Texas
|
3674
|
86-0837077
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(Primary Standard Industrial
Classification Code Number)
|
(I.R.S. Employer Identification No.)
|
|
|
|
Proposed
|
|
|
|
|
|
Proposed
|
|
|
|
|
|
|
|
Number of
|
|
|
Maximum
|
|
|
Maximum
|
|
|
|
|
|
|
|
Shares
|
|
|
Offering
|
|
|
Aggregate
|
|
|
Amount of
|
|
|
|
|
to be
|
|
|
Price Per
|
|
|
Offering
|
|
|
Registration
|
|
Title of Each Class of Securities Being Registered
|
|
|
Registered
|
|
|
Share
|
|
|
Price
|
|
|
Fee
|
|
|
|
|
|
|
|||||||||
Common Stock $0.01 par value
|
10,334,266
|
(1)
|
$
|
0.14
|
(2)
|
$
|
1,446,797
|
(1)
|
$
|
183
|
|||
Common Stock issuable upon exercise of warrants
$0.01 par value
(3)
|
10,669,197
|
$
|
0.11
|
$
|
1,173,612
|
$
|
149
|
||||||
Total
|
21,003,463
|
|
$
|
2,723,752
|
$
|
332
|
(1)
|
There is also registered hereunder an indeterminate number of shares of common stock as shall be issuable as a result of a stock split, stock dividend, combination or other change in the outstanding shares of common stock.
|
(2)
|
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 of the Securities Act based upon a $0.14 per share average of high and low prices of the Registrants common stock on the OTC Bulletin Board on June 18, 2004.
|
(3)
|
The price per share is based upon the exercise price of the warrants pursuant to which such shares of common stock are issuable, in accordance with Rule 457(g).
|
|
Page
|
5
|
|
8
|
|
13
|
|
13
|
|
14
|
|
14
|
|
14
|
|
15
|
|
17
|
|
21
|
|
25
|
|
43
|
|
44
|
|
48
|
|
49
|
|
52
|
|
52
|
|
53
|
|
54
|
|
F-1
|
|
|
|
II-1
|
|
II-1
|
|
II-2
|
|
II-3
|
|
II-4
|
|
II-4
|
|
II-6
|
|
II-7
|
·
|
10,334,266 shares of our common stock issued in connection with our March 15, 2004 private placement;
|
·
|
7,750,700 shares of our common stock issuable at a price of $0.11 per share upon the exercise of warrants issued to the Selling Securityholders in our March 15, 2004 private placement;
|
·
|
500,000 shares of our common stock issuable at a price of $0.10 per share upon the exercise of warrants issued to the placement agents as initiation warrants in connection with our March 15, 2004 private placement;
|
·
|
1,808,497 shares of our common stock issuable at a price of $0.10 per share upon the exercise of warrants issued to the placement agents as placement agent warrants in connection with our March 15, 2004 private placement;
|
·
|
640,000 shares of our common stock issuable at a price ranging from $0.13 to $0.15 per share upon the exercise of warrants issued to Strategic Working Capital Fund L.P. in connection with our January 6, 2004 financing.
|
Common Stock Offered by Selling Securityholders (includes 10,699,197 shares of common stock underlying warrants held by the Selling Securityholders)
|
|
21,033,463
|
Common Stock Outstanding before this Offering (includes 10,334,266 shares of the issued and outstanding common stock being offered by the Selling Securityholders)
(1)
|
|
84,335,669
|
Common Stock Outstanding after this Offering (assumes all warrants of the Selling Securityholders to purchase 10,699,197 shares of common stock are exercised)
|
|
95,034,866
|
Common Stock to be Outstanding after this Offering (assumes all
other
currently issued and outstanding warrants and options which total 10,912,257, are exercised)
|
|
105,947,123
|
Use of Proceeds from Sale of Common Stock
|
|
We will not receive any proceeds from the sale of the shares of our Common Stock by the Selling Securityholders.
|
Use of Proceeds from Exercise of Warrants
|
|
We will receive the exercise price of any warrants that are exercised by the Selling Securityholders. We intend to use any proceeds from exercise of warrants for research and development, product marketing, working capital and other general corporate purposes.
|
NASD OTC Bulletin Board Symbol
|
|
NSCT
|
National Scientific Corporation
|
|||||||||||||
Selected Summary Financial Information
|
|||||||||||||
|
|
|
|
Six Months Ended
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2004
|
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
(Unaudited)
|
|
|
|
|
|
||||||||||
Statement of Operations Data:
|
|
|
|
|
|||||||||
Net Revenues |
$ | 882,715 | $ | 2,914 | $ | 63,579 | $ | 74,538 | |||||
Direct cost of revenues
|
869,750
|
1,889
|
25,848
|
55,998
|
|||||||||
Gross profit
|
12,965
|
1,025
|
37,731
|
18,540
|
|||||||||
|
|
|
|
|
|||||||||
Salaries and benefits
|
1,040,777
|
624,069
|
438,244
|
257,395
|
|||||||||
Research and development
|
1,589,005
|
154,548
|
84,301
|
9,398
|
|||||||||
Stock compensation
|
2,173,592
|
460,168
|
291,658
|
28,293
|
|||||||||
Consulting fees, related party
|
422,008
|
--
|
17,650
|
--
|
|||||||||
Other operating expenses
|
1,121,011
|
667,250
|
149,245
|
131,170
|
|||||||||
Total costs and expenses
|
6,346,393
|
1,906,035
|
981,098
|
426,256
|
|||||||||
Income (loss) from operations
|
(6,333,428
|
)
|
(1,905,010
|
)
|
(943,367
|
)
|
(407,716
|
)
|
|||||
Other income (expense) net
|
98,560
|
21,521
|
(9,197
|
)
|
(10,474
|
)
|
|||||||
Net loss
|
$
|
(6,234,868
|
)
|
$
|
(1,883,489
|
)
|
$
|
(952,564
|
)
|
$
|
(418,190
|
)
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|||||||||
Net loss per common share basic and diluted
|
$
|
(0.13
|
)
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|||||||||
|
As of September 30, |
|
|
||||||||||
|
As of
|
||||||||||||
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
March 31, 2004
|
|
|
|
|
|
||||||||||
Balance Sheet Data: | |||||||||||||
Cash and cash equivalents
|
$
|
604,761
|
$
|
1,405
|
$
|
17,903
|
$
|
549,439
|
|||||
Total current assets
|
746,119
|
18,752
|
72,729
|
677,238
|
|||||||||
Total current liabilities
|
756,367
|
840,536
|
673,420
|
801,117
|
|||||||||
Long-term debt, net of current portion
|
--
|
--
|
43,250
|
43,250
|
|||||||||
Total stockholders' (deficit) equity
|
$
|
318,603
|
$
|
(771,746
|
)
|
$
|
(606,829
|
)
|
$
|
(136,480
|
)
|
·
|
Third-party manufacturers might be unable to manufacture our products in the volume and of the quality required to meet customers needs;
|
·
|
Our existing and future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our customers;
|
·
|
If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.
|
·
|
announcements of technological innovations or new commercial products by our competitors or us;
|
|
|
·
|
developments concerning proprietary rights, including patents;
|
|
|
·
|
regulatory developments in the United States and foreign countries;
|
|
|
·
|
economic or other crises and other external factors;
|
|
|
·
|
period-to-period fluctuations in our revenues and other results of operations;
|
|
|
·
|
changes in financial estimates by securities analysts; and
|
|
|
·
|
sales of our common stock.
|
Market for Common Equity
|
High
|
Low
|
|||||
|
|
|
|||||
Fiscal 2004 (Year to Date)
|
|
|
|||||
Two Months (through May 31, 2004)
|
$
|
0.190
|
$
|
0.120
|
|||
Second Quarter (through March 31, 2004)
|
$
|
0.200
|
$
|
0.135
|
|||
First Quarter (through December 31, 2003)
|
$
|
0.205
|
$
|
0.130
|
|||
|
|
|
|||||
Fiscal 2003
|
|
|
|||||
Fourth Quarter (through September 30, 2003)
|
$
|
0.210
|
$
|
0.145
|
|||
Third Quarter (through June 30, 2003)
|
$
|
0.225
|
$
|
0.095
|
|||
Second Quarter (through March 31, 2003)
|
$
|
0.170
|
$
|
0.085
|
|||
First Quarter (through December 31, 2002)
|
$
|
0.220
|
$
|
0.065
|
|||
|
|
|
|||||
Fiscal 2002
|
|
|
|||||
Fourth Quarter (through September 30, 2002)
|
$
|
0.160
|
$
|
0.078
|
|||
Third Quarter (through June 30, 2002)
|
$
|
0.205
|
$
|
0.140
|
|||
Second Quarter (through March 31, 2002)
|
$
|
0.265
|
$
|
0.135
|
|||
First Quarter (through December 31, 2001)
|
$
|
0.390
|
$
|
0.220
|
·
|
on the OTC Bulletin Board or on such other market on which the common stock may from time to time be trading;
|
·
|
in privately-negotiated transactions;
|
·
|
short sales; or
|
·
|
any combination of the above.
|
·
|
to assist or cooperate with the Selling Securityholders in the offering or disposition of such shares;
|
·
|
to indemnify or hold harmless the holders of any such shares, other than the Selling Securityholders, or any underwriter designated by such holders;
|
·
|
to obtain a commitment from an underwriter relative to the sale of any such shares;
|
·
|
We assume no obligation or responsibility whatsoever to determine a method of disposition for such shares.
|
·
|
the name of any broker-dealers;
|
|
|
·
|
the number of common shares involved;
|
|
|
·
|
the price at which the common shares are to be sold;
|
|
|
·
|
the commissions paid or discounts or concessions allowed to broker-dealers, where applicable;
|
|
|
·
|
that broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and
|
|
|
·
|
any other facts material to the transaction.
|
|
|
Number of Shares Offered Under This Offeri
ng
|
|
|
|
||||||||
|
|
|
|
|
|
||||||||
Number of |
|||||||||||||
|
|
|
|
|
|
|
|
|
Shares
Offered By
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Number Of Shares
|
|
|
SellingSecurityholder
|
|
|
|
|
|
|
|
Beneficially Owned
|
|
|
Offered By Selling
|
|
|
Upon Exercise
|
|
|
Percent of
|
|
Selling Securityholders
|
|
|
Before Offering
(1)
|
|
|
Securityholder
|
|
|
of Warrants
(2)
|
|
|
Class
(3)
|
|
|
|
|
|
|
|||||||||
Source One
|
300,000
|
300,000
|
225,000
|
*
|
|||||||||
Stephen M. Abbott & Patricia N. Abbott
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
Rocco J. Brescia Jr.
|
220,000
|
220,000
|
165,000
|
*
|
|||||||||
George R. Martin
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Donald L. Massey
|
300,000
|
300,000
|
225,000
|
*
|
|||||||||
Garry Higdem
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
Steven A. Heggelke
|
125,000
|
125,000
|
93,750
|
*
|
|||||||||
Keith D. Camp
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
Paul Coplan
|
45,455
|
45,455
|
34,091
|
*
|
|||||||||
Greg John Dawe
|
700,000
|
700,000
|
525,000
|
1.29
|
%
|
||||||||
Daniel E. Larson
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Murray W. Grigg
|
500,000
|
500,000
|
375,000
|
*
|
|||||||||
Joseph B. Ryan Jr.
