the right to
exercise full voting rights with respect to those Shares during the Period of
Restriction.
8.6 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder (whether or
not the Company holds the certificate(s) representing such Shares) may, if the
Committee so determines, be credited with dividends paid with respect to the
underlying Shares while they are so held. The Committee may apply any
restrictions to the dividends that the Committee deems appropriate. Without
limiting the generality of the preceding sentence, if the grant or vesting of
Restricted Shares granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to such Restricted Shares, such that the dividends and/or the Restricted
Shares maintain eligibility for the Performance-Based Exception.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units/Shares Awards. Subject to the terms of this
Plan, Performance Units and/or Performance Shares Awards may be granted to
Participants in such amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee.
9.2 Award Agreement. At the Committee's discretion, each grant of
Performance Units/Shares Awards may be evidenced by an Award Agreement that
shall specify the initial value, the duration of the Award, the performance
measures, if any, applicable to the Award, and such other provisions as the
Committee shall determine which are not inconsistent with the terms of this
Plan.
9.3 Value of Performance Units/Shares Awards. Each Performance Unit shall
have an initial value that is established by the Committee at the time of grant.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the date of grant. The Committee shall set performance goals
in its discretion which, depending on the extent to which they are met, will
determine the number and/or value of Performance Units/Shares Awards that will
be paid out to the Participant. For purposes of this Article 9, the time period
during which the performance goals must be met shall be called a "Performance
Period."
9.4 Earning of Performance Units/Shares Awards. Subject to the terms of
this Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares Awards shall be entitled to receive a payout based on
the number and value of Performance Units/Shares Awards earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance goals have been achieved.
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9.5 Form and Timing of Payment of Performance Units/Shares Awards. Payment
of earned Performance Units/Shares Awards shall be as determined by the
Committee and, if applicable, as evidenced in the related Award Agreement.
Subject to the terms of this Plan, the Committee, in its sole discretion, may
pay earned Performance Units/Shares Awards in the form of cash or in Shares (or
in a combination thereof) that have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares Awards at the close of the
applicable Performance Period. Such Shares may be delivered subject to any
restrictions deemed appropriate by the Committee. No fractional shares will be
issued. The determination of the Committee with respect to the form of payout of
such Awards shall be set forth in the Award Agreement pertaining to the grant of
the Award or the resolutions establishing the Award.
Unless otherwise provided by the Committee, Participants holding
Performance Units/Shares shall be entitled to receive dividend units with
respect to dividends declared with respect to the Shares represented by such
Performance Units/Shares. Such dividends may be subject to the same accrual,
forfeiture, and payout restrictions as apply to dividends earned with respect to
Shares of Restricted Stock, as set forth in Section 8.6 hereof, as determined by
the Committee.
9.6 Nontransferability. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares Awards may not be sold, transferred,
pledged, assigned, encumbered, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
Article 10. Performance Measures
Unless and until the Committee proposes for stockholder vote and the
Company's stockholders approve a change in the general performance measures set
forth in this Article 10, the attainment of which may determine the degree of
payout and/or vesting with respect to Awards to Covered Employees that are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Cash flow (including, but not limited to, operating cash flow and
free cash flow);
(d) Gross revenues;
(e) Gross margins;
(f) EBITDA;
(g) Any of the above measures compared to peer or other companies;
(h) Scientific milestones and objectives;
(i) Cost containment goals; and
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(j) Achievement of other business objectives.
Performance measures may be set either at the corporate level, subsidiary
level, division level, or business unit level.
Awards that are designed to qualify for the Performance-Based Exception,
and that are held by Covered Employees, may not be adjusted upward (the
Committee shall retain the discretion to adjust such Awards downward).
If applicable tax and/or securities laws change to permit Committee
discretion to alter the governing performance measures without obtaining
stockholder approval of such changes, the Committee shall have sole discretion
to make such changes without obtaining stockholder approval.
Article 11. Rights of Participants
11.1 Employment. Nothing in this Plan shall confer upon any Participant
any right to continue as an Employee, Director or Independent Contractor of the
Company or its Subsidiaries, or interfere with or limit in any way the right of
the Company or its Subsidiaries to terminate any Participant's employment,
directorship or engagement as an Independent Contractor at any time.
