SCANNER TECHNOLOGIES CORPORATION
----------------------------
NOTICE OF ANNUAL MEETING
to be held on June 8, 2006
--------------------------
TO THE SHAREHOLDERS OF SCANNER TECHNOLOGIES CORPORATION:
The Annual Meeting of the Shareholders of Scanner Technologies
Corporation, a New Mexico corporation, will be held on Thursday, June 8, 2006,
at 3:30 p.m., Minneapolis time, at the offices of Fredrikson & Byron, P.A.,
Suite 4000, 200 South Sixth Street, Minneapolis, Minnesota 55402 for the
following purposes:
1. To set the number of directors at four (4).
2. To elect directors.
3. To ratify the appointment of Lurie Besikof Lapidus & Company, LLP as
our independent registered public accounting firm for the year
ending December 31, 2006.
4. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on April 19, 2006 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Annual Report for the year ended December 31, 2005 also
accompanies this Notice.
You are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors,
Elwin M. Beaty
Chairman, President, Chief Executive Officer
and Chief Financial Officer
Minneapolis, Minnesota
Dated: May 1, 2006
PROXY STATEMENT
for the
Annual Meeting of Shareholders
of Scanner Technologies Corporation
to be held on June 8, 2006
-------------------------
INTRODUCTION
The accompanying Proxy is solicited by the Board of Directors for use
at our 2006 Annual Meeting of Shareholders to be held on Thursday, June 8, 2006,
at the location and for the purposes set forth in the Notice of Annual Meeting,
and at any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by us.
Our directors, officers and regular employees may, without compensation other
than their regular remuneration, solicit proxies personally or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the 2006 Annual Meeting by giving written notice of such revocation to the
Secretary or any other officer of Scanner or by filing a later dated written
Proxy with one of our officers. Personal attendance at the 2006 Annual Meeting
is not, by itself, sufficient to revoke a Proxy unless written notice of the
revocation or a later dated Proxy is delivered to an officer before the revoked
or superseded Proxy is used at the 2006 Annual Meeting. Proxies will be voted as
directed therein. Proxies which are signed by shareholders but which lack
specific instruction with respect to any proposal will be voted in favor of such
proposal as set forth in the Notice of Annual Meeting or, with respect to the
election of directors, in favor of the number and slate of directors proposed by
the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of our Common Stock entitled to vote
shall constitute a quorum for the transaction of business. If a broker returns a
"non-vote" proxy, indicating a lack of voting instructions by the beneficial
holder of the shares and a lack of discretionary authority on the part of the
broker to vote on a particular matter, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum but
shall not be deemed to be represented at the meeting for purposes of calculating
the vote required for approval of such matter. If a shareholder abstains from
voting as to any matter, then the shares held by such stockholder shall be
deemed present at the meeting for purposes of determining a quorum and for
purposes of calculating the vote with respect to such matter, but shall not be
deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
The mailing address of the principal executive offices of Scanner is
14505 21st Avenue North, Suite 220, Minneapolis, Minnesota 55447. We expect that
the Notice of Annual Meeting, Proxy Statement and Annual Report to Shareholders
will first be mailed to shareholders on or about May 1, 2006.
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders entitled to notice of and to vote at the Annual Meeting
and any adjournment thereof are shareholders of record at the close of business
on April 19, 2006 (the "Record Date"). Persons who are not shareholders of
record on such date will not be allowed to vote at the Annual Meeting. At the
close of business on the Record Date, we had 12,216,068 shares of common stock,
with no par value, outstanding. The common stock is our only outstanding class
of capital stock. The holders of common stock are entitled to one vote for each
share held and may vote on each matter to be voted upon at the Annual Meeting.
Holders of the common stock are not entitled to cumulate their votes for the
election of directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 19, 2006, certain
information with respect to beneficial ownership of our Common Stock by (i) each
of our executive officers, (ii) each of our directors, (iii) each person known
to us to be the beneficial owner of more than 5% of our outstanding Common
Stock, and (iv) all of the directors and executive officers as a group.
