<PAGE>
[LOGO]
12051 Indian Creek Court
Beltsville, Maryland 20705
Notice of Annual Meeting of Stockholders
to be Held on May 15, 1997
and Proxy Statement
The Annual Meeting of Stockholders of Biospherics-Registered Trademark-
Incorporated (the "Company") will be held at the Company headquarters, 12051
Indian Creek Court, Beltsville, Maryland, on May 15, 1997, at 2:00 p.m., Eastern
Daylight Time.
The items of business are:
(1) Election of eight (8) Directors to serve until new Directors are
elected at the next Annual Meeting or, should any resign after
election or become incapable of serving, until the respective
successors are duly appointed for the remainder of the year.
(2) A proposal to establish a wholly owned subsidiary consisting of the
assets, liabilities, and personnel of the Information Services
Division.
(3) Ratification of the appointment of the independent certified public
accountants.
(4) Transaction of other business that may properly come before the
Meeting.
These items are more fully described in the following pages, which are
hereby made part of this Notice.
The Company's Proxy Statement, Proxy Card, and Summary Annual Report for
1996 accompany this Notice.
Pursuant to the Bylaws of this Corporation, the Board of Directors has
fixed the close of business on March 17, 1997, as the Record Date for
determination of Stockholders entitled to Notice and to vote at the Meeting and
any adjournment thereof. Only Common Stockholders of record on the date so
fixed are entitled to vote.
BY ORDER OF THE BOARD OF DIRECTORS
M. Karen Levin, Secretary
PLEASE EXECUTE AND PROMPTLY RETURN THE ENCLOSED PROXY WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING. IF YOU DO ATTEND THE MEETING AND VOTE PERSONALLY, YOUR
PROXY WILL AUTOMATICALLY BE REVOKED AT THAT TIME.
-1-
<PAGE>
Biospherics-Registered Trademark- Incorporated
------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
May 15, 1997
This Proxy Statement is being mailed on or about April 15, 1997, with the
solicitation of proxies in the accompanying form by the Board of Directors of
Biospherics-Registered Trademark- Incorporated, a Delaware corporation. The
Annual Meeting of its Stockholders will be held May 15, 1997, at 2:00 p.m.,
at the Company's headquarters, 12051 Indian Creek Court, Beltsville,
Maryland. The cost of this solicitation is being borne by Biospherics. The
Company will reimburse brokers, banks, and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them forwarding
Company-supplied Proxy materials to the beneficial owners of the Common
Stock. In addition to solicitations by mail, Directors, Officers and
employees of the Company may solicit Proxies personally or by telegraph or
telephone without additional compensation.
All shares represented by Proxy will be voted at the Meeting in
accordance with the choices specified on the Proxy, and where no choice is
specified, in accordance with the recommendations of the Board of Directors.
Thus, where no choice is specified, the Proxies will be voted for the
election of Directors, transfer of the Information Services Division to a
wholly-owned subsidiary, and for ratification of the appointment of
independent certified public accountants. A Stockholder giving a Proxy will
have the power to revoke it at any time before it is exercised. A Proxy will
be revoked automatically if the Stockholder who executed it is present at the
Meeting and elects to vote in person.
Each Stockholder will be entitled to one vote for each share of Common
Stock $.005 par value per share ("Common Stock") held by the Stockholder at
the close of business on March 17, 1997. At that time, there were 7,945,612
shares of Common Stock outstanding.
In accordance with the laws of the State of Delaware and the Company's
Charter and By-Laws, a majority of the outstanding shares of Common Stock
will constitute a quorum at the Meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum
for the transaction of business.
In accordance with the laws of the State of Delaware and the Company's
Charter and By-Laws: (i) for the election of Directors, which require a
plurality of the votes cast, only Proxies and ballots indicating votes "FOR
all Nominees," "WITHHELD from all Nominees," or specifying that votes be
withheld for one or more designated Nominees are counted to determine the
total number of votes cast, and broker non-votes are not counted, and (ii)
for the adoption of all other proposals, which are decided by a majority of
the shares of the Stock of the Company present in person or by Proxy and
entitled to vote, only Proxies and ballots indicating votes "FOR," "AGAINST,"
or "ABSTAIN" on the proposal or providing the designated Proxies with the
right to vote in their judgment and discretion on the proposal are counted to
determine the number of Shares present and entitled to vote, and broker
non-votes are not counted.
