SCHEDULE 14A
(RULE 14a-101)
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (a)(A) OF THE
SECURITIES EXCHANGE ACT OF 193 4
1934 Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] ] Preliminary proxy statement
[ ]
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule14a 6(e)(2))
NATIONAL SCIENTIFIC CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Payment of Filing Fee
[X] (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11:
(1) Title of each class of securities to which transaction applies; (2) Aggregate number of securities to which transaction applies; (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the filing fee is calculated and state how it was determined.); (4) Proposed maximum aggregate value of transaction; (5) Total fee paid. [ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number or the Form or Schedule and the date of its filing.
PRELIMINARY COPYFor Information of the Securitiesand Exchange Commission Only
NATIONAL SCIENTIFIC CORPORATION
4455 EAST CAMELBACK ROAD,
14455 N. HAYDEN RD., SUITE E-160
PHOENIX,202
SCOTTSDALE, ARIZONA 85018
85260 NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD MARCH 25, 2003 To the Shareholders of National Scientific Corporation:
Notice is hereby given that the annual meetingAnnual Meeting of shareholdersShareholders of National
Scientific Corporation, a Texas corporation (NSC), will be held on Tuesday,
February 14, 2001March 25, 2003, at the Wells Fargo Conference Center, 100 W. Washington, Phoenix,Chaparral Suites Hotel, 5001 North Scottsdale Rd.,
Scottsdale, Arizona, 8500385250 at 10:8:00 a.m., local time, for the following purposes:
The Board of Directors has fixedto serve for a
one-year term.
2. To ratify the appointment of Hurley & Company to serve as the auditors
for the Company for the fiscal year ending September 30, 2003.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Shareholders of record at the close of business on January 2, 2001 asFebruary 19, 2003 (the
"Record Date"), are entitled to vote at the record date forAnnual Meeting or any adjournment or
postponement thereof. Shares may be voted at the determinationAnnual Meeting only if the
holder is present or represented by proxy. A list of shareholders entitled to
notice of and to vote at the meeting andAnnual Meeting will be available for inspection at the Company's
corporate headquarters for any adjournment thereof.
purpose germane to the Annual Meeting during
ordinary business hours for ten (10) days prior to the Annual Meeting.
A copy of NSC’sNSC's Annual Report to Shareholders, which includes audited financial
statements, is included with this mailing, which is being first mademailed on approximatelyor
about February 24, 2003. Management and the date shown below.
| Board of Directors cordially invite
you to attend the Annual Meeting.
By Order of the Board of Directors
/s/ Graham L. Clark
Graham L. Clark, Secretary
Phoenix, Arizona
January 27, 2002
SHAREHOLDERS ARE ENCOURAGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY. A
PRE-ADDRESSED ENVELOPE IS PROVIDED FOR THEIR CONVENIENCE. SHAREHOLDERS ARE
ENCOURAGED TO VOTE REGARDLESS OF WHETHER OR NOT THEY ATTEND THE ANNUAL MEETING
OF SHAREHOLDERS.
| |||
IF YOU ARE UNABLE TO ATTEND THE MEETING, YOU ARE URGED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE POSTAGE-PAID ENVELOPE ENCLOSED HEREWITH FOR YOUR CONVENIENCE
PROXY STATEMENT
The annual meeting of shareholders of National
Scientific Corporation, (NSC)a Texas corporation (the "Company" or "NSC"), in
connection with the solicitation of proxies to be used for the purposes of
voting at the 2003 Annual Meeting of Shareholders (the "Annual Meeting") of the
Company. The Annual Meeting will be held on Tuesday February 14, 2001March 25, 2003, at 8:00
a.m., local time at the Wells Fargo Conference Center, 100 W. Washington St., Phoenix,Chaparral Suites Hotel, 5001 North Scottsdale Road,
Scottsdale, Arizona, 85003 for the purposes set forth in the Notice of Annual Meeting.85250.
SOLICITATION AND VOTING OF PROXIES
The accompanying form ofenclosed proxy for use at the Meeting and any adjournments thereof is solicited by the Board of Directors of NSC and may be revoked by written noticethe Company.
The proxy materials related to the SecretaryAnnual Meeting are to be mailed on or about
February 24, 2003, to shareholders of NSCrecord at the close of business on
February 19, 2003 (the "Record Date"). Only shareholders of record at the close
of business on the Record Date will be entitled to vote at the Annual Meeting,
or any time prior to its exercise, by votingadjournment or postponement thereof, either in person or by valid proxy.
As of the Record Date, there are approximately 64,076,000 outstanding shares of
Common Stock, $.01 par value per share (the "Common Stock") of the Company.
Shareholders are entitled to one vote for each share of Common Stock held
of record on each matter of business to be considered at the Annual Meeting.
Ballots cast at the Annual Meeting orwill be counted by givingthe Inspector of Elections
and determinations of whether a later dated proxyquorum exists and whether the proposals are
approved will be announced at any timethe Annual Meeting. The three nominees receiving a
plurality of votes by shares represented and entitled to vote at the Annual
Meeting, if a quorum is present, will be elected as a director of the Company.
All valid proxies received before voting. Sharesthe Annual Meeting and not revoked will
be exercised. All shares represented by a proxy will be voted, for the electionand where a
shareholder specifies by means of the nominees for directors named and for the other proposals described in this Proxy Statement. Abstentions and broker non-votes will be counted as presenthis, her or represented at the Meeting for purposes determining whetherits proxy a quorum exists. Abstentions and broker non - -voteschoice with respect to
any matter brought to a vote atbe acted upon, the Meetingshares will be treatedvoted in accordance with the
specifications so made. If no specification is indicated and authority to vote
is not specifically withheld, the shares will be voted (i) "for" the election of
the persons named in the proxy to serve as Directors; and (ii) "for" the
ratification of Hurley & Company as the independent auditors of the Company. The
Inspector of Elections will treat abstentions and broker non-votes received as
shares that are present but not votedand entitled to vote for purposes of determining whether requisitea
quorum, but as unvoted for purposes of determining the approval of any matter.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote has been obtained. This Proxy Statementon a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
The Company will bear the accompanying formcost of proxy are being mailed to shareholders commencing on or about January 2, 2001.
All expenses in connection with the solicitation of this proxy will be paid by NSC,proxies, including
the charges and expenses of brokerage firms and others for forwarding
solicitation materials to the beneficial owners.owners of the outstanding Common Stock.
