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DEF 14A 1 nnpp_def14a.htm DEFINITIVE NOTICE AND PROXY STATEMENT nnpp_def14a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. __)

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o	Confidential, for use of the Commission only (as permitted by Rule 14a-6(e) (2) )
þ	Definitive Proxy Statement
o	Definitive Additional Materials
o	Soliciting Material Pursuant to §240.14a-12

Nano-Proprietary, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement,

If other than the Registrant)

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3006 Longhorn Blvd., Suite 107, Austin, TX 78758

Phone (512) 339-5020, Fax (512) 339-5021, WWW.NANO-PROPRIETARY.COM

April 7, 2008

Dear Shareholders:

I invite you to join us this year at our annual meeting on May 20, 2008 at the Renaissance Hotel in Austin to hear about the progress of our business and address questions directly to the management team. This year’s meeting will also include an open house at our facility immediately following the meeting. We encourage all of you that have never been to visit the Company to spend the time and energy to come and see us.

Our financial results for 2007 were drastically improved from previous years and we are off to a good start for 2008. Our cash position is strong; our backlog is growing; and we have many opportunities in front of us.

Please return your proxy card, whether you plan to attend the meeting or not, so that that your vote can be counted.

	Very truly yours



	Thomas F. Bijou
	Chief Executive Officer
	Nano-Proprietary, Inc.

NOTICE OF NANO-PROPRIETARY, INC. ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON May 20, 2008

To Our Shareholders:

You are cordially invited to attend the 2008 Annual Meeting of Shareholders of Nano-Proprietary, Inc. (the "Company" or "Nano-Proprietary") at the Renaissance – Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas 78759, on Tuesday, May 20, 2008 at 10:00 a.m., Central Daylight Time. At the Nano-Proprietary 2008 Annual Meeting, shareholders will consider and act on the following matters described in more detail in the accompanying proxy statement:

Election of Directors;

To approve a proposal to amend the Company’s Amended and Restated Articles of Incorporation to change the name of the Company from Nano-Proprietary, Inc. to Applied Nanotech Holdings, Inc.;

To approve a proposal to ratify the Company’s Amended and Restated 2002 Equity Compensation Plan;

To ratify the appointment of Padgett, Stratemann & Co., L.L.P. as the Company’s independent public accountants for the fiscal year ending December 31, 2008; and

To transact such other business as may properly be presented at the meeting or any adjournments thereof.

Our Board of Directors unanimously recommends a vote FOR Items 1, 2, 3, and 4 described above.

Our Board of Directors has fixed April 14, 2008, as the "record date" for determining shareholders entitled to notice of and to vote at the 2008 Annual Meeting. Only shareholders of record as of the record date will be entitled to notice of and to vote at the 2008 Annual Meeting or any adjournment thereof. The proxy statement and accompanying proxy card will first be sent to shareholders beginning April 21, 2008.

For entry to the 2008 Annual Meeting, each shareholder may be asked to present valid picture identification, such as a driver’s license. Shareholders holding stock in brokerage accounts ("street name" holders) will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

For ten days before the date of the 2008 Annual Meeting, a complete list of the shareholders entitled to vote at the meeting will be available for examination by any shareholder for any purpose relating to the meeting during ordinary business hours at the Company’s executive offices at 3006 Longhorn Boulevard, Suite 107, Austin, Texas 78758.

By Order of the Board of Directors

Thomas F. Bijou

Chief Executive Officer

Date: April 7, 2008

WHETHER OR NOT YOU EXPECT TO ATTEND THE 2008 ANNUAL MEETING OF SHAREHOLDERS IN PERSON, PLEASE COMPLETE, DATE, SIGN, AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE AS PROMPTLY AS POSSIBLE TO ENSURE YOUR REPRESENTATION AT THE 2008 ANNUAL MEETING OF SHAREHOLDERS. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE 2008 ANNUAL MEETING OF SHAREHOLDERS. IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE (I.E., “STREET NAME”), YOU WILL NEED TO OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE AND BRING TO THE MEETING A PROXY ISSUED IN YOUR NAME, AUTHORIZING YOU TO VOTE THE SHARES.

NANO-PROPRIETARY TECHNOLOGY INC.

2008 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON May 20, 2008

TABLE OF CONTENTS

PROXY STATEMENT	PAGE
Questions and Answers About the 2008 Annual Meeting	1
Certain Beneficial Ownership	5
Security Ownership of Management	5
Board of Directors and Corporate Governance Information	6
Executive Compensation	10
Director Compensation	17
Election of Directors	19
Amendment to Amended and Restated Articles of Incorporation to change the name of the Company from Nano-Proprietary, Inc. to Applied Nanotech Holdings, Inc.	21
Ratification of Amended and Restated 2002 Equity Compensation Plan	21
Report of the Audit Committee of the Board of Directors	22
Audit and Related Fees	23
Ratification of Appointment of Independent Public Accountants	24
Delivery of Documents to Shareholders Sharing an Address	24
Shareholder Proposals to be Presented at Next Annual Meeting	24
Section 16(a) Beneficial Ownership Reporting Compliance	25
Transaction of Other Business	25
Form 10-K	25

Appendix A

Amendment to the Amended and Restated Articles of Incorporation

NANO-PROPRIETARY, INC.

3006 Longhorn Boulevard, Suite 107

Austin, Texas 78758

PROXY STATEMENT

This proxy statement contains information and is furnished in connection with the solicitation by the Board of Directors of Nano-Proprietary, Inc., a Texas corporation (the “Company”), of proxies for use at the 2008 Annual Meeting of Shareholders of the Company to be held on Tuesday, May 20, 2008, at the Renaissance – Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas 78759 at 10:00 a.m., Central Daylight Time, and at any adjournment of the 2008 Annual Meeting. This proxy statement and accompanying proxy card are first being mailed to shareholders on or about April 21, 2008.

QUESTIONS AND ANSWERS ABOUT THE 2008 ANNUAL MEETING

Q:	WHAT IS THE PURPOSE OF THE 2008 ANNUAL MEETING?

A:	At the 2008 Annual Meeting, shareholders will act upon the matters outlined in the Notice of 2008 Annual Meeting of Shareholders on the cover page of this proxy statement, including:

·	the election of Directors;

·	a proposal to amend the Company’s Amended and Restated Articles of Incorporation to change the name of the Company from Nano-Proprietary, Inc. to Applied Nanotech Holdings, Inc.;

·	a proposal to ratify the Company’s Amended and Restated 2002 Equity Compensation Plan; and

·	the ratification of the appointment of Padgett, Stratemann & Co., L.L.P. as the Company’s independent public accountants for the fiscal year ending December 31, 2008.

	We are not aware of any other matters to be presented at the 2008 Annual Meeting; however, the holders of the proxies will vote in their discretion on any other matters properly presented.

	In addition, our management will report on the current operations of the Company and respond to questions from shareholders.

Q:	WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?

A:	We sent you this proxy statement and the enclosed proxy card because the Board of Directors of the Company is soliciting your proxy to vote your shares at the 2008 Annual Meeting. This proxy statement summarizes information that we are required to provide to you under the rules of the Securities and Exchange Commission ("SEC") and is designed to assist you in voting.

Q:	WHEN AND WHERE WILL THE ANNUAL MEETING BE HELD?

A:	The 2008 Annual Meeting will be held at the Renaissance – Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas 78759 on Tuesday, May 20, 2008 at 10:00 a.m., Central Daylight Time.

Q:	WHO IS ENTITLED TO NOTICE OF AND TO VOTE AT THE 2008 ANNUAL MEETING?

A:	Our Board of Directors has fixed the close of business on April 14, 2008, as the “record date” for the determination of shareholders who are entitled to notice of the 2008 Annual Meeting and who are entitled to vote at that meeting. Only those shareholders who owned shares of the Company’s common stock as of the record date are entitled to notice of and to vote at the 2008 Annual Meeting.


Q:	WHAT ARE THE VOTING RIGHTS OF THE COMPANY’S SHAREHOLDERS?

A:	The holders of our common stock will vote on all matters to be acted upon at the 2008 Annual Meeting.

Q:	HOW MANY SHARES CAN VOTE?

A:	As of April 7, 2008, we had 107,173,549 outstanding shares of common stock and approximately 352 beneficial shareholders of record of such stock. Every shareholder is entitled to one vote for each share of the Company’s common stock held by such shareholder on the record date.

Q:	HOW DO I VOTE AND WHO WILL VOTE MY PROXY?

A:	If you properly complete, sign and return the accompanying proxy card, it will be voted as you direct. Thomas F. Bijou, our Chief Executive Officer, and Douglas P. Baker, our Chief Financial Officer, the persons named as proxies on the proxy card accompanying this proxy statement, will vote each properly executed and returned proxy as indicated on the directions of the returned proxy. If no direction is indicated, the proxy will be voted in accordance with the recommendations of our Board of Directors contained in this proxy statement. Mr. Bijou and Mr. Baker were selected by our Board of Directors to serve in this capacity.