It is anticipated that the Directors and Officers will vote their Shares
of Common Stock in favor of the Nominees for election to the Board of
Directors listed herein and for ratification of the appointment of
independent accountants listed herein.
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
Directors are to be elected at the Annual Meeting to serve until the next
Annual Meeting of Stockholders or, upon resignation or inability to serve,
until their respective successors are duly appointed for the remainder of the
year. The Bylaws of the Company authorize up to eleven (11) Directors.
However, the Nominating Committee believes it is not presently necessary nor
cost effective to fill all Board vacancies. Unless otherwise instructed, the
persons named in the accompanying Proxy intend to vote the Shares represented
by the Proxy FOR the election of the eight (8) Nominees listed below.
Although it is not contemplated that any Nominee will decline or be unable to
serve as a Director, in such event, Proxies will be voted by the Proxy holder
for such other persons as may be designated by the Board of Directors, unless
the Board of Directors reduces the number of Directors to be elected.
Election of a Board of Directors requires a plurality of the votes cast at
the Meeting.
2
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Biospherics-Registered Trademark- Incorporated
------------
The following table sets forth certain information about the Nominees
for Directors as of March 17, 1997.
<TABLE>
Nominees for Election to Board of Directors
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Director
Name Age Position Since
- - -------- ----- ---------- ----------
Gilbert V. Levin 72 Chairman of the Board,
CEO,President,
and Treasurer 1967
Lionel V. Baldwin 64 Director 1976
David A. Blake 55 Director 1995
A. Bruce Cleveland 53 Director 1987
Rita R. Colwell 62 Director 1996
George S. Jenkins 74 Director 1984
M. Karen Levin 77 Director and
Vice President for
Communications 1968
Anne S. MacLeod 66 Director 1992
- - -------------------------------------------------------------------------------
</TABLE>
Dr. Levin founded the Company in 1967 and has been Chairman of the Board
and President since incorporation. He previously served in the public health
departments of Maryland, California, and the District of Columbia and as a
research scientist and corporate official. Among his inventions are
noncaloric sweeteners; the PhoStrip-Registered Trademark- process for
removing phosphorus from wastewater; and the Labeled Release life detection
experiment that landed on Mars in 1976 aboard NASA's Viking Mission. He holds
a Ph.D. from The Johns Hopkins University.
Dr. Baldwin is President of the National Technological University, Fort
Collins, Colorado. Formerly, Dr. Baldwin was Dean of the College of
Engineering at Colorado State University, where he also coordinated research
programs with emphasis on environmental areas. He holds a Ph.D. from Case
Institute of Technology.
Dr. Blake is the Senior Vice President for Biomedical Research,
Association of American Medical Colleges. Formerly, he served as Senior
Associate Dean of The Johns Hopkins University School of Medicine. He has
also held the posts of Associate Dean for Research, Director of Research
Administration and Associate Professor of Pharmacology and Molecular sciences
in his 23 years at that institution. Prior to that, he was Chairman,
Department of Pharmacology and Toxicology at the University of Maryland
School of Pharmacy. He holds a Ph.D. from the University of Maryland School
of Medicine.
Mr. Cleveland is President and founder of Presidential Savings Bank of
Bethesda, Maryland. Mr. Cleveland was also the founder and former Chief
Executive Officer of the GIT Investment Funds group of mutual funds and
Bankers Finance Investment Management Corp. of Arlington, Virginia.
Previously he served as Special Assistant for SBIC Industry Development with
the U.S. Small Business Administration and was an investment banker with
Drexel Burnham Co. in New York. He is a graduate of Harvard College and
received an M.B.A. in finance from Harvard Business School.