Shares Owned Percentage
Name (and Address of 5% Beneficially & Stock
Owner) or Identity of Group of Record(1) Outstanding(1)
------------------------------------------- ----------------- ---------------
Elwin M. Beaty 7,104,250(2) 49.8%
David P. Mork 757,160(3) 6.0%
Betsy Brenden Radtke 95,000(4) *
Michael A. Thorsland 520,558(5) 4.2%
Elaine E. Beaty 7,104,250(2) 49.8%
All Executive Officers and Directors as a 8,476,968(6) 56.6%
group (4 persons)
-------------
*Less than 1%
(1) For purposes of computing "beneficial ownership" and the percentage of
outstanding Common Stock held by each person or group of persons named
above as of April 19, 2006, any security which such person or group of
persons has the right to acquire within 60 days after such date is deemed
to be outstanding for the purpose of computing beneficial ownership and the
percentage ownership of such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Represents holdings of (a) Elwin M. Beaty, including (i) 2,531,343 shares,
(ii) 350,000 shares that may be purchased by Mr. Beaty upon exercise of
exercisable options and (iii) 670,782 shares that may be purchased by Mr.
Beaty upon exercise of exercisable warrants, and (b) Elaine E. Beaty,
including (i) 2,531,343 shares of Scanner Common Stock, (ii) 350,000 shares
that may be purchased by Ms. Beaty upon exercise of exercisable options and
(iii) 670,782 shares of that may be purchased by Ms. Beaty upon exercise of
exercisable warrants. Elwin Beaty and Elaine Beaty are married, and each of
them disclaims the beneficial ownership of the securities owned by the
other.
(3) Includes 300,0000 shares that may be purchased by Mr. Mork upon exercise of
exercisable options and 70,310 shares that may be purchased upon exercise
of an exercisable warrant.
(4) Represents 20,000 shares that may be purchased by Ms. Radtke upon exercise
of a currently exercisable warrant and 75,000 shares that may be purchased
upon exercise of a currently exercisable option.
(5) Includes 168,980 shares that may be purchased by Mr. Thorsland upon
exercise of currently exercisable warrants and 75,000 shares that may be
purchased upon exercise of a currently exercisable option.
(6) See footnotes (2) through (5).
DETERMINATION OF NUMBER AND ELECTION OF DIRECTORS
(Proposals #1 and #2)
Our Bylaws provide that at each regular meeting of our shareholders,
the shareholders shall determine the number of directors. The Bylaws further
provide that a director's term expires at the regular meeting of shareholders.
The Bylaws also state that, between regular meetings, the number of directors
may be increased and any vacancies filled by the Board of Directors.
At the recommendation of the Governance/Nominating Committee, the Board
of Directors recommends setting the number of directors at four and nominates
the four current directors to continue serving as directors of Scanner until the
next annual meeting of shareholders and until their successors shall have been
elected and qualified. Determining the number of directors and electing the
Board of Director's recommended director nominees requires the affirmative vote
of the holders of a majority of the voting power of the shares represented in
person or by proxy at the Annual Meeting with authority to vote on the matter,
provided that such majority must be greater than one-third of our outstanding
shares entitled to vote at the meeting.
The names, ages, and respective positions of the directors of Scanner
are set forth below, as well as additional information relating to each
director.
Name Age Position
Elwin M. Beaty 65 Chairman, President, Chief Executive Officer and
Chief Financial Officer
David P. Mork 39 Senior Vice President and Director
Betsy Brenden Radtke 39 Director
Michael A. Thorsland 58 Director
Elwin M. Beaty has served as our President, Chief Executive Officer and
Chief Financial Officer and a director since our merger with Scanner
Technologies Corporation, a privately-held Minnesota corporation ("Scanner
Minnesota"), on July 31, 2002 (the "Merger"). Mr. Beaty has also served as
Chairman of the Board since December 2004. Prior to the Merger, Mr. Beaty served
in the same capacities with Scanner Minnesota since its incorporation in
November 1990.