In addition to solicitationsoliciting proxies by mail, officers, directorsproxies may be solicited by personal
interview or telephone. A person giving the enclosed proxy has the power to
revoke it at any time before it is exercised by: (i) attending the Annual
Meeting and regular employeesvoting in person; (ii) duly executing and delivering a proxy bearing
a later date; or (iii) sending a written notice of NSC who will receive no extra compensation for their services may solicit proxies byrevocation to the Secretary
of the Company at its corporate offices. The corporate offices of the Company
are located at 14455 North Hayden Road, Suite 202, Scottsdale, Arizona 85260 and
its telephone fax, e-mail or personal calls.
number is (480) 948-8324. The information included herein should be reviewed in conjunction with the financial statements, notes to financial statements, independent accountants' report and other information included in the Company's 2002 Annual Report to Shareholders that was mailed with this Proxy Statement to all shareholders of record on the Record Date. The Board of Directors knows of no other matters that may be brought before the Annual Meeting. However, if any other matters are properly brought before the Annual Meeting, persons named in the enclosed proxy or their substitutes will vote in accordance with their best judgment on such matters.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only the holders of NSC Common Shares whose names appear of record on NSC’s books at the close of business on January 2, 2001 (“ Record Date”) will be entitled to vote at the Meeting. At the close of business on the Record Date, NSC had xxxxxxx Common Shares (NSC’s only voting securities) outstanding and entitled to vote. Each Common Share entitles the holder thereof to one vote upon each matter to be voted upon.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of a majority of the Common Shares issued and outstanding and entitled to vote will be necessary and sufficient to constitute a quorum to transact business. Each Common Share represented at the Meeting in person or by proxy will be counted toward a quorum. In deciding all questions and other matters, a holder of Common Share on the Record Date shall be entitled to cast one vote for each Common Share registered in his or her name. Abstentions and broker non-votes will not be counted in the election of directors, the proposal to amend the Articles of Incorporation or the proposal to approve the 2000 Stock Option Plan (the “2000 Plan”).
The following table sets forth, as of the Record Date for the Meeting, certain information with respect to beneficial share ownership by the directors and nominees individually, by all officers and directors as a group and by all persons known to management to own more than five percent (5%) of NSC’s outstanding Common Shares. Except as otherwise indicated, the shareholders listed have sole investment and voting power with respect to their shares.
| Name of Beneficial Owner | Number of Common Shares Beneficially Owned | Percent of Outstanding Shares | |||||
| Lou L. Ross | 3,455,040 | (1) | |||||
| Majid Hashemi, Ph.D. | 1,425,000 | ||||||
| Michael A. Grollman | 600,000 | (2) | |||||
| Sam H. Carr | 600,000 | (3) | |||||
| Richard Kim | 20,000 | ||||||
| All officers and directors as a group (5 persons) | 6,100,040 | ||||||
______________
(1) Includes 1,000,000 shares held by Mr. Ross’ wife
(2) Includes 500,000 shares underlying stock options currently exercisable
(3) Includes 600,000 shares underlying stock options currently exercisable
The Board of Directors of NSC (the “Board”"Board") has recommended the numberelection
of directors to be elected for the coming year be set at five.three directors. The Board recommends that the shareholders elect the
nominees named below as directors of NSC for the ensuing year and until their
successors are elected and have qualified. The persons named in the enclosed form of
proxy intend to vote for the election of the fivethree nominees listed below. Mr.
Ross is currently the Chairman-Emeritus of the Board, Mr. Grollman is Chairman
of the Board, and Dr. Kim, Mr. Grollman, Mr. Martin and Mr. Carr alsoClark is currently serveserving as directors.a director. Each nominee has
indicated a willingness to serve, but in the event any one or more of such
nominees for any reason should not be available as a candidate for director,
votes cast will be cast pursuant to authority granted by the enclosed proxy for
such other candidate or candidates as may be nominateddetermined by management.the holders of such
proxy. The Bo ardBoard knows of no reason to anticipate that any of the nominees will
not be a candidate at the Meeting.
Name Current Position With Nsc Age ---- ------------------------- --- Lou L. Ross
Director and Chairman-Emeritus
of the Board 73
Michael A. Grollman Chief Executive Officer and
Chairman of the Board 41
Graham L. Clark Vice President, Director,
Secretary 48
LOU L. ROSS serves today as a director and as Chairman-Emeritus of the
Company's Board. He has been a director since 1996 and assumed President and CEO
duties in March 1998. Mr. Ross has over 35 yearsresigned as CEO of experienceNSC in the manufactureJanuary of 2002, and
salealso resigned as an employee of electronic componentsNSC in January of 2002, and became a contract
consultant for various Fortune 500 companies including Lockheed Aircraft, Fairchild Camera and Instrument Co. and Intel Corporation. At Fairchild Camera and Instrument Co., he was General ManagerNSC. He resigned as Chairman of the Digital Instrument Division. At Lockheed Aircraft, he was Manager of Electronic Planning. As PresidentBoard in December 2002. From
1970 to 1975, Mr. Ross served as Chairman and CEO of Intel Corporation (Malaysia), heMalaysia, established
that company’s first offshore manufacturing operation in Penang, along with another facility in Manila.Intel's Manila plant and started Intel's military products operation. From 1976
to 1996, Mr. Ross served in a management capacity for various electronics
manufacturing firms, including Labelab and Advanced Semiconductor Engineering
(ASE), where he was a founderFounder, as well as General Manager and Executive Vice
President.
MICHAEL A. GROLLMAN. Michael Grollman first became Chief Operating Officer
in October 2000. Mr. Grollman was appointed President for Advance Semiconductor Engineering in the Far EastApril 2001, Chief
Executive Officer in January of 2002, and established manufacturing facilities for what is considered one of the most advanced semiconductor assembly houses in the world. He has established other major manufacturing facilities, from start up to full production, in such locations as Mal aysia, Singapore and Taiwan. Since December 1998, Mr. Ross has served as the Chairman of the Board of National Scientific Corporation, and devoted significant time toward the coordination of its proprietary technologies and overseeing infrastructure development. For approximately three years priorin December
2002. From 1998 to December 1998,September 2000, Mr. RossGrollman served as Regional Service
Director of MicroAge, Inc., a member of the Board and an independent consultantcompany that provides customer-configured
technology solutions to two high technology companies, Intercell Corporation and Intercell Technologies, Inc.
Richard C. Kim, Ph.D.
Richard Kim, Ph.D. was the founder and has been the President of OHost Corporation since September 1999.businesses. He is also currently a Director and CEO of its parent, KoreaStation Corporation. From 1994 to 1999, he wasserved as General Manager, Executive Vice
President of Engineering (and Interim President) of Technicaland Chief Technology Officer for Advanced Information Systems Integrators, Inc. (“TSI”). As a founder of TSI, he was responsible for all technologies and products developed by TSI including laser marking systems, vision inspection systems and various automated part-handling systems.
From 1991from
1987 to 1994, Dr. Kim was a Director of Research and Development at General Scientific Corp. He was responsible for the research and development of optical, electro-optical and instrumentation technology. Dr. Kim has also held key positions as the applied holography group leader for Physical Optics Corporation, 1990-1991; as a technical staff member for Rockwell International’ s Advanced Optical Systems Department, 1998-1990; as a technical founder of CyberOptics Corporation, 1984-1988. At CyberOptics, Dr. Kim developed laser range sensors and systems for 3-D vision, non-contact metrology and profiling applications for semiconductor and electronics manufacturing. Prior to being a founding principal of CyberOptics, he began his distinguished career with the Ampex Corporation in 1981. Dr. Kim1998. Mr. Grollman received his Bachelor of Science degree in Electrical Engineering and Computer Science from the University of California at Berkley, and his Master of Science Electrical Engineering and Doctorate degrees from the University of Minnesota.
Michael A. Grollman
Mr. Grollman has served as NSC’s Chief Operating Officer since December 1, 2000 and as a Director of NSC since December 1, 2000. Mr. Grollman has over fifteen years of management experience in technology development and sales for firms that range in revenue from $9 million a year to over $6 billion a year. From November 1997 to September 2000, Mr. Grollman worked as a Regional Manager for MicroAge, Inc. in Phoenix, Arizona. From January 1995 until November 1997, he worked as a Regional Director with MTS of Tempe, a Chief Technology Advisor and Executive Vice President with AIS of Scottsdale, and a General Manager and Area Vice President with Margre, Inc. of Portland (Oregon). In each of these positions, Mr. Grollman handled strategy, P&L management, new business development, and oversight of numerous engineering teams across wide geographies, both inside an d outside the continental United States. Mr. Grollman holds a BS degree in Chemistrychemistry
from the State University of New York, and will complete his MBA atfrom Arizona State
University overUniversity.