Dr. Colwell is President of the Biotechnology Institute, Director
of the Center for Marine Biology, and Vice President for Academic Affairs,
all at the University of Maryland where she also serves as Professor of
Microbiology. She is also Associate Professor of Biology at Georgetown
University. Dr. Colwell is the Chairman of the Board of the American
Association for the Advancement of Science for the 1996/97 year, and also
served as President of the Association from 1995 to 1996. She holds a Ph.D.
from the University of Washington and is a member of Phi Beta Kappa.
Mr. Jenkins is a land developer, the owner of Locust Grove Farm, and
previously was Chairman of Consultation Networks, Inc., a Washington, D.C.,
environmental expert witness database firm. Mr. Jenkins was President of
Greiner Engineering and is a Past Chairman of the Building Research Board of
the National Academy of Sciences. He is a member of the Advisory Council of
the Whiting School of Engineering of The Johns Hopkins University. Mr.
Jenkins serves on the boards of directors for several other companies. He
holds an M.S. in civil engineering from The Johns Hopkins University.
3
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Biospherics-Registered Trademark- Incorporated
-----------
Mrs. Levin has been a full-time executive and Director of the Company
since 1968. She was a science and medical reporter and writer for the
Washington Bureau of Newsweek magazine, then served as writer and public
information consultant to the National Institute of Mental Health. She holds
a B.A. in English from Vassar College. Mrs. Levin and Dr. Levin are husband
and wife.
Dr. MacLeod is Professor, College of Library and Information Services and
former Acting Director of Libraries, University of Maryland, College Park.
She is also a specialist in the design of communications for specific
audiences, and is an authority on the literature for children and youth. Dr.
MacLeod holds a Ph.D. in American history and an M.L.S., both from the
University of Maryland.
In 1996, non-employee Directors as a group were awarded Stock options for
24,000 shares of Stock, at $7.00 to $7.25 per share, with expiration dates
between September 26, 2001 and January 7, 2002. Directors were paid annual
retainers of $2,000 each and fees of $750 for each Meeting of the Board and
each Committee Meeting they attended. Employee Directors are not paid for
their services as Directors.
Mr. Cleveland serves as a Director of Government Investors Trust, GIT
Tax-Free Trust, GIT Income Trust, and GIT Equity trust, all publicly held
registered investment companies. No other Director serves as a Director of a
publicly held company. There is not and has not been for the previous two
fiscal years any relationship between the Company and any public company in
which any Director has a 1% or greater interest.
Board Of Directors
The Company's Board of Directors held four Regular Meetings from May 15,
1996 to February 1997, which were attended by all Members. There were four
special meetings during the year. The Board of Directors has six Committees:
Executive; Compensation; Audit; Pension; Technical; and Nominating.
The Executive Committee may act on behalf of the Board of Directors on
matters requiring action in the interim between meetings of the full Board.
In 1996-7, its members were Gilbert V. Levin, Chair; A. Bruce Cleveland;
George S. Jenkins; Anne S. MacLeod; and Richard C. Levin (staff). No
meetings were held.
The Compensation Committee recommends various incentives for key
employees to encourage and reward increased financial performance,
productivity and innovation. Its members were Lionel V. Baldwin, Chair; David
A. Blake; and Anne S. MacLeod. There were two meetings, attended by all
members.
The Audit Committee members were A. Bruce Cleveland and George S.
Jenkins. The Committee has authority to review the financial records of the
Company, deal with its independent auditors, recommend to the Board policies
with respect to financial reporting, and investigate all aspects of the
Company's business. There were two Committee meetings held and attended by
both Members.
The Biospherics Retirement Plan Administration ("Pension") Committee
oversees the management of the Company's Retirement Plan. Its members were
David A. Blake, Rita R. Colwell, M. Karen Levin, and Richard C. Levin
(staff). One Meeting was held, attended by all Members.
The Technical Committee advises the Company on the direction of
technology development. The Technical Committee consists of David A. Blake,
Chair; Rita Colwell; Gilbert V. Levin; and Lee R. Zehner (staff). One
Meeting was held, with all attending.
The Nominating Committee nominates the proposed Board for election by the
Stockholders. Its Members were Gilbert V. Levin and M. Karen Levin, who held
two Meetings.