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
John Igoe
|
150,000
|
150,000
|
112,500
|
*
|
|||||||||
Joseph Kump & Joan Kump
|
46,000
|
46,000
|
34,500
|
*
|
|||||||||
William M. & Deborah Haskell
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Richard A. Jacoby
|
250,000
|
250,000
|
187,500
|
*
|
|||||||||
James W. Robertson
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Michael Grabert
|
60,000
|
60,000
|
45,000
|
*
|
|||||||||
Andrew Denka
|
800,000
|
800,000
|
600,000
|
1.47
|
%
|
||||||||
Ronald Danielak
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Larry D. Hunter
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
David R. Beck
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
John Younts
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Marc C. McGeever
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Christopher J. Whyman
|
68,182
|
68,182
|
51,136
|
*
|
|||||||||
Denno Family Limited Partnership
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
Joseph P. Kalinoski
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Thomas G. Howard
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Gregg Brune
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Gregory W. Nelson & Judy C. Nelson
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Michael Lusk
|
100,000
|
100,000
|
75,000
|
*
|
|
|
Number of Shares Offered Under This Offeri
ng
|
|
|
|
||||||||
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Offered By
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Number of Shares
|
|
|
Selling Securityholder
|
|
|
|
|
|
|
|
Beneficially Owned
|
|
|
Offered By Selling
|
|
|
Upon Exercise
|
|
|
Percent of
|
|
Selling Securityholders
|
|
|
Before Offering
(1)
|
|
|
Securityholder
|
|
|
of Warrants
(2)
|
|
|
Class
(3)
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dorothy Cox Paris Q-Tip Trust
|
30,000
|
30,000
|
22,500
|
*
|
|||||||||
David E. Hallberg
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Philip W. Madow & Amber D. Madow
|
65,000
|
65,000
|
48,750
|
*
|
|||||||||
Graham Richards & Mireya Richards
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Kim D. Biggs & Kimberly S. Biggs
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Govin T. Rajan
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Gary Meteer
|
45,455
|
45,455
|
34,091
|
*
|
|||||||||
Rock II, LLC
|
500,000
|
500,000
|
375,000
|
*
|
|||||||||
Hargopal Singh
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Patrick R. Discepola
|
12,000
|
12,000
|
9,000
|
*
|
|||||||||
Mark L. Merhar
|
10,000
|
10,000
|
7,500
|
*
|
|||||||||
Thomas Webber
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Michael J. Maloney
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
SRG Capital, LLC
|
300,000
|
300,000
|
225,000
|
*
|
|||||||||
Gerard Caviston
|
250,000
|
250,000
|
187,500
|
*
|
|||||||||
Gordon Gregoretti
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
Hugh W. Richardson
|
90,909
|
90,909
|
68,182
|
*
|
|||||||||
Gregory C. Herr & Carol Herr
|
30,000
|
30,000
|
22,500
|
*
|
|||||||||
Thomas J. Banholzer
|
90,909
|
90,909
|
68,182
|
*
|
|||||||||
Gerald H. Negley
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
John R. Lower
|
90,909
|
90,909
|
68,182
|
*
|
|||||||||
Gerald L. Meyr
|
140,000
|
140,000
|
105,000
|
*
|
|||||||||
Gary L. Willoughby & Sarah Willoughby
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
Kevin T. Crofton
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Manish Gupta & Charu Gupta
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Herman David Overbeeke
|
250,000
|
250,000
|
187,500
|
*
|
|||||||||
Paul Mikkola & Pamela Mikkola
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Raymond A. Fox
|
37,000
|
37,000
|
27,750
|
*
|
|||||||||
William A. Weeks
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
John Pirillo
|
200,000
|
200,000
|
150,000
|
*
|
|||||||||
M.O. Hess & Martha S. Hess
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Jeffrey R. Freeman
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Daniel Bettencourt
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Matthew J. Rund
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Hartley D. Blaha
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Michael Lauria
|
181,818
|
181,818
|
136,364
|
*
|
|||||||||
Stuart Bunting
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
David D. Le Norman
|
95,000
|
95,000
|
71,250
|
*
|
|||||||||
William R. Seybold
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Suman T. Patel & Shobhana Patel
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Ron Lucas
|
91,000
|
91,000
|
68,250
|
*
|
|||||||||
Richard Sahagian
|
20,000
|
20,000
|
15,000
|
*
|
|||||||||
Nancy Elaine Mc Govern
|
136,400
|
136,400
|
102,300
|
*
|
|||||||||
Iqbal Dar
|
45,500
|
45,500
|
34,125
|
*
|
-18- | ||
|
||
|
Number of Shares Offered Under This Offeri
ng
|
|
|||||||||||
|
|||||||||||||
|
|
|
Number of
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
Shares Offered By |
|
|
|
|
|
|
|
Number of Shares
|
|
|
Number Of Shares
|
|
|
Selling Securityholder
|
|
|
|
|
|
|
|
Beneficially Owned
|
|
|
Offered By Selling
|
|
|
Upon Exercise
|
|
|
Percent of
|
|
Selling Securityholders
|
|
|
Before Offering
(1)
|
|
|
Securityholder
|
|
|
of Warrants
(2)
|
|
|
Class
(3)
|
|
|
|
|
|
|
|||||||||
James C. Collings
|
27,275
|
27,275
|
20,456
|
*
|
|||||||||
Michael Bray & Mary A. Bray
|
55,000
|
55,000
|
41,250
|
*
|
|||||||||
Michael A. Mohr & Denise A. Mohr
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Paul E. Meyr Revocable Living Trust
|
140,000
|
140,000
|
105,000
|
*
|
|||||||||
Robert Marino
|
50,000
|
50,000
|
37,500
|
*
|
|||||||||
Douglas Spangler
|
45,454
|
45,454
|
34,091
|
*
|
|||||||||
Gerrard A. Rutter & Gillian T. Rutter
|
100,000
|
100,000
|
75,000
|
*
|
|||||||||
Strategic Working Capital Fund
(4)
|
|
|
640,000
|
*
|
|||||||||
Richard F. Sands
|
|
|
950,000
|
*
|
|||||||||
Wayde Walker
|
|
|
303,069
|
*
|
|||||||||
Kevin Wilson
|
|
|
30,000
|
*
|
|||||||||
Richard Brewster
|
|
|
30,000
|
*
|
|||||||||
Rafael Vasquez
|
|
|
30,000
|
*
|
|||||||||
Matthew Eitner
|
|
|
30,000
|
*
|
|||||||||
Matthew Richard McGovern Living Trust Dated 7/28/2000, c/o Matthew R. McGovern - Trustee
|
|
|
377,250
|
*
|
|||||||||
Nathaniel Clay
|
|
|
20,000
|
*
|
|||||||||
William Poon
|
|
|
20,000
|
*
|
|||||||||
Shraga Faskowitz
|
|
|
20,000
|
*
|
|||||||||
Richard Michalski
|
|
|
10,000
|
*
|
|||||||||
Brian Smith
|
|
|
10,000
|
*
|
|||||||||
James Ahern
|
|
|
10,000
|
*
|
|||||||||
Scott Kenneth Steele
|
|
|
10,000
|
*
|
|||||||||
Anthony Miller
|
|
|
10,000
|
*
|
|||||||||
Alan Feldman
|
|
|
40,000
|
*
|
|||||||||
Charles Savage
|
|
|
151,226
|
*
|
|||||||||
David Bloom
|
|
|
10,000
|
*
|
|||||||||
Matthew E. Donohue
|
|
|
10,000
|
*
|
|||||||||
David Roth
|
|
|
10,500
|
*
|
|||||||||
Thomas Gaito
|
|
|
3,804
|
*
|
|||||||||
Kent Mitchell
|
|
|
10,000
|
*
|
|||||||||
Ian OBrien Rupert
|
|
|
10,000
|
*
|
|||||||||
Jonathan Gutman
|
|
|
15,000
|
*
|
|||||||||
Michael R. Hamblett
|
|
|
93,823
|
*
|
|||||||||
Anthony J. Spatacco Jr.
|
|
|
46,912
|
*
|
|||||||||
Starboard Capital Markets, LLC
|
|
|
46,913
|
*
|
|||||||||
|
|
|
|
||||||||||
Subtotal by Share and Warrant Category
|
10,334,266
|
10,334,266
|
10,699,197
|
|
|||||||||
Grand Total (All Shares & Shares Underlying Warrants
)
|
|
21,033,463 |
22.13
|
%
|
*
|
Less than 1%.
|
(1)
|
Includes 10,334,266 shares of our outstanding common stock issued in connection with our March 15, 2004 private placement of units.
|
-19- | ||
|
||
(2)
|
Includes the following: (i) 7,750,700 Investor warrants to purchase our common stock, dated April 8, 2004, to various purchasers in our March 15, 2004 private placement of units; (ii) 500,000 Initiation warrants, dated February 9, 2004, issued in conjunction with National Scientific's March 15, 2004 private placement, to Richard F. Sands and Wayde Walker, employees of Casimir Capital L.P., and the Matthew Richard McGovern Living Trust Dated 7/28/2000, c/o Matthew R. McGovern Trustee (Matthew R. McGovern is an employee of Casimir Capital); (iii) 1,808,497 Placement Agent warrants to purchase our common stock, dated April 8, 2004, to employees of our employees of our Placement Agent, Casimir Capital L.P. or employees of their associated firm Starboard Capital LLC , in conjunction with our March 15, 2004 private placement of units; and (iv) 640,000 warrants to purchase common stock, dated January 6, 2004, to Strategic Working Capital Fund L.P., in conjunction with National Scientifics financing January 2004.
|
(3)
|
Based on 95,034,866 shares outstanding, which assumes that all warrants of the Selling Securityholders to purchase 10,699,197 shares of common stock are exercised.
|
(4)
|
All securities held by persons listed in this table from this row and below are beneficially held by employees of our Placement Agent, Casimir Capital L.P., other than Michael R. Hamblett and Anthony J. Spatacco Jr., who are employees of Starboard Capital LLC., and Starboard Capital LLC, which is a limited liability company, and Strategic Working Capital Fund L.P., which is a limited partnership.
|
|
||
-21- | ||
|
||
·
|
improved accuracy of GPS will lead to an increase in the functions of devices using GPS;
|
|
|
·
|
additional functions capable of being installed in devices addressing GPS applications;
|
|
|
·
|
increased efficiencies in being able to track valuable assets;
|
|
|
·
|
the ability to provide relevant information (e.g. traffic reports, weather reports, location of stores and restaurants relative to the location of the vehicle) to occupants of passenger vehicles;
|
|
|
·
|
the ongoing miniaturization of technology products; and
|
|
|
·
|
the trend toward combining navigation, communications and information technologies in a single device for use in vehicles.
|
·
|
Product Name refers to the device we described in the section just above;
|
|
|
·
|
Proof on Concept Prototype Built means that we produced early samples in a laboratory or test facility to demonstrate the concept of the products viability in a limited fashion. These early prototypes are not useful for commercial sale without additional research and development, and will likely not be available for testing by third parties;
|
|
|
·
|
Pre-Production Prototype Tested and Available means a form of the product was created and tested that would be directly useful for commercial sale, should we decide to manufacture it on a large enough scale, and that interested third parties may receive samples from us that they can fully test in their own environment, should they so desire;
|
|
|
·
|
Design Available for Licensing from Us means that we either hold patent rights or other trade secret rights to create this product, and that we are able and willing to enter into agreements with other parties for them to license from us these rights for their use;
|
|
|
·
|
Production Device Available for Sale means that either we or another third party under license to use is manufacturing this product currently, and is offering it for general sale in the marketplace today.