GRAHAM L. CLARK. Graham Clark joined the next 12 months.
Sam H. Carr
Mr. Carr has servedCompany in December 2000 as
NSC’s Chief Financial Officer and Secretary since December 1, 2000 and as a Directorleader of the Company since December 1, 2000. Mr. Carr most recently served as Chief Financial Officer of e-dentist.com (“EDT”), formerly Pentegra Dental Group, Inc. from September 1997 until August 2000.sales organization. He also served as a member of the Board of Directors of e-dentist.com from April 1998 until August 2000. As a co-founder of EDT, he was an essential part of the difficult but successful Initial Public Offering of EDT in March 1998. From August 1996 until September 1997, Mr. Carr served as the Chief Financial Officer of Ankle and Foot Centers of America, LLC, a podiatry practice management company. Mr. Carr worked with Arthur Andersen for the first 12 years of his professional career in the audit division. In 1990, Mr. Carr became the Chief Financ ial Officer for a large hospital in Santa Fe, New Mexico, then served as the Chief Financial Officer of a Columbia/HCA hospital located in Houston. He then returned to Arthur Andersen in 1994 where he headed the Houston Office Healthcare Consulting practice. Mr. Carr holds an executive MBA from the University of New Mexico and a BBA in Accounting from the University of Texas at Austin. Mr. Carr is a Certified Public Accountant.
Charles E. Martin
Charles E. Martin is a co-founder of Kinetic Thinking and has been President since its inception in November 1999. Mr. Martin specializes in eBusiness strategy development, business process enablement through technology and cross-functional business integration. Prior to founding Kinetic Thinking, Mr. Martin served as Chief Information Officer for MicroAge, Inc. from July 1997 until November 1999. He also held the position of Vice President of Professional ServicesTechnology
Applications & Sales for National Scientific in ECadvantage, MicroAge’s electronic commerce subsidiary. Before MicroAge, Mr. Martin was employed by Solutions Consulting from July 1996 until July 1997, Ernst & Young, LLP from February 1995 until July 1996September 2001, and Digital Equipment Corporation for the two years prior. His experience crosses the breadtha director
and formally an officer of the computing electronics channel from semi-conductorcorporation in August of 2002. He became NSC's
Secretary in January of 2003. Before joining National Scientific, Mr. Clark was
the General Manager of the Billet Precision Engineering Group, a privately held
start-up manufacturing to client systems integration. His focus has been on electronic commerce, order management, materialcompany providing custom engineering and manufacturing
planning, data warehousing & financial planning systems. Mr. Martin earnedsolutions to the semiconductor industry and other related industries. Prior to
his Bachelors degree in Accounting at Arizona State Universitytenure with Billet, he worked as Corporate General Manager for Amtech
Systems, a publicly traded semiconductor equipment manufacturer. Six years
prior, he was a founder and served in the US Navy Submarine Service.
Vote Required
In order to be electedsenior partner of GC Technology, a director, a nominee must receive the affirmative vote of the holders of a majority of the Common Share present in person or by proxy at the Meeting.
private representative organization for semiconductor capital equipment. THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH NOMINEE FOR THE BOARD OF DIRECTORS.
Meetings; Committees of the Board of Directors
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The business of NSC is managed under the direction of the Board. The
Board meets on a regularly scheduled basis to review significant developments
affecting NSC and to act on matters requiring Board approval. It also holds
special meetings when an important matter requires Board action between
scheduled meeting.meetings. The Board met fifteen (15)eight (8) times during fiscal 20002002 and did not
act by unanimous consent in lieu of any meetings.
At September 30, 2000 there were no Each serving director attended in excess
of 75% of the meetings held in 2002 by the Board and the committees of the Board.Board
on which such director served.
2
December 2000, the audit committee (the “Audit Committee”) was appointed, whose membership now consistsMay of Dr. Richard C. Kim,2002, Mr. Charles E. Martin resigned from the Board. He stated
his decision to resign was his concern regarding receiving Board fees. In July
of 2002, Mr. Sam Carr and Mr. Bill Keilen resigned from the Board. Both stated
their reason for resigning from the Board was attributable to NSC's decision to
discontinue its D&O insurance policy, which the Company discontinued as an
expense reduction measure.
As of September 30, 2002, the Company had one committee, the Audit
Committee. This committee met once in fiscal 2002, and consisted at the start of
fiscal 2002 of Charles E. Martin and Michael A. Grollman. NSC believes that Dr. Kim and Mr. Martin are “independent” as that term is used in Sections 303.01(B)(2)(a) and (3) of the New York Stock Exchange Listing Standards, but that Mr. Grollman is not “independent”continues
as that term is used in those standards.
Currently,the sole member of the Audit Committee does not have a charter.and NSC anticipates thatis recruiting additional
independent directors at this time with appropriate financial expertise to serve
on the Board and its Audit Committee will review and discuss with NSC’s management and independent auditors NSC’s audited financial statements at and for the year ended September 30, 2001. However, the Audit Committee was appointed following the completion of the audit of NSC’s financial statements at and for the year ended September 30, 2000 (the “2000 Financial Statements”). Therefore, the Audit Committee has not reviewed and discussed the 2000 Financial Statements with management or NSC’s independent accountants or received the written disclosures and the letter from independent accountants required by Independence Standards Board No. 1 or discussed with NSC’s independent accountants the independent accountants’ independence.
** 1Committee.
Prior to August 2002, Directors of NSC who are not employees of NSC arewere
compensated at a rate of $2,000 cash per month and $100 per Board meeting.meeting, with
the Chairman Mr. Ross receiving an additional $500 per month Chairman's fee. In
addition, Board members are granted 5,000August 2002 and forward, the Company determined it would pay non-Employee
Directors $2000 per month in NSC restricted Common Shares upon their electionStock, and make no cash
payments for any Board members. Mr. Ross's Agreement for $2500 per month in
restricted Company Common Stock, payable quarterly, continues through February
2003.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information, as of the Record Date,
concerning the beneficial ownership by (i) each director and nominee of the
Company, (ii) each of the Company's named executive officers, (iii) each person
known to the Board,Company to be the beneficial owner of more than five percent (5%)
of NSC's outstanding Common Shares, and are(iv) all directors and executive
officers of the Company as a group. To the knowledge of the Company, all persons
listed in the table have sole voting and investment power with respect to receive an additional 5,000 options, which vest in 12 monthstheir
shares, except to the extent that authority is shared by their respective
spouses under applicable law.