	Even if you plan to attend the 2008 Annual Meeting, your plans may change, so it is a good idea to complete, sign and return your proxy card in advance of the 2008 Annual Meeting. “Street name” shareholders who wish to vote at the 2008 Annual Meeting will need to obtain a proxy from the institution that holds their shares. If you attend the 2008 Annual Meeting you will, of course, be allowed to vote in person.

Q:	CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?

A:	The Company has not established procedures to allow telephone or electronic voting through the Internet. We may do so for future shareholder meetings if we determine that the added convenience to our shareholders would justify the additional costs associated with these voting methods. At this time, if you are a record holder, you may vote only by returning a properly executed proxy card or by voting in person at the 2008 Annual Meeting. If you hold your shares in a brokerage account or in “street name”, your brokerage may have established procedures for telephone or electronic voting.

Q:	WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

A:	It means that you have multiple accounts at the transfer agent and/or with stockbrokers. Please sign and return all proxy cards to ensure that all of your shares are voted.

Q:	CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?

A:	Yes. Even after you have submitted your proxy, you may revoke the proxy and you may change your vote at any time before the proxy is exercised by filing with the Corporate Secretary of the Company either a written notice of revocation or duly executed proxy bearing a later date or by attending the meeting and voting the shares in person. No such notice of revocation or later-dated proxy, however, will be effective until received by our Corporate Secretary at or prior to the meeting. Unless the proxy is revoked, the shares represented by the proxy will be voted at the meeting or any adjournment of the meeting. The giving of the proxy does not affect the right to vote in person should you attend the meeting, although attendance at the meeting will not by itself revoke a previously granted proxy.

Q:	WHAT IS A "QUORUM"?

A:	The presence at the 2008 Annual Meeting of at least a majority of the outstanding shares of our common stock as of the record date, whether present in person or by proxy, will constitute a "quorum." A quorum must be present at the 2008 Annual Meeting to permit the conduct of business. If you submit a properly executed proxy card, even if you abstain from voting, then you will be considered part of the quorum.

	If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some or all of the matters to be acted upon at the 2008 Annual Meeting. If you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes” will be counted to determine whether there is a quorum.

Q:	WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?

A:	Election of Directors (Proposal 1). The nominees for election to the Board of Directors receiving the highest number of affirmative votes will be elected as members of the Company’s Board of Directors. Votes withheld from any director are counted for purposes of determining the presence of a quorum but have no other legal effect under Texas law.
A:

	Change in Name (Proposal 2). Approval of the proposal to amend our Amended and Restated Articles of Incorporation to change the name of the Company to Applied Nanotech Holdings, Inc. requires the affirmative vote of a majority of our issued and outstanding shares of common stock.

	Ratification of the Amended and Restated 2002 Equity Compensation Plan (Proposal 3). Approval of the proposal to ratify our Amended and Restated 2002 Equity Compensation Plan requires the affirmative vote of a majority of the votes present and voting at the 2008 Annual Meeting.

	Ratification of Independent Auditors (Proposal 4). Approval of the proposal to ratify the selection of Padgett, Stratemann & Co., L.L.P. as the Company’s independent auditors for the fiscal year ending December 31, 2008, requires the affirmative vote of a majority of the votes present and voting at the 2008 Annual Meeting.

	For the proposals scheduled to be voted upon at the 2008 Annual Meeting, “withheld” votes on Directors, abstentions and shares held by a broker that the broker fails to vote (“broker non-votes”) are all counted to determine whether there is a quorum, but are not counted for or against the matters being considered. Accordingly, abstentions and broker non-votes will both have the effect of negative votes on each of Proposals 2, 3, and 4.

Q:	HOW WILL VOTES BE COUNTED?

A:	Donald T. Locke, our outside legal counsel, will act as election inspector and in that capacity will tabulate the votes cast in person or by proxy at the 2008 Annual Meeting and will determine whether or not a quorum is present. The election inspector will treat abstentions as shares that are present and entitled to vote to determine the presence of a quorum but as unvoted to determine the approval of any matter submitted to the shareholders for a vote. If a broker indicates on the proxy that it does not have discretionary authority as to certain shares to vote on a particular matter, those shares will not be considered as present and entitled to vote with respect to that matter but will be counted for purposes of determining the presence of a quorum.

Q:	WHO IS PAYING THE COST FOR THIS PROXY SOLICITATION AND HOW IS THE SOLICITATION PROCESS BEING CONDUCTED?

A:	The Company will pay all the costs of this proxy solicitation. We do not anticipate that the costs and expenses incurred in connection with this proxy solicitation will exceed those normally expended for a proxy solicitation relating to the matters to be voted on at this 2008 Annual Meeting. We will, upon request, reimburse brokers, banks and similar organizations for out-of-pocket and reasonable clerical expenses incurred in forwarding proxy material to their principals.

	In addition to the solicitation of proxies by use of the mails, our directors and employees may also solicit proxies in person, by telephone or by other electronic means of communication. None of our directors or employees will receive additional compensation for any such solicitation.

Q:	WHEN ARE THE SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING OF SHAREHOLDERS DUE?

A:	All shareholder proposals to be considered for inclusion in our proxy statement for the Company’s 2008 annual meeting must be received by January 20, 2009. The submitted proposals must be in compliance with applicable laws and regulations and follow the procedures prescribed in the SEC’s Rule 14a-8 to be considered for possible inclusion in the proxy materials. Proposals must be submitted in writing to:

	Nano-Proprietary, Inc. 3006 Longhorn Boulevard Suite 107 Austin, Texas 78758 Attn : Douglas P. Baker Chief Financial Officer

Q:	WHAT ARE OUR BOARD OF DIRECTORS’ RECOMMENDATIONS?

A:	Unless you give other instructions on your proxy card, the persons named above as proxies will vote in accordance with the recommendations of our Board of Directors. Our Board of Directors’ recommendations are set forth together with the description of each item in this proxy statement. In summary, our Board of Directors recommends a vote:

For the approval of all of the Directors nominated;

For the approval of the amendment to the Company’s Amended and Restated Articles of Incorporation to change the name of the Company from Nano-Proprietary, Inc. to Applied Nanotech Holdings, Inc.;

For the approval of the ratification of the Company’s Amended and Restated 2002 Equity Compensation Plan; and

For the ratification of Padgett, Stratemann & Co, L.L.P. as the Company’s independent accountants for the Company’s fiscal year ending December 31, 2008.

	With respect to any other matter that properly comes before the 2008 Annual Meeting, the proxy holder(s) will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion.

Q:	DO I HAVE DISSENTER’S RIGHTS?

A:	No. The taking of the actions proposed at the 2008 Annual Meeting will not entitle any shareholder to dissent and demand a right of appraisal or payment for its shares under the Texas Business Corporations Act.

Q:	HOW DO I OBTAIN MORE INFORMATION ABOUT THE COMPANY?

A:	We file annual, quarterly and special reports and other information with the SEC. Copies of these reports may be obtained on our website at www.nano-proprietary.com . You may also read and copy any of these documents at the Commission’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. Copies of this material may be obtained by mail at prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may read and download the filings of the Company over the Internet at the Commission’s website at http://www.sec.gov . You may also request copies by contacting our Chief Financial Officer at (512) 339-5020 or c/o of the Company at 3006 Longhorn Boulevard, Suite 107, Austin, Texas 78758. Our common stock is listed on the NASDAQ Over-the-Counter Bulletin Board under the symbol “NNPP”

CERTAIN BENEFICIAL OWNERSHIP

The only persons or entities thought to be the beneficial owner of 5% or more of the outstanding voting stock of the common stock of Nano-Proprietary, Inc. stock as of April 7, 2008, are listed below. For the purposes of this Proxy Statement, beneficial ownership of securities is defined in accordance with the rules of the SEC to mean generally the power to vote or dispose of securities, regardless of any economic interest therein. The number of shares owned is based on the most recent public filings by the beneficial owners.

	Beneficial Ownership	Percent of Outstanding Common Stock

Pinnacle Fund, L.P.	7,301,776	6.81%
Barry Kitt, General Partner 4965 Preston Park Blvd., Suite 240 Plano, TX 75093

SECURITY OWNERSHIP OF MANAGEMENT

Set forth below is certain information with respect to beneficial ownership of Nano-Proprietary’s common stock as of April 7, 2008, by each Director, each Named Executive Officer and by the directors and executive officers as a group. Unless otherwise indicated, each person or member of the group listed has sole voting and investment power with respect to the shares of common stock listed.

Name	Options and Restricted Stock Included in Beneficial Ownership (1)	Common Stock Beneficial Ownership	Percentage of Class
Thomas F. Bijou	290,000	508,429	*
Dr. Zvi Yaniv	805,000	965,500	*
Douglas P. Baker	721,125	780,625	*
Dr. Richard Fink	144,974	144,974	*
Ronald J. Berman	723,750	1,143,675	1.06%
Howard Westerman	3,125	190,165	*
Dr. Robert Ronstadt	183,750	195,200	*
Bradford S. Lamb	31,042	125,463	*
Tracy Bramlett	1,041	11,041	*
Patrick V. Stark	1,041	40,336	*

All Executive Officers and Directors as a group (10 persons)	2,904,848	4,104,908	3.73%

_________________

*	Less than 1%

(1)	This column lists shares that are subject to options exercisable within sixty (60) days of April 7, 2008 and restricted stock that vests within sixty (60) days of April 7, 2008, and are included in common stock beneficial ownership pursuant to Rule 13d-3(d)(1) of the Exchange Act.