4
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Biospherics-Registered Trademark- Incorporated
-----------
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth the shares of Common Stock beneficially
owned by all Officers and Directors as a group as of March 17, 1997. Except
for Gilbert V. Levin, Chairman of the Board, CEO and President, and M. Karen
Levin, Vice President for Communications, no person is known by the Company
to own beneficially more than 5% of the outstanding Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock by Officers and Directors
Amount and Nature Percent
Title of Class Name of Beneficial Owner of Ownership of Class
- - -------------- ------------------------ ------------------ --------
<S> <C> <C> <C>
Common Gilbert V. Levin 1,955,940(1)(2) 22.7%
Common M. Karen Levin 1,634,566(2) 19.0%
Common Richard C. Levin 93,296(2) 1.1%
Common Lee R. Zehner 67,796(2) *
Common Lionel V. Baldwin 19,818(2) *
Common George S. Jenkins 17,600(2) *
Common A. Bruce Cleveland 14,900(2) *
Common Anne S. MacLeod 12,900(2) *
Common David A. Blake 8,000(2) *
Common Rita R. Colwell 5,000(2) *
Common All Officers and
Directors as a Group 3,829,816(2) 44.4%
- - -------------------------------------------------------------------------------
* Less than 1%.
</TABLE>
(1) Includes 1,600 shares held jointly with M. Karen Levin.
(2) Included in the number of shares beneficially owned by G. V. Levin,
M. K. Levin, R. C. Levin, L. R. Zehner, L. V. Baldwin, G. S. Jenkins,
A. B. Cleveland, A. S. MacLeod, D. A. Blake, R. R. Colwell, and all
Officers and Directors as a group are 365,000, 80,000, 92,500,
23,472, 8,000, 15,600, 14,400, 12,400, 8,000, 4,000 and 623,372
shares, respectively, which such persons have a right to acquire
within 60 days pursuant to Stock options.
As of March 17, 1997, Gilbert V. Levin, President, and M. Karen Levin,
Vice President for Communications, 3180 Harness Creek Rd., Annapolis,
Maryland, beneficially owned in the aggregate 3,590,506 shares of Common
Stock (41.7% of the 8,623,834(1) outstanding shares). Dr. Gilbert V. Levin and
Mrs. M. Karen Levin are husband and wife. As principal Stockholders of the
Company, they are considered control persons with respect to the Company.
All Directors and Officers as a group, as beneficial owners of 3,829,816
shares of Common Stock, owned 44.4% of the outstanding shares. With the
exception of Cede & Co., the holder of record for certain brokerage firms and
banks, no other person is known by the Company to own beneficially more than
5% of the outstanding Common Stock.
- - --------------
(1) Includes 678,222 shares which could be acquired pursuant to stock options
within 60 days.
5
<PAGE>
Biospherics-Registered Trademark- Incorporated
--------------
In 1978, the Company, with Stockholder approval, entered into agreement
with Gilbert V. Levin and M. Karen Levin whereby, upon their death, the Company
would redeem from their estates the number of Common Shares necessary to pay
estate taxes and administrative expenses of the estate. This agreement is
funded (at present values) by life insurance on the Levins for which the Company
is the beneficiary. Although the number of shares that would be redeemed is
indeterminable, such redemption may affect ownership and control of the Company.
Executive Officers
Officers are elected annually by the Board of Directors. The Executive
Officers of the Company as of December 31, 1996, are listed in the following
table.
Executive Officers as of December 31, 1996
- - -------------------------------------------------------------------------------
Name Age Position
- - ---------------- --- ---------------------------------------------
Gilbert V. Levin 72 Chairman of the Board, CEO, President, and
Treasurer
M. Karen Levin 77 Director, Vice President for Communications,
and Corporate Secretary
Richard C. Levin 44 Vice President, Chief Operating Officer
Lee R. Zehner 49 Vice President for Science Services
- - -------------------------------------------------------------------------------
Dr. and Mrs. Levin's experience is discussed above.
Richard Levin joined the Company in 1991 as Business Manager, was
subsequently also elected as Corporate Secretary, and then was promoted to
Vice President and Chief Operating Officer. Prior to that, he was the
General Manager of the Catalyst Research Division of the Mine Safety
Appliances Company. Mr. Levin holds a B.S. in business administration from
the University of Baltimore and is a C.P.A. in the State of Maryland.