Number of
Common Shares
Name and Address of Beneficially Percent of
Beneficial Owner (1) Owned (2) Outstanding Shares
- ------------------------ ----------------- ------------------
Lou L. Ross 3,576,310 (3) 6%
Michael A. Grollman 2,566,000 (4) 4%
Graham L. Clark 1,326,667 (5) 2%
Sam H. Carr 1,400,000 (6) 2%
All executive officers
and directors as a group
(4 persons) 7,489,173 14%
- --------------
(1) The business address for all directors and officers of the Company is c/o
the Company, 14455 North Hayden Road, Suite 202, Scottsdale, Arizona 85260.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of grant,any option, warrant or right. Shares of Common Stock subject to purchase Common Shares atoptions,
warrants or rights that are currently exercisable or exercisable within 60
days are deemed outstanding for computing the current market value in NSC atpercentage of the end of each complete year serving as a Director. Theperson
holding such options, granted under the 2000 Plan to directors whowarrants or rights, but are not employeesdeemed outstanding
for computing the percentage of any other person. The amounts and
percentages are based upon the approximately 64,045,000 shares of Common
Stock outstanding as of January 23, 2003.
(3) Includes 1,000,000 shares held by Mr. Ross' wife, and 750,000 shares
underlying currently exercisable stock options held by Mr. Ross.
(4) Includes 1,050,000 shares underlying currently exercisable stock options
and warrants, and 1,250,000 shares of restricted Common Stock subject to
substantial risk of forfeiture.
(5) Includes 326,667 shares underlying currently exercisable stock options and
warrants and 1,000,000 shares of restricted Common Stock subject to
substantial risk of forfeiture.
(6) Includes 1,150,000 shares underlying currently exercisable stock options
and warrants. Mr. Carr resigned as an officer and director in July 2002.
3
are intended to be “nonqualified options” under the Internal Revenue Code of 1986, as amended (the “Code”).
** 2 These standards of Board compensation were formally establishedand other named executive officers who served NSC in December, 2000. Prior to this formal policy, 20,000 restricted Common Shares were issued by NSC to Dr. Richard Kim in consideration of his services as a Director of NSC. Dr. Kim’s compensation for service as a Director will follow the policy guidelines described above prospectively.
EXECUTIVE COMPENSATION
The following table lists the total compensation for NSC’s Chief Executive Officerfiscal year
2002 and Corporate Secretary, and each other executive officer whose total salary and non-cash compensation exceeded $100,000 for the
applicable fiscal 2000, 1999periods. The below table includes salary earned and 1998.
paid in the fiscal year ending September 30, 2002, and also salary earned in that yet but as yet unpaid as of January 24, 2003. SUMMARY COMPENSATION TABLE
| Name And Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Other Annual Compensation ($) | |||||||||
| Lou L. Ross, CEO, Chairman of the Board | 2000 | 110,591 | 0 | 0 | |||||||||
| 1999 | 14,600 | 0 | 0 | ||||||||||
| 1998 | 2,500 | 0 | 0 | ||||||||||
| Majid Hashemi, President | 2000 | 238,500 | 0 | 4,847,265 | (1) | ||||||||
| Vernon M. Traylor | 2000 | 117,591 | 0 | 36,000 | (1) | ||||||||
| 1999 | 68,700 | 0 | 240,000 | (1) | |||||||||
| 1998 | 22,500 | 0 | 55,000 | (1) | |||||||||
______________
COMPENSATION/but deferred to
a future period, along with $1,500 estimated interest on this unpaid
amount. Subsequent to year of September 2002, Mr. Grollman exchanged
$10,000 of this deferred salary for a B Unit in the Company's November 2002
Private Placement Offering for 125,000 shares of restricted stock and
100,000 Common Stock purchase warrants exercisable at a price of $.50 per
share, thus reducing 2002 unpaid wages for that year to $32,500. Other
Compensation for 2002 also includes $78,750 for restricted Common Stock
grants subject to risk of forfeiture if calendar 2003 sales do not meet or
exceed key targets, and in exchange for salary reduction in calendar year
2003 of $60,000. Also subsequent to fiscal 2002 year end, Mr. Grollman
deferred substantially all his October and November salary of $15,000 each
month and $8,000 of his December 2002 and January 2003 salary to a future
period, and this amount of $46,000 remains unpaid, leaving a total unpaid
wages as of the end of January 2003 of approximately $78,500, plus accrued
interest. Other Compensation for 2001 includes 100,000 shares of restricted
Common Stock granted to Mr. Grollman in connection with his employment
agreement. (See Employment Agreements below).
(5) Salary for 2002 includes $30,173 that was not paid out in cash, but
deferred to a future period, and remains unpaid, including all accrued
vacation through July 2002, plus an estimated $1,500 in interest through
September 30, 2002. Other Compensation for 2002 includes $34,166 of
contractor fees for services rendered in August and September of 2002, of
which $21,337 remains unpaid. Subsequent to year ending September 2002,
$10,000 of other deferred contractor fees was exchanged by Mr. Carr for an
A Unit in the Company's November 2002 Private Placement Offering for
250,000 shares of restricted stock and 100,000 Common Stock purchase
warrants exercisable at a price of $.30 per share. Other Compensation in
2001 for Mr. Carr includes the value of options granted at an exercise
price below the market value of the stock on the date of grant. Mr. Carr
resigned in July 2002 as an employee and a director. (See Employment
Agreements below).
(6) Salary for 2002 includes $10,000 that was not paid in cash, but deferred to
a future period. Subsequent to year end September 2002, Mr. Clark exchanged
$10,000 of deferred salary for a B Unit in the Company's November 2002
Private Placement Offering for 125,000 shares of restricted stock and
100,000 Common Stock purchase warrants exercisable at a price of $.50 per
share. Other Compensation for 2002 also includes $63,000 for Restricted
Common Stock grants subject to risk of forfeiture if 2003 sales do not meet
or exceed key targets. Also subsequent to September 30, 2002 year end, Mr.
Clark deferred substantially all his October and November salary of $10,000
each month and $3,000 of his December and January salary to a future
period, and this amount of $26,000 remains unpaid (See Employment
Agreements below).
EMPLOYMENT AGREEMENTS
Throughout fiscal 2000, Mr. Ross was engaged as an independent contractor.contractor
for the Company. As such, Mr. Ross is party towas paid a contract with NSC that includes compensationmonthly fee of $9,500, per month, subject to
cash availability. Effective December 1, 2001, Mr. Ross became an employee of
the Company. Throughout fiscal 2001 and continuing into the current fiscal year,
Mr. Ross served without a written contract and was paid $9,500 monthly. In
addition, in connection with an equity transaction involving Mr. Ross and his
spouse in September 1999, the Board provided forgranted Mr. Ross the right to receive 4%
of
the gross revenues of NSC. Effective December 1, 2000,In partial consideration for the forgiveness of this
right to 4% of NSC's future revenues, the Company agreed to issue 500,000
restricted shares of Common Stock in NSC to Mr. Ross became an employee of NSC. NSC is in the process of negotiatingRoss. The 500,000 shares are
subject to the terms of a Restricted Stock Award Agreement, which requires that
the shares issued will be released only when the market price of the stock
exceeds $2.50 per share.
Subsequent to fiscal year end 2001, the Company granted Mr. Ross options
to purchase an employment agreement with Mr. Ross.
Dr. Hashemi was appointed Presidentaggregate of NSC on September 1, 2000. Effective that date, Dr. Hashemi was contracted as an independent contractor to receive annual base compensation of $240,000, plus $12,000 annually to assist in the purchase of health insurance and other benefits. On September 1, 2000, he was paid $100,000 as an initial payment for contracting with NSC. In addition, he received 1.0 million restricted Common Shares on September 1, 2000. His contract also calls for three additional grants750,000 shares of Common SharesStock. These options
consist of 250,000ten separate tranches of 75,000 shares each, on December 1, 2000,whose exercise prices
range from $1 to $10 per share, which vest when the previous five day average
market price exceeds even dollar levels beginning with $1 per share through $10
per share.