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
Proof of
|
|
|
Pre-Production
|
|
|
Design Available
|
|
|
Device
|
|
|
|
|
Concept
|
|
|
Prototype Tested
|
|
|
for
|
|
|
Available
|
|
Product Name
|
|
|
Prototype Built
|
|
|
& Available
|
|
|
Licensing From Us
|
|
|
For Sale
|
|
|
|
|
|
|
|||||||||
Gotcha!®
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
Yes
|
|
||
WiFi Tracker
|
|
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
Yes
|
|
Followit
|
|
|
Complete
|
|
|
Complete
|
|
|
No
(1)
|
|
|
Yes
|
|
IBUS
|
|
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
Yes
|
|
Lobo Tracking Software
|
|
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
No
(2)
|
|
Shuttlefinder
|
|
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
No
|
|
StationMaster
|
|
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
No
|
|
Tracker III
(4)
|
|
|
Complete
|
|
|
No
(3)
|
|
|
Yes
|
|
|
No
|
|
StarPilot
|
|
|
Complete
|
|
|
Complete
|
|
|
Yes
|
|
|
No
|
|
StarPilot Sentinel
|
|
|
Complete
|
|
|
No
|
|
|
No
|
|
|
No
|
|
UrbanTracker IIK
|
|
|
Complete
|
|
|
No
|
|
|
Yes
|
|
|
No
|
(1)
|
Followit is sold by us under a non-exclusive sales and license agreement from Followit AB. of Sweden. See Strategic Relationships Including Marketing Firms, Material Suppliers, and Distributors.
|
(2)
|
Lobo software is part of an overall tracking solution, and we do not offer it for sale as a standalone product, only as a licensed product or as part of our tracking service solution combined with other products, such as Followit or Tracker III.
|
(3)
|
We are in the final stages of integrating a GSM cellular telephone module to transmit data to a remote location into our pre-production prototype. We estimate that this integration will be completed June or July 2004.
|
(4)
|
Tracker III is used as the platform for the design of the TrakJack product for Positus Corporation. TrackJack is a Minnesota trademark of Positus Corporation.
|
Product Name
|
Use and Function of Product
|
|
|
|
|
Heterojunction Bipolar Transistor
|
Used in the manufacture of digital circuits found in devices such as cellular phones, personal computers and automotive circuitry. Transistors provide electronic control over current flow, and are a part of many electronic circuits. Heterojunction bipolar transistors are used most frequently in power amplifiers, radio frequency integrated circuits and other circuits.
|
|
Monolithic Inductor
|
Used in a wide range of electronic circuits for telecommunications applications. The inductors most common application is as a component of a radio frequency circuit used to manipulate radio waves into certain other electrical signals. The inductor does this, usually in conjunction with a capacitor, by producing an amplified current when stimulated by a specific frequency of radio signal.
|
|
Distributed Amplifier
|
Used in all electronic products that require some level of power increase such as telecommunications, microwave, internet communications, automotive and bio-medical products as well as automated manufacturing products.
|
|
TMOS® Memory
|
Used in digital computing devices such as microcomputers and workstations and battery powered devices such as personal data appliances and cellular phones that require a memory function.
|
|
Mode Dielectric Resonator
|
Used in many applications including microwave oscillators, narrowband microwave filters, radar detectors, speed guns, automatic door openers, cellular portable phones and global positioning satellites. The resonators most common application is as a component of a radio frequency circuit used to manipulate radio waves into certain other electrical signals. The resonator does this by producing a current of predictable size when stimulated by a specific frequency of radio signal.
|
|
High Frequency Wireless Transceiver
|
Allows the transmission and reception of radio waves and is used in a variety of wireless devices.
|
|
|
|
|
Expected
|
|
|
|
|
Patent
|
|
|
|
|
Expiration
|
Product Name
|
|
Summary of Patent Information
|
|
Date
|
|
|
|
|
|
Heterojunction Bipolar Transistor
|
On September 29, 1997, we filed a U.S. Patent application for a Heterojunction Bipolar Transistor (HBT). U.S. Patent 5,912,481 was issued for this device on June 15, 1999. We were also successful in our Continuation in Process application on this device, as the United States Patent and Trademark Office issued us a patent on January 9, 2001 under U.S. Patent 6,171,920, covering intellectual property required to manufacture this transistor. The assignment of this patent to us is recorded at USPTO at reel no: 0111356, frame 0934.
|
Sept. 2017
|
||
Monolithic Inductor
|
On October 31, 1997, we filed a U.S. Patent application for a Monolithic Inductor. The U.S. Patent Office issued a Notice of Allowance for this application on September 7, 1999. U.S. Patent 6,013,939 was issued for this device on January 11, 2000. We were also successful in our Continuation in Process application on this device, as the United States Patent and Trademark Office issued us a patent on August 28, 2001 under U.S. Patent 6,281,778. The assignments for these patents to us are recorded directly on the issued patent from the USPTO.
|
October 2017
|
||
Distributed Amplifier
|
On July 10, 1998, we filed a U.S. Patent application for a Distributed Amplifier. The U.S. Patent Office issued a Notice of Allowance on this application on September 29, 1999. U.S. Patent 6,008,694 was received for this device on December 28, 1999. On May 23, 2001, we a filed a U.S. Patent application for a Monolithic Balanced RF Power Amplifier, another version of this product. U.S. Patent 6,424,227 was issued for this device on July 23, 2002.The assignments for these patents to us have recorded directly on the issued patents from the USPTO.
|
July 2018
|
||
TMOS® Memory
|
On December 17, 1997, we filed a U.S. Patent application for a High Performance N-Channel Metal-Oxide-Semiconductor (NMOS) Static Random Access Memory (SRAM). U.S. Patent 6,104,631 was received for this device on August 15, 2000. We were also successful in our Continuation in Process application on this device, as the United States Patent and Trademark Office issued us a patent on October 9, 2001 under U.S. Patent 6,301,147. The assignment of these patents to us is recorded directly on the issued patents from the USPTO.
|
December 2017
|
||
Mode Dielectric Resonator
|
On June 18, 1998, we filed a U.S. Patent application for a Mode Dielectric Resonator. The U.S. Patent Office issued a Notice of Allowance for this application on August 1, 2000. The U.S. Patent and Trademark Office issued us U.S. Patent 6,169,467 for this device on January 2, 2001. The assignment of this patent to us is recorded at USPTO at reel number: 011358, frame 0462.
|
June 2018
|
||
High Frequency Wireless Transceiver
|
Patent Pending.
|
Pending
|
|
|
|
|
Production
|
||||
|
Proof of
|
Pre-Production
|
Design Available
|
Device
|
||||
|
Concept
|
Prototype Tested
|
for Licensing
|
Available
|
||||
Product Name
|
Prototype Built
|
& Available
|
from Us
|
For Sale
|
||||
|
|
|
|
|
||||
TMOS® Memory
|
Complete
|
No
|
Yes
|
No
|
||||
Mode Dielectric Resonator
|
Complete
|
Complete
|
Yes
|
No
|
||||
High Frequency Wireless Transceiver
|
Complete
|
No
|
Yes
|
No
|
||||
Distributed Amplifier
|
Complete
|
No
|
Yes
|
No
|
||||
Monolithic Inductor
|
Complete
|
No
|
Yes
|
No
|
||||
Heterojunction Bipolar Transistor
|
No
|
No
|
Yes
|
No
|
Name
|
Age
|
Position
|
||
|
|
|
||
Michael A. Grollman
|
43
|
CEO, Chairman of the Board of Directors
|
||
Graham L. Clark
|
49
|
President, Director, Secretary
|
||
Gregory Szabo
|
50
|
Director (Outside)
|
|
Number of
|
|
|
|
||
|
|
|
Common Shares
|
|
|
Percent of
|
|
|
|
Beneficially
|
|
|
Outstanding
|
Name and Address of Beneficial Owner
(1)
|
|
|
Owned
(2)
|
|
|
Shares
|
|
|
|
||||
Michael A. Grollman
|
4,066,000
|
(3)
|
4.8%
|
|||
Graham L. Clark
|
1,451,667
|
(4)
|
1.7%
|
|||
Gregory Szabo
|
97,252
|
(5)
|
0.1%
|
|||
|
|
|
||||
All executive officers and directors as a group (3 persons)
|
5,614,919
|
6.6%
|
(1)
|
The business address for all directors and officers is c/o National Scientific Corporation, 14455 North Hayden Road, Suite 202, Scottsdale, Arizona 85260-6947.
|
(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 any option, warrant or right. Shares of Common Stock subject to options, warrants or rights that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the percentage of the person holding such options, warrants or rights, but are not deemed outstanding for computing the percentage of any other person. The amounts and percentages are based upon the approximately 84,335,669 shares of Common Stock outstanding as June 10, 2004.
|
(3)
|
Includes 1,050,000 shares underlying currently exercisable stock options and warrants, and 2,750,000 shares of restricted Common Stock subject to substantial risk of forfeiture.
|
(4)
|
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.
|
(5)
|
Includes 40,000 shares underlying currently exercisable stock options and warrants and 57,252 shares of restricted Common Stock subject to substantial risk of forfeiture.
|
·
|
vote separately or as a single class with the common stock and/or other series of preferred stock;
|
|
|
·
|
have more or less voting power per share than that possessed by the common stock or other series of preferred stock; and
|
|
|
·
|
vote on specified matters presented to the shareholders or on all of such matters or upon the occurrence of any specified event or condition.
|
Summary Compensation Table
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
Long-Term Compensation
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
Annual Compensation
|
Awards
|
|
Payouts
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
|
Stock
|
|
|
Underlying
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Compensation
|
|
|
Award(s)
|
|
|
Options/ SARs
|
|
|
LTIP
|
|
|
Compensation
|
|
Name and Principal Position
|
|
|
Year
|
|
|
($)
(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
(2)
|
|
|
(#)
|
|
|
Payout ($)
|
|
|
($)
(3)
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Michael A. Grollman
|
2003
|
64,640
|
---
|
---
|
---
|
---
|
---
|
70,360
|
|||||||||||||||||
CEO, Chairman
(4)
|
2002
|
138,000
|
---
|
---
|
78,750
|
---
|
---
|
42,000
|
|||||||||||||||||
|
2001
|
172,500
|
---
|
---
|
165,000
|
---
|
---
|
---
|
|||||||||||||||||
Graham L. Clark
|
2003
|
69,639
|
---
|
---
|
---
|
---
|
---
|
50,360
|
|||||||||||||||||
President, Director
(5)
|
2002
|
104,400
|
---
|
---
|
63,000
|
---
|
---
|
15,600
|
|||||||||||||||||
|
2001
|
120,000
|
---
|
---
|
---
|
---
|
---
|
---
|
|||||||||||||||||
Lou L. Ross
|
2003
|
---
|
---
|
---
|
17,650
|
---
|
---
|
---
|
|||||||||||||||||
Former CEO & Chairman
|
2002
|
86,000
|
---
|
12,700
|
4,500
|
---
|
---
|
---
|
|||||||||||||||||
(retired)
(6)
|
2001
|
120,465
|
---
|
---
|
---
|
---
|
---
|
---
|
|||||||||||||||||
Sam H Carr
|
2003
|
---
|
---
|
32,362
|
32,362
|
---
|
---
|
---
|
|||||||||||||||||
Former CFO
(7)
|
2002
|
160,275
|
---
|
34,166
|
194,441
|
---
|
---
|
---
|
|||||||||||||||||
|
2001
|
158,075
|
---
|
138,000
|
296,075
|
---
|
---
|
---
|
(1)
|
Unpaid wages in this table are subject to Agreements with listed persons that allow for interest of approximately prime rate plus 2% to accrue on those unpaid wages until paid. These accruals for interest are shown as approximate through fiscal year-end September 2003.
|
(2)
|
Stock grants included in this column are for common stock valued at 90% of the closing sales price for such shares on the date of grant. Closing sales price at fiscal year end September 2002 was approximately $0.07 per share, and closing sales price at fiscal year end September 2003 was approximately $0.15 per share.
|
(3)
|
Includes unpaid salary forgone at the election of executive officers Grollman and Clark pursuant to a registrant program under which stock, stock-based or other forms of non-cash compensation may be received by a named executive in lieu of a portion of annual compensation earned in a covered fiscal year.