Mr. Levin is the nephew of Dr. and Mrs. Levin.
Dr. Lee Zehner joined the Company in 1985 and has helped in the invention
and development of the Company's proprietary low calorie sugars and other
products. He was promoted to the position of Vice President for Science
Services and is also Director of the BioTech Programs Unit. Among his
approximately 100 worldwide patents is the patent for the use of D-tagatose as a
low-calorie sweetener. Prior to joining Biospherics, Dr. Zehner held several
research and development positions at Fortune 100 companies. He holds a Ph.D.
in chemistry from the University of Minnesota.
-6-
<PAGE>
Biospherics-Registered Trademark- Incorporated
--------------
Executive Compensation Tables
Summary of Compensation in Last Fiscal Year
The following summary compensation table sets forth the compensation paid
by the Company during the year ended December 31, 1996, to Executive Officers
earning in excess of $100,000 during the year.
Summary of Compensation
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------ ----------------------- ------------------------
No. of
Other Restricted Securities All Other
Name and Annual Com- Stock Underlying LTIP Compen-
Principal Position Year Salary($) Bonus ($)(1) pensation ($) Awards ($) Options(2) Payouts ($) sation ($)
- - ------------------- ---- --------- ----------- ------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gilbert V. Levin 1996 $189,673 $ - $ 7,800 (3) $ - 10,000(4) $ - $ 4,497
Chief Executive 1965 181,767 - 7,800 (3) - 145,000 - 3,750
Officer & President 1994 177,246 - 14,432 - 525,000 - 4,497
M. Karen Levin 1996 156,813 - 7,800 - 10,000(4) - 2,083
Vice President for 1995 152,474 9,900 7,800 - 15,000 - 1,150
Communications 1994 145,554 9,900 7,800 - 515,000 - 3,632
Richard C. Levin 1996 99,844 - 7,800 - 30,000(4) - 2,699
Vice President 1995 96,054 - 7,800 - 15,000 - 2,575
1994 92,754 - 7,909 - 10,000 - 2,332
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Bonuses are based on the financial performance of the Company or its
Divisions and are awarded by the Board of Directors.
(2) Represents the number of options.
(3) Excludes compensation expense for life insurance over $50,000.
(4) Excludes options which were conditionally granted on August 8, 1996,
subject to the consummation of the agreement with MD Foods.
The agreement with MD Foods was subsequently consummated on January 7,
1997. The number of options conditionally granted to G. V. Levin, M. K.
Levin, and R. C. Levin was 5,000, 10,000, and 20,000, respectively. The
exercise price of the options is $7.00 and expires on January 7, 2002.
Option Grants in Last Fiscal Year
The following option grant table sets forth the total Options granted by
the Company during the year ended December 31, 1996, to the Executive Officers
earning in excess of $100,000 during the year.
Option Grants
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (4) Fiscal Year per Share ($) Date
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gilbert V. Levin 10,000 8.1% $ 7.25 9/26/2001
M. Karen Levin 10,000 8.1% 7.25 9/26/2001
Richard C. Levin 30,000 24.2% 7.25 9/26/2001
- - -----------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
Biospherics-Registered Trademark- Incorporated
---------
The Biospherics Incorporated Nonqualified Stock Option Plan (the "Plan")
was established in 1987 to provide certain selected key employees having
substantial responsibilities for the direction and management of the
Corporation with an additional incentive to promote its success and encourage
them to remain in the employ of the Corporation. The Plan provides for the
issuance of 4,400,000 shares. As of December 31, 1996, there were 2,896,872
outstanding options granted to individuals including the above-named
Officers, including 637,372 that were exercisable as of such date.
Aggregated Options Exercises in Last Fiscal Year and FY-End Option Values
The following aggregated options table sets forth the total options
exercised during the year ended December 31, 1996, and year-end 1996 option
values for those Executive Officers earning in excess of $100,000 during the
year.