In February 1, 2001 and April 1, 2001. The contract is a one year contract with automatic renewals for one year unless either party chooses to terminate the contract. The stock issued and to be issued to Dr. Hashemi is to be returned to NSC should his contract be terminated by either party for a ny reason other than death on or before January 1, 2003. Effective December 1, 2000, Dr. Hashemi becameof 2002 Mr. Ross resigned as an employee of NSC, underand became a
one year, self-renewing employment agreement. His employment agreement containspart-time contractor for the same terms as the previous contractor agreement, includingCompany, paid at a base annual salaryrate of $252,000, the continuation$10,000 per month, of
which 20% would be deferred until a future date. The term of the stock awards,agreement was
two years and it required that Mr. Ross provide management consulting services
to the provision requiring returnCompany of approximately 80 hours per month, and to serve as a director.
In July 2002 NSC and Mr. Ross amended the shares should his employment be terminated by either partycontract to eliminate mandatory
monthly minimum cash payments and minimum hours per month for any reason other than death prior to January 1, 2003. In the event that NSC terminates Dr. Hashemi’s employment following a change in control or a sale of substantially all the assets of NSC, Dr. Hashemi is to receive one hundred fifty percent (150%) of the then current year’s annual salary.
Mr. Traylor served as an independent contractor for NSC until August 1, 2000. The termson-going
consulting duties outside of his agreement includedrole as a base compensationdirector. Mr. Ross's contract
currently provides for a director's fee of $8,500$2,500 per month. Mr. Traylormonth payable in NSC
restricted Common Stock, which the Company has issued through January 2003. This
Director's Fee Agreement is no longer affiliated with NSC.
scheduled to be reviewed after February 2003.
5
servedwas engaged by NSC as an independent contractor from October
7, 2000 until November 30, 2000. He was paid $15,000 monthly for his services.services as
an independent contractor. Effective December 1, 2000, Mr. Grollman was employedbecame an
employee of NSC under a one year contract to serve as NSC’sNSC's Chief Operating
Officer. Mr. Grollman was promoted to President in April 2001. The contract
automatically renews for additional one yearone-year terms unless either party chooses
to terminate. Mr. Grollman’sGrollman's contract callscalled for an annual gross salary of
One Hundred Eighty Thousand Dollars ($180,000.00),$180,000, payable semi-monthly. Also in accordance with the contract, on
December 1, 2000, NSC granted Mr. Grollman 100,000 shares of restricted Common
Shares.Stock. Also on December 1, 2000, NSC granted Mr. Grollman 500,000 fully vested options
to purchase Common SharesStock at the closing sales price of the sharesCommon Stock on
December 1, 2000. On December 1, 2001,Additional option grants are included in Mr. Grollman's
employment contract for each whole dollar amount increase in the contract calls formarket value of
NSC's Common Stock. The whole dollar amount increase is measured over a moving
two-week average. For each whole dollar amount attained between $1 and $15
inclusive, Mr. Grollman to be granted an additional 500,000 fully vestedwill receive 75,000 options at the closing sales pricewhole dollar amount
option price. Mr. Grollman is also entitled to additional options at various but
declining levels for theincreases in stock value up to $50 per Common Shares on December 1, 2001, provided that during the preceding twelve months, cash generated from financing activities is equal or greater than $10 million.Share. In the
event that NSC terminates Mr. Grollman’s employment followingof a change in control or sale of substantially all the assets of NSC, the
employment agreement between Mr. Grollman and NSC automatically terminates, and
Mr. Grollman is to receive one hundred fifty percent (150%) of the then current
year’syear's annual salary.
In January of 2002 Mr. Grollman agreed to defer 20% of his salary until
such a time as cash was more available, reducing his immediately payable cash
salary to $12,000 per month. For September, October, and November of 2002, Mr.
Grollman deferred 100% of his payable salary, reducing his immediately payable
cash salary to $0 per month. For December of 2002 and January of 2003, Mr.
Grollman deferred $8,000 per month of salary, and was paid $7,000 in cash.
In September 2002, the Company's Board initiated a restricted stock
retainage program ("Stock Retainage Program") to retain key staff during a
period of financial difficulty in calendar year 2002. The Company allocated
approximately $150,000 in restricted Common Stock from this Stock Retainage
Program pool of shares, to be granted to key employees during the year, subject
to the Company exceeding sales growth objectives and expense reduction
objectives in 2003. Failure to meet these objectives under the plan would result
in the forfeiture by staff of this entire stock grant by all participants.
Mr. Grollman was granted 750,000 shares of stock from this Stock
Retainage Program pool of shares, subject to the Company achieving in excess of
$200,000 in sales in calendar year 2003, and subject to him accepting a $60,000
per year pay reduction for the calendar year 2003, reducing his annual payable
salary to $120,000 per year for 2003. Mr. Grollman was granted an additional
500,000 shares of stock under this program, subject to sales exceeding
$1,000,000 for calendar year 2003. In addition to reducing his on-going salary
by 30%, Mr. Grollman has agreed to temporarily defer an additional 30% of his
remaining salary, subject to cash availability, reducing his monthly cash salary
payment in January of 2003 to $7,000 per month. This deferral is subject to
change on a month-by-month basis, at Mr. Grollman's election and subject to the
availability of cash.
Mr. Carr served NSC as an independent contractor from October 15, 2000
until November 30, 2000. He was paid $13,750 monthly for his services. Effective
December 1, 2000, Mr. Carr wasbecame employed under a one year contract to serve as
NSC’sNSC's Chief Financial Officer. The contract automatically renewsrenewed for additional
one yearone-year terms unless either party chooseschose to terminate. Mr. Carr’sCarr's contract
callsprovided for an annual gross salary of one hundred sixty five thousand dollars ($165,000.00),$180,000, payable semi-monthly. Also in
accordance with the contract, on December 1, 2000, NSC granted Mr. Carr 100,000
vested options to purchase Common SharesStock at a price equal to twenty five percent (25%)25% of the closing
price per share on December 1, 2000. Also on December 1, 2000, NSC granted Mr.
Carr 500,000 fully vested options to purchase Common SharesStock at the closing sales pric eprice
of the shares on December 1, 2000. On December 1, 2001,Additional option grants were included in Mr.
Carr's employment contract for each whole dollar amount increase in the market
value of NSC's Common Shares. The whole dollar amount increase is measured over
a moving two-week average. For each whole dollar amount attained between $1 and
$15 inclusive, Mr. Carr will receive 75,000 options at the whole dollar amount
option price. Mr. Carr is also entitled to additional options at various but
declining levels for increases in stock value up to $50 per Common Share.
From January of 2002 through July of 2002, Mr. Carr deferred 20% of his
salary, subject to future cash availability, reducing his monthly salary cash
payments to $12,000 per month.
In July of 2002, Mr. Carr resigned as CFO and also as an employee and a
director of NSC, and became a full-time non-employee contractor for the Company.