BOARD OF DIRECTORS AND CORPORATE GOVERNANCE INFORMATION

Corporate Governance

The Company’s Board of Directors believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its shareholders. During the past year, the Company’s Board of Directors has continued to review its governance practices. This section describes key corporate governance guidelines and practices that the Company has adopted. Complete copies of the committee charters and Code of Ethics described below are available on the Company’s website at www.nano-proprietary.com. Alternatively, shareholders may request a copy of any of these documents by writing to Nano-Proprietary, Inc., 3006 Longhorn Boulevard, Austin, Texas 78758, Attn: Chief Financial Officer.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee currently consists of Mr. Berman, Mr. Bramlett, and Mr. Lamb. None of them is or has been an officer or employee of Nano-Proprietary, nor do any of them have any relationships requiring disclosure under Item 404 of Regulation S-K. No interlocking relationship existed during the fiscal year ended December 31, 2007, between Nano-Proprietary’s Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company.

Code of Ethics

We have adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of the Securities Exchange Act of 1934 (the “Exchange Act”). This Code of Ethics applies to all directors, officers, and employees of the Company. A copy of this Code of Ethics is publicly available on our website at www.nano-proprietary.com.

Board Meetings and Attendance

The Board of Directors met 5 times during the fiscal year ending December 31, 2007 (“Fiscal 2007”), either in person or by teleconference. During Fiscal 2007, each Director attended at least 75% of the aggregate number of Board meetings and the number of meetings held by all committees on which he then served.

Shareholder Director Nominating Procedures

The Company does have a procedure in place for holders of the Company‘s common stock to recommend nominees to the Company’s Board of Directors. These procedures are set forth in Article 9(b) of the Company’s Amended and Restated Articles of Incorporation (the “Restated Articles”). A copy of the Company’s Restated Articles is filed as Exhibit 3(I) to the Company’s Current Report on Form 8-K dated as of December 12, 2007. As set forth in Article 9(b) of the Restated Articles, only persons who are nominated in accordance with the procedures set forth in that Article are eligible for election as Directors of the Company. Nominations of persons for election to the Board of Directors of the Company may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the Company entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in Article 9(b). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Corporate Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the Company which are beneficially owned by such person, and (D) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serve as a Director if elected); and (ii) as to the shareholder giving the notice, (1) the name and address, as they appear on the Company’s books, of such shareholder and (2) the class and number of shares of the Company which are beneficially owned by such shareholder. No person shall be eligible for election as a Director of the Company unless nominated in accordance with the procedures set forth in Article 9(b) of the Restated Articles. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed herein, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

Committees

The Board of Directors has three committees, each of which operates under a charter that has been approved by the Board of Directors. Current copies of each committee’s charter are posted on the Company’s website, www.nano-proprietary.com. The Audit Committee currently consists of Mr. Lamb, Mr.Stark, and Mr. Westerman. The Compensation Committee currently consists of Mr. Berman, Mr. Lamb and Mr. Bramlett. The Nominating and Corporate Governance Committee currently consists of Dr. Ronstadt, Mr. Westerman, and Mr. Bramlett.

Communicating with the Independent Directors

The Board of Directors will give appropriate attention to written communications that are submitted by shareholders and will respond if and as appropriate. The Chairman of the Board or the Chairman of the Nominating and Corporate Governance Committee, with the assistance of the Company’s Chief Financial Officer, is primarily responsible for monitoring communications from shareholders and for providing copies or summaries to the other directors as he or she considers appropriate.

Communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the Chairman of the Board or the Chairman of the Nominating and Corporate Governance Committee considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which the Company tends to receive repetitive or duplicative communications.

Shareholders who wish to send communications on any topic to the Board of Directors should address such communications to Board of Directors, c/o Chief Financial Officer, Nano-Proprietary, Inc., 3006 Longhorn Boulevard, Suite 107, Austin, Texas, 78758.

Board Determination of Independence

The Board annually determines the independence of directors. No director is considered independent unless the Board has determined that he or she has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others.

Under the rules of the Securities and Exchange Commission, the Company is required to disclose whether the members of our Board are independent using the definition of a national securities exchange selected by it and approved by the Commission (even though the Company is not listed on such exchange). Nano-Proprietary has chosen to use the definition used by the American Stock Exchange, Section 803(A). The Company has determined that none of Mr. Westerman, Mr. Lamb, Mr. Stark, Mr. Bramlett, Dr. Ronstadt and Mr. Berman has any material relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” under the rules of the AMEX.

Audit Committee; Audit Committee Financial Expert

Nano-Proprietary’s Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. Its responsibilities include:

•

appointing, approving the compensation of, and assessing the independence of the Company’s independent registered public accounting firm;

•

overseeing the work of the Company’s independent registered public accounting firm, including through the receipt and consideration of certain reports from the independent registered public accounting firm;

•

reviewing and discussing with management and the Company’s independent registered public accounting firm the Company’s annual and quarterly financial statements and related disclosures;

•

monitoring the Company’s internal control over financial reporting, disclosure controls and procedures and Code of Ethics;

•

discussing the Company’s risk management policies;

•

establishing policies regarding hiring of present or former partners, shareholders, principals or employees of the independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns;

•

meeting independently with the Company’s internal auditing staff, independent registered public accounting firm and management; and

•

preparing the audit committee report required by SEC rules (which is included below in this proxy statement under the “Report of The Audit Committee of the Board of Directors”).

The current members of the Audit Committee are Mr. Westerman and Mr. Lamb. The Audit Committee met four (4) times during Fiscal 2007.

The Board of Directors has determined that Mr. Westerman is an “audit committee financial expert” under applicable SEC rules and that all members of our audit committee qualify as “independent” as defined under applicable SEC rules.

Compensation Committee

The Compensation Committee’s responsibilities include:

•

annually reviewing and approving corporate goals and objectives relevant to CEO compensation;

•

determining the CEO’s compensation;

•

reviewing and approving, or making recommendations to the Board with respect to, the compensation of the Company’s other executive officers;

•

overseeing an evaluation of the Company’s senior executives;

•

overseeing and administering the Company’s cash and equity incentive plans; and

•

reviewing and making recommendations to the Board with respect to director compensation.

The current members of the Compensation Committee are Mr. Berman, Mr. Bramlett and Mr. Lamb. The Compensation Committee met fourteen (14) times during Fiscal 2007.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee’s responsibilities include:

•

identifying individuals qualified to become Board members;

•

recommending to the Board the persons to be nominated for election as directors and to each of the Board’s committees;

•

reviewing and making recommendations to the Board with respect to management succession planning;

•

developing and recommending to the Board corporate governance principles; and

•

overseeing an annual evaluation of the Board.

The current members of the Nominating and Corporate Governance Committee are Dr. Ronstadt, Mr. Westerman, and Mr. Bramlett. The Nominating and Corporate Governance Committee met two (2) times during Fiscal 2007.

Certain Relationships and Related Transactions

It is our written policy that all material related party transactions be approved by the Board of Directors, with any member of the Board affected by the related party transaction abstaining from the vote.

In October 1998, EBT entered into a Patent Assignment and Royalty Agreement with Advanced Technology Incubator, Inc., (“ATI”) a corporation based in Austin, Texas and owned by Dr. Zvi Yaniv, the Company’s President and Chief Operating Officer. Under the terms of the agreement, ATI agreed to assign U.S. Patent No. 5,469,187 related to certain LCD technology to EBT in exchange for an initial payment of $200,000. In addition, ATI was entitled to receive a royalty of 5% of gross revenue related to products using this patent. EBT could terminate this assignment at any time upon 30 days written notice to ATI. The assignment could have been terminated by ATI if, within two years of the first sale or lease of a display unit using this technology, cumulative royalty payments under the agreement did not total $500,000, or if payments did not equal $500,000 in any one-year period following the initial two-year period. If the assignment was terminated by ATI, EBT would have been granted a non-exclusive worldwide license to use the technology under terms similar to those contained in this agreement. There have been no sales or leases of display units using this technology; therefore, the two year period that could have resulted in minimum payments being due never started.

In 2006, we sold the intellectual property of EBT. The purchaser was interested in acquiring all intellectual property, including this patent, as part of the package, but not in assuming the agreement that we had with ATI. In order to complete the transaction, we were required to acquire the remaining interest in the patent and settle all potential future obligations to ATI. To do this, we issued 200,000 shares of our common stock, valued at $400,000 to ATI. We also paid $25,000 to ATI for additional services related to this transaction during the year.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Objectives of Compensation Program

The primary objective of our compensation program for employees, including our compensation program for executive officers, is to attract, retain, and motivate qualified individuals and reward them in a manner that is fair to all stakeholders. We strive to provide incentives for every employee that rewards them for their contribution to the Company, while at the same time promoting an ownership mentality.