<TABLE>
<CAPTION>
Aggregated Options Exercises
-----------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End Options at FY-End
No. of
Shares Acquired Value No. Exercisable/ Exercisable/
Name on Exercise Realized($) Unexercisable Unexercisable($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gilbert V. Levin - - 360,000/1,030,000(2) 1,609,375/1,536,875
M. Karen Levin - - 70,000/1,000,000(2) 316,250/1,437,500
Richard C. Levin 10,000 31,250 72,500/37,500(2) 374,375/164,375
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) On November 18, 1994, Dr. and Mrs. Levin were granted Options for 1,000,000
shares each to purchase Common Stock under the Plan subject to two
additional conditions. The Options are exercisable only in the event that
(i) a third party acquires 5% or more of the issued and outstanding Common
Stock of the Company and (ii) the Option grants are further subject to
approval by the Board of Directors of the Company. The Options were granted
not for compensatory purposes but as a means of protecting Shareholder
value against unsolicited offers deemed inadequate by the Board of
Directors and to help ensure fair and equal treatment of all shareholders.
(2) Excludes options which were conditionally granted on August 8, 1996,
subject to the consummation of the agreement with MD Foods. The agreement
with MD Foods was subsequently consummated on January 7, 1997. The number
of options conditionally granted to G. V. Levin, M. K. Levin, and R. C.
Levin was 5,000, 10,000, and 20,000, respectively. The exercise price of
the options is $7.00 and expires on January 7, 2002.
Long-Term Incentive Plans - Awards in Last Fiscal Year
There were no long-term Incentive Plan awards during 1996.
To ensure the availability of their services to the Company after their
retirement, Dr. and Mrs. Levin each have entered into a consulting agreement
with the Company, under which they will provide the Company post-retirement
consulting services of not less than twenty-four (24) days per year for ten
(10) years at a daily rate equal to 125% of their respective final average
daily rate of salary adjusted in subsequent years for changes in the cost of
living. In addition, Dr. and Mrs. Levin and the Company have entered into
supplementary retirement plan agreements pursuant to which they will receive
retirement compensation based on the difference between seventy percent of
their average annual total compensation, and their social security payments
plus assumed returns from investment of their funded pension plans. The
supplementary retirement plan is unfunded.
Effective January 1, 1990, the Biospherics Incorporated 401(k)
Retirement Plan was placed into effect. The Plan is a discretionary defined
contribution plan with the Company matching a portion of the employee
contributions.
- 8 -
<PAGE>
Biospherics-Registered Trademark- Incorporated
---------
PROPOSAL TO ESTABLISH A
WHOLLY-OWNED SUBSIDIARY
FOR THE INFORMATION
SERVICES DIVISION
(Item 2 on the Proxy Card)
The Company's Board of Directors has approved a plan to transfer the
Company's Information Services Division ("ISD") into a wholly-owned
subsidiary corporation (the "Subsidiary") to be formed for that purpose. The
Board of Directors has determined to submit this proposal to the Company's
Stockholders for approval.
ISD collects and disseminates information by providing customized
telesupport and database management systems for government and commercial
customers. The core of its operation consists of state-of-the-art
telecommunications equipment used by ISD personnel to efficiently manage and
track high volumes of calls.
ISD specializes in public health issues and provides information
services on a wide range of diseases and disabilities, disease prevention and
education. Areas of expertise include Alzheimer's disease, AIDS, cancer,
diabetes, heart disease, and stroke, in addition to the broad areas of
smoking, aging, and environmental hazards such as mishandling of pesticides.
Programs are staffed by health professionals and other information
specialists who are given extensive training and strict quality control
guidelines.
ISD's clients include major pharmaceutical companies and U.S. Government
agencies that deal with health and education.
ISD contributed 84%, 99% and 99% of the Company's total revenues in
1996, 1995 and 1994, respectively. The vast majority of the Company's
employees are employees of ISD.
ISD plans to use the expertise gained from its 29 years in business to
expand in the nurse triage/demand management services market. ISD would
offer its services to health maintenance organizations, self-insured
employers, and other managed care providers. The Company is in negotiations
with a major health provider (the "Health Provider") to assist in this
venture. Should the negotiations be successful, the Health Provider would
supply medical information, training for nurse triage services, and certify
protocol and processes for the Company.