He signed a one year contract, the terms of which were similar to his previous
6
grantedpaid at a rate
of approximately $97 per hour for services rendered to the Company on an
additional 500,000 fully vested options atas-needed basis, although this rate may be subject to increase if the closing sales pricetotal
hours required by the Company is significantly less than full time. Mr. Carr was
retained on December 1, 2001, provided thatthis basis during the preceding twelve months, cash generated from financing activitiesmonth of December 2002 to assist with
preparation of the Company's annual 10-KSB report and other matters, for which
he was paid approximately $12,000 in cash. In January 2003 Mr. Carr and the
Company agreed to secure his services as a financial consultant for a minimum
retainer of ten hours per month at a rate of $120 per hour. This retainer
agreement is equal or greater than $10 million.scheduled to be reviewed April 1, 2003.
Mr. Clark was hired in December 2000 as manager of the sales
organization. He was hired as an at-will employee at a rate of $120,000 per year
base salary, plus commission on sales. He became Vice President of Technology
Applications & Sales for National Scientific in September 2001, and a director
and formally an officer of the corporation in August of 2002. In January of
2003, Mr. Clark entered into a one-year employment contract with the Company to
serve as Vice President of Technology Applications & Sales. The contract
automatically renews for additional one-year terms unless either party chooses
to terminate. Mr. Clark's contract provides for an annual gross salary of
$120,000, payable monthly. In the event that NSC terminates Mr. Carr’s employment followingof a change in control or sale of
substantially all the assets of NSC, the employment agreement between Mr. CarrClark
and NSC automatically terminates, and Mr. Clark is to receive one hundred fifty percent
(150%(50%) of the then current year’syear's annual salary.
PROPOSAL 2 — APPROVAL
For September, October, and November of 2002, Mr. Clark deferred 100% of
his payable salary, reducing his immediately payable cash salary to $0 per
month. For December of 2002 and January of 2003, Mr. Clark deferred $3,000 per
month of salary, and was paid $7,000 in cash each month.
Mr. Clark was granted 500,000 shares of stock from the Company's Stock
Retainage Program pool of shares discussed above, subject to the Company
achieving in excess of $200,000 in sales in calendar year 2003. Mr. Clark was
granted an additional 500,000 shares of stock under this program, subject to
sales exceeding $1,000,000 for calendar year 2003. In addition, Mr. Clark has
also agreed to temporarily defer an additional 30% of his remaining salary
subject to cash availability, reducing his monthly cash salary payment in
January of 2003 to $7,000 per month. This deferral is subject to change on a
month-by-month basis, at Mr. Clark's election.
REPORT OF AUDIT COMMITTEE OF THE NATIONAL SCIENTIFIC CORPORATIONBOARD OF DIRECTORS
The Audit Committee of the Board of Directors (the "Audit Committee") is
responsible for, among other things, reviewing and discussing the audited
financial statements with management, discussing with the Company's auditors
information relating to the auditors' judgments about the quality of the
Company's accounting principles, recommending to the Board of Directors that the
Company include the audited financials in its Annual Report on Form 10-KSB and
overseeing compliance with the Securities and Exchange Commission requirements
for disclosure of auditors' services and activities.
REVIEW OF AUDITED FINANCIAL STATEMENTS
The Audit Committee, which was established in December 2000, STOCK OPTION PLAN
does not yet
have a charter. The Audit Committee met once during fiscal 2002 (see "Committees
and Meetings of the Board of Directors" above). The Company is actively seeking
independent directors to fully reconstitute its Audit Committee. The duties of
the Audit Committee are currently being performed by the entire Board of
Directors, headed by Mr. Grollman. The Board proposeshas reviewed the Company's
financial statements for the fiscal year ended September 30, 2002, as audited by
Hurley & Company, the Company's independent auditors, and has discussed these
financial statements with management. In addition, the Board has discussed the
audit process and results with Hurley & Company.
AUDIT FEES
Hurley & Company billed the Company and its subsidiaries approximately
$16,000 for the following professional services: audit of the annual financial
7
NSC approvesuch appointment. Shareholder
ratification of the 2000 Plan. The 2000 Plan was adoptedselection of Hurley as the Company's independent auditors is
not required by the Board on December 1, 2000. The 2000 Plan terminates on December 1, 2010 unless previously terminated byCompany's Bylaws or otherwise. However, the Board. The 2000 Plan is being implemented to encourage ownership of Common Shares by certain officers, directors, employees and advisors of NSC or its subsidiaries. The 2000 Plan also provides additional incentive for eligible persons to promote the success of the business of NSC or its subsidiaries, and to encourage them to remain
in the employ of NSC or its subsidiaries by providing such persons an opportunity to benefit from any appreciation of the Common Shares through the issuance of stock options in accordance with the terms of the 2000 Plan.
Eligible participants in the 2000 Plan include full time employees, of NSC and its subsidiaries, as well as directors and advisors of NSC and its subsidiaries. Options granted under the 2000 Plan are intended to qualify as “incentive stock options” pursuant to the provisions of Section 422 of the Code or options which do not constitute incentive stock options (“nonqualified options”) as determined by NSC’s Compensation Committee (the “Committee”) or the Board.
The Board is
submitting the selection of Hurley for shareholder ratification as a matter of
good corporate practice. Hurley has audited the opinionCompany's financial statements
since fiscal 1998. Notwithstanding the selection, the Board, in its discretion,
may direct the appointment of a new independent accounting firm at any time
during the year if the Board feels that itsuch a change would be in the best
interest of NSC to reserve for issuance under the 2000 Plan not less than 7,000,000 Common Shares to provide adequate Common Shares for issuance to qualified individuals under the 2000 Plan, and to encourage such individuals to remain in the service of NSC in order to promote its business and growth strategy. NSC may also utilize the granting of options under the 2000 Plan to attract qualified individuals to become employees and non-employee directors of NSC, as well as to ensure the retention of management of any acquired business operations. The maximum aggregate number of Common Shares which may be issued under the 2000 Plan shall initially be 7,000,000 shares, which amount may, at the discretioninterests of the Board, be increased from time to time to a number not to exceed 15% of the number of shares of Common Stock outstanding from time to time .
Summary of 2000 Plan
The following is a summary of certain of the provisions of the 2000 Plan. The full text of the 2000 Plan is set forth as ExhibitCompany and its shareholders. A to this Proxy Statement.
Administration
The 2000 Plan will be administered, in the discretion of the Board, by the Committee or the entire Board. Under the terms of the 2000 Plan, the Committee shall consist of not less than two members of the Board who are appointed by the Board, and are nonemployee directors. The Board has the power from time to time to add or substitute members of the Committee and to fill vacancies, however caused.
The Committee or the Board, as applicable, has the authority to interpret the 2000 Plan, to determine the persons to whom, and the basis upon which, options will be granted, the exercise price, duration, and other terms of the options to be granted, subject to the authority of the entire Board and specific provisions contained in the 2000 Plan.
Eligibility
Nonqualified Options. Nonqualified options may be granted only to officers, directors (including non-employee directors of NSC or a subsidiary), employees and advisors of NSC or a subsidiary who, in the judgment of the Committee, are responsible for the management or success of NSC or a subsidiary and who, at the time of the granting of the nonqualified options, are either officers, directors, employees or advisors of NSC or a subsidiary.
