FIRST SCIENTIFIC, INC.
1877 West 2800 South, Suite 200
Ogden, Utah 84401
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
First Scientific, Inc., a Delaware corporation (the "Company") for use at
the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Friday, September 24, 1999, beginning at 10:00 a.m., local time (MDT), or at
any adjournment(s) thereof. The purposes of the meeting are set forth
herein and in the accompanying Notice of Annual Meeting of Shareholders.
The Annual Meeting will be held at the Little America Hotel, 500 Main
Street, Salt Lake City, Utah. This Proxy Statement and accompanying
materials are being mailed on or about September 3, 1999. The Company will
bear the cost of this solicitation.
RECORD DATE
Shareholders of record of the Company's Common Stock at the close of
business on August 31, 1999 are entitled to notice of and to vote at the
meeting. At the record date, 20,169,770 shares of the Company's Common
Stock, $.001 par value, were issued and outstanding. Shareholders holding at
least one-third of the outstanding shares of Common Stock represented in
person or by proxy, shall constitute a quorum for the transaction of
business at the Annual Meeting.
REVOCABILITY OF PROXIES
Shareholders may revoke any appointment of proxy given pursuant to this
solicitation by delivering the Company a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and
voting in person. An appointment of proxy is revoked upon the death or
incapacity of the shareholder if the Secretary or other officer of the
Company authorized to tabulate votes receives notice of such death or
incapacity before the proxy exercises its authority under the appointment.
VOTING AND SOLICITATION
Each shareholder will be entitled to one vote for each share of Common
Stock held at the record date. Assuming a quorum is present, a plurality of
votes cast by the shares entitled to vote in the election of directors will
be required to elect each director. The principal executive offices of the
Company are located at 1877 West 2800 South, Suite 200, Ogden, Utah 84401.
In addition to the use of the mails, proxies may be solicited personally, by
telephone, or by facsimile, and the Company may reimburse brokerage firms
and other persons holding shares in the Company in their names or those of
their nominees for their reasonable expenses in forwarding soliciting
materials to the beneficial owners.
ELECTION OF DIRECTORS
PROPOSAL 1
NOMINEES
The Company's Bylaws do not limit the number of persons serving on the
Company's Board of Directors, and it is contemplated that a board of five
(5) directors will be elected at the Annual Meeting. The Board of Directors
recommends that the shareholders vote "FOR" the election of the five (5)
director nominees listed below. Assuming a quorum is present, a plurality
of votes cast by the shares entitled to vote in the election of directors
will be required to elect each director. Unless otherwise instructed, the
proxy holders will vote the proxies received by them for management's five
nominees named below, all of whom are presently directors of the Company.
In the event that any management nominee is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated as
directors, the proxy holders intend to vote all proxies received by them in
such a manner as will ensure the election of as many of the nominees listed
below as possible. It is not expected that any nominee will be unable or
will decline to serve as a director. The term of office of each person
elected as a director will continue until the next annual meeting of
shareholders and until such person's successor has been elected and
qualified. Officers are appointed by the Board of Directors and serve at
the discretion of the board.
The name and certain information regarding each nominee is set forth
below. See also "Certain Relationships and Related Transactions."
Name Age Director Since Position with the Company
---------------- ---- -------------- -------------------------
Douglas R. Warren 66 1998 President, Chief
Executive Officer and
Director
Edward B. Walker 46 1998 Director of Research and
Development and Director
Jerral R. Pulley 64 1998 Director
Peter J. Sundwall Jr., M.D. 34 1998 Director
Darrell J. Saunders, D.D.S. 65 1998 Director
The following biographical information is furnished with respect to each
of the five nominees:
Douglas R. Warren, has been President of the Company since its
acquisition of Linco Industries, Inc., of which he was one of the founders.
As President of Linco, he directed all aspects of operations including
manufacturing, distribution and sales. Prior to the acquisition of Linco by
the Company, Mr. Warren developed several important business relationships
within suppliers and potential customers.