Additional funding will be required to expand ISD's traditional business
base as described above. The Board of Directors has been advised by its
business and financial advisors that the prospects of obtaining such
financing will be enhanced by a separation of the ISD business from the
Company's biotech business. In addition, such a separation will permit
management of the Subsidiary to focus exclusively on the ISD business.
Accordingly, the Board of Directors has approved a plan to transfer all
of the assets of ISD, subject to all of its liabilities, to the Subsidiary.
ISD employees would become employees of the Subsidiary. The Subsidiary would
have its own Board of Directors, although it is anticipated that some of the
members of the Board of Directors of the Company will likely serve as members
of the Board of Directors of the Subsidiary. Similarly, it is anticipated
that management of the Subsidiary will include some members of the Company's
current management team, as well as newly-hired individuals. The
Subsidiary's charter and By-Laws would be substantially identical to the
corresponding documents of the Company.
Immediately following the transfer of assets to the Subsidiary, the
Company would own all of the issued and outstanding capital stock of the
Subsidiary. In connection with its participation in the business, the Health
Provider may be provided with a modest equity interest in the Subsidiary.
The Health Provider may also receive a seat on the Board of Directors.
The Company has engaged an investment banker to assist in seeking
additional funding for the Subsidiary, which additional funding may take the
form of a private placement of debt or equity interests or an initial public
offering. In the event of an equity offering, the Company's ownership of the
Subsidiary will be correspondingly diluted.
- 9 -
<PAGE>
Biospherics-Registered Trademark- Incorporated
---------
The proposed organization of the Subsidiary will alter the relationship
of the Stockholders of the Company with ISD, the principal operating division
of the Company. The following paragraphs describe some of the principal
alterations of such relationship.
Following the organization of the Subsidiary, the Stockholders of the
Company will not have any direct ownership interest in the Subsidiary as the
Company initially will be the sole stockholder of the Subsidiary.
Accordingly, any transaction regarding ISD that currently would require the
consent of the Company's Stockholders (e.g., a sale of the ISD assets to a
third party), will no longer require such consent following the organization
of the Subsidiary. Following such organization, any such transaction could be
approved by the Subsidiary's Board of Directors and the Company's Board of
Directors acting on behalf of the Company as a stockholder of the Subsidiary,
together with any additional persons or entities that acquire stock in the
Subsidiary.
Similarly, the organization of the Subsidiary will affect the
Stockholders' ability to influence the management of ISD. At present, the
Stockholders elect the Board of Directors of the Company, which in turn
elects and oversees the management of ISD. Following the formation of the
Subsidiary, the Board of Directors of the Subsidiary will be elected by the
Subsidiary's Stockholders. As set forth above, the Company initially will be
the sole stockholder. Thus, the Stockholders of the Company will no longer
have direct input into the composition of the Board of Directors of the
Subsidiary.
While the formation of the Subsidiary will have the above-described
effects of potentially diluting the Company's ownership of the Subsidiary and
altering the rights of the Company's Stockholders as set forth above, the
Board of Directors believes that the organization of the Subsidiary will
result ultimately in increased value for the Company's Stockholders. Further
expansion of ISD, especially entry into the healthcare market, will require
substantial additional funding. Such funding can best be raised by
separating the ISD business from the Company's biotech business and
presenting the ISD business to the relevant investment community as a
separate and distinct entity. Further, such business can best be developed
by management exclusively focused on the ISD business.
The Company's Directors and Management also believe the BioTech Programs
Unit, which will remain within the Company, will better be able to pursue its
development of new products without the complexity of sharing Management's
attention with ISD. Forthcoming revenues anticipated from the sales of
D-tagatose by MD Foods, along with additional public or private financing, if
necessary, will allow such new product developments.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock is required to approve the formation of
the Subsidiary.