Incentive Options. Incentive stock options may be granted only to employees of NSC or a subsidiary who, in the judgment of the Committee or the Board, are responsible for the management or success of NSC or a subsidiary and who, at the time of the granting of the incentive stock option, are either an employee of NSC or a subsidiary. No incentive stock option may be granted under the 2000 Plan to any individual who would, immediately before the grant of such incentive stock option, directly or indirectly, own more than ten percent (10%) of the total combined voting power of all classes of stock of NSC unless (i) such incentive stock option is granted at an option price not less than one hundred ten percent (110%) of the fair market value of the shares on the date the incentive stock option is granted and (ii) such incentive stock option expires on a date not later than five years from the date the i ncentive stock option is granted.
Option Price
The purchase price as represented by Common Shares offered under the 2000 Plan must be one hundred percent (100%) of the fair market value of the Common Shares (in the case of incentive stock options), twenty five percent (25%) of the fair market value of the Common Shares at the time the option is granted (in the case of
nonqualified options), or such higher purchase price as may be determined by the Committee or the Board at the time of grant; provided, however, if an incentive stock option is granted to an individual who would, immediately before the grant, directly or indirectly own more than ten percent (10%) of the total combined voting power of all classes of stock of NSC, the purchase price of the shares of the Common Shares covered by such incentive stock option may not be less than one hundred ten percent (110%) of the fair market value of such shares on the day the incentive stock option is granted. As the price of the Common Shares is currently quoted on the NASD Electronic Bulletin Board, the fair market value of the Common Shares underlying options granted under the 2000 Plan shall be the last closing sales price of the Common Shares on the day the options are granted. If there is no market price for the Common Shares, then the Board and the Committee may, after taking all relevant fac ts into consideration, determine the fair market value of the Common Shares.
Exercise of Options
Options are exercisable in whole or in part as provided under the terms of the grant, but in no event shall an option be exercisable after the expiration of ten years from the date of grant. Except in case of disability or death, no option shall be exercisable after an optionee ceases to be an employee of NSC, provided that the Committee shall have the right to extend the right to exercise for a specified period, generally three months, following the date of termination of an optionee’s employment. If an optionee’s employment is terminated by reason of disability, the Committee or the Board may extend the exercise period for a specified period, generally one year, following the date of termination of the optionee’s employment. If an optionee dies while in the employ of NSC and the optionee has not fully exercised his options, the options may be exercised in whole or in part at any time with in one year after the optionee’s death by the executors or administrators of the optionee’s estate or by any person or persons who acquired the option directly from the optionee by bequest or inheritance.
In the event of the death of an employee or consultant while in the employ of NSC, the Committee or the Board is authorized to accelerate the exercisability of all outstanding options under the 2000 Plan.
Under the 2000 Plan, an individual may be granted one or more options, provided that the aggregate fair market value (determined at the time the option is granted) of the shares covered by incentive options which may be exercisable for the first time during any calendar year shall not exceed $100,000.
Acceleration and Exercise upon Change of Control
Any option granted under the 2000 Plan which provides for either (a) an incremental vesting period whereby such option may only be exercised in installments as each such incremental vesting period is satisfied or (b) a delayed vesting period whereby such option may only be exercised after the lapse of a specified period of time, such vesting period shall be accelerated upon the occurrence of a “Change in Control” of NSC (as that term is defined in the 2000 Plan) so that such option shall become exercisable immediately in part or in its entirety by the optionee, as such optionee shall elect subject to the condition that no option shall be exercisable after the expiration of ten years from the date it is granted.
Payment for Option Shares
Options may be exercised by the delivery of written notice to NSC at its principal office setting forth the number of shares with respect to which the option is to be exercised, together with cash or certified check payable to the order of NSC for an amount equal to the option price of such shares. No Common Shares subject to options granted under the 2000 Plan may be issued upon exercise of such options until full payment has been made of any amount due. A certificate or certificates representing the number of shares purchased will be delivered by NSC as soon as practicable after payment is received. The Board or Committee may, in its discretion, permit the holder of an option to pay all or a portion of the exercise price by a simultaneous sale of the Common Shares to be issued pursuant to such exercise pursuant to a brokerage or similar arrangement.
Termination of the 2000 Plan
The 2000 Plan will terminate on December 1, 2010, unless sooner terminated by the Board. Any option outstanding under the 2000 Plan at the time of termination shall remain in effect until the option shall have been exercised or shall have expired.
Amendment of the 2000 Plan
The Board may at any time modify or amend the 2000 Plan without obtaining the approval of the shareholders of NSC in such respects as it shall deem advisable to comply with Section 422 of the Code or Securities Exchange Act Rule 16b-3 or in any other respect.
Transferability of Options
Except as may be agreed upon by the Board or Committee, options granted under the 2000 Plan shall be exercisable only by the optionee during his lifetime and shall not be assignable or transferable other than and by will or the laws of descent and distribution.
Vote Required
The affirmative vote of the holders of a majority of the Common Shares present in person or by proxy at the Meeting is necessary to approve the 2000 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR NSC’S PROPOSAL TO APPROVE THE NATIONAL SCIENTIFIC CORPORATION 2000 STOCK COMPENSATION PLAN
The members of the Board are interested in the approval of the 2000 Plan because members of the Board are eligible to receive options under the 2000 Plan. Additionally, NSC notes that Mr. Grollman and Mr. Carr have received grants of options under the 2000 Plan. See “Management.”
PROPOSAL 3 — AMENDMENTS TO ARTICLES OF INCORPORATION
Description of the Proposal
On December 1, 2000, the Board approved, subject to the consideration and approval of the shareholders of NSC, a proposed amendment to NSC’s Articles of Incorporation to increase the authorized capital stock of NSC by increasing the number of Common Shares available for issuance from 80,000,000 to 120,000,000. The number of shares of Preferred Stock available for issuance shall remain at 4,000,000 shares.
On December 14, 2000, the Board approved, subject to the consideration and approval of the shareholders of NSC, a proposed amendment to NSC’s Articles of Incorporation to provide that any action required under the provisions of the Texas Business Corporation Act to be authorized by the affirmative vote of the holders of any specified portion of the shares of NSC will require the approval of a majority of the shares of NSC entitled to vote on that matter.
Rationale for the Proposal
The proposal to increase NSC’s authorized Common Shares is intended to ensure that NSC has sufficient Common Shares that could be used in connection with mergers and acquisitions and to raise additional capital, which could include public offerings or private placements of Common Shares or securities convertible into Common Shares and to ensure that NSC has sufficient Common Shares to provide additional authorized shares that could be issued in connection with the exercise of stock options or possible future stock splits or stock dividends.
While the Board believes it to be important that NSC have the flexibility that would be provided by having available additional authorized Common Shares, NSC does not now have any commitments, arrangements or understandings which would require the issuance of such additional Common Shares other than the shares reserved for issuance pursuant to outstanding options and warrants. The availability of additional authorized Common Shares would simply permit the Board to respond in a timely manner to future opportunities and business needs of NSC as they may arise and would avoid the possible necessity and expense of a special meeting of shareholders to increase the authorized Common Shares.
If the authorized Common Shares are increased as proposed, the authorized Common Shares would be available for issuance from time to time upon such terms and for such purposes as the Board may deem advisable without further action by the shareholders of NSC except as may be required by law or the rules of any stock
exchange on which the Common Shares may be listed. Such an issuance may decrease or increase the book value per Common Share presently issued and outstanding, depending upon whether the consideration paid for such newly issued shares is less or more than the book value per Common Share prior to such issuance. The issuance of additional Common Shares could dilute the voting power and equity of the holders of outstanding Common Shares and may have the effect of discouraging attempts by a person or group to take control of NSC.