David P. Mork has served as our Senior Vice President and a director
since the Merger. Mr. Mork served as Senior Vice President of Scanner Minnesota
from 1997 until the Merger.
Betsy Brenden Radtke has served as a director of Scanner since December
2004. Ms. Radtke has served as Associate Vice President of Alumni Relations for
Hamline University in St. Paul, Minnesota since August 1989.
Michael A. Thorsland has served as a director of Scanner since December
2004. Mr. Thorsland has served as President of Venture Mortgage Corporation, a
mortgage banking company in Edina, Minnesota, since founding it in 1990.
EXECUTIVE OFFICERS
The names and ages of our current executive officers and the positions
held by such officers are listed below.
Name Age Position
--------------------------------------- ------- --------------------------------------------
Elwin M. Beaty 65 Chairman, President, Chief Executive Officer
and Chief Financial Officer
David P. Mork 39 Senior Vice President and Director
For information as to the business background of Mr. Beaty and Mr.
Mork, see the preceding section of this Proxy Statement entitled Determination
of Number and Election of Directors.
CORPORATE GOVERNANCE
Our business affairs are conducted under the direction of the Board of
Directors in accordance with the New Mexico Business Corporation Act and our
Articles of Incorporation and Bylaws. Members of the Board of Directors are
informed of our business through discussions with management, by reviewing
materials provided to them and by participating in meetings of the Board of
Directors and its committees. The corporate governance practices that we follow
are summarized below.
Independence
The Board has determined that half of its members are "independent."
Our independent directors are Betsy Brenden Radtke and Michael A. Thorsland.
Code of Ethics and Business Conduct
The Board has approved a Code of Ethics and Business Conduct that
applies to all of our employees, directors and officers, including our principal
executive officer, principal financial officer, principal accounting officer and
controller. The Code of Ethics and Business Conduct addresses such topics as
protection and proper use of our assets, compliance with applicable laws and
regulations, accuracy and preservation of records, accounting and financial
reporting, conflicts of interest and insider trading. The Code of Ethics and
Business Conduct is available free of charge to any shareholder who sends a
request for a copy to Scanner Electronics Corporation, Attn. Secretary, 14505
21st Avenue North, Suite 220, Minneapolis, Minnesota 55447, and it is also
available on our website at www.scannertech.com. Scanner intends to disclose on
its website any amendment to, or waiver from, a provision of its Code of Ethics
that applies to our principal executive officer, principal financial officer,
principal accounting officer and controller relating to any element of the code
of ethics definition enumerated in Item 406(b) of Regulation S-B.
Meeting Attendance
Board and Committee Meetings. During fiscal 2005, the Board held two
(2) meetings in 2005, and took action once by unanimous written consent. Each
director attended 100% of the meetings of the Board and the committees on which
such director served.
Annual Meeting of Shareholders. Subject to unavoidable personal
conflicts, directors shall attend our annual meetings of shareholders. All four
of our directors attended our 2005 annual shareholders' meeting.
Executive Sessions of the Board
In accordance with the principles of corporate practice adopted by the
Board of Directors, an executive session of non-management directors was held at
the time of each Board meeting.
Committees of the Board
Our Board of Directors has three standing committees, the Audit
Committee, the Compensation Committee and the Governance/Nominating Committee.
Audit Committee. The Audit Committee is comprised of Michael A.
Thorsland (Chair) and Betsy Brenden Radtke, both independent directors. Mr.
Thorsland has been named as the "audit committee financial expert" as defined by
Item 401(e) of Regulation S-B under the Securities Act of 1933. Mr. Thorsland's
experience includes serving as Chief Financial Officer. We acknowledge that the
designation of Mr. Thorsland as the audit committee financial expert does not
impose on Mr. Thorsland any duties, obligations or liability that are greater
than the duties, obligations and liability imposed on Mr. Thorsland as a member
of the audit committee and the Board of Directors in the absence of such
designation or identification. The Audit Committee reviews the selection and
work of our independent registered public accounting firm and the adequacy of
internal controls for compliance with corporate policies and directives. The
Report of Audit Committee is included on page 14. The Audit Committee met four
(4) times in 2005.