|
(4)
|
For 2003 salary of $70,360 was not paid in cash, but deferred to a future period. Estimated interest of $2,932 on this unpaid amount is not included above. For 2002 salary of $42,000 was not paid in cash, but deferred to a future period. Estimated interest of $1,500 on this unpaid amount is not included above. Subsequent to year end of September 2002, Mr. Grollman exchanged $10,000 of this deferred salary for a B Unit in our November 2002 Private Placement Offering for 125,000 shares of restricted stock and 100,000 common stock purchase warrants exercisable at a price of $0.50 per share, thus reducing 2002 unpaid wages for that year to $33,500. Other Compensation for 2002 also includes $78,750 for common stock grants subject to risk of forfeiture if calendar 2004 sales do not meet or exceed key targets, and in exchange for salary reduction in calendar year 2003 of $60,000 (See Note 2 above and Employment Agreements below). Also subsequent to fiscal 2003 year-end, Mr. Grollman deferred substantially all his October and November salary of $10,000 each month to a future period, and this amount of $19,900 remains unpaid. From September 2002 Mr. Grollmans share of contributions to the Companys health insurance program of approximately $6,600 were deducted from the balance of wages owing, leaving as of the end of December 2003,unpaid wages of approximately $117,000, accrued vacation pay of approximately $60,000 and accrued interest of approximately $7,000 for a combined total of approximately $184,000.
|
(5)
|
For 2003 salary of $50,360 was not paid in cash, but deferred to a future period. $1,929 estimated interest on this unpaid amount. For 2002 salary of $15,600 was not paid in cash, but deferred to a future period. Estimated interest of $1,929 on this unpaid amount is not included above. Subsequent to year end September 2002, Mr. Clark exchanged $10,000 of deferred salary for a B Unit in our November 2002 Private Placement Offering for 125,000 shares of restricted stock and 100,000 common stock purchase warrants exercisable at a price of $0.50 per share. Other compensation for 2002 also includes $63,000 for restricted common stock grants subject to risk of forfeiture if 2004 sales do not meet or exceed key targets (See Note 2 above and Employment Agreements below). Also subsequent to September 30, 2003 year end, Mr. Clark deferred substantially all his October and November salary of $10,000 each month to a future period, and this amount of $19,900 remains unpaid. From September 2002 Mr. Clarks share of contributions to our health insurance program of approximately $7,900 were deducted from the balance of wages owing, leaving as of the end of December 2003, unpaid wages of approximately $68,000, accrued vacation pay of approximately $19,000 and accrued interest of approximately $3,000 for a combined total of approximately $90,000.
|
(6)
|
Other Compensation for 2003 and 2002 includes common stock grants paid as board service fees. Mr. Ross resigned as an employee in January of 2002 and as a director in September 2003.
|
(7)
|
Other Compensation for 2003 includes $32,362 of contractor fees for services rendered in the six months prior to March 2003, of which approximately $17,083 remains unpaid. For 2002 salary of $30,173 was not paid 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 our November 2002 Private Placement Offering for 250,000 shares of common stock and warrants to purchase 100,000 shares of common stock at a price of $0.30 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, as well as options granted to Mr. Carr during his tenure as a contactor of us rather than an employee. Such options contracts have been valued using the Black-Scholes model for the purposes of this table. Mr. Carr resigned in July 2002 as an employee and a director.
|
____________________
(1)
|
All grants in this table are based on our fiscal year 2002 stock retainage program. This program was implemented by our board in September 2002, and shares were granted at that time. Actual issuance of shares for the named executive participants took place in January of 2003. Our board allocated approximately $150,000 in common stock from this Stock Retainage Program pool of shares, to be granted to key employees during the year, subject to National Scientific exceeding sales growth objectives and expense reduction objectives, and subject to the employees remaining with us through the next 15 months, or longer, if the awards were not earned after 15 months. Failure to meet these objectives under the plan can result in the forfeiture by staff of some or all of the stock grants by all participants. These goals were the same for all plan participants, which included other non-executives, as well the named executives. These goals were not met in calendar year 2003. In January of 2004, our board extended this program into 2004, and set new sales growth objectives for the year at a level 50% higher than the previous years program, giving plan participants an additional year to fully earn this stock grant.
|
(2)
|
Mr. Grollman was granted 750,000 shares of stock from this Stock Retainage Program pool of shares, subject to National Scientific achieving in excess of $400,000 in sales in calendar year 2004. Mr. Grollman was granted an additional 500,000 shares of stock under this program, subject to sales exceeding $1,500,000 for calendar year 2004.
|
(3)
|
Mr. Clark was granted 500,000 shares of stock from our Stock Retainage Program pool of shares discussed above, subject to National Scientific achieving in excess of $400,000 in sales in calendar year 2004. Mr. Clark was granted an additional 500,000 shares of stock under this program, subject to sales exceeding $1,500,000 for calendar year 2004.
|
|
||
-55- | ||
|
||
|
Page
|
For Fiscal Years Ending September 30, 2002 and 2003 (audited)
|
|
F-2
|
|
F-3
|
|
F-4
|
|
F-5
|
|
F-11
|
|
F-13
|
|
|
|
For the Six Month Period Ending March 31, 2004 (unaudited)
|
|
F-25
|
|
F-26
|
|
F-27
|
|
F-28
|
|
F-29
|
|
2003
|
2002
|
|||||
|
|
||||||
ASSETS
|
|
|
|||||
|
|
|
|||||
Current Assets:
|
|
|
|||||
Cash and cash equivalents
|
$
|
17,903
|
$
|
1,405
|
|||
Trade receivables, net of reserve of $8,169 at September 30, 2003
|
28,200
|
1,631
|
|||||
Inventory
|
9,700
|
14,916
|
|||||
Other assets
|
16,926
|
800
|
|||||
|
|
||||||
Total current assets
|
72,729
|
18,752
|
|||||
|
|
|
|||||
Property and equipment, net
|
32,081
|
45,007
|
|||||
Deposits
|
5,031
|
5,031
|
|||||
|
|
||||||
|
$
|
109,841
|
$
|
68,790
|
|||
|
|
||||||
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
|
|
|||||
|
|
|
|||||
Current Liabilities:
|
|
|
|||||
Accounts payable
|
$
|
185,725
|
$
|
368,952
|
|||
Accrued expenses
|
457,695
|
396,505
|
|||||
Deposits
|
20,000
|
|
|||||
Notes payable
|
10,000
|
75,079
|
|||||
|
|
||||||
Total current liabilities
|
673,420
|
840,536
|
|||||
|
|
|
|||||
Notes payable, net of current portion
|
43,250
|
|
|||||
|
|
||||||
Total liabilities
|
716,670
|
840,536
|
|||||
|
|
|
|||||
Commitments and contingencies
|
|
|
|||||
|
|
||||||
Shareholders equity (deficit):
|
|
|
|||||
Preferred stock, par value $0.10; 4,000,000 shares authorized,
and no shares issued or outstanding
|
|
|
|||||
Common stock, par value $0.01; 120,000,000 shares authorized,
and shares issued 70,633,819 and 51,587,062 outstanding
at September 30, 2003 and 2002, respectively
|
706,338
|
515,871
|
|||||
Additional paid-in capital
|
20,444,733
|
19,517,719
|
|||||
Accumulated deficit
|
(21,757,900
|
)
|
(20,805,336
|
)
|
|||
|
|
||||||
Total shareholders' equity (deficit)
|
(606,829
|
)
|
(771,746
|
)
|
|||
|
|
||||||
|
$
|
109,841
|
$
|
68,790
|
|||
|
|
|
|
|
Development |
|||||||
|
2003
|
2002
|
Stage
|
|||||||
|
|
|
||||||||
|
|
|
|
|||||||
Revenues
|
$
|
63,579
|
$
|
2,914
|
$
|
949,208
|
||||
|
|
|
|
|||||||
Cost of Sales
|
25,848
|
1,889
|
897,487
|
|||||||
|
|
|
||||||||
Gross profit
|
37,731
|
1,025
|
51,721
|
|||||||
|
|
|
|
|||||||
Costs and expenses
|
|
|
|
|||||||
Salaries and benefits
|
438,244
|
624,069
|
2,176,796
|
|||||||
Research and development
|
84,301
|
154,548
|
3,713,135
|
|||||||
Stock compensation
|
291,658
|
460,168
|
3,080,694
|
|||||||
Consulting fees, related party
|
17,650
|
|
8,175,973
|
|||||||
Other
|
149,245
|
667,250
|
2,407,303
|
|||||||
|
|
|
||||||||
Total costs and expenses
|
981,098
|
1,906,035
|
19,553,901
|
|||||||
|
|
|
||||||||
|
|
|
|
|||||||
Loss from operations
|
(943,367
|
)
|
(1,905,010
|
)
|
(19,502,180
|
)
|
||||
|
|
|
|
|||||||
Other income (expense)
|
|
|
|
|||||||
Interest and other income
|
|
584
|
178,972
|
|||||||
Gain on settlement
|
|
89,403
|
89,403
|
|||||||
Interest expense
|
(9,197
|
)
|
(1,874
|
)
|
(34,268
|
)
|
||||
Loss on disposal of assets
|
|
(2,405
|
)
|
(30,960
|
)
|
|||||
Loss on impairment of equipment
|
|
(64,187
|
)
|
(64,187
|
)
|
|||||
|
|
|
||||||||
|
(9,197
|
)
|
21,521
|
138,960
|
||||||
|
|
|
||||||||
Loss before income taxes
|
(952,564
|
)
|
(1,883,489
|
)