Edward B. Walker, is a native of Ogden, Utah. He graduated from Weber
State University and obtained his PhD in chemistry from Texas Tech
University. After completing a post-doctoral fellowship in the Stanford
University Department of Biochemical Pharmacology, Dr. Walker returned to
Weber State University in 1981, where he is currently a professor of
chemistry and Director of the Utah Center of Excellence for Chemical
Technology. Dr. Walker's basic research interests over the years have
focused on the biochemistry of natural products, and their effects on living
systems. In addition, he spends a significant portion of his time in applied
research, helping Utah inventors and corporations develop new and enhanced
products, refine their quality assurance programs, and improve manufacturing
methods. Dr. Walker has been issued various U.S. and foreign patents for his
inventions, ranging from novel drugs derived from plants to flow cells used
in spectrophotometers. Dr. Walker has received the Utah Governor's Medal for
Science and Technology, Weber State University's Master Teacher Award, and
is a Cortez Professor in the Honors Program at WSU. He has authored many
scientific publications and two university-level chemistry textbooks.
Jerral R. Pulley, is an experienced executive skilled at providing
strategic direction and innovative marketing solutions. Mr. Pulley is a
partner in the consulting firm, The Client Synergy Group, and immediately
prior to that while in Boston, he served as Senior Vice President and
General Manager of S.C. Publishing 1995-1997 and 1990-1994 as CEO of
Polymerics, a leading art/craft company with $90 million in revenue. Mr.
Pulley's background includes serving in senior executive roles at several
prominent corporations including: Binnery & Smith (Crayola), as VP Corporate
Development; Ryder, as Senior VP Strategic Planning/Corporate Development;
Bordon, Group VP (Consumer Products Division); Life Savers, EVP; Pepsico, VP
Marketing Planning. Mr. Pulley also spent twelve years at Procter & Gamble
where his last assignment was starting up a Toilet Goods Division in the
United Kingdom. Mr. Pulley has served on several Boards of Directors and
presently is a Director of The Thorsden Group, Ltd., a software provider in
Salt lake City, and Vice Chairman of the Henry's Fork Foundation, a
non-profit organization concerned with proper watershed stewardship. Mr.
Pulley holds a B.S. from the University of Utah and an MBA from UCLA.
Dr. Peter V. Sundwall Jr., M.D., graduated Cum laude from the University
of Utah with a degree in Psychology. He went on to earn a Masters degree in
Educational Psychology from the University of Utah. Dr. Sundwall received
his Doctor of Medicine degree from the University of Utah Medical School
where he graduated with Honors in Family Medicine and received the Golden
Cane award for excellence in patient care. Dr. Sundwal1 completed his Family
Practice Residency at St. Peters Hospital in O1ympia, Washington. Currently
he is practicing Family Medicine at Intermountain Health Care in Highland,
Utah.
Dr. Darrel J. Saunders, is a native of Ogden, Utah. He graduated from
the University of Nebraska with a D.D.S. degree in 1961. Dr. Saunders has
practiced dentistry in Ogden, Utah since the 1960s. He was a L.C.D.R. in the
Navy Reserve, serving as the Dental Officer for 12 years. Dr. Saunders was a
member of the Ogden City Public Works Advisory Committee and served twice as
a District Chairman for the Boy Scouts. He was a member of the Executive
Committee for the Lake Bonneville Council of the BSA. He served on the Ogden
City Council for 18 years, serving one term as Assistant Mayor and another
as Chairman of the City Council. Dr. Saunders also was on the Board of
Directors for the Utah League of Cities and Towns and was a member and
Chairman of the Board for the Central Weber Sewer District. He was recently
appointed by the mayor of Ogden to serve on the Sesquicentennial Advisory
Committee to help plan the activities for Ogden's sesquicentennial
celebration in 2001.
BOARD MEETINGS AND COMMITTEES BOARD MEETINGS AND COMMITTEES
The Board of Directors held one meeting during the fiscal year ended
December 31, 1998. The Audit Committee of the Board of Directors consists
of director Darrell J. Saunders, Peter Sundwall and Gordon M. Davis, Vice
President Administration/Chief Financial Officer of the Company. The Audit
Committee is primarily responsible for reviewing the services performed by
the Company's independent public accountants and internal audit department
and evaluating the Company's accounting practices and procedures and its
system of internal accounting controls. The Compensation Committee of the
Board of Directors consists of director Sundwall and of Charles L.