Compensation Committee. The Compensation Committee is comprised of
Betsy Brenden Radtke (Chair) and Michael A. Thorsland, both independent
directors. This committee recommends to the Board of Directors from time to time
the salaries to be paid to our executive officers and any plan for additional
compensation it deems appropriate. This committee is vested with the same
authority as the Board of Directors with respect to the granting of options and
the administration of our 2004 Equity Incentive Plan. The Compensation Committee
did not meet in 2005.
Governance/Nominating Committee. The Governance/Nominating Committee is
comprised of Elwin M. Beaty (Chair), Michael A. Thorsland and Betsy Brenden
Radtke, a majority of which are independent directors. This committee recommends
to the Board of Directors nominees for vacant positions on the Board, sets goals
for the Board and monitors the achievement of such goals. This committee will
consider a candidate for director proposed by a shareholder. Candidates must
have broad training and experience in their chosen fields and must have achieved
distinction in their activities. The committee considers the particular
expertise of each nominee and strives to achieve an appropriate breadth of
skills among the Board members. A shareholder who wants to propose a candidate
must comply with the provisions of our Bylaws regarding nominations for the
election of directors. The policies of the committee are described more fully in
the Governance/Nominating Committee's Report on page 6. The
Governance/Nominating Committee met once in 2005.
Communications with the Board
Shareholders may communicate directly with the Board of Directors. All
communications should be directed to our Secretary at the address below and
should prominently indicate on the outside of the envelope that it is intended
for the Board of Directors or for non-management directors. If no director is
specified, the communication will be forwarded to the entire Board. The
communication will not be opened before being forwarded to the intended
recipient, but it will go through normal security procedures. Shareholder
communications to the Board should be sent to:
Elaine E. Beaty, Secretary
Scanner Technologies Corporation
14505 21st Ave. N., Suite 220
Minneapolis, MN 55447
Compensation to Directors
Each director receives an annual retainer of $6,000. No additional fees
are paid for attendance at meetings. In addition, each director who is not an
employee of Scanner receives, upon his or her initial election to the Board, a
five-year warrant to purchase 20,000 shares of Common Stock at fair market value
on the date of grant. Upon re-election, each non-employee director receives a
similar warrant for 5,000 shares. On September 26, 2005, the Board granted
options to purchase 75,000 shares at $0.45 per share to each of the two
non-employee directors.
GOVERNANCE/NOMINATING COMMITTEE REPORT
The Governance/Nominating Committee is comprised of a majority of
independent directors. In accordance with its written charter, the
Governance/Nominating Committee assists the Board of Directors with fulfilling
its responsibility regarding any matters relating to corporate governance
including selection of candidates for our Board of Directors. Its duties shall
include oversight of the principles of corporate governance by which Scanner and
the Board shall be governed; the codes of ethical conduct and legal compliance
by which Scanner and its directors, executive officers, employees and agents
will be governed; policies for evaluation of the Board and the chairperson;
policies for election and reelection of Board members; and policies for
succession planning for the Chief Executive Officer, Board chairperson and other
Board leaders. In addition, the Committee is responsible for annually reviewing
the composition of the Board, focusing on the governance and business needs and
requirements of Scanner, nominating and screening of Board member candidates,
evaluating the performance of Board members and recommending the reelection of
Board members who are performing effectively and who continue to provide a
competency needed on the Board. When a director's principal occupation or
business association changes substantially, such director shall tender a letter
of resignation to the Board through the Governance/Nominating Committee, which
resignation will be considered and acted upon in a manner that is best for the
Board and Scanner.