In addition to increasing the number of authorized Common Shares, the approval of the proposed amendments to NSC’s Articles of Incorporation would have the affect of reducing the number of Common Shares required to approve (i) any amendment to or restatement of NSC’s Articles of Incorporation; (ii) any merger, consolidation, share exchange or plan therefor; (iii) any sale, lease, exchange or other disposition of all, or substantially all, of the property or assets of NSC; or (iv) the dissolution of NSC, from two-thirds (2/3) of the outstanding Common Shares to a majority of the outstanding Common Shares. The members of the Board believe that this change is desirable and in the interest of NSC because it will facilitate NSC’s ability to obtain shareholder approval of the foregoing types of transactions. The members of the Board note, however, that proposed changes may also have the effect of reducing the influence of minority shareholders in approving the foregoing types of transactions. This amendment will be affected by the addition of a new Article 9 to NSC’s Articles of Incorporation, the complete text of which can be found in the proposed Articles of Amendment to Articles of Incorporation in the form of Exhibit B attached hereto.
Vote Required
Adoption of the proposal to amend NSC’s Articles of Incorporation as described in this proxy statement requires the affirmative vote of the holders of two-thirds (2/3) of the Common Shares outstanding on the Record Date. If approved by the shareholders, such amendment will become effective on the filing with the Secretary of State of Texas of the Articles of Amendment of Articles of Incorporation in the form of Exhibit B attached hereto.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR NSC’S PROPOSAL TO AMEND NSC’S ARTICLES OF INCORPORATION TO (i) INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES FROM 80,000,000 TO 120,000,000 AND (ii) PROVIDE THAT ANY ACTION REQUIRED UNDER THE TEXAS BUSINESS CORPORATION ACT TO BE AUTHORIZED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF ANY SPECIFIED PORTION OF THE SHARES OF NSC WILL REQUIRE THE APPROVAL OF A MAJORITY OF THE SHARES OF NSC ENTITLED TO VOTE ON THAT MATTER.
CERTAIN TRANSACTIONS
During fiscal 2000, NSC loaned Lou L. Ross, Chairman, $200,000, for which he signed a ten percent (10%) note payable to NSC, with a due date of December 1, 2000. As of September 30, 2000, NSC had recorded interest income and accrued interest receivable of $9,275. NSC has extended the term of the note with Mr. Ross to December 1, 2001.
In September 1999, Mr. Ross purchased from NSC 1,580,040 shares of restricted Common Stock in exchange for 840,000 free trading shares of Common Stock. In connection with this transaction, NSC agreed to pay to Mr. Ross 4% of NSC’s gross revenues.
INDEPENDENT PUBLIC ACCOUNTANTS
NSC has not yet selected independent public accountants for the ensuing year because it has determined to wait until later in the fiscal year to do so. Hurley & Company served as NSC’s independent public accountants for fiscal 2000. Representativesrepresentative of Hurley & Company areis
expected to be present at the Annual Meeting will havevia teleconference with the
opportunity to make a statement if they desire to dohe so desires and are expected to be available to respond
to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL.
8
Any shareholder who wishes to present any proposal by afor shareholder to be presentedaction
at the next annual meetingAnnual Meeting of Shareholders to be held in 2004, must send the
proposal in time for it to be received by the Company's Secretary, at NSC’s principalthe
Company's offices, 4455 East Camelback Road, E-160, Phoenix, Arizona 85018 not later than October 31, 2001.
Friday, September 26, 2003, in order to be included in the Company's proxy statement and form of proxy for that meeting. Such proposals should be addressed to the Corporate Secretary, 14455 North Hayden Road, Suite 202, Scottsdale, Arizona 85260. If a shareholder proposal is introduced at the 2003 Annual Meeting of Shareholders without any discussion of the proposal in the Company's proxy statement, and the shareholder does not notify the Company on or before Thursday, November 20, 2003, as required by SEC Rule 14(a)-4(c)(1), of the intent to raise such proposal at the Annual Meeting of Shareholders, then proxies received by the Company for the 2003 Annual Meeting will be voted by the persons named as such proxies in their discretion with respect to such proposals. Notice of such proposal is to be sent to the above address. By Order of the Board of Directors /s/ Graham L. Clark, Secretary Graham L. Clark, Secretary Dated January 27, 2003 REQUESTS FOR FORM 10-KSB
UPON WRITTEN REQUEST, NATIONAL SCIENTIFIC CORPORATION WILL FURNISH, WITHOUT
CHARGE TO PERSONS SOLICITED BY THIS PROXY STATEMENT, A COPY OF OUR REPORT ON
FORM 10-KSB FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 2000.2002. REQUESTS SHOULD BE ADDRESSED TO: NATIONAL
SCIENTIFIC CORPORATION, 4455 EAST CAMELBACK14455 NORTH HAYDEN ROAD, E-160, PHOENIX,SUITE 202, SCOTTSDALE, ARIZONA
85018,85260, ATTENTION: SAM H. CARR.
PRELIMINARY COPYFor Information of the Securitiesand Exchange Commission Only
NATIONAL SCIENTIFIC CORPORATIONANNUAL MEETING OF STOCKHOLDERSFEBRUARY 14, 2001
The undersigned hereby appoints Lou L. Ross and Sam H. Carr, or either of them, with power of substitution, as proxies to vote all stock of National Scientific Corporation (the “Company”) owned by the undersigned at the Annual Meeting of Stockholders to be held at 4455 E. Camelback Rd., Suite E-160, Phoenix, AZ 85018 at 10:00 a.m. on February 14, 2001, and any adjournment thereof, on the following matters as indicated below and such other business as may properly come before the meeting.
| 1. | [ ] | FOR the election as director of all nominees listed below (except as marked to the contrary below). | 2. | Proposal to approve an amendment to the Articles of Incorporation to (i) increase the number of authorized shares of common stock and (ii) provide that any action required under the provisions of the Texas Business Corporation Act to be authorized by the affirmative vote of the holders of any specified portion of the shares of NSC will require the approval of a majority of the shares of NSC entitled to vote on that matter. [ ] FOR [ ] AGAINST [ ] ABSTAIN | |||
| [ ] | WITHHOLD AUTHORITY to vote for all nominees listed below. Lou L. Ross, Richard C. Kim, Michael A. Grollman, Sam H. Carr, and Charles E. Martin. | ||||||
| INSTRUCTION: To withhold authority to vote for individual nominees, write their names in the space provided below. | 3. | Proposal to approve the National Scientific 2000 Stock Option Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN | |||||
| 4. | To transact such other business as may properly come before the meeting or any adjournments thereof. |
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
PRELIMINARY COPYFor Information of the Securitiesand Exchange Commission Only
This Proxy is solicited on behalf of the Company’s Board of Directors.
This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will be voted FOR all nominees as directors, FOR the proposal to approve an amendment to the Articles of Incorporation to (i) increase the number of authorized shares of common stock and (ii) provide that any action required under the provisions of the Texas Business Corporation Act to be authorized by the affirmative vote of the holders of any specified portion of the shares of NSC will require the approval of a majority of the shares of NSC entitled to vote on that matter, and FOR the proposal to approve the National Scientific 2000 Stock Option Plan.
Please sign exactly as your name appears on this Proxy Card. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
PLEASE mark, sign, date and return the Proxy Card promptly using the enclosed envelope.