Crittenden. The Compensation Committee is primarily responsible for
reviewing compensation of executive officers. The Stock Option Committee
consists of Darrell Saunders and Charles L. Crittenden and is responsible
for overseeing the granting of stock options. No director attended fewer
than 75% of all meetings of the Board of Directors during the 1998 fiscal year.
Pursuant to the Nasdaq corporate governance requirements recently made
applicable to Nasdaq SmallCap Market companies, the Company must have (i) a
minimum of two independent directors; (ii) an audit committee with a
majority of independent directors; and (iii) an annual stockholders meeting.
The Company has and can presently satisfy each of these requirements.
Messrs. Saunders and Sundwall qualify as independent directors.
EXECUTIVE COMPENSATION
The following table sets forth, for each of the last three fiscal years the
compensation received by Douglas R. Warren, the Company's President and
Chief Executive Officer, and all other executive officers and directors
(collectively, the "Named Executive Officers") at December 31, 1998 whose
salary and bonus for all services in all capacities exceed $100,000 for the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION> Long-Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ---------------------- ------------------------
Other Securities Long-
Annual Restricted Underlying Term All Other
Name and Compensation Stock Options/ Incentive Compensation
Principal Position Year Salary($) Bonus ($) ($) Awards($) SARs(#) Payout($) ($)
- ------------------ ---- --------- --------- ------------ ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas R. Warren, 1998 $ 29,298 $ - $ - - 120,000 - -
President and Chief
Executive Officer
Jerral R. Pulley, 1998 - - $50,000 - 1,000,000 - -
Chairman of the Board
</TABLE>
The following table sets forth information concerning the exercise
of options to acquire shares of the Company's Common Stock by the Named
Executive Officers during the fiscal year ended December 31, 1998, as well
as the aggregate number and value of unexercised options held by the Named
Executive Officers on December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securiites Underlying Value of Unexercised
Unexercised Options/SARs In-the-Money Options/SARs at
At December 31, 1998(#) December 31, 1998 ($)
-------------------------------- ------------------------
Shares
Acquired
on Exercise Value
Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------------- ----- ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas R. Warren None N/A 48,000 72,000 - -
Jarral R. Pulley None N/A 100,000 900,000 - -
</TABLE>
DIRECTOR COMPENSATION
The outside directors were each granted stock options to purchase
shares of the Company's Common Stock at an exercise price of $0.75 per share
as follows: Director Pulley 1,000,000 shares and director Sundwall 50,000
shares. The options were valued at their fair value of $174,194 on the
grant date, which amount will be recognized by the Company as the options
vest. Accordingly, $90,138 was charged to operations during the year ended
December 31, 1998. The Company will recognize $61,936 and $22,120 as a
charge to operations during the years ending December 31, 1999 and 2000
respectively. Outside directors are also reimbursed for their expenses in
attending board and committee meetings. Directors are not precluded from
serving the Company in any other capacity and receiving compensation therefor.
1998 STOCK OPTION PLAN
The Company adopted a 1998 Stock Incentive Plan (the "Plan") for
officers, directors, employees, and consultants of the Company on December
28, 1998 The Plan authorized the granting of stock options ("Plan Options")
to purchase an aggregate of not more than 2,500,000 shares of the Company's
Common Stock. On December 31, 1998, options for 265,000 shares were
granted, 120,000 options were granted to the Company's President and
Executive Officer (Douglas R. Warren), 60,000 options were granted to the
Vice President Administration/Chief Financial Officer (Gordon M. Davis) and
the Vice President Operations (Reed J. Tanner) and 25,000 options were
granted to the Accounting Manager (Mark Faerber). During August 1999
250,000 options were granted to the Company's new Vice President of Sales
and Marketing (Randall L. Hales), 100,000 options were granted to the
Company's President and Executive Office (Douglas R. Warren), 50,000 options
were granted to the Vice President Administration/Chief Financial Officer
(Gordon M. Davis), and the Vice President Operations (Reed J. Tanner) and
20,000 options were granted to the Accounting Manager (Mark Faerber) under
the Plan. There are presently options to purchase 735,000 shares of Common
Stock outstanding under the Plan.