The Governance/Nominating Committee will consider candidates for
nomination as a director recommended by shareholders. In evaluating director
nominees, the Governance/Nominating Committee requires certain minimum
qualifications, including high moral character and mature judgment and the
ability to work collegially with others. In addition, factors such as the
following shall be considered:
o appropriate size and diversity of the Board;
o needs of the Board with respect to particular talent and
experience;
o knowledge, skills and experience of nominee;
o familiarity with domestic and international business matters;
o appreciation of the relationship of our business to the
changing needs of society; and
o desire to balance the benefit of continuity with the periodic
injection of the fresh perspective provided by a new member.
Shareholders who wish to recommend one or more candidates for director
to the Governance/Nominating Committee must provide written recommendation to
the Secretary of Scanner. Notice of a recommendation must include the
shareholder's name, address and the number of Scanner shares owned, along with
information with respect to the person being recommended, i.e. name, age,
business address, residence address, current principal occupation, five-year
employment history with employer names and a description of the employer's
business, the number of shares beneficially owned by the prospective nominee,
whether such person can read and understand basic financial statements and other
board memberships, if any. The recommendation must be accompanied by a written
consent of the prospective nominee to stand for election if nominated by the
Board of Directors and to serve if elected by the shareholders. Scanner may
require any nominee to furnish additional information that may be needed to
determine the eligibility of the nominee.
Shareholders who wish to present a proposal at an annual meeting of
shareholders must provide a written notice to our Secretary at the address
below:
Elaine E. Beaty, Secretary
Scanner Technologies Corporation
14505 21st Ave. N., Suite 220
Minneapolis, MN 55447
A copy of the current Governance/Nominating Committee Charter is
available on our website at www.scannertech.com. Members of the
Governance/Nominating Committee
Elwin M. Beaty - Chair
Michael A. Thorsland
Betsy Brenden Radtke
EXECUTIVE COMPENSATION
Employment Agreements and Arrangements
On January 1, 2004, Scanner entered into an Employment Agreement with
Elwin M. Beaty, our Chairman, President, Chief Executive Officer and Chief
Financial Officer. Pursuant to the agreement, Mr. Beaty's current annual salary
is $240,000. In addition, Mr. Beaty is entitled to $40,000 on January 1st of
each year. The agreement can be terminated by either Scanner or Mr. Beaty upon a
30-day written notice to the other party; provided, however, that if Scanner
terminates Mr. Beaty's employment without cause, Mr. Beaty is entitled to an
amount equal to his total annual salary.
In an agreement dated April 19, 2002, Mr. Beaty forgave our obligation
to pay him accrued salary of $1,254,575 and released Scanner, its successors,
its officers and directors from any liability in connection with the accrued
salary. In exchange, it was agreed that Mr. Beaty shall receive a certain amount
of the proceeds, if any, that Scanner may receive out of litigation involving
patents that Scanner has licensed. Under the agreement, Scanner shall keep 60%
of any proceeds of the currently ongoing litigation and shall pay to Mr. Beaty
40% of such proceeds until Scanner has been reimbursed for all attorney fees and
other expenses incurred in connection with the current litigation, and Mr. Beaty
has received the total amount of $1,254,575. If one party has received all the
amounts owing to such party before the other party's claim under this provision
has been satisfied, the other party shall receive 100% of the proceeds until its
claim is satisfied. If any proceeds remain after such payment, Mr. Beaty shall
receive 50% of such remainder. He also has a right to receive part of the
proceeds, if any, that Scanner may receive out of any subsequent litigation
involving the licensed patents. Scanner shall keep 60% of any proceeds from
subsequent litigation until its attorney fees and other expenses incurred in
connection with the current and any subsequent litigation have been reimbursed,
and Mr. Beaty shall receive 40% of any proceeds from subsequent litigation until
he has received a total amount of $1,254,575 out of the proceeds of the
currently ongoing and any subsequent litigation. If any proceeds out of the
subsequent litigation remain after such distribution, Scanner shall pay 25% of
such remaining proceeds to Mr. Beaty.