Elements of Compensation

There are three main components to our compensation package - base salaries, bonuses, and stock based compensation. A fourth, less significant component is other benefits and perquisites. Our compensation program is designed to be competitive with other employment opportunities and to align the interests of all employees, including executive officers, with the long-term interests of our shareholders. For our executive officers, we link a much higher percentage of total compensation to incentive compensation such as bonus and stock based compensation than we do for other employees.

Base Salaries

We provide our executive officers with a level of cash compensation that facilitates an appropriate lifestyle and provides a reasonable minimum compensation. We make this determination based on a variety of factors including professional accomplishments, level of education, past experience and scope of responsibilities. The actual amount of base salary paid to each named executive officer is set forth in the summary compensation table included later in this section. The salary level for both our chief executive officer and our chief operating officer was set at a rate of $250,000 per year at the beginning of 2005 and remained at that level in 2006. When Mr. Bijou joined us in December 2006, we entered into a slightly modified arrangement with Mr. Bijou. He was paid at an annualized rate of $288,000 per year; however that amount represents a combination of salary and management fee paid to an entity owned by Mr. Bijou. As part of the management fee, Mr. Bijou assumes responsibility for certain costs, including basic employee benefits that would normally be paid by us. We believe the amount that we pay Mr. Bijou is similar to the amounts paid to or on behalf our previous CEOs. The salary level for our chief financial officer was set at a rate of $180,000 per year at the beginning of 2005 and remained at that level for 2006 and 2007. As discussed in more detail below, the following base salary amounts for these executive officers became effective January 1, 2008: Mr. Bijou - $300,000, Dr. Yaniv - $275,000, and Mr. Baker $225,000. In addition, effective December 31, 2007, Dr. Richard Fink, Vice President became a named executive officer. Dr. Fink’s salary became $125,000 effective January 1, 2008.

Bonuses

We have a formula bonus plan covering all employees, including executive officers. This plan was originally established in 2004 and is based solely on the profitability of the company. This plan is designed to reward all employees when we are successful in reaching profitability. No bonuses have ever been paid under this plan, since we have incurred losses in each of the years since adoption of the plan. The maximum bonuses payable under this plan are $250,000 for the chief executive officer, $200,000 for the chief operating officer, and $150,000 for the chief financial officer. The maximum amounts would be payable if our net income is equal to, or exceeds $10 million. For purposes of this plan, net income is calculated using the accounting principles in effect at the time the plan was adopted, meaning stock based compensation using fair value as required by FAS 123R is excluded from the calculation. There are no minimum amounts payable under the plan and the target amounts are equal to the maximum amounts payable. The compensation committee of the board of the directors also has the power to award discretionary bonuses; however, no such bonuses have been granted since 2002 in the case of the CEO and the CFO. The COO received a discretionary bonus of $115,000 in 2007.

Stock Based Compensation

All of our employees participate in our stock based compensation plans and receive awards of non-qualified stock options annually. We use non-qualified options because of the favorable tax treatment to us and the near universal expectation by employees in our industry that they will receive stock options. The overwhelming majority of these awards are performance based awards that only vest upon achievement of specific goals. For non-executive officer employees, these goals tend to be operational oriented goals relating to specific projects or potential projects. For executive officers, these goals are broad in nature and involve more substantial accomplishments. Following is a discussion of the option grants to executive officers.

In 2004, the compensation committee adopted a multiyear program of performance based option covering the years from 2004 to 2007. The goals associated with this program related to breakeven in various years and certain revenue targets. When Mr. Bijou commenced employment in December 2006, he also received an option package which included a small portion of time based options which vested over a period of one year and the remainder of which were performance based options vesting based on achievement of certain modified cashflow from operations and EPS goals.

By the end of 2007, the majority of the options included in the 2004 grant had not vested and certain of the goals associated with the options granted in December 2006 were no longer considered reasonable based on events that had occurred in 2007. As such, a new multiyear program was adopted at the end of 2007 designed to replace expiring performance based options, provide reasonable goals, and align the goals of all executive officers. This program included a mixture of time based option and performance based options. The majority of these grants were performance based options with goals related to modified cashflow from operations and various earnings per share targets. This new program did not result in an increase in the number of options held by any of the existing executive officers. Dr. Fink received options as part of this program, however as previously indicated, Dr. Fink became an executive officer effective December 31, 2007 and was not an executive officer at the time of the grant.

For purposes of this discussion of performance based option goals, we consider the goals related to modified cash-flow from operations, or earnings per share targets, to be part of our confidential strategic plans, and as such we do not disclose the specifics of the goals at this time. Attainment of many of these goals will require the company to achieve financial results never before achieved in the history of the Company. We consider these goals achievable, but they represent a stretch and are considered essential to proving the business model. They align the interests of the executive officers with those of the shareholders.

At the present time, we have no formal policy related to stock ownership for executive officers, other than for those officers that are also members of the Board of Directors and are covered under the Board policy, which is described later in this section. In establishing grant levels, we do not consider the equity ownership levels of the executive officer. In general, we do not consider the existence of fully vested prior awards when establishing new grants. However, with newer executive officers, we may consider the lack of prior awards in establishing a higher level of new grants.

Timing of Option Grants

We do not have a formal written policy related to the timing of option grants; however we do have certain time periods when options are normally granted. At the present time, we do not have any analysts that follow our stock and the release of our quarterly financial reports normally has no impact on the price of our stock. As such, we do not have trading windows, nor do we limit option grants to any sort of windows. There are two normal situations where options are granted. The first would be at the time a new employee, including executive officers, is hired. If a new employee receives options as part of starting employment, those options are granted either at, or shortly after, the employment start date.

The majority of options are performance based awards granted on an annual basis as part of a budgeting/goal setting process. For executive officers, the compensation committee meets annually to establish compensation levels, including salary, bonus, and options, for the year. This meeting normally occurs in late November or early December prior to the start of the new year - for example in December 2007 for 2008 compensation. It could, however, occur as early as November as late as January. For all other employees, the goal setting process starts in December, but since it involves many more distinct goals and many more individuals; it is a longer process and as a result usually is not ready for submission to the Compensation Committee until January or later. All performance based awards for employees other than executive officers are annual awards that must either vest by the end of the calendar year, or they will expire unvested. At the time of the proposed award, we consider whether there are any known upcoming significant events, and have in the past delayed awards as a result of expected positive events.

All option grants for employees are approved by the compensation committee of the Board of Directors. The compensation committee has authorized the executive officers to grant limited amounts of options to new hires without seeking additional compensation committee approval. The compensation committee does not delegate any of its powers for granting options to others.

Other Benefits and Perquisites

Since we have not yet reached profitability on a consistent basis, we take a relatively bare-bones approach to benefits for all employees, including executive officers. There are no benefit plans available to executive officers that are not available to all employees. Executive officers participate in the same benefit plans covering other employees. These benefits include limited health and dental insurance, group term life insurance, and limited long-term disability insurance. The only retirement plan that we maintain is a 401(K) plan funded entirely by employee elective deferrals. We have no company funded retirement plans or deferred compensation plans. We also do not provide any of the perqs common at larger companies. The only perq that we provide is an auto allowance. We have provided an auto allowance of $1,000 per month to our COO and $500 per month to our CFO and effective January 1, 2008; we began providing an auto allowance of $1,000 per month to our CEO. The amounts paid as auto allowances are considered in setting the overall level of compensation for the executive officer.

Compensation Approval Process

The Compensation Committee of the Board of Directors approves all compensation and awards to executive officers. The CEO provides recommendations to the compensation committee for the other executive officers, all of which directly or indirectly report to him, and regarding most compensation matters, including executive compensation, the CFO in consultation with the CEO, provides information to the Compensation Committee. However, the Compensation Committee does not delegate any of its functions to others in setting compensation. We did not make formal use of any compensation consultants in determining executive compensation levels for any of the executive officers.

In 2006 we used an executive search firm in connection with our search for a new CEO. That firm, Christian & Timbers, indicated that at the time our CEO salary was at the low end of the range, although when considering options, it fell within the normal range of CEO compensation for similar companies. In November 2007, we performed a compensation analysis to benchmark our compensation package against other similar companies. We did not use an outside compensation consultant for this study, but rather performed the analysis internally. We selected the following companies: Nanogen (NGEN), Nanosphere (NSPH), Harris & Harris (TINY), Nanosys (NNSY), Acacia Research/Acacia Technologies (ACTG), Arrowhead Research (ARWR), and Symyx Technologies (SMMX). In selecting these companies, we considered such factors as nanotechnology involvement, market capitalization, revenue levels, profitability, and line of business. While no particular company is a perfect match, we believe that overall this is a representative mix of companies to use as a comparison. We gathered data on these companies from publicly available data, including SEC filings. In general, there was a lag of one or more years related to these filings, so the most recent data available for these companies was from 2006 or prior.