|
(19,363,220
|
)
|
||||
Income tax expense
|
|
|
|
|||||||
|
|
|
||||||||
|
|
|
|
|||||||
Net loss
|
$
|
(952,564
|
)
|
$
|
(1,883,489
|
)
|
$
|
(19,363,220
|
)
|
|
|
|
|
||||||||
Net loss per common share,
basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
|
|||
|
|
|||||||||
Weighted average number of
shares outstanding
|
62,758,349
|
49,626,954
|
|
|||||||
|
|
Common Stock |
Preferred Stock |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Number
|
|
Number
|
|
Additional
|
|
|
|||||||||||||||
|
of
|
Par
|
of
|
Par
|
Paid-In
|
Accumulated
|
|
|||||||||||||||
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Deficit
|
Total
|
|||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2002
|
51,587,062
|
$
|
515,871
|
|
$
|
|
$
|
19,517,719
|
$
|
(20,805,336
|
)
|
$
|
771,746
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
@$0.17
|
946,270
|
9,462
|
|
|
152,913
|
|
162,375
|
|||||||||||||||
Exercise of options
|
637,153
|
6,372
|
|
|
22,686
|
|
29,058
|
|||||||||||||||
Stock options granted
|
|
|
|
|
60,733
|
|
60,733
|
|||||||||||||||
Debt equity swap
|
788,334
|
7,883
|
|
|
66,232
|
|
74,115
|
|||||||||||||||
Private placement @
$0.04 to $0.08
|
14,125,000
|
141,250
|
|
|
528,750
|
|
670,000
|
|||||||||||||||
Stock retainage program
|
2,550,000
|
25,500
|
|
|
95,700
|
|
121,200
|
|||||||||||||||
Net loss
|
|
|
|
|
|
(952,564
|
)
|
(952,564
|
)
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2003
|
70,633,819
|
$
|
706,338
|
|
$
|
|
$
|
20,444,733
|
$
|
(21,757,900
|
)
|
$
|
(606,829
|
)
|
||||||||
|
|
|
|
|
|
|
Common Stock |
Preferred Stock |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Number
|
|
Number
|
|
Additional
|
|
|
|||||||||||||||
of
|
Par
|
of
|
Par
|
Paid-In
|
Accumulated
|
|
||||||||||||||||
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Deficit
|
Total
|
|||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2001
|
47,367,498
|
$
|
473,675
|
|
$
|
|
$
|
18,766,775
|
$
|
(18,921,847
|
)
|
$
|
318,603
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
@ $0.306
|
100,000
|
1,000
|
|
|
29,600
|
|
30,600
|
|||||||||||||||
Issuance of stock under
equity line
of credit @
$0.12 to $0.27
|
2,122,064
|
21,221
|
|
|
393,603
|
|
414,824
|
|||||||||||||||
Exercise of warrants
|
770,500
|
7,705
|
|
|
84,755
|
|
92,460
|
|||||||||||||||
Exercise of options
|
1,477,000
|
14,770
|
|
|
154,762
|
|
169,532
|
|||||||||||||||
Loan repayment by officer
|
(250,000
|
)
|
(2,500
|
)
|
|
|
(97,500
|
)
|
|
(100,000
|
)
|
|||||||||||
Grants of options and
warrants, net
|
|
|
|
|
185,724
|
|
185,724
|
|||||||||||||||
Net loss
|
|
|
|
|
|
(1,883,489
|
)
|
(1,883,489
|
)
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2002
|
51,587,062
|
$
|
515,871
|
|
$
|
|
$
|
19,517,719
|
$
|
(20,805,336
|
)
|
$
|
(771,746
|
)
|
||||||||
|
|
|
|
|
|
|
Common Stock |
Preferred Stock |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Number
|
|
Number
|
|
Additional
|
|
|
|||||||||||||||
|
of
|
Par
|
of
|
Par
|
Paid-In
|
Accumulated
|
|
|||||||||||||||
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Deficit
|
Total
|
|||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2000
|
47,195,768
|
$
|
471,958
|
|
$
|
|
$
|
15,086,920
|
$
|
(12,686,979
|
)
|
$
|
2,871,899
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
@ $1.66
|
100,000
|
1,000
|
|
|
164,600
|
|
165,600
|
|||||||||||||||
Stock issued for services
@ $1.55
|
15,000
|
150
|
|
|
23,070
|
|
23,220
|
|||||||||||||||
Stock issued for services
@ $4.32
|
5,000
|
50
|
|
|
21,550
|
|
21,600
|
|||||||||||||||
Stock issued for services
@ $1.32
|
75,000
|
750
|
|
|
98,475
|
|
99,225
|
|||||||||||||||
Stock issued for services
@ $0.51
|
10,000
|
100
|
|
|
5,030
|
|
5,130
|
|||||||||||||||
Exercise of warrants
and options
|
1,291,730
|
12,917
|
|
|
1,278,813
|
|
1,291,730
|
|||||||||||||||
Amortization of stock
compensation
|
|
|
|
|
3,712,500
|
|
3,712,500
|
|||||||||||||||
Exchange for stock options
|
(1,325,000
|
)
|
(13,250
|
)
|
|
|
(2,424,750
|
)
|
|
(2,438,000
|
)
|
|||||||||||
Common stock options
exercisable
|
|
|
|
|
800,567
|
|
800,567
|
|||||||||||||||
Net loss
|
|
|
|
|
|
(6,234,868
|
)
|
(6,234,868
|
)
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2001
|
47,367,498
|
$
|
473,675
|
|
$
|
|
$
|
18,766,775
|
$
|
(18,921,847
|
)
|
$
|
318,603
|
|||||||||
|
|
|
|
|
|
|
Common Stock |
Preferred Stock |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Number
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|||||||||
of
|
Par
|
|
|
of
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
||||||||
|
Shares
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 1999
|
36,544,289
|
$
|
365,443
|
|
$
|
|
$
|
3,678,315
|
$
|
(4,111,680
|
)
|
$
|
(67,922
|
)
|
||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
|
|
|
|
|
|
|
|
|||||||||||||||
Price per share ranged
|
|
|
|
|
|
|
|
|||||||||||||||
$0.18 to $0.85
|
775,000
|
7,750
|
|
|
397,620
|
|
405,370
|
|||||||||||||||
$1.74 to $2.70
|
606,797
|
6,067
|
|
|
1,071,028
|
|
1,077,095
|
|||||||||||||||
$3.26 to $4.50
|
139,000
|
1,390
|
|
|
457,884
|
|
459,274
|
|||||||||||||||
$5.12 to $6.92
|
236,832
|
2,369
|
|
|
1,411,591
|
|
1,413,960
|
|||||||||||||||
$7.43 to $8.80
|
1,060,000
|
10,600
|
|
|
7,929,921
|
|
7,940,521
|
|||||||||||||||
Exercise of warrants
and options
|
3,440,250
|
34,403
|
|
|
3,151,997
|
|
3,186,400
|
|||||||||||||||
Private placement of
common stock
|
|
|
|
|
|
|
|
|||||||||||||||
Shares issued for:
|
|
|
|
|
|
|
|
|||||||||||||||
$0.11
|
2,430,000
|
24,300
|
|
|
245,700
|
|
270,000
|
|||||||||||||||
$0.25
|
360,000
|
3,600
|
|
|
86,400
|
|
90,000
|
|||||||||||||||
$0.40
|
975,000
|
9,750
|
|
|
380,250
|
|
390,000
|
|||||||||||||||
Stock converted by directors
family member
|
1,128,600
|
11,286
|
|
|
(11,286
|
)
|
|
|
||||||||||||||
Common stock to collateralize
loan - retired
|
(500,000
|
)
|
(5,000
|
)
|
|
|
|
|
(5,000
|
)
|
||||||||||||
Deferred stock compensation
|
|
|
|
|
(3,712,500
|
)
|
|
(3,712,500
|
)
|
|||||||||||||
Net loss
|
|
|
|
|
|
(8,575,299
|
)
|
(8,575,299
|
)
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2000
|
47,195,768
|
$
|
471,958
|
|
$
|
|
$
|
15,086,920
|
$
|
(12,686,979
|
)
|
$
|
2,871,899
|
|||||||||
|
|
|
|
|
|
|
Common Stock |
Preferred Stock |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
||
|
|
|
of
|
|
|
Par
|
|
|
of
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 1998
|
25,331,849
|
$
|
253,318
|
15,000
|
$
|
1,500
|
$
|
2,823,491
|
$
|
(3,167,225
|
)
|
$
|
(88,916
|
)
|
||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
|
|
|
|
|
|
|
|
|||||||||||||||
Price per share ranged
|
|
|
|
|
|
|
|
|||||||||||||||
$0.09 to $0.18
|
3,020,000
|
30,200
|
|
|
528,239
|
|
558,439
|
|||||||||||||||
$0.20 to $0.29
|
145,000
|
1,450
|
|
|
33,110
|
|
34,560
|
|||||||||||||||
Preferred stock offering
|
|
|
47,000
|
4,700
|
230,300
|
|
235,000
|
|||||||||||||||
Exercise of warrants and options
|
496,000
|
4,960
|
|
|
27,490
|
|
32,450
|
|||||||||||||||
Private placement of
common stock
|
400,000
|
4,000
|
|
|
96,000
|
|
100,000
|
|||||||||||||||
Conversion of preferred to
common stock
|
6,200,000
|
62,000
|
(62,000
|
)
|
(6,200
|
)
|
(55,800
|
)
|
|
|
||||||||||||
Common stock issued to c
ollateralize loan
|
500,000
|
5,000
|
|
|
|
|
5,000
|
|||||||||||||||
Stock converted by directors
family member
|
451,440
|
4,515
|
|
|
(4,515
|
)
|
|
|
||||||||||||||
Net loss
|
|
|
|
|
|
(944,455
|
)
|
(944,455
|
)
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 1999
|
36,544,289
|
$
|
365,443
|
|
$
|
|
$
|
3,678,315
|
$
|
(4,111,680
|
)
|
$
|
(67,922
|
)
|
||||||||
|
|
|
|
|
|
|
Common Stock |
Preferred Stock |
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Development
|
|
|
|
|
||
|
|
|
of
|
|
|
Par
|
|
|
of
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stage
|
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Balance, October 1, 1997
|
17,847,292
|
$
|
178,473
|
|
$
|
|
$
|
2,160,780
|
$
|
(2,394,680
|
)
|
$
|
|
$
|
(55,427
|
)
|
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Stock issued for services
|
3,487,557
|
34,875
|
|
|
335,473
|
|
|
370,348
|
|||||||||||||||||
Private placement of
preferred stock
|
|
|
49,500
|
4,950
|
242,550
|
|
|
247,500
|
|||||||||||||||||
Exercise of warrants
and options
|
547,000
|
5,470
|
|
|
100,888
|
|
|
106,358
|
|||||||||||||||||
Conversion of preferred to
common stock
|
3,450,000
|
34,500
|
(34,500
|
)
|
(3,450
|
)
|
(31,050
|
) |
|
|
|
||||||||||||||
Contributed capital
|
|
|
|
|
14,850
|
|
|
14,850
|
|||||||||||||||||
Net loss
|
|
|
|
|
|
|
(772,545
|
)
|
(772,545
|
)
|
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Balance, September 30, 1998
|
25,331,849
|
$
|
253,318
|
15,000
|
$
|
1,500
|
$
|
2,823,491
|
$
|
(2,394,680
|
)
|
$
|
(772,545
|
)
|
$
|
(88,916
|
)
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
Development |
|||||||
|
2003
|
2002
|
Stage
|
|||||||
|
|
|
||||||||
Cash flows from operating activities:
|
|
|
|
|||||||
Net loss
|
$
|
(952,564
|
)