The Board of Directors recommends a vote "FOR" the approval of the plan
to organize the Subsidiary.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Item 3 on the Proxy Card)
The Board of Directors has reappointed the firm of Coopers & Lybrand to
be Biospherics' independent accountants for the year 1997 and recommends that
Stockholders vote "FOR" ratification of that appointment. The Company is
advised that no member of the firm of Coopers & Lybrand has any interest,
financial or otherwise, direct or indirect, in the Company. A representative
from Coopers & Lybrand will attend the Annual Meeting, will have the
opportunity to make a statement if he or she desires to do so, and will be
available to answer questions. If the Stockholders, by the affirmative vote
of a majority of the shares of Common Stock represented at the Meeting, do
not ratify the selection of Coopers & Lybrand, the selection of independent
accountants will be reconsidered by the Board of Directors.
- 10 -
<PAGE>
Biospherics-Registered Trademark- Incorporated
---------
OTHER BUSINESS
(Item 4 on the Proxy Card)
As of the date of this statement, the management of Biospherics
Incorporated has no knowledge of any business that may be presented for
consideration at the Meeting, other than that described above. As to other
business, if any, that may properly come before the Meeting, or any
adjournment thereof, it is intended that the Proxy hereby solicited will be
voted in respect of such business in accordance with the judgment of the
Proxy holders.
SHAREHOLDER PROPOSALS
Shareholders intending to present a proposal at the 1998 Annual
Shareholders Meeting must submit such proposals to the Company at 12051
Indian Creek Court, Beltsville, MD 20705, no later than December 15, 1997.
BY ORDER OF THE BOARD OF DIRECTORS,
M. Karen Levin, Secretary
- 11 -
<PAGE>
BIOSPHERICS-Registered Trademark- INCORPORATED
BOARD OF DIRECTORY PROXY
ANNUAL MEETING OF STOCKHOLDERS
Gilbert V. Levin, M. Karen Levin, and Richard Levin, or any of them,
each with the power of substitution, are hereby appointed Proxies of the
undersigned to vote all shares of Common Stock of Biospherics Incorporated
owned by the undersigned at the Annual Meeting of Stockholders, to be at the
Company headquarters, 12051 Indian Creek Court, Beltsville, Maryland, on May
15, 1997, at 2:00 p.m. EDT, or any adjournment thereof, upon the proposals set
forth on the reverse and, in their discretion, upon all other matters as may
properly be brought before the meeting.
(Continued and to be signed on the reverse side.)
<PAGE>
/X/ Please mark your
votes as in this
box.
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD
listed to right AUTHORITY
(except as marked to the to vote for all
contrary below) nominees listed at right Nominees: L.V. Baldwin
<S> <C> <C> <C> D.A. Blake
1. ELECTION OF DIRECTORS / / / / A.B. Cleveland
R.L. Colwell
INSTRUCTION: To withhold authority to vote for G.S. Jenkins
any individual nominee, strike a line through G.V. Levin
the nominee's name in the list at right. M.K. Levin
A.S. MacLeod
</TABLE>
2. PROPOSAL TO ESTABLISH THE INFORMATION FOR AGAINST ABSTAIN
SERVICES DIVISION AS A WHOLLY OWNED
SUBSIDIARY / / / / / /
3. PROPOSAL TO RATIFY THE APPOINTMENT
OF COOPERS & LYBRAND LLP as the
independent accounts of the / / / / / /
Corporation for the fiscal year
ending December 31, 1997
I plan to attend the Annual Meeting in Beltsville, MD, / /
at 2:00 p.m. on May 15, 1997
This proxy will be voted as specified hereon. If no indication to the
contrary is made hereon, this proxy will be voted for all nominees for
---
Directors listed in Proposal 1 and for Proposals 2 and 3. BIOSPHERICS'
---
DIRECTORS RECOMMEND A FOR VOTE ON EACH ITEM, AND SHARES WILL BE
---
SO VOTED UNLESS OTHERWISE INDICATED.
- - -------------------------------------- ----------------------------------
PLEASE SIGN HERE AND RETURN PROMPTLY PLEASE PRINT YOUR NAME
----- ----
Dated , 1997
- - -------------------------------------- ----------------------
NUMBER OF SHARES VOTED
- - ----------------------
NOTE: If signing as Attorney, Administrator, Executor, Guardian or Trustee,
please add your title as such.