The results of our benchmarking study showed that the compensation paid to executive officers at Nano-Proprietary, Inc. was well below average for the peer group selected. Salaries were at or near the bottom of the range. In the case of the CEO and COO, all but one of the comparison companies paid higher salaries and in the case of the CFO, all of the comparison companies paid higher salaries. The majority of the comparison companies paid bonuses despite the existence of net operating losses. While the Nano-Proprietary officers had the potential for larger option grants, based on options actually vested, on average the comparison companies also had higher levels of options granted.

When setting compensation levels for 2008, we considered the result of this study. Salaries were set at the previously disclosed levels based on this study and in consideration of the fact that salary levels had been unchanged for three years. These new salary levels are, in general, still below average for the comparison companies, but much closer than previous levels. Until such time as the company attains profitability, we believe it reasonable for salaries to be slightly below average. When the company reaches profitability, it is anticipated that salaries will be adjusted to market levels. We continued our bonus plan based on profitability and it is anticipated that future bonuses will not be paid until such time as we have reached profitability. Finally, as previously described, we granted options to the executive officers in December 2006. These options included both time based and performance based options, although the majority of the options were performance based. This split was determined, in part based on the option vesting history over the past several years.

Compensation Committee Report

We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions to be included in the Company’s 2007 Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Form 10-K”). Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in the Company’s Form 10-K.

COMPENSATION COMMITTEE:

Ronald J. Berman, Chairman

Bradford Lamb

Tracy Bramlett

The following table sets forth the total cash compensation paid or to be paid, as well as certain other compensation paid or accrued, for services rendered during the fiscal years ended December 31, 2007, 2006 and 2005 by all individuals that served as Chief Executive Officer during 2007, the Chief Financial Officer, all individuals that were Named Executive Officers as of the end of the previous year, and all executive officers whose total annual salary and bonus exceeded $100,000 for the fiscal year ended December 31, 2007 (the “Named Executive Officers”):

SUMMARY COMPENSATION TABLE

Name & Principal Position	Year	Salary		Option Awards (1)		All Other Compensation (4)		Total

Thomas F. Bijou (2)	2007	$	288,000	$	505,357	$	0	$	793,357
Chief Executive Officer	2006	$	24,000	$	663,422	$	0	$	687,422

Dr. Zvi Yaniv	2007	$	250,000	$	247,588	$	12,000	$	509,588
Chief Operating Officer	2006	$	250,000	$	265,369	$	12,000	$	527,369
	2005	$	250,000	$	1,005,430	$	12,000	$	1,267,430

Douglas P. Baker	2007	$	180,000	$	154,743	$	6,000	$	340,743
Chief Financial Officer	2006	$	180,000	$	132,684	$	6,000	$	318,684
	2005	$	180,000	$	502,715	$	6,000	$	688,715

Dr. Richard Fink (3)	2007	$	100,000	$	73,842	$	0	$	173,842
	2006	$	97,667	$	18,244	$	0	$	115,911
	2005	$	86,000	$	23,221	$	0	$	109,221

_______________

(1) Amounts included in the option awards column are calculated utilizing the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payments.” See Note 8 of the consolidated financial statements included in this annual report for the assumptions underlying valuation of equity awards. The amounts are calculated based on all options granted during the year without regard to whether the options vest or expire. As discussed in the Compensation Discussion and Analysis, the majority of options granted are performance based options associated with specific goals. To the extent that the goals are not achieved, the options do not vest and expire. The amount included for 2005 is based on the number of options awarded to Dr. Yaniv and Mr. Baker, of 700,000 and 350,000, respectively. For Dr. Yaniv, 200,000 of those options ultimately vested and 500,000 of those options expired. For Mr. Baker, 100,000 of those options ultimately vested and 250,000 of those options expired. All of the options granted to executive officers in 2005 are priced significantly above the current market price of the stock and none of the vested options have been exercised.

None of the options granted in 2006 to Dr. Yaniv or Mr. Baker vested and all have expired as of December 31, 2007. A total of 1,000,000 options were granted to Mr. Bijou in 2006, of which 200,000 of those options have vested and the remaining 800,000 options have expired as of December 31, 2007. None of the options granted to Mr. Bijou, Dr. Yaniv, or Mr. Baker have vested as of February 29, 2008. All of the options granted to Dr. Fink in 2005 and 2006 are fully vested. Of the options granted to Dr. Fink in 2007, 16,713 are fully vested and 100,000 are unvested as of February 29, 2008.

(2) Mr. Bijou began employment as CEO on December 1, 2006.

(3) Dr. Fink has been employed by the Company since 1995; however he only became a named executive officer as of December 31, 2007. Amounts for 2005 and 2006 are included for comparative purposes.

(4) The amounts included in the “All Other Compensation” column for Dr. Yaniv and Mr. Baker represents an automobile allowance in all years.

GRANTS OF PLAN-BASED AWARDS TABLE

			Estimated Future Payouts Under Equity Incentive Plan Awards (Shares) (1)
Name	Grant Date	Approval Date	Threshold	Target	Maximum	All Other Option Awards Number of Shares Underlying Options	Exercise Price of Option Awards	Market Price on Date of Grant

Thomas F. Bijou	12/03/2007	11/30/2007				360,000	$1.19	$1.06
	12/03/2007	11/30/2007	0	200,000	200,000		$1.19	$1.06
	12/12/2007	12/12/2007	0	240,000	240,000		$1.19	$1.11

Dr. Zvi Yaniv	12/03/2007	11/30/2007				180,000	$1.19	$1.06
	12/03/2007	11/30/2007	0	100,000	100,000		$1.19	$1.06
	12/03/2007	11/30/2007	0	120,000	120,000		$1.19	$1.06

Douglas P. Baker	12/03/2007	11/30/2007				112,500	$1.19	$1.06
	12/03/2007	11/30/2007	0	62,500	62,500		$1.19	$1.06
	12/03/2007	11/30/2007	0	75,000	75,000		$1.19	$1.06

Dr. Richard Fink	01/29/2007	01/29/2007				16,713	$1.28	$1.28
	12/03/2007	11/30/2007				45,000	$1.19	$1.06
	12/03/2007	11/30/2007	0	25,000	25,000		$1.19	$1.06
	12/03/2007	11/30/2007	0	30,000	30,000		$1.19	$1.06

_____________________

(1) Performance-based option awards that vest upon the achievement of established goals.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

The following table sets forth information concerning the outstanding equity awards held by the Named Executive Officers at December 31, 2007.

	Option Awards
	Number of Securities Underlying Unexercised Options		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
Name	Number Exercisable	Number Unexercisable		Option Exercise Price	Option Expiration Date

Thomas F. Bijou	200,000	-	-	$1.19	11/30/2016
	-	360,000	-	$1.19	12/03/2017
	-	-	200,000	$1.19	12/03/2017
	-	-	240,000	$1.19	12/12/2017

Dr. Zvi Yaniv (1)	100,000	-	-	$0.50	01/11/2009
	30,000	-	-	$1.50	02/02/2010
	200,000	-	-	$1.50	06/27/2010
	30,000	-	-	$0.96	07/28/2013
	250,000	-	-	$2.73	12/31/2013
	50,000	-	-	$2.17	12/31/2014
	200,000	-	-	$2.17	01/01/2015
	-	180,000	-	$1.19	12/03/2017
	-	-	100,000	$1.19	12/03/2017
	-	-	120,000	$1.19	12/03/2017

Douglas P. Baker (1)	30,000	-	-	$1.50	02/02/2010
	50,000	-	-	$1.50	06/27/2010
	100,000	-	-	$0.63	03/02/2011
	100,000	-	-	$0.92	07/16/2011
	150.000	-	-	$0.73	12/05/2011
	32,000	-	-	$0.58	02/12/2012
	13,000	-	-	$0.96	07/28/2013
	200,000	-	-	$2.73	12/31/2013
	50,000	-	-	$2.17	12/31/2014
	100,000	-	-	$2.17	01/01/2015
	-	112,500	-	$1.19	12/03/2017
	-	-	62,500	$1.19	12/03/2017
	-	-	75,000	$1.19	12/03/2017

Dr. Richard Fink	2,500	-	-	$1.50	01/03/2010
	2,500	-	-	$1.50	02/15/2010
	2,000	-	-	$0.58	02/16/2011
	32,750	-	-	$1.00	12/31/2012
	6,875	-	-	$0.50	03/20/2013
	21,000	-	-	$0.56	04/16/2013
	19,881	-	-	$2.50	03/10/2014
	15,906	-	-	$2.17	01/01/2015
	3,487	-	-	$2.17	02/14/2016
	10,112	-	-	$2.25	04/11/2016
	16,713	-	-	$1.28	01/29/2017
	-	45,000	-	$1.19	12/03/2017
	-	-	25,000	$1.19	12/03/2017
	-	-	30,000	$1.19	12/03/2017

_________________

(1) Includes options still outstanding that were previously transferred by gift and reported on Form 4 by the Named Executive Officer. For Dr. Yaniv, these options are the 100,000 options expiring 01/11/2009. For Mr. Baker, these options are the 60,000 options expiring 03/02/2011.