|
$
|
(1,883,489
|
)
|
$
|
(19,363,220
|
)
|
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|||||||
Non cash transactions
|
|
|
|
|||||||
Depreciation
|
12,926
|
22,847
|
65,196
|
|||||||
Loss on disposal of assets
|
|
2,405
|
30,960
|
|||||||
Impairment loss on equipment
|
|
64,187
|
64,187
|
|||||||
Stock and options issued for services, net
|
344,308
|
301,495
|
11,582,712
|
|||||||
Decrease (increase) in inventory
|
5,216
|
5,084
|
(9,700
|
)
|
||||||
(Increase) decrease in deferred offering costs
|
|
107,844
|
(85,171
|
)
|
||||||
Decrease (increase) in receivables
|
(26,569
|
)
|
|
103,431
|
||||||
Decrease (increase) in other assets
|
(16,126
|
)
|
13,896
|
(13,017
|
)
|
|||||
Increase (decrease) in accounts payable and accrued expenses
|
(69,751
|
)
|
439,090
|
673,126
|
||||||
|
|
|
||||||||
Net cash (used in) operating activities
|
(702,560
|
)
|
(926,641
|
)
|
(6,951,496
|
)
|
||||
|
|
|
||||||||
Cash flows from investing activities:
|
|
|
|
|||||||
Acquisition of property and equipment
|
|
|
(153,692
|
)
|
||||||
Repayment of loans
|
|
|
200,000
|
|||||||
Proceeds from the sale of furniture and equipment
|
|
1,390
|
6,050
|
|||||||
Loans issued
|
|
|
(400,000
|
)
|
||||||
|
|
|
||||||||
Net cash (used in) provided by investing activities
|
|
1,390
|
(347,642
|
)
|
||||||
|
|
|
||||||||
Cash flows from financing activities:
|
|
|
|
|||||||
Draws on the line of credit
|
|
|
430,000
|
|||||||
Loan from (to) officer
|
|
75,079
|
65,079
|
|||||||
Repayment of notes payable
|
|
|
(110,000
|
)
|
||||||
Repayment of line of credit
|
|
(430,000
|
)
|
(430,000
|
)
|
|||||
Repayment of capital lease obligations
|
|
|
(1,819
|
)
|
||||||
Proceeds from the exercise of options
|
29,058
|
169,532
|
198,590
|
|||||||
Proceeds from the exercise of warrants
|
|
92,460
|
92,460
|
|||||||
Proceeds from equity line of credit
|
|
414,824
|
414,824
|
|||||||
Proceeds from the issuance of preferred stock
|
|
|
482,500
|
|||||||
Deposits from private placement
|
20,000
|
|
20,000
|
|||||||
Proceeds from issuance of common stock
|
670,000
|
|
6,151,789
|
|||||||
|
|
|
||||||||
Net cash provided by financing activities
|
719,058
|
321,895
|
7,313,423
|
|||||||
|
|
|
||||||||
Net (decrease) increase in cash and cash equivalents
|
16,498
|
(603,356
|
)
|
14,285
|
||||||
Cash and cash equivalents, beginning of period
|
1,405
|
604,761
|
3,618
|
|||||||
|
|
|
||||||||
Cash and cash equivalents, end of period
|
$
|
17,903
|
$
|
1,405
|
$
|
17,903
|
||||
|
|
|
||||||||
Supplementary Disclosure of Cash Flow Information
|
|
|
|
|||||||
Cash paid for interest
|
$
|
3,000
|
$
|
1,874
|
$
|
25,474
|
||||
|
|
|
||||||||
Cash paid for income taxes
|
$
|
|
$
|
|
$
|
50
|
||||
|
|
|
|
2003
|
2002
|
|||||
|
|
||||||
|
|
|
|||||
Computer equipment
|
$
|
58,806
|
$
|
58,806
|
|||
Office furniture
|
12,507
|
12,507
|
|||||
|
|
||||||
|
71,313
|
71,313
|
|||||
Less: accumulated depreciation
|
39,232
|
26,306
|
|||||
|
|
||||||
|
$
|
32,081
|
$
|
45,007
|
|||
|
|
|
2003
|
2002
|
|||||
|
|
||||||
Net (loss)
|
$
|
(952,564
|
)
|
$
|
(1,883,489
|
)
|
|
Weighted average shares:
|
|
|
|||||
Average shares outstanding
|
62,758,349
|
49,626,954
|
|||||
Effect of diluted shares
|
|
|
|||||
|
|
||||||
Average Shares outstanding,
adjusted for dilutive effect
|
62,758,349
|
49,626,954
|
|||||
|
|
||||||
(Loss) per share - basic
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
|
(Loss) per share - diluted
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
|
2003
|
2002
|
|||||
|
|
||||||
Employee options
|
3,329,757
|
3,582,839
|
|||||
Warrants
|
7,412,201
|
412,201
|
|||||
Potential common equivalents
|
10,741,958
|
3,995,040
|
Year ending September 30,
|
Amount
|
|||
|
|
|||
2004
|
$
|
60,250
|
||
2005
|
5,031
|
|||
|
||||
|
$
|
65,281
|
||
|
|
2003
|
|
|
2002
|
|||
|
|
||||||
Tax Benefit of net operating loss carry-forwards and start up costs
|
$
|
5,779,000
|
$
|
5,515,000
|
|||
Valuation allowance
|
(5,779,000
|
)
|
(5,515,000
|
)
|
|||
|
|
||||||
|
$ | |
$
|
|
|||
|
|
|
2003
|
|
|
2002
|
|||
|
|
||||||
Expected federal and state tax recovery at 40%
|
$
|
(381,000
|
)
|
$
|
(755,000
|
)
|
|
Non-deductible stock compensation
|
117,000
|
20,000
|
|||||
|
|
||||||
|
(264,000
|
)
|
(735,000
|
)
|
|||
Tax benefits not realized - valuation allowance
|
264,000
|
735,000
|
|||||
|
|
||||||
Realized tax benefit
|
$
|
|
$
|
|
|||
|
|
|
|
|
|
Weighted |
|
|
Weighted
|
|
||
|
|
|
Number |
|
|
Average
|
|
|
Average
|
|
|
|
|
of |
|
|
Exercise
|
|
|
Fair
|
|
|
|
|
Shares |
|
|
Price
|
|
|
Value
|
|
|
|
|
||||||||
Options Outstanding, September 30, 2001
|
1,534,501
|
$
|
1.81
|
$
|
0.15
|
|||||
Granted
|
3,654,162
|
0.24
|
0.24
|
|||||||
Exercised
|
(1,477,000
|
)
|
0.11
|
0.11
|
||||||
Canceled
|
(128,824
|
)
|
0.71
|
0.02
|
||||||
|
||||||||||
Options Outstanding, September 30, 2002
|
3,582,839
|
$
|
1.97
|
$
|
0.01
|
|||||
|
||||||||||
Options Outstanding September 30, 2002
|
3,582,839
|
$
|
1.97
|
$
|
0.01
|
|||||
Granted
|
1,144,081
|
0.10
|
0.10
|
|||||||
Exercised
|
(637,153
|
)
|
0.05
|
0.10
|
||||||
Expired
|
(760,010
|
)
|
5.45
|
0.01
|
||||||
|
||||||||||
Options Outstanding, September 30, 2003
|
3,329,757
|
$
|
0.90
|
$
|
0.06
|
|||||
|
|
Number of
|
|
|
Exercise
|
|
|
|
|
||
|
|
|
Shares
|
|
|
Price
|
|
|
Expires
|
|
|
|
|
||||||||
Outstanding at September 30, 2001
|
1,500,000
|
$ |
0.12
|
|
|
Jan-04
|
||||
Exercised
|
(770,500
|
)
|
|
|
||||||
Expired
|
(729,500
|
)
|
|
|
||||||
New issues
|
412,201
|
1.67
|
|
|
Nov-04
|
|
||||
|
||||||||||
Outstanding at September 30, 2002
|
412,201
|
|
|
|||||||
|
|
|
|
|||||||
New issues
|
4,800,000
|
0.30
|
|
|
Dec-04
|
|
||||
|
200,000
|
0.50
|
|
|
Dec-04
|
|||||
|
1,000,000
|
0.35
|
|
|
Jun-04
|
|||||
|
1,000,000
|
0.50
|
|
|
Jun-04
|
|
||||
|
||||||||||
Outstanding at September 30, 2003
|
7,412,201
|
|
|
|||||||
|
Year ending September 30,
|
|
|||
|
||||
2004
|
$
|
10,000
|
||
2005
|
|
|||
2006
|
43,250
|
|||
|
||||
|
$
|
53,250
|
||
|
|
March 31,
|
|
|
September 30,
|
|
||
|
|
|
2004
|
|
|
2003
|
|
|
|
||||||
ASSETS
|
|
|
|||||
|
|
|
|||||
Current Assets:
|
|
|
|||||
Cash and cash equivalents
|
$
|
14,748
|
$
|
17,903
|
|||
Cash in escrow account
|
534,691
|
|
|||||
Trade receivables, net of reserve of $18,169 at March 31, 2004
and $8,169 at September 30, 2003
|
30,000
|
28,200
|
|||||
Inventory
|
60,374
|
9,700
|
|||||
Other assets
|
37,425
|
16,926
|
|||||
|
|
||||||
Total current assets
|
677,238
|
72,729
|
|||||
|
|
|
|||||
Property and equipment, net
|
25,618
|
32,081
|
|||||
Deposits
|
5,031
|
5,031
|
|||||
|
|
||||||
|
$
|
707,887
|
$
|
109,841
|
|||
|
|
||||||
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
|
|
|||||
|
|
|
|||||
Current Liabilities:
|
|
|
|||||
Accounts payable
|
$
|
266,879
|
$
|
185,725
|
|||
Accrued expenses
|
333,238
|
457,695
|
|||||
Deposits
|
|
20,000
|
|||||
Notes payable
|
201,000
|
10,000
|
|||||
|
|
||||||
Total current liabilities
|
801,117
|
673,420
|
|||||
Notes payable, net of current portion
|
43,250
|
43,250
|
|||||
|
|
||||||
Total Liabilities
|
844,367
|
716,670
|
|||||
|
|
||||||
Commitments and contingencies
|
|
|
|||||
|
|
||||||
Shareholders equity (deficit):
|
|
|
|||||
Preferred stock, par value $0.10; 4,000,000 shares authorized,
and no shares issued or outstanding
|
|
|
|||||
Common stock, par value $0.01; 120,000,000 shares authorized,
and shares issued 79,700,783
and 70,633,819 outstanding at
March 31, 2004 and September 30, 2003, respectively
|
797,007
|
706,338
|
|||||
Additional paid-in capital
|
21,242,603
|
20,444,733
|
|||||
Accumulated deficit
|
(22,176,090
|
)
|
(21,757,900
|
)
|
|||
|
|
||||||
Total shareholders equity (deficit)
|
(136,480
|
)
|
(606,829
|
)
|
|||
|
|
||||||
|
$
|
707,887
|
$
|
109,841
|
|||
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
||
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Development
|
|
|
|
|
March 31, 2004
|
|
|
March 31, 2003
|
|
|
March 31, 2004
|
|
|
March 31, 2003
|
|
|
Stage
|
|
|
|
|
|
|
||||||||||||
Revenues
|
$
|
36,308
|
$
|
13,093
|
$
|
74,538
|
$
|
18,548
|
$
|
1,023,746
|
||||||
Cost of Sales
|
24,856
|
1,477
|
55,998
|
4,790
|
953,485
|
|||||||||||
|
|
|
|
|
||||||||||||
Gross profit
|
11,452
|
11,616
|
18,540
|
13,758
|
70,261
|
|||||||||||
|
|
|
|
|
|
|||||||||||
Costs and expenses
|
|
|
|
|
|
|||||||||||
Salaries and benefits
|
112,346
|
113,243
|
257,395
|
179,376
|
2,434,191
|
|||||||||||
Research and development
|
4,440
|
12,087
|
9,398
|
21,777
|
3,722,533
|
|||||||||||
Stock compensation
|
22,290
|
97,080
|
28,293
|
109,980
|
3,108,987
|
|||||||||||
Consulting fees, related party
|
|
7,500
|
|
15,000
|
8,175,973
|
|||||||||||
Other
|
72,446
|
(51,500
|
)
|
131,170
|
44,172
|
2,538,473
|
||||||||||
|
|
|
|
|
||||||||||||
Total costs and expenses
|
211,522
|
178,410
|
426,256
|
370,305
|
19,980,157
|
|||||||||||
|
|
|
|
|
|
|||||||||||
Loss from operations
|
(200,070
|
)
|
(166,794
|
)
|
(407,716
|
)
|
(356,547
|
)
|
(19,909,896
|
)
|
||||||
|
|
|
|
|
||||||||||||
Other income (expense)