The Plan is administered by the Stock Option Committee. In general,
the Stock Option Committee will select the person to whom options will be
granted and will determine, subject to the terms of the Plan, the number,
exercise, and other provisions of such options. Options granted under the
Plan will become exercisable at such times as may be determined by the Stock
Option Committee. Plan Options granted may be either incentive stock
options ("ISOs"), as such term is defined in the Internal Revenue Code, or
non-qualified stock options. ISOs may only be granted to persons who are
employees of the Company. Non-qualified stock options may be granted to any
person, including, but not limited to, employees of the Company, independent
agents, consultants, as the Stock Option Committee believes has contributed,
or will contribute, to the success of the Company. The Stock Option
Committee shall determine the exercise price of options granted under the
Plan, provided that, in the case of ISOs, such price may not be less than
100% (110% in the case of ISOs granted to holders of 10% of voting power of
the Company's stock) of the fair market value (as defined in the Plan) of
the Common Stock on the date of grant. The aggregate fair market value
(determined at the time of option grant) of stock with respect to which ISOs
become exercisable for the first time in any year cannot exceed $100,000.
The term of each Option shall not be more than 10 years (five years in
the case of ISOs granted to holders of 10% of the voting power of the
Company's stock) from the date of grant. The Board of Directors has a right
to amend, suspend or terminate the Plan at any time; provided, however, that
unless ratified by the Company's shareholders, no amendment or change in the
Plan will be effective which would increase the total number of shares which
may be issued under the Plan, materially increase the benefits accruing to
persons granted under the Plan or materially modify the requirements as to
eligibility and participation in the Plan. No amendment, supervision or
termination of the Plan shall, without the consent of an employee to whom an
option shall heretofore have been granted, affect the rights of such
employee under such option.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Randall L. Hales
which commenced on May 1, 1999 and expires on April 30, 2000. The agreement
requires the employee to devote substantially all of his working time to the
Company, provides that he may be terminated for "cause" (as provided in the
agreement) and prohibits him from competing with the Company for two years
following the termination of his employment agreement. The agreement
provides for the payment of an initial base salary of $85,000 to Mr. Hales,
sales commissions and for 250,000 stock options, salary increases and
bonuses as shall be determined at the discretion of the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company was incorporated in Delaware on June 11,1992. The Company's
Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. This provision is intended to
allow the directors the benefit of Delaware General Corporation Law which
provides that directors of Delaware corporations may be relieved of monetary
liabilities for breach of their fiduciary duties as directors, except under
certain circumstances, including breach of their duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, unlawful payments of dividends or unlawful stock
repurchases or redemptions or any transaction from which the director
derived an improper personal benefit. The Company's Bylaws provide that it
shall indemnify its officers and directors to the fullest extent provided by
Delaware law. The Bylaws authorize the use of indemnification agreements
and the Company has entered into such agreements with each of its directors
and executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, one-year renewable agreements were entered into with two
directors of the Company, one for $10,000 per month, effective August 1,
1998 for marketing and sales consulting, and one for $7,000 per month,
effective August 1, 1998, for consulting on product research, development
and testing. These two contracts continue on a month-to-month basis.
A Note payable with a director/shareholder in the amount of $40,173 was
paid, and notes payable together with accrued interest to shareholders in
the amount of $90,000 were converted to equity without additional issuance
of common stock.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Securiites Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than 10% of
any class of the Company's Common Stock to file initial reports of ownership
and reports of changes of ownership of the Company's Common Stock. During
fiscal 1998, Walker, Warren, Saunders and Crittenden, directors of the
Company, through an oversight, each filed one late stock purchase
transaction report covering one transaction each.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 30, 1999 for
(i) each executive officer of the Company, (ii) each director, (iii) each
person known to the Company to be the beneficial owner of more than 5% of
the outstanding shares, and (iv) all directors and officers as a group.
