We are writing to you today to request your authorization to make a portion of our authorized and unissued Biophan shares preferred, to facilitate a potential transaction between Biophan and a large biomedical device company. The transaction with this potential strategic partner, which is in an advanced stage of negotiation, may include license fees, milestone payments, and royalties, on several product lines already in the market, with sizeable upside potential for us. Part of the package being discussed involves an equity investment, potentially at a premium over market, which will provide us an alternative to the current financing package that we have available.
We have been informed by the prospective partner that any investment that it may make must be in preferred stock. As you know, this gives a preference in the event of a sale or liquidation. While the terms of the preferred stock will be fixed in the future, we expect any preferred stock issued in the currently contemplated transaction to be identical to common stock except for the liquidation preference (i.e., it will have no special voting rights, etc.). At the recent Biophan annual meeting the stockholders approved additional shares to allow us to achieve corporate purposes including taking all or part of the SBI financing, and/or a strategic investment. The shares already registered for potential sale to SBI cannot be used for a sale to the strategic partner.
What we are seeking is your approval for us to substitute shares of preferred stock for a portion of the shares of common stock that were authorized at the annual meeting. We do not anticipate needing more than about 10 million shares of preferred stock for the potential transaction currently being considered, but to be safe, and because there is interest from other large companies, we are requesting that you authorize up to 15 million of the CURRENTLY AUTHORIZED shares to be authorized as preferred shares to provide the Board with flexibility as it seeks to effect strategic transactions.
By getting your approval now, in advance, we can avoid the delays and uncertainty associated with requiring a stockholders meeting at the time we want to enter into a strategic transaction. If the potential transaction that is currently contemplated does not occur, the preferred shares will be available for similar transactions that may occur in the future.
Our recent announcement of the joint agreement with NASA on the biothermal battery, our achieving a total of 80 patents issued, pending or licensed in, and most importantly, the potential transaction being negotiated about which we are writing to you, are exciting developments in our business.
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It is only with your continued, ongoing support that we have been able to make this progress, and on behalf of our employees, board members, and future customers, we thank you again.
Enclosed with this letter is a notice of a stockholders meeting and a proxy statement describing in more detail the proposed authorization of preferred stock. Please vote in the affirmative on the enclosed proxy card and return it in the prepaid envelope.
Sincerely,
Michael L. Weiner Chief Executive Officer
Guenter H. Jaensch Chairman of the Board
"Our houses are such unwieldy property that we are often imprisoned rather than housed in them." - Henry David Thoreau, Walden: Economy, 1854
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