OPTION EXERCISE AND STOCK VESTED TABLE

Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)
Douglas P. Baker (1)	32,000	$ 27,840
	40,000	$ 71,800

________________

(1) All transactions are option exercises that were exercised in buy and hold transactions. Value realized represents the intrinsic value of the options on the date of exercise and not actual value realized by the named executive officer. The 40,000 options represent options previously transferred by gift and exercised by the recipient, but reported in this table.

PENSION BENEFITS TABLE

We maintain no retirement plans covering Named Executive Officers or other employees, except for a 401K plan funded solely by elective employee contributions. As such, no pension benefits table is included.

NON-QUALIFIED DEFERRED COMPENSATION TABLE

We do not maintain any non-qualified deferred compensation plans covering Named Executive Officers or other employees. As such, no deferred compensation table is included.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

None of the named executive officers have employment contracts, and therefore, there are no formal payments due on change in control or other employment termination. Our 2002 Equity Compensation Plan, which includes all employees, including executive officers, includes a provision which accelerates the vesting of all unvested options upon certain change in control events. Unvested options held by Named Executive Officers as of December 31, 2007 are reflected in the Outstanding Equity Awards at Fiscal Year-End Table included in this item.

It is our policy to pay severance upon termination when termination is initiated by us and is for other than cause. We have no formal guidelines, but rather each case is handled on an individual basis. Factors considered include position, length of service, reason for termination, possible future relationships, as well as other potential factors. Payments may be made in a lump sum or in periodic installments and are usually accompanied by a severance agreement that includes a release, a non-disparagement clause, and possibly a non-compete agreement. There are no minimum amounts payable to any of the executive officers; however, it is likely that if any of the Named Executive Officers were terminated by the Company for other than cause, payments would be made in connection with that termination.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash		Restricted Stock Awards (1)		Option Awards (2)		Total

Howard Westerman (3)	$	5,000	$	4,542		-	$	9,542
Ronald J. Berman	$	18,800	$	11,592		-	$	30,392
Bradford S. Lamb	$	4,800	$	2,975	$	15,510	$	23,285
Tracy K. Bramlett (3)	$	1,000	$	991		-	$	1,991
Dr. Robert Ronstadt	$	18,700	$	11,592		-	$	30,292
Patrick V. Stark (3)	$	1,000	$	991		-	$	1,991
Marc W. Eller (4)	$	19,000		-		-	$	19,000
Charles Bailey (4)	$	150		-		-	$	150
Eddie Lee (4)	$	14,300		-		-	$	14,300

_____________

(1) Amounts included in the restricted stock awards column are calculated based on the total fair market value of the shares granted on the date of the grant.

(2) Amounts included in the option awards column are calculated utilizing the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payments.”

(3) Directors Westerman, Bramlett, & Stark became Directors during 2007. Director Westerman was appointed in May 2007 and subsequently elected at the annual shareholders meeting in September 2007. Directors Stark and Bramlett were elected at the annual shareholders meeting in September 2007.

(4) Director Bailey resigned in June 2007. Directors Eller and Lee chose not to run for reelection to the Board of Directors and their terms expired at the time of the annual shareholders meeting in September 2007.

We also revised our director compensation plan in June 2007. Up until that time, all Directors who were not employees of the Company received $150 per board meeting or committee meeting attended in person, and $50 per telephonic meeting. Reasonable expenses incurred by each Director in connection with his duties as a Director are also reimbursed by Nano-Proprietary. The outside Directors also participated in the 2002 Equity Compensation Plan, under which Nano-Proprietary may grant stock options to any Director. Previously each Director was granted 50,000 options priced at market on the last Monday of July in each year. The level of 50,000 options per year was set by the Board of Directors in April 2001, and ratified each successive year since then by the compensation committee of the Board of Directors.

Under this plan, the compensation that we paid to our outside Directors was heavily weighted toward stock based compensation to minimize the amount of cash that we used, and it was designed to compensate the Directors for the risk that they assume as directors of a public company. One drawback to this plan, given the nominal amounts of cash paid, was that for an outside Director to actually realize any compensation for services performed, they had to exercise the options and sell the underlying shares. Although sales of securities can occur for a variety of reasons, sales by insiders are often perceived as negative by shareholders. In order to avoid that inherent conflict, we revised our compensation plan for outside Directors as described in the following paragraph.

We now pay our outside Directors with a combination of cash and restricted stock. The Directors each receive an annual retainer of $12,000, paid quarterly. Each committee chairman receives an additional annual retainer of $6,000, paid quarterly, and the Board Chairman, if not an employee, receives an additional annual retainer of $8,000. In addition to the cash payments, each outside Director receives a quarterly grant of 2,500 shares of restricted stock on the last day of January, April, July, and October. These grants are prorated if a Director only serves a portion of the quarter, the grants vest quarterly over a one year period starting on the date of the grant.

This plan replaced the option grants that would have been made on the last day of July 2007 and as such the amounts paid in July 2007 were prorated annual amounts. One Director, Brad Lamb received the option grant in July 2007, rather than the new plan. Mr. Lamb first became a Board Member in December 2006 and was made aware of the existing compensation plan at the time. Since Mr. Lamb had received no previous option grants, he requested that he be compensated under the old method for 2007 and this was approved by the Board. Effective with the third quarter 2007 payments, Mr. Lamb’s compensation was switched to the new system to match the other Outside Directors.

All of the Directors have retained the right to pursue additional business activities that are not competitive with the business of Nano-Proprietary, and do not adversely affect their performance as Directors. If, as, and when conflicts of interest arise, the nature of the conflict must be fully disclosed to the Board of Directors, and the person who is subject to the conflict must abstain from participating in any decision that may impact on his conflict of interest. Except for this disclosure and abstention policy, the Directors will not be in breach of any fiduciary duties owed to Nano-Proprietary or the shareholders by virtue of their participation in such additional business activities.

Director Ownership Requirements

At the same time that we adopted the new compensation plan for Outside Directors, we also adopted stock ownership requirements covering all Directors - both outside Directors and employee Directors. All Directors are required to own a minimum of 20,000 shares of Nano-Proprietary common stock. There is no time limit in which a new director must meet those requirements; however, until a Director owns a minimum of 20,000 shares, the Director is not allowed to sell any shares. Furthermore, if a Director owns in excess of 20,000 shares, that Director is not allowed to sell shares, whether owned or received as a result of the exercise of options, if at the completion of the transaction, it will result in an ownership position of less than 20,000 shares. All current Directors currently meet this ownership requirement with the exception of Director Bramlett, who became a Director in September 2007 and owns 13,333 shares as of the date of this filing. He has purchased 10,000 shares since becoming a Director and received an additional 3,333 shares of restricted stock under the Director compensation plan.

ELECTION OF DIRECTORS

(Proposal 1 on Proxy)

The number of Directors authorized by the Company’s Amended and Restated Bylaws, as amended, is currently fixed at no more than nine. Under our current Amended and Restated Articles of Incorporation and Bylaws, our Board of Directors is unclassified. The Directors to be elected at the 2008 Annual Meeting of Shareholders are to be elected to hold office until the 2009 annual meeting or until their successors have been appointed or elected and qualified.

The Company’s nominees for election at the 2008 Annual Meeting are as set forth below. If a nominee declines to serve or becomes unavailable for any reason, the proxies may be voted for such substitute nominee as the Board of Directors may designate.

Vote Required

If a quorum is present and voting at the 2008 Annual Meeting, the nominees for the Board of Directors in each Class receiving a plurality or the highest number of affirmative votes will be elected as members of the Company’s Board of Directors. Votes withheld from any director are counted for purposes of determining the presence of a quorum but have no other legal effect under Texas law.

Board Recommendation

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE ENCLOSED PROXY CARD.

Nominees

The following table sets forth the name and age of each nominee for Director of the Company at the 2008 Annual Meeting, the principal occupation of each during the past five years, and the period during which each has served as Director of the Company. Except as set forth below, each nominee is currently serving as a Director of the Company.