On January 1, 2004, Scanner entered into an Employment Agreement with
David P. Mork, our Senior Vice President. Mr. Mork's current annual salary is
$180,000. The agreement can be terminated by either Scanner or Mr. Mork upon a
30-day written notice to the other party; provided, however, that if Scanner
terminates Mr. Mork's employment without cause, Mr. Mork is entitled to an
amount equal to one-half of his total annual salary.
To provide Mr. Mork with an incentive to continue his employment with
Scanner Technologies, and to compensate him for compensation in recent years
which we believe was less than he might have received in a comparable position
elsewhere, Mr. Mork was also a party to the agreement described above regarding
the distribution of litigation proceeds. Pursuant to the agreement, Scanner has
agreed to pay to Mr. Mork 20% of the remaining proceeds, if any, that Scanner
may receive out of the currently ongoing litigation, and 25% of the remaining
proceeds, if any, that we may receive out of any future litigation involving the
licensed patent, and that remain after the aforesaid payments to Scanner and to
Mr. Beaty have been made out of such proceeds.
Summary Compensation Table
The following Summary Compensation Table sets forth certain
compensation information for services rendered in all capacities to us by our
Chief Executive Officer and by the only other executive officer whose total
salary and bonus exceeded $100,000 during 2005.
Long Term
Annual Compensation Compensation
----------------------- ------------
Fiscal All Other
Name and Principal Position Year Salary ($) Bonus ($) Other ($) Options Compensation ($)
--------------------------- ------- ---------- --------- --------- ------------- ----------------
Elwin M. Beaty 2005 309,075(2) -- -- 200,000 --
Chairman, President, Chief 2004 303,000 12,000 -- 150,000 --
Executive Officer and Chief 2003 180,000 -- -- -- 163,772
Financial Officer(1)
David P. Mork 2005 177,000(2) -- -- 200,000 --
Senior Vice President 2004 171,000 12,000 -- 100,000 --
2003 120,000 1,500 -- -- --
-----------------
(1) Does not include compensation paid to family members. See "Certain
Relationships and Related Transactions."
(2) Includes $6,000 director fee and payment of unused vacation time:
$23,075 for Mr. Beaty and $15,000 for Mr. Mork.
Option/SAR Grants During 2005 Fiscal Year
The following table sets forth information regarding stock options
granted to the named executive officers during the fiscal year ended December
31, 2005. We have not granted any stock appreciation rights.
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
---- --------------- --------------- -------------- --------
Elwin M. Beaty 200,000(1) 24.0% $0.495 09/25/10
David P. Mork 200,000(2) 24.0% $0.45 09/25/12
--------------
(1) The option, which was granted on September 26, 2005, has an exercise price
equal to 110% of the fair market value on the date of grant. The option
became exercisable in full on January 1, 2006. Does not include options
granted to family members. See "Certain Relationships and Related
Transactions."
(2) The option, which was granted on September 26, 2005, has an exercise price
equal to 100% of the fair market value on the date of grant. The option
became exercisable to the extent of 100,000 shares on each of September 26,
2005 and January 1, 2006.
Option Exercises During 2005 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the
named executive officers in the Summary Compensation Table during fiscal 2005
and the number and value of options at December 31, 2004. We do not have any
outstanding stock appreciation rights.
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE MONEY OPTIONS AT
SHARES AT DECEMBER 31, 2005 DECEMBER 31, 2005(1)
ACQUIRED ON VALUE REALIZED ------------------------------- ----------------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ -------------- -------------- ---------------- -------------- -------------- ------------------
Elwin M. Beaty(2) -- -- 150,000 200,000 $0 $0
David P. Mork -- -- 100,000 200,000 $0 $0
(1) Value of unexercised options is calculated on the basis of the difference
between the option exercise price and $0.37, the closing sale price for our
Common Stock at December 31, 2005 as quoted by the OTC Bulletin Board,
multiplied by the number of shares of Common Stock underlying the option.
(2) Does not include options held by family members at year end. See "Certain
Relationships and Related Transactions."
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, our
officers, directors, and persons who own more than 10% of our equity securities
are required to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Based solely on our review of the
copies of such reports received by us, we believe that, during 2005, all such
filing requirements were complied with except that an option grant was reported
on a Form 4 that was not timely filed on behalf of each of Mr. Beaty, Mr. Mork,
Ms. Radtke, Mr. Thorsland and Ms. Beaty. In addition, Barron Partners L.P.,
formerly a more than 10% holder, filed five Forms 4, each reporting one
transaction, that were not timely filed.
Certain Relationships and Related Transactions
Elaine E. Beaty, a more than 10% shareholder and wife of Elwin M.
Beaty, our Chairman, President, Chief Executive Officer and Chief Financial
Officer, is employed by Scanner Technologies, and for the years 2004 and 2005,
Ms. Beaty received an aggregate salary and bonus of $102,000 and $98,650,
respectively. Mr. Beaty's children, Bok Beaty and Brooke Beaty, are also
employed by Scanner Technologies. For 2004 and 2005, Bok Beaty received an
aggregate salary and bonus of $45,800 and $37,373, respectively, and Brooke
Beaty received an aggregate salary and bonus of $50,049 and $32,712,
respectively. In addition, in 2004 and 2005, five-year options to purchase
shares at 110% of the fair market value on the date of grant were granted to
these family members: Elaine Beaty (150,000 shares at $1.32 and 200,000 shares
at $0.495, respectively), Bok Beaty (15,000 shares at $1.32 and 20,000 shares at
$0.495, respectively) and Brooke Beaty (15,000 shares at $1.32 and 20,000 shares
at $0.495, respectively).
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTING FIRM
(Proposal #3)
The Board of Directors recommends that the shareholders ratify the
appointment of Lurie Besikof Lapidus & Company, LLP, as our independent public
accounting firm for the year ending December 31, 2006. Lurie Besikof Lapidus &
Company, LLP has served as our independent public accounting firm since 2002.
Lurie Besikof Lapidus & Company, LLP provided services in connection with the
audit of the financial statements of the Company for the year ended December 31,
2005, assistance with the Company's Annual Report submitted to the Securities
and Exchange Commission on Form 10-KSB and quarterly reports filed with the
Securities and Exchange Commission, and consultation on matters relating to
accounting and financial reporting. Representatives of Lurie Besikof Lapidus &
Company, LLP are expected to be present at the Annual Meeting and will be given
an opportunity to make a statement if so desired and to respond to appropriate
questions.
The ratification of Lurie Besikof Lapidus & Company, LLP as the
independent registered public accounting firm for Scanner requires the
affirmative vote of a majority of the shares represented in person or by proxy
at the Annual Meeting.
Audit Fees
We paid the following fees to Lurie Besikof Lapidus & Company, LLP for
fiscal years 2004 and 2005:
2004 2005
------- -------
Audit Fees $31,155 $62,280
Audit-Related Fees 0 0
Tax Fees 7,085 7,200
All Other Fees 11,410 14,490
------ ------
$49,650 $83,970
Audit Fees. Represents fees for the audit of our annual financial
statements and review of the financial statements included in our Form 10-QSB or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements.
Tax Fees. The 2004 fees were for tax return preparation, and the 2005
fees were for tax planning.
All Other Fees. The aggregate fees billed in the year ended December
31, 2004 for services relating to the SEC filings and accounting consultations
were $8,900 and $2,510, respectively. The aggregate fees billed in the year
ended December 31, 2005 for services relating to the SEC filings and accounting
consultations were $14,490.
After consideration, the Audit Committee has determined that the
provision of these services is compatible with maintaining the principal
accountant's independence.
Pre-Approval Policy
In accordance with the Audit Committee charter, all audit and non-audit
services by the independent registered public accounting firm must be
pre-approved by the Audit Committee.
REPORT OF AUDIT COMMITTEE
The Board of Directors maintains an Audit Committee comprised of two
outside directors. The Board of Directors and the Audit Committee believe that
the Audit Committee's current member composition satisfies the rule of the
National Association of Securities Dealers, Inc. ("NASD") that governs audit
committees composition, Rule 4350(d)(2), including the requirement that audit
committee members all be "independent directors" as that term is defined by NASD
Rule 4200(a)(15).
In accordance with its written charter adopted by the Board of
Directors (filed as Appendix A to the proxy statement for our 2005 annual
meeting), the Audit Committee assists the Board of Directors with fulfilling its
oversight responsibility regarding the quality and integrity of the accounting,
auditing and financial reporting practices of Scanner Technologies. In
discharging its oversight responsibilities regarding the audit process, the
Audit Committee:
(1) reviewed and discussed the audited financial statements with
management;
(2) discussed with the independent auditors the material required
to be discussed by Statement on Auditing Standards No. 61; and
(3) reviewed the written disclosures and the letter from the
independent auditors required by the Independence Standards
Board's Standard No.1, and discussed with the independent
auditors any relationships that may impact their objectivity
and independence.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2005, as filed with the Securities and Exchange Commission.
Members of the Audit Committee
Michael A. Thorsland - Chair
Betsy Brenden Radtke
SHAREHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
Any appropriate proposal submitted by a shareholder of Scanner and
intended to be presented at the 2007 Annual Meeting must be received by Scanner
by January 2, 2007 to be included in our proxy or information statement for the
2007 Annual Meeting. If a shareholder proposal intended to be presented at the
2007 annual meeting but not included in the proxy materials is received by us
after March 17, 2007, then management named in our proxy or information
statement for the 2007 Annual Meeting will have discretionary authority to vote
shares represented by such proxies on the shareholder proposal, if presented at
the meeting.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the Annual Meeting, except matters discussed in the Information Statement.
ANNUAL REPORT TO SHAREHOLDERS
A copy of our Annual Report to Shareholders for the fiscal year ended
December 31, 2005 accompanies this Notice of Annual Meeting and Information
Statement. No part of such Annual Report is incorporated herein.
AVAILABILITY OF FORM 10-KSB
Scanner will furnish without charge to each shareholder of Scanner,
upon written request of any such person, a copy of our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2005, as filed with the Securities
and Exchange Commission, including the financial statements. Scanner will
furnish to any such person any exhibit described in the list accompanying the
Form 10-KSB upon the advance payment of reasonable fees related to furnishing
such exhibit(s). Requests for copies of such report and/or exhibit(s) should be
directed to the Secretary at our principal address.
By Order of the Board of Directors,
Elwin M. Beaty
Chairman, President, Chief Executive Officer
May 1, 2006 and Chief Financial Officer
SCANNER TECHNOLOGIES CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
For the Annual Meeting of Shareholders
June 8, 2006
The undersigned hereby appoints Elwin M. Beaty and David P. Mork, or either of
them, proxies with full power of substitution to vote all shares of stock of
Scanner Technologies Corporation of record in the name of the undersigned at the
close of business on April 19, 2006, at the Annual Meeting of Shareholders to be
held at the offices of Fredrikson & Byron, P.A., Suite 4000, 200 South Sixth
Street, Minneapolis Minnesota at 3:30 p.m. on June 8, 2006, or at any
adjournment or adjournments thereof, hereby revoking all former proxies:
1. Set the number of directors at four (4).
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FOR AGAINST ABSTAIN
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2. Elect Directors: Nominees: Elwin M. Beaty, David P. Mork, Betsy Brenden Radtke and
Michael A. Thorsland
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FOR nominees listed above WITHHOLD AUTHORITY to vote
(except for the nominee(s) whose for all nominees listed above
name(s) has been written below
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3. Ratify appointment of Lurie Besikof Lapidus & Company, LLP as our independent registered public
accounting firm for the year ending December 31, 2006.
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FOR AGAINST ABSTAIN
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Dated: ____________________, 2006 -----------------------------------------------------
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Please sign name(s) exactly as shown at left. When
signing as executor, administrator, trustee or
guardian, give full title as such; when shares have
been issued in names of two or more persons, all
should sign.
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