Percent of
Name and Address Number of Shares Ownership
----------------- ---------------- -----------
Edward B. Walker 5,794,782 28.0%
Douglas R. Warren (1) 2,419,450 11.7%
Darrell J. Saunders 2,371,450 11.5%
Charles L. Crittenden 2,371,450 11.5%
Jehu Hand 1,660,330 8.0%
Jerral Pulley (2) 400,000 1.9%
Peter Sundwall (3) 50,000 0.2%
All officers and directors as
a group (7 persons) (4) 11,083,682 53.5%
The percentages set forth above have been computed based on 20,714,770
shares, which is the number of shares of the Common Stock outstanding and
exercisable options held by officers and directors outstanding as of
December 31, 1998.
(1) Includes 48,000 shares issuable upon presently exercisable options.
(2) Includes 400,000 shares issuable upon presently exercisable non-qualified
options and options which become exercisable in the next 60 days.
(3) Includes 50,000 shares issuable upon presently exercisable options and
options which become exercisable in the next 60 days.
(4) Includes 546,000 shares issuable upon presently exercisable options and
options which become exercisable in the next 60 days.
PROPOSED RATIFICATION AND APPROVAL OF THE ADOPTION OF 1998 STOCK INCENTIVE
PLAN AND THE ALLOCATION OF 2,500,000 STOCK OPTIONS FOR OFFICERS, DIRECTORS,
EMPLOYEES AND CONSULTANTS
PROPOSAL 2
The proposal would ratify and approve the adoption by the Company's Board of
Directors of the First Scientific, Inc. 1998 Stock Option Plan, and the
allocation of 2,500,000 stock options to purchase an aggregate of shares of
Common Stock at an initial exercise price of $0.75 per share, or such
greater price as fixed by the Board of Directors from time to time. Said
options may be granted to officers, directors, key employees and
consultants of the Company as provided in said Plan. The options may be
exercised at any time not later than ten years from the date of such grant.
The options contain provisions that protect the holders against dilution by
adjustment of the exercise price per share and the number of shares issuable
upon exercise thereof upon the occurrence of certain events, including stock
dividends, stock splits, mergers and the sale of substantially all of the
Company's assets. The options are to be exercised by delivering to the
Company payment of the purchase price of the shares to be purchased or by
delivering shares of the Company's stock already owned by the holder and
having a fair market value on the date of exercise equal to the exercise
price of the option, or a combination of such shares and cash.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE STOCK OPTION PLAN AND ALLOCATION OF SHARES.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT
PROPOSAL 3
The independent public accounting firm of Hansen, Barnett & Maxwell has been
the Company's independent accountants and auditors since fiscal year 1998.
The Audit Committee has recommended and the Board of Directors has appointed
Hansen, Barnett & Maxwell for purposes of auditing the consolidated
financial statements of the Company for the fiscal year ending December 31,
1999. It is anticipated that representatives of Hansen, Barnett & Maxwell
will be present at the Annual Meeting and will be provided an opportunity to
make a statement if they desire, and to be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF HANSEN, BARNETT & MAXWELL AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL 1999.
ADDITIONAL INFORMATION
The Company will provide without charge to any person from whom a Proxy
is solicited by the Board of Directors, upon the written request of such
person, a copy of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, excluding certain exhibits thereto, as filed
with the Securities and Exchange Commission. Written requests for such
information should be directed to Gordon M. Davis, Vice President
Administration/Chief Financial Officer, First Scientific, Inc., 1877 West
2800 South, Suite 200, Ogden, Utah 84401.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
that will be presented for consideration at the Annual Meeting other than
the items referred to above. However, if any other matters are properly
brought before the meeting, it is the intention of the persons named as
proxies in the accompanying Proxy to vote the shares they represent on such
business in accordance with their best judgment. In order to assure the
presence of the necessary quorum and to vote on the matters to come before
the Annual Meeting, please indicate your choices on the enclosed Proxy and
date, sign and return it promptly in the postage pre-paid envelope provided.
The signing and delivery of a Proxy by no means prevents you from attending
the Annual Meeting.
By order of the Board of Directors,
/s/ Douglas R. Warren
-----------------------------------
Douglas R. Warren
President and Chief Executive Office
September 2, 1999