11.2 Participation. Except as expressly provided in Section 5.3 with
respect to Non-Employee Directors, no Employee, Director or Independent
Contractor shall have the right to be selected to receive an Award under this
Plan, or, having been so selected, to be selected to receive any future Award.
11.3 Rights as a Stockholder. Except as provided in Sections 8.5, 8.6 and
9.5 or in applicable Award Agreement consistent with such Sections, a
Participant shall have none of the rights of a stockholder with respect to
shares of Common Stock covered by any Award until the Participant becomes the
record holder of such Shares, or the Period of Restriction has expired, as
applicable.
Article 12. Termination of Employment/Directorship/Consultancy
Upon termination of the Participant's employment, directorship or service
as a member of the Company's Scientific Advisory Board for any reason other than
Retirement, Disability or death, an Award granted to the Participant may be
exercised by the Participant or permitted transferee at any time on or prior to
the earlier of the expiration date of the Award or the expiration of three (3)
months after the date of termination but only if, and to the extent that, the
Participant was entitled to exercise the Award at the date of termination. All
Awards or any portion thereof not yet vested or exercisable or whose Period of
Restriction has not expired as of the date of termination (other than a
termination by reason of Retirement, Disability or death) shall terminate and be
forfeited immediately on the date of termination. If the employment or
directorship of a Participant terminates by reason of the Participant's
Retirement, Disability or death, all Awards or any portion thereof not yet
vested or exercisable or whose Period of Restriction has not expired as of the
date of a Participant's Disability or death shall become immediately vested
and/or exercisable on the date of termination due to Retirement, Disability or
death. If the employment or directorship of a Participant terminates by reason
of the Participant's Retirement, Disability or death, the Participant (or, if
appropriate, the Participant's legal representative or permitted transferee) may
exercise such Participant's rights under any outstanding Award at any time on or
prior to the original expiration date of the Award; provided, however, that if
an Award is an ISO, the Participant (or, if appropriate, the Participant's legal
representative or permitted transferee) may exercise such Participant's rights
under any outstanding Award at any time on or prior to the earlier of (i) the
original expiration date of the Award or (ii) (A) in the case of Retirement, the
expiration of three (3) months after the date of termination or (B) in the case
of Disability or death, the first anniversary of the date of termination.
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Unless otherwise determined by the Committee, an authorized leave of
absence pursuant to a written agreement or other leave entitling an Employee to
reemployment in a comparable position by law or rule shall not constitute a
termination of employment for purposes of this Plan unless the Employee does not
return at or before the end of the authorized leave or within the period for
which re-employment is guaranteed by law or rule. For purposes of this Article,
a "termination" includes an event which causes a Participant to lose his
eligibility to participate in this Plan (e.g., an individual is employed by a
company that ceases to be a Subsidiary). In the case of an Independent
Contractor, the meaning of "termination" or "termination of employment" includes
the date that the individual ceases to provide services to the Company or its
Subsidiaries. In the case of a nonemployee director, the meaning of
"termination" includes the date that the individual ceases to be a director of
the Company or its Subsidiaries.
Notwithstanding the foregoing, the Committee has the authority to
prescribe different rules that apply upon the termination of a particular
Participant's service as an Employee, Director or Independent Contractor, which
shall be memorialized in the Participant's original or amended Award Agreement
or similar document.
An Award that remains unexercised after the latest date it could have been
exercised under any of the foregoing provisions or under the terms of the Award
shall be forfeited.
Article 13. Change in Control
In the event of a Change in Control, unless otherwise specifically
prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchange or trading
system, or unless the Committee shall otherwise specify in the Award Agreement,
the Board, in its sole discretion, may:
(a) elect to terminate Options or SARs in exchange for a cash payment
equal to the amount by which the Fair Market Value of the Shares
subject to such Option or SAR to the extent the Option or SAR has
vested exceeds the exercise price with respect to such Shares;
(b) elect to terminate Options or SARs provided that each Participant is
first notified of and given the opportunity to exercise his/her
vested Options or SARs for a specified period of time (of not less
than 15 days) from the date of notification and before the Option or
SAR is terminated;
(c) permit Awards to be assumed by a new parent corporation or a
successor corporation (or its parent) and replaced with a comparable
Award of the parent corporation or successor corporation (or its
parent);
(d) amend an Award Agreement or take such other action with respect to
an Award that it deems appropriate; or
(e) implement any combination of the foregoing.