|
|
|
|
|
|
|||||||||||
Interest and other income
|
|
|
|
|
178,972
|
|||||||||||
Interest expense
|
(7,342
|
)
|
(979
|
)
|
(10,474
|
)
|
(2,123
|
)
|
(50,486
|
)
|
||||||
Loss on disposal of assets
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
||||||||||||
|
(7,342
|
)
|
(979
|
)
|
(10,474
|
)
|
(2,123
|
)
|
128,486
|
|||||||
|
|
|
|
|
|
|||||||||||
Loss before income taxes
|
(207,412
|
)
|
(167,773
|
)
|
(418,190
|
)
|
(358,670
|
)
|
(19,781,410
|
)
|
||||||
Income tax expense
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
||||||||||||
Net loss
|
$
|
(207,412
|
)
|
$
|
(167,773
|
)
|
$
|
(418,190
|
)
|
$
|
(358,670
|
)
|
$ |
(19,781,410
|
)
|
|
|
|
|
|
|
||||||||||||
Net loss per common share, basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|
|||
|
|
|
|
|
|
|
Development |
|||||||
|
2004
|
|
|
2003
|
|
|
Stage
|
|||
|
|
|
||||||||
Cash flows from operating activities:
|
|
|
|
|||||||
Net loss
|
$
|
(418,190
|
)
|
$
|
(358,670
|
)
|
$
|
(19,781,410
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|||||||
Non cash transactions
|
|
|
|
|||||||
Depreciation
|
6,463
|
6,462
|
71,659
|
|||||||
Loss on disposal of assets
|
|
|
30,960
|
|||||||
Impairment loss on equipment
|
|
|
64,187
|
|||||||
Stock and options issued for services, net
|
28,293
|
142,750
|
11,611,005
|
|||||||
Decrease (increase) in inventory
|
(50,674
|
)
|
6,094
|
(60,374
|
)
|
|||||
Deferred offering costs
|
|
|
(85,171
|
)
|
||||||
Decrease (increase) in receivables
|
(1,800
|
)
|
|
101,631
|
||||||
Decrease (increase) in other assets
|
(20,499
|
)
|
(10,394
|
)
|
(33,516
|
)
|
||||
Increase in accounts payable and accrued expenses
|
172,252
|
(122,564
|
)
|
845,378
|
||||||
|
|
|
||||||||
Net cash (used in) operating activities
|
(284,155
|
)
|
(336,322
|
)
|
(7,235,651
|
)
|
||||
|
|
|
||||||||
|
|
|
|
|||||||
Cash flows from investing activities:
|
|
|
|
|||||||
Acquisition of property and equipment
|
|
|
(153,692
|
)
|
||||||
Repayment of loans
|
|
|
200,000
|
|||||||
Proceeds from the sale of furniture and equipment
|
|
|
6,050
|
|||||||
Loans issued
|
|
|
(400,000
|
)
|
||||||
|
|
|
||||||||
Net cash (used in) investing activities
|
|
|
(347,642
|
)
|
||||||
|
|
|
||||||||
Cash flows from financing activities:
|
|
|
|
|||||||
Increase in notes payable
|
196,000
|
15,000
|
196,000
|
|||||||
Draws on the line of credit
|
|
|
430,000
|
|||||||
Loan from (to) officer
|
|
|
65,079
|
|||||||
Repayment of notes payable
|
(5,000
|
)
|
|
(115,000
|
)
|
|||||
Repayment of line of credit
|
|
|
(430,000
|
)
|
||||||
Repayment of capital lease obligations
|
|
|
(1,819
|
)
|
||||||
Proceeds from the exercise of options
|
|
29,058
|
198,590
|
|||||||
Proceeds from the exercise of warrants
|
|
|
92,460
|
|||||||
Proceeds from equity line of credit
|
|
|
414,824
|
|||||||
Proceeds from the issuance of preferred stock
|
|
|
482,500
|
|||||||
Deposits for private placement
|
(20,000
|
)
|
10,000
|
|
||||||
Proceeds from issuance of common stock
|
644,691
|
300,000
|
6,796,480
|
|||||||
|
|
|
||||||||
Net cash provided by financing activities
|
815,691
|
354,058
|
8,129,114
|
|||||||
|
|
|
||||||||
Net (decrease) increase in cash and cash equivalents
|
531,536
|
17,736
|
545,821
|
|||||||
Cash and cash equivalents, beginning of period
|
17,903
|
1,405
|
3,618
|
|||||||
|
|
|
||||||||
Cash and cash equivalents, end of period
|
$
|
549,439
|
$
|
19,141
|
$
|
549,439
|
||||
|
|
|
||||||||
Supplementary Disclosure of Cash Flow Information:
|
|
|
|
|||||||
Cash paid for interest
|
$
|
5,211
|
$
|
|
$
|
30,685
|
||||
|
|
|
||||||||
Cash paid for income taxes
|
$
|
|
$
|
|
$
|
50
|
||||
|
|
|
Common Stock |
Preferred Stock |
|||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Number
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
||||
|
|
|
of
|
|
|
Par
|
|
|
of
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
Total
|
|||
|
|
|
|
|
|
|
||||||||||||||||
Balance, September 30, 2003
|
70,633,819
|
$
|
706,338
|
|
$
|
|
$
|
20,444,733
|
$
|
(21,757,900
|
)
|
$
|
(606,829
|
)
|
||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Exercise of options
|
|
|
|
|
|
|
|
|||||||||||||||
Stock issued for services
|
|
|
|
|
|
|
|
|||||||||||||||
Price per share ranged
|
|
|
|
|
|
|
|
|||||||||||||||
$0.14
|
47,646
|
476
|
|
|
5,527
|
|
6,003
|
|||||||||||||||
$0.155
|
33,000
|
330
|
|
|
4,274
|
|
4,604
|
|||||||||||||||
Common stock options granted
|
|
|
|
|
13,491
|
|
13,491
|
|||||||||||||||
Debt equity swap
|
1,500,000
|
15,000
|
|
|
135,000
|
|
150,000
|
|||||||||||||||
Private placement of common stock
|
|
|
|
|
|
|
|
|||||||||||||||
Shares issued for:
|
|
|
|
|
|
|
|
|||||||||||||||
$0.10
|
1,100,000
|
11,000
|
|
|
99,000
|
|
110,000
|
|||||||||||||||
$0.11
|
5,886,318
|
58,863
|
|
|
475,828
|
|
534,691
|
|||||||||||||||
Stock retainage program
|
500,000
|
5,000
|
|
|
64,750
|
|
69,750
|
|||||||||||||||
Net loss
|
|
|
|
|
|
(418,190
|
)
|
(418,190
|
)
|
|||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Balance, March 31, 2004
|
79,700,783
|
$
|
797,007
|
|
$
|
|
$
|
21,242,603
|
$
|
(22,176,090
|
)
|
$
|
(136,480
|
)
|
||||||||
|
|
|
|
|
|
|
|
Number of
|
Weighted Average
|
|
||||
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
||||||
Options Outstanding, September 30, 2003
|
3,329,757
|
$
|
0.90
|
||||
Add: Granted
|
170,000
|
0.15
|
|||||
Deduct: Forfeited
|
(250,000
|
)
|
(0.15
|
)
|
|||
|
|
||||||
Options Outstanding, March 31, 2004
|
3,249,757
|
$
|
0.92
|
||||
|
|
|
Three Months
|
Three Months
|
|
||||
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
March 31, 2004
|
|
|
March 31, 2003
|
|
|
|
||||||
Net (loss) income:
|
|
|
|||||
As reported
|
$
|
(207,412
|
)
|
$
|
(167,773
|
)
|
|
Pro forma
|
(207,412
|
)
|
(175,009
|
)
|
|||
|
|
|
|||||
Basic (loss) earnings per share:
|
|
|
|||||
As reported
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
Pro forma
|
(0.00
|
)
|
(0.00
|
)
|
|
Number
|
|
|
|
|
|
|
|
||
|
|
|
of
|
|
|
Exercise
|
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Expires
|
|
|
|
|
||||||||
Outstanding at September 30, 2001
|
1,500,000
|
$
|
0.12
|
1/02
|
||||||
Exercised
|
770,500
|
|
|
|||||||
Expired
|
729,500
|
|
|
|||||||
New Issues
|
412,201
|
$
|
1.67
|
5/04
|
||||||
|
||||||||||
Outstanding at September 30, 2002
|
412,201
|
|
|
|||||||
New Issues
|
4,800,000
|
$
|
0.30
|
12/04
|
||||||
|
200,000
|
$
|
0.50
|
12/04
|
||||||
|
1,000,000
|
$
|
0.35
|
6/06
|
||||||
|
1,000,000
|
$
|
0.50
|
6/06
|
||||||
|
||||||||||
Outstanding at September 30, 2003
|
7,412,201
|
|
|
|||||||
New Issues
|
275,000
|
$
|
0.50
|
6/06
|
||||||
|
275,000
|
$
|
0.75
|
6/06
|
||||||
|
640,000
|
$
|
0.13
|
1/07
|
||||||
|
500,000
|
$
|
0.10
|
3/11
|
||||||
|
4,414,739
|
$
|
0.11
|
4/09
|
||||||
|
||||||||||
Outstanding at March 31, 2004
|
13,516,940
|
|
|
|||||||
Expired
|
412,201
|
|
|
|||||||
New Issues
|
3,335,961
|
$
|
0.11
|
4/09
|
||||||
|
1,808,497
|
$
|
0.10
|
4/11
|
||||||
|
||||||||||
Outstanding at June 8, 2004
|
18,249,197
|
|
|
|||||||
|
|
Six months ended
|
||||||
|
March 31,
|
||||||
|
|||||||
|
2004
|
|
|
2003
|
|||
|
|
||||||
Basic net income (loss) per common share:
|
|
|
|||||
Net income (loss)
|
$
|
(418,190
|
)
|
$
|
(358,670
|
)
|
|
|
|
||||||
Basic and diluted per share amount
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|
|
|
·
|
Any breach of the directors duty of loyalty to our shareholders and us.
|
|
|
·
|
Acts and omissions not taken in good faith or which involve intentional misconduct or a knowing violation of law.
|
|
|
·
|
Any transaction from which a director received an improper benefit.
|
|
|
·
|
Acts or omissions for which the liability of a director is expressly provided by statute.
|
|
|
·
|
Acts related to an unlawful stock repurchase or dividend.
|
·
|
conducted himself or herself in good faith;
|
|
|
·
|
reasonably believed, in the case of conduct in his or her official capacity as a director or officer of the corporation, that his or her conduct was in the corporations best interests, and, in all other cases, that his or her conduct was at least not opposed to the corporations best interests; and
|
|
|
·
|
in the case of any criminal proceeding had no reasonable cause to believe that his or her conduct was unlawful.
|
·
|
We also have agreed to indemnify Casimir Capital and its representatives, affiliates and controlling persons from and against all liabilities, damages, and expenses arising out of the following:
|
|
|
·
|
Any of our actions or failure to act and/or any action or failure to act of our affiliates, employees or agents in connection with this prospectus or final prospectus.
|
|
|
·
|
Any untrue statement or alleged untrue statement of material fact contained in any of the financial or other information contained in this prospectus or final prospectus.
|
|
|
·
|
The omission or alleged omission of a material fact required to be stated in this prospectus or prospectus in or necessary to make the statements in this prospectus or prospectus not misleading.
|
Item
|
Estimate
|
|||
|
|
|||
Registration Fee
|
$
|
350
|
||
Accounting fees and expenses
|
5,000
|
|||
Printing and engraving
|
7,500
|
|||
Blue sky and legal investment fees and expenses
|
10,000
|
|||
Legal fees and expenses
|
30,000
|
|||
Placement agent fees and commissions
|
155,000
|
|||
Miscellaneous fees and expenses
|
10,000
|
|||
|
|
|||
Total
|
$
|
217,850
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
||
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
|
|
of
|
|
|
Exercise
|
|
|
Fair
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
|
|
||||||||
Options Outstanding, September 30, 2001
|
1,534,501
|
$
|
1.81
|
$
|
0.15
|
|||||
Granted
|
3,654,162
|
0.24
|
0.24
|
|||||||
Exercised
|
(1,477,000
|
)
|
0.11
|
0.11
|
||||||
Canceled
|
(128,824
|
)
|
0.71
|
0.02
|
||||||
|
||||||||||
Options Outstanding, September 30, 2002
|
3,582,839
|
$
|
1.97
|
$
|
0.01
|
|||||
|
||||||||||
Options Outstanding September 30, 2002
|
3,582,839
|
$
|
1.97
|
$
|
0.01
|
|||||
Granted
|
1,144,081
|
0.10
|
0.10
|
|||||||
Exercised
|
(637,153
|
)
|
0.05
|
0.10
|
||||||
Expired
|
(760,010
|
)
|
5.45
|
0.01
|
||||||
|
||||||||||
Options Outstanding, September 30, 2003
|
3,329,757
|
$
|
0.90
|
$
|
0.06
|
|||||
|
||||||||||
Options Outstanding, September 30, 2003
|
3,329,757
|
$
|
0.90
|
$
|
0.06
|
|||||
Granted
|
190,000
|
0.151
|
0.10
|
|||||||
Exercised
|
107,500
|
)
|
0.09
|
0.10
|
||||||
Canceled
|
250,000
|
0.15
|
0.01
|
|||||||
|
||||||||||
Options Outstanding, May 31, 2004
|
3,162,257
|
$
|
0.94
|
$
|
0.06
|
|||||
|
||||||||||
Non Vested
|
5,000
|
|
|
|||||||
Vested
|
3,157,257
|
|
|
II-4 |
||
|
||
NATIONAL SCIENTIFIC CORPORATION | ||
|
|
|
Date: June 23, 2004 | By: | /s/ Michael A. Grollman |
|
||
Title:
Director, Chief Executive Officer, Chairman, and Acting Chief Financial Officer
|
NATIONAL SCIENTIFIC CORPORATION
|
||
|
|
|
Date: June 23, 2004 | By: | /s/ Graham L. Clark |
|
||
Title: Director, President, and Secretary |
|
|
|
By: | /s/ Gregory Szabo | |
|
||
Title: Director |
* /s/ Michael A. Grollman | |||
|
|||
Attorney-in-Fact |
Exhibit
|
|
|
Number
|
Description
|
|
|
|
|
3.1
|
Articles of Incorporation
(1)
|
|
3.2
|
Bylaws
(2)
|
|
4.1
|
Form of Warrant to Purchase Common Stock, dated April 8, 2004, to various purchasers in National Scientific's March 15, 2004 private placement of units
|
|
4.2
|
Form of Subscription Agreement, dated March 15, 2004, with various purchasers in National Scientific's March 15, 2004 private placement of units
|
|
4.3
|
Form of Placement Agent Warrant to Purchase Common Stock, dated April 8, 2004, to various Casimir Capital L.P. employees and associates in National Scientific's March 15, 2004 private placement of units
|
|
4.4
|
Form of Placement Agent Initiation Warrant, dated February 9, 2004, with Casimir Capital L.P.s employees in conjunction with National Scientific's March 15, 2004 private placement of units
|
|
4.5
|
Warrant to Purchase Common Stock, dated January 6, 2004, to Strategic Working Capital Fund L.P., in conjunction with National Scientifics financing dated January 2004
|
|
5.1
|
Legal Opinion of David M. Dobbs, PC
|
|
10.1
|
Employment Agreement between National Scientific Corporation and Michael A. Grollman dated January 2001
(4)
|
|
10.2
|
Employment Agreement between National Scientific Corporation and Graham L. Clark dated January 2003
|
|
10.3
|
NSC Consulting Agreement dated August 2001, and Amendments dated August 2002 and July 2003, with Dr. El-Badawy El-Sharawy
|
|
10.4
|
Amended and Restated 2000 Stock Option Plan
(3)
|
|
10.5
|
Form of 2004 Stock Retainage Plan Agreement
|
|
10.6
|
Agreement Regarding Management Consulting Services with Stanton Walker of New York dated May 2003
(5)
|
|
10.7
|
Agreement Regarding Distribution and Marketing of Gotcha!® Child Safety Product and other products dated December 2002 with FutureCom Global, Inc.
|
|
10.8
|
Purchase Order from Verify Systems, Inc, dated March 2003 for IBUS School Child Tracking Systems
|
|
10.9
|
Letter of Understanding and Agreement dated April 2004 Regarding Sales and Distribution of Verify School safety products, and an Unlimited Software License with Anthony Grosso and CIS Services, LLC
|
|
10.10
|
Letter of Intent from Positus, Inc. dba Bike & Cycle Trak, dated February 2003 for Design of Power Sports Tracking System
|
|
10.11
|
Purchase Order from Positus, Inc. dba Bike & Cycle Trak, for Design of Power Sports Tracking System dated March 2003
|
|
23.1
|
Consent of Hurley & Company
|
|
23.2
|
Consent of David M. Dobbs. (Included in Exhibit 5.1)
|
|
24
|
Power of Attorney (included on signature page)
|
*
|
Previously filed.
|
(1)
|
Incorporated by reference to the Registrants Form 10-SB filed on or about January 3, 2000.
|
(2)
|
Incorporated by reference to the Registrants Form 10-QSB for the quarter ended March 31, 2001 and filed on or about May 15, 2001.
|
(3)
|
Incorporated by reference to the Registrants Form 10-QSB for the quarter ended December 31, 2000 and filed on or about February 14, 2001.
|
(4)
|
Incorporated by reference to the Registrants Form 10-KSB for the year ended September 30, 2000 and filed on or about December 19, 2000
|
(5)
|
Incorporated by reference to the Registrants Form S-8 filed on or around June 3, 2003.
|
II-7 |
EXHIBIT 4.1
Form of Warrant to Purchase
W-_____ Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON THE LAST DAY OF THE EXERCISE PERIOD, AS DEFINED IN THE WARRANT
COMMON STOCK PURCHASE WARRANT
OF
NATIONAL SCIENTIFIC CORPORATION
This is to certify that, FOR VALUE RECEIVED, ______, with an address at
_______________ (and or its assign(s) and/or transferee(s)) (hereinafter, each a
"Holder" and collectively the "Holders"), is entitled to purchase, subject to
the provisions of this Warrant, from National Scientific Corporation, a Texas
corporation (the "Company"), at an initial exercise price equal to $.11 per
share, _____________ (______) fully paid and non-assessable shares of Common
Stock, par value $.01 per share ("Common Stock"). The shares of Common Stock
deliverable upon such exercise, and as adjusted from time-to-time as provided in
this Warrant, are hereinafter sometimes referred to as "Warrant Stock," and the
exercise price for the purchase of a share of Common Stock pursuant to this
Warrant in effect at any time and as adjusted from time-to-time is hereinafter
sometimes referred to as the "Exercise Price." The aggregate purchase price
payable for the Warrant Stock purchasable hereunder is referred to as the
"Aggregate Purchase Price." The Aggregate Purchase Price is not subject to
adjustment. In the event of an adjustment to the Exercise Price, as provided in
Section 6 herein, the number of shares of Warrant Stock deliverable upon
exercise of this Warrant shall be adjusted by dividing the Aggregate Purchase
Price by the Exercise Price in effect immediately after such adjustment.
This warrant and additional warrants of like tenor, including warrants issued in exchange and/or substitution thereof (collectively, the "Warrants") were originally issued in connection with a private placement of securities of the Company, through Casimir Capital L.P., as Placement Agent ("Placement Agent"), pursuant to the terms of a Confidential Term Sheet dated March 15, 2004, as may be amended from time-to-time, and as set forth in the Subscription Agreements between the subscribers and the Company ("Subscription Agreements").
1. DEFINITIONS. The following terms have the meanings set forth below:
"Current Market Value" of a share of Warrant Stock as of a particular date (the "Determination Date") shall mean:
a. If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ National Market, the current market value shall be the last reported sale price of the Common Stock on such exchange or market on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or market; or
b. If the Common Stock is not so listed or admitted to unlisted trading privileges, but is traded on the NASDAQ SmallCap Market, the current market value shall be the average of the closing bid and asked prices for such day on such market and if the Common Stock is not so traded, the current market value shall be the mean of the last reported bid-and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or
c. If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.
"Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities, including but not limited to options, warrants or purchase, subscription or other rights, which are convertible into, exchangeable or exercisable for, or represent the right to receive, with or without payment of additional consideration in cash or property, shares of Common Stock (or other Convertible Securities), either immediately or upon the occurrence of a specified date or a specified event.
"Exercise Period" shall mean the period commencing on the date hereof and ending at 5 p.m., eastern time on the day preceding the fifth anniversary of the date hereof.
"Permitted Issuances" shall mean (i) Common Stock issuable or issued
to employees, consultants or directors of the Company pursuant to a stock plan
or other compensation arrangement approved by the Board of Directors of the
Company, but in no event, more than Eight Million shares in the aggregate, and
(ii) Common Stock issued or issuable upon conversion of the Warrants or any
other securities exercisable or exchangeable for, or convertible into shares of
Common Stock outstanding as of March 15, 2004.
2. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part at any time or from time to time commencing on the date hereof and until April 8, 2009 (the "Exercise Period"), provided, however, that if either such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares of Warrant Stock specified in such form. As soon as practicable after each such exercise of this Warrant, but not later than seven days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate or certificates for the shares of Warrant Stock issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares of Warrant Stock purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder.
3. RESERVATION OF SHARES/FRACTIONAL SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. If the Company hereafter lists its Common Stock on any national securities exchange, the Nasdaq National Market or the Nasdaq SmallCap Market, it shall use its best efforts to keep the Warrant Stock authorized for listing on such exchange upon notice of issuance. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share, called for upon exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Value of a share of Warrant Stock.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant (and all rights hereunder) is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder or any assignee and/or transferee thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee and/or transferee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. In addition, no provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of Company, whether such liability is asserted by Company or by creditors of Company.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows and the Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 6 at the time of such event:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If, at any time or from time to time after the date of this Warrant, the Company shall (i) pay a dividend or make a distribution to any holder of its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Exercise Price shall be adjusted to be equal to a fraction, the numerator of which shall be the Aggregate Purchase Price and the denominator of which shall be the number of shares of Common Stock or other capital stock of the Company that the Holder would have owned immediately following such action had such Warrant been exercised immediately prior thereto. An adjustment made pursuant to this Subsection (a) shall become effective immediately after the record date in the case of a dividend or distribution, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification, and shall result in a corresponding adjustment to the number of shares of Warrant Stock issuable upon exercise of this Warrant.
(b) CERTAIN OTHER DISTRIBUTIONS AND ADJUSTMENTS. If, at any time or from time to time after the date of this Warrant, the Company shall issue or distribute to any holder of shares of Common Stock evidence of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a subdivision, combination or reclassification, or dividend or distribution payable in shares of Common Stock, referred to in Subsection (a), and also excluding cash dividends or cash distributions paid out of net profits legally available therefor in the full amount thereof (any such non-excluded event being herein called a "Special Dividend")), the Exercise Price shall be adjusted by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then Current Market Value in effect on the record date of such issuance or distribution less the fair market value (as determined in accordance with paragraph B. of this Section 6 (g)) of the evidence of indebtedness, cash, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock and the denominator of which shall be the then Current Market Value in effect on the record date of such issuance or distribution. An adjustment made pursuant to this Subsection (b) shall become effective immediately after the record date of any such Special Dividend and shall result in a corresponding adjustment to the number of shares of Warrant Stock issuable upon exercise of this Warrant.
(c) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND CONVERTIBLE SECURITIES.
(i) If at any time the Company shall issue or sell any shares of Common Stock or Convertible Securities (whether directly or by assumption in a merger in which Company is the surviving corporation), in exchange for consideration in an amount per share of Common Stock ( determined by dividing (i) the total amount, if any, received or receivable by the Company in consideration of the issuance or sale of such securities plus the total consideration, if any, payable to the Company upon exercise, conversion or exchange thereof ("Total Consideration") by (ii) the number of additional shares of Common Stock issued, sold or issuable upon the exercise, conversion or exchange of such securities) that is less than the Exercise Price (excluding Permitted Issuances), then (A) the Exercise Price shall be adjusted so that it shall equal the price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance or sale (calculated on a fully diluted basis as if all securities exercisable, convertible or exchangeable for Common Stock have been so exercised, converted or exchanged) plus the number of shares of Common Stock which the aggregate offering price would purchase based upon the Exercise Price and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance or sale (calculated on a fully diluted basis as if all securities exercisable, convertible or exchangeable for Common Stock have been so exercised, converted or exchanged) plus the maximum number of additional shares of Common Stock issued, sold or issuable in connection with such offering or transaction, and (B) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the Exercise Price in effect immediately prior to such issue or sale by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale and dividing the product thereof by the Exercise Price resulting from the adjustment made pursuant to clause (A) above.
(ii) The provisions of paragraph (i) of this Section 6(c) shall not apply to any issuance of shares of Common Stock for which an adjustment is provided under Section 6(a) or 6(b). No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of this Section 6(c) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities.
(d) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Section 6(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided, further, however that adjustments shall be required and made in accordance with the provisions of this Section 6 not later than such time as may be required in order to preserve the tax-free nature of a distribution to the Holder of this Warrant or Common Stock issuable upon the exercise hereof.
All calculations under this