Name	Principal Occupation During Past Five Years	Age	Director Since

Howard Westerman	Mr. Westerman is the Chief Executive Officer of JW Operating Company, a privately held energy development and energy services company headquartered in Dallas, Texas. Mr. Westerman joined JW Operating Company in 1978 and became CEO in 1999. Under his leadership as CEO, the Company’s revenues increased from approximately $70 million to a forecast of almost $1 Billion. Mr. Westerman is also a member of the Board of Directors of Peerless Manufacturing Company, a global provider of environmental and separation filtration products, listed on the NASDAQ Global Market Exchange. Mr. Westerman also serves on numerous charitable and community boards.	55	May 2008

Bradford S. Lamb	Mr. Lamb is currently President of Columbia Power Technologies, a position that he has held since November 2006. Prior to that, from 1993 to 2006, he was President of InteLex Corporation. Prior to InteLex, he spent 10 years with GE Medical systems in various capacities.	47	December 2006

Douglas P. Baker	Douglas P. Baker has been with the Company since June 17, 1996, and has been a Director since May 2006. Mr. Baker is a Certified Public Accountant and has both a Bachelors in Business Administration and a Masters in Business Administration. Immediately prior to joining Nano-Proprietary, Inc., Mr. Baker was a divisional controller for MascoTech, Inc. from 1991 to 1996. Mr. Baker also has prior experience in public accounting and as CFO of a privately held company. Mr. Baker is also Chairman of the Board of Directors of Total Health Care, Inc., a non-profit Health Maintenance Organization and has been a member of the Board of Directors of that organization since 1987.	51	May 2006

Dr. Robert Ronstadt	Dr. Robert Ronstadt has been a Director since January 2003. Dr. Ronstadt was Vice President of Technology Commercialization for Boston University from June 2003 through 2005. At the same time, he became the Director of Boston University’s Technology Commercialization Institute. He was special advisor to the Chancellor of Boston University from January to May 2003. Prior to that, from 1998 to 2002, he was Director of the IC2 Institute at the University of Texas in Austin and the J. Marion West Chair of Constructive Capitalism. Dr. Ronstadt was a professor of entrepreneurship at the Pepperdine University School of Business Management from 1992 to 1998 and Babson College in Wellesley Massachusetts from 1975 to 1985. From 1986 to 1992, he was the CEO of a software enterprise.	66	January 2003

Dr. Zvi Yaniv	Dr. Zvi Yaniv has served as the Company’s President and Chief Operating Officer since July 1996. Dr. Yaniv has degrees in physics, mathematics, and electro-optics as well as a Ph.D. in Physics. Prior to joining the Company, in May 1996, Dr. Yaniv operated a consulting practice and previously was President and CEO of Optical Imaging Systems Inc., a supplier of flat panel color liquid crystal displays to the avionics and defense industries.	61	July 1996

Tracy K. Bramlett	Mr. Bramlett is president of Industrial Hygiene and Safety Technology, Inc. (IHST), a full service industrial hygiene consulting company that he formed in 1987. IHST specializes in Indoor Environmental Quality issues. Prior to forming IHST, Mr. Bramlett was a corporate industrial hygienist for Burlington Northern Railroad.	52	September 2007

Ronald J. Berman	Mr. Berman co-founded BEG Enterprises, Inc. with Marc W. Eller and was its President from 1989 until 1998. Mr. Berman currently is President of R.J. Berman Enterprises, Ltd., a real estate development company, Inergi Fitness, and Walkers Warehouse. Mr. Berman earned a Juris Doctor degree in 1980 from the University of Detroit. Prior to 1989, Mr. Berman was an attorney in private practice.	50	May 1996

Patrick V. Stark	Mr. Stark is an attorney with the firm of Kane Russell Colman and Logan in Dallas. Mr. Stark is a Director at the firm and specializes in corporate finance and securities law, representing clients in a variety of industries.	53	September 2007

Thomas F. Bijou	Mr. Bijou has been Chief Executive since December 1, 2006. From 1997 through the present, Mr. Bijou has been Chief Executive Officer of BHM Associates, a company involved in funding and mentoring technology companies. In connection with these BHM activities, Mr. Bijou also served as Chairman of Knowledge Communications, Inc., an early pioneer in the distance learning marketplace. Mr. Bijou began his career at General Electric Company, but left GE in 1982 with several associates to form Tigon Corporation, a voicemail outsourcing company that was sold to Ameritech in 1988.	56	December 2006

AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION TO CHANGE THE NAME OF

THE COMPANY FROM NANO-PROPRIETARY, INC. TO APPLIED NANOTECH HOLDINGS, INC.

(Proposal 2 on Proxy)

The Board has unanimously adopted and now recommends for your approval a proposal to amend our Amended and Restated Articles of Incorporation to change the name of the Company from Nano-Proprietary, Inc. to Applied Nanotech Holdings, Inc. The text of the proposed amendment to our Amended and Restated Articles of Incorporation is set forth in Appendix A to this proxy statement.

The Company’s focus has been on developing unique applications for nanotechnology. We believe the proposed name more accurately reflects the operations of the Company and capitalizes on the name recognition and outstanding reputation of our main subsidiary, Applied Nanotech, Inc. The name change proposal, if approved by our shareholders, would have the effect of changing the legal name of the Company. If the name change is not approved, the Company’s legal name will continue to be Nano-Proprietary, Inc.

The change in the Company’s name will not affect the status of the Company or the rights of any shareholder in any respect, or the transferability of stock certificates presently outstanding. The currently outstanding share certificates evidencing shares of the Company’s securities bearing the name Nano-Proprietary, Inc. will continue to be valid and represent shares of Applied Nanotech Holdings, Inc. following the name change. In the future, new share certificates will be issued bearing the new name, but this in no way will affect the validity of your current share certificates.

If the proposal is approved by the shareholders, the name change will become effective upon the filing of the amended articles of incorporation with the Secretary of State of the State of Texas. The Company intends to file the amended articles of incorporation promptly after the shareholders approve the name change. The Company would also be required to seek a change in the trading symbol of the Company’s common stock as soon as practicable following shareholder approval of the proposal.

The text of the proposed amendment to the Amended and Restated Articles of Incorporation is attached as Appendix A to this proxy statement.

The affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote on the proposed amendments is required to approve this proposed amendment to the Amended and Restated Articles of Incorporation.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2.

RATIFICATION OF AMENDED AND RESTATED 2002 EQUITY COMPENSATION PLAN

(Proposal 3 on Proxy)

At the 2008 Annual Meeting, the shareholders will be asked to ratify our Amended and Restated 2002 Equity Compensation Plan (the “Plan”) so that it qualifies as a plan approved by shareholders for SEC disclosure purposes. No changes to the Plan are proposed. A copy of the Plan may be viewed on our website at www.nano-proprietary.com.

The affirmative vote of the holders of a majority of the votes present and voting at the 2008 Annual Meeting is required to approve the proposed amendment to our Amended and Restated 2002 Equity Compensation Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 3.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Set forth below is a report submitted by the Company’s Audit Committee describing the Company’s financial and accounting management policies and practices. The Audit Committee is composed of three directors who are independent within the meaning of NASD Rule 4200(a)(14). The Audit Committee operates under a written charter adopted by the Audit Committee on January 16, 2003.The Audit Committee among other things:

recommends to the Board of Directors which firm to engage as the Company’s independent auditors and reviews the independent auditors’ compensation, terms of engagement and independence;

meets with the independent auditors and financial management of the Company to review the scope of the proposed audit for the current year;

reviews the results of each independent audit;

considers, with the independent auditors and the Company’s Chief Financial Officer, its senior internal auditing executive, the adequacy of the Company’s internal financial controls;

considers major changes and other major questions of choice regarding appropriate auditing and accounting principles and practices to be followed when preparing the Company’s financial statements;

reviews the procedures employed by the Company in preparing published financial statements and related management commentaries; and

meets periodically with management to review the Company’s major financial risk exposures.

In this context, the Audit Committee hereby reports as follows:

it has reviewed and discussed the audited financial statements with the Company’s management;

it has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as may be modified or supplemented;

it has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, as may be modified or supplemented; and

it has discussed with the independent auditors their independence.

Based on such review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

THE AUDIT COMMITTEE OF THE

BOARD OF DIRECTORS

Bradford S. Lamb

Patrick V. Stark

Howard Westerman

AUDIT AND RELATED FEES

Audit Fees

No fees were billed to the Company in 2007 or 2006 by, the Company’s current auditor. Our prior auditor, Sprouse & Anderson, L.L.P. merged with Padgett, Stratemann & Co., L.L.P. in 2007 and no longer exists. The aggregate fees billed to the Company by Sprouse & Anderson, L.L.P. for the audit of Nano-Proprietary’s annual financial statements and for the review of the financial statements included in its quarterly reports on Form 10-Q for the Fiscal Years ended December 31, 2007 and 2006 totaled $56,609 and $57,200, respectively.

Audit-Related Fees

Nano-Proprietary did not incur or pay any fees to either Padgett, Stratemann & Co. L.L.P. or Sprouse & Anderson, L.L.P., and neither Padgett, Stratemann & Co. L.L.P. or Sprouse & Anderson; L.L.P. provided any services related to audit-related fees in the last two fiscal years.

Tax Fees

There were no fees billed to Nano-Proprietary by either Padgett, Stratemann & Co. L.L.P. or Sprouse & Anderson, L.L.P. for services rendered to Nano-Proprietary during the last two fiscal years for tax compliance, tax advice, or tax planning.

All Other Fees

It is the audit committee’s policy to pre-approve all services provided by the Company’s auditors. All services provided by Sprouse & Anderson, L.L.P. during the years ended December 31, 2007 and 2006 were pre-approved by the audit committee.