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Article 14. Amendment, Modification, and Termination
14.1 Amendment, Modification, and Termination. Subject to the terms of
this Plan, the Board may at any time and from time to time, alter, amend,
suspend, or terminate this Plan in whole or in part.
14.2 Awards Previously Granted. Notwithstanding any other provision of
this Plan to the contrary, no termination, amendment, or modification of this
Plan shall adversely affect in any material way any Award previously granted
under this Plan, without the written consent of the Participant holding such
Award.
14.3 Stockholder Approval Required for Certain Amendments. Stockholder
approval will be required for any amendment of this Plan that does any of the
following: (a) increases the maximum number of Shares subject to this Plan; (b)
changes the designation of the class of persons eligible to receive ISOs under
this Plan; or (c) modifies this Plan in a manner that requires stockholder
approval under applicable law or the rules of a stock exchange or trading system
on which Shares are traded.
Article 15. Withholding
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable taxes (including social security or social charges), domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan. The Participant may satisfy,
totally or in part, such Participant's obligations pursuant to this Section 15
by electing to have Shares withheld, to redeliver Shares acquired under an
Award, or to deliver previously owned Shares that have been held for at least
six (6) months, provided that the election is made in writing on or prior to (i)
the date of exercise, in the case of Options and SARs, (ii) the date of payment,
in the case of Performance Units/Shares, and (iii) the expiration of the Period
of Restriction in the case of Restricted Stock. Any election made under this
Section 15 may be disapproved by the Committee at any time in its sole
discretion. If an election is disapproved by the Committee, the Participant must
satisfy his obligations pursuant to this paragraph in cash.
Article 16. Successors
All obligations of the Company under this Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
through merger, consolidation, or otherwise, of all or substantially all of the
business, stock and/or assets of the Company.
Article 17. General Provisions
17.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
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17.2 Severability. If any provision of this Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of this Plan, and this Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
17.3 Requirements of Law. The granting of Awards and the issuance of
Shares under this Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act, unless determined otherwise by
the Board. To the extent any provision of this 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 Board.
17.5 Registration. The Company shall use reasonable endeavors to register
Shares issued pursuant to Awards under the Securities Act on Form S-8 or other
suitable Form and to effect compliance with the registration, qualification, and
listing requirements of any state or foreign securities laws, stock exchange, or
trading system.
17.6 Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17.7 No Additional Rights. Neither the Award nor any benefits arising
under this Plan shall constitute part of an employment contract between the
Participant and the Company or any Subsidiary, and accordingly, subject to
Section 14.2, this Plan and the benefits hereunder may be terminated at any time
in the sole and exclusive discretion of the Committee without giving rise to
liability on the part of the Company for severance payments.
17.8 Noncertificated Shares. To the extent that this Plan provides for
issuance of certificates to reflect the transfer of Shares, the transfer of such
Shares may be effected on a noncertificated basis, to the extent not prohibited
by applicable law or the rules of any stock exchange or trading system.
17.9 Governing Law. This Plan and each Award Agreement shall be governed
by the laws of Nevada, excluding any conflicts or choice of law rule or
principle that might otherwise refer construction or interpretation of this Plan
to the substantive law of another jurisdiction. Unless otherwise provided in the
Award Agreement, recipients of an Award under this Plan are deemed to submit to
the exclusive jurisdiction and venue of the federal or state courts whose
jurisdiction covers Rochester, New York, to resolve any and all issues that may
arise out of or relate to this Plan or any related Award Agreement.
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17.10 Compliance with Code Section 409A. No Award that is subject to
Section 409A of the Code shall provide for deferral of compensation that does
not comply with Section 409A of the Code, unless the Board, at the time of
grant, specifically provides that the Award is not intended to comply with
Section 409A of the Code. Notwithstanding any provision in this Plan to the
contrary, with respect to any Award subject to Section 409A, distributions on
account of a separation from service may not be made to Key Employees before the
date which is six (6) months after the date of separation from service (or, if
earlier, the date of death of the employee).
Dated as of June 19, 2006 Biophan Technologies, Inc.
By: __________________________
President
Date of Stockholder Approval: _____________
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