As of the date of this filing, Nano-Proprietary’s current policy is to not engage Padgett, Stratemann & Co., L.L.P. to provide, among other things, bookkeeping services, appraisal or valuation services, or internal audit services. The policy provides that Nano-Proprietary engage Padgett, Stratemann & Co., L.L.P. to provide audit, tax, and other assurance services, such as review of SEC reports or filings.

The Audit Committee considered and determined that the provision of the services other than the services described under “Audit Fees” is compatible with maintaining the independence of the independent auditors.

RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

(Proposal 4 on Proxy)

The Board of Directors has selected Padgett, Stratemann & Co., L.L.P. as the independent public accountants of the Company for the fiscal year ending December 31, 2008. Sprouse & Anderson, L.L.P. served in such capacity for the previous fiscal year. A representative of Padgett, Stratemann & Co., L.L.P. will be present at the 2008 Annual Meeting, will be given the opportunity to make a statement, if he or she so desires, and will be available to respond to appropriate questions.

In the event ratification by the shareholders of the appointment of Padgett, Stratemann & Co., L.L.P. as the Company’s independent public accountants is not obtained, the Board of Directors will reconsider such appointment.

The affirmative vote of a majority of the votes present and voting at the 2008 Annual Meeting is required for approval of this proposal.

Board Recommendation

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PADGETT, STRATEMANN & CO., L.L.P. AS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2008.

DELIVERY OF DOCUMENTS TO SHAREHOLDERS SHARING AN ADDRESS

Certain shareholders who share an address are being delivered only one copy of this proxy statement and the Company’s 2007 Annual Report on Form 10-K unless the Company or one of its mailing agents has received contrary instructions.

Upon the written or oral request of a shareholder at a shared address to which a single copy of the Company’s proxy statement and 2007 Annual Report on Form 10-K was delivered, we will promptly deliver a separate copy of such documents to such shareholder. Written requests should be made to Nano-Proprietary, Inc., Attention: Chief Financial Officer, 3006 Longhorn Boulevard, Suite 107, Austin, Texas 78758 and oral requests may be made by calling Olga Tikhonski at (512) 339-5020, ext. 100. In addition, if such shareholder wishes to receive a separate copy of the Company’s proxy statement and annual report in the future, such shareholder should notify the Company either in writing addressed to the foregoing address or by calling the foregoing telephone number.

Shareholders sharing an address who are receiving multiple copies of the Company’s proxy statements and annual reports may request delivery of a single copy of such proxy statements and annual reports by writing to the address above or calling the telephone number above.

SHAREHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING

Proposals of shareholders that are intended for inclusion in the Company’s proxy statement relating to its 2009 annual meeting of shareholders must be received by the Company at its offices at 3006 Longhorn Boulevard, Suite 107, Austin, Texas 78758, not later than January 20, 2009, and must satisfy the conditions established by the Securities and Exchange Commission for shareholder proposals in order to be included in the Company’s proxy statement for that meeting.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities of Exchange Act of 1934 requires Nano-Proprietary’s officers, Directors, and persons who beneficially own more than 10 % of a registered class of Nano-Proprietary’s common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, Directors, and beneficial owners of more than 10% of Nano-Proprietary’s common stock are required by the Securities and Exchange Commission regulations to furnish Nano-Proprietary with copies of all Section 16(a) forms that they file.

Based solely on review of the copies of such reports furnished to us, or written representations that no reports were required, we believe that for the period from January 1, 2007 through December 31, 2007, all Officers, Directors, and greater than 10% beneficial owners complied with all Section 16(a) filing requirements applicable to them.

TRANSACTION OF OTHER BUSINESS

At the date of this Proxy Statement, the only business that the Board of Directors intends to present or knows that others will present at the meeting is as set forth above. If any other matter or matters are properly brought before the meeting, or any adjournment thereof, it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with the recommendation of the Board of Directors, or, if no recommendation is give, in their own discretion.

FORM 10-K

Upon written request, we will mail, without charge, a copy of our annual report on Form 10-K for the fiscal year ended December 31, 2007, including the financial statements, schedules, and list of exhibits. Requests should be sent to us at 3006 Longhorn Blvd., Suite 107, Austin, TX 78758, Attn: Douglas P. Baker, Chief Financial Officer. The annual report on Form 10-K is also available at www.nano-proprietary.com.

By Order of the Board of Directors,

Thomas F. Bijou

Chief Executive Officer

Austin, Texas

April 7, 2008

APPENDIX A

ARTICLES OF AMENDMENT

NANO-PROPRIETARY, INC.

Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act (the “Act”), Nano-Proprietary, Inc. (the “Corporation”), a corporation organized and existing under the laws of the State of Texas adopts the following Articles of Amendment to its Amended and Restated Articles of Incorporation.

1. The name of the Corporation is Nano-Proprietary, Inc.

2. The Amended and Restated Articles of Incorporation of the Corporation shall be amended by deleting Article I and replacing it in its entirety as follows:

“Article I

The name of the Corporation is Applied Nanotech Holdings, Inc.

3. This amendment was approved by the shareholders of the Corporation at a duly called and convened annual meeting held on May 20, 2008.

4. The number of shares of the Corporation’s common stock outstanding and entitled to vote at the time of the adoption of this amendment was 107,173,549.

5. The number of shares voting to approve this amendment was _________________, which was sufficient under the Act for the approval of such amendment.

6. The said amendment does not involve any exchange, reclassification, or cancellation of issued shares of the Corporation.

7. The said amendment does not involve a change in the amount of stated capital of the Corporation.

IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be executed in its name and on its behalf by its Chief Financial Officer and attested by its Corporate Secretary on this __th day of May, 2008, hereby declaring and certifying that this is the act and deed of the Corporation and that the statements contained herein are affirmed as true under penalties of perjury.

Nano-Proprietary, Inc.

By:_______________________________________

Douglas P. Baker, Chief Financial Officer

A-1

NANO-PROPRIETARY, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS OF NANO-PROPRIETARY, INC.

FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON May 20, 2008

The undersigned shareholder(s) of Nano-Proprietary, Inc., a Texas corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated April 7, 2008. The undersigned hereby appoints THOMAS F. BIJOU and DOUGLAS P. BAKER, or either of them, each with power of substitution and revocation, as the proxy or proxies of the undersigned to represent the undersigned and vote all shares of the common stock that the undersigned would be entitled to vote if personally present at the Annual Meeting of Shareholders of Nano-Proprietary, Inc., to be held at the Renaissance – Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas 78759, on Tuesday, May 20, 2008 at 10:00 a.m., Central Daylight Time, and at any adjournments thereof, upon the matters set forth and more fully described in the Notice and Proxy Statement for said Annual Meeting and upon all other matters that may properly come before said Annual Meeting.

x PLEASE MARK VOTES AS IN THIS EXAMPLE.

THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE CHOICES MADE. WHEN NO CHOICE IS MADE, THIS PROXY WILL BE VOTED “FOR“ PROPOSALS 1, 2, 3, AND 4, AND ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AS RECOMMENDED BY THE BOARD OF DIRECTORS, OR IF NO RECOMMENDATION IS GIVEN, IN THE PROXIES OWN DISCRETION.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, AND 4.


	FOR THE NOMINEES LISTED (EXCEPT AS INDICATED BELOW)	WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED
1. ELECTION OF DIRECTORS: Bradford S. Lamb, Howard Westerman, Douglas P. Baker Dr. Robert Ronstadt, Dr. Zvi Yaniv, Tracy K. Bramlett Ronald J. Berman, Patrick V. Stark, Thomas F. Bijou	¨	¨
Instruction: To withhold authority to vote for any nominee, write that nominee’s name(s) in this space:

CONTINUED ON REVERSE SIDE

	FOR	AGAINST	ABSTAIN
2. TO APPROVE THE AMENDMENT TO AMEND THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY FROM NANO-PROPRIETARY, INC. TO APPLIED NANOTECH HOLDINGS, INC.	¨	¨	¨
3. TO RATIFY THE AMENDED AND RESTATED 2002 EQUITY COMPENSATION PLAN	¨	¨	¨
4. TO APPROVE THE APPOINTMENT OF PADGETT STRATEMANN & CO., L.L.P. AS AUDITOR FOR FISCAL YEAR 2008	¨	¨	¨
MARK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING	¨
MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT	¨

Each shareholder giving a proxy has the power to revoke it at any time before the shares it represents are voted. Revocation of a proxy is effective upon receipt by our Corporate Secretary, at or prior to the Annual Meeting, of either (i) an instrument revoking the proxy or (ii) a duly executed proxy bearing a later date. Additionally, a shareholder may change or revoke a previously executed proxy by attending the Annual Meeting and requesting to vote in person. Attendance at the Annual Meeting will not by itself revoke a previously granted proxy.

PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.

Dated:________________________________________

_____________________________________________

Signature

_____________________________________________

Signature, if held jointly

Important: Please sign exactly as name appears on this proxy.

When signing as Attorney, executor, trustee, guardian, corporate

officer, etc., please indicate full title. Both joint tenants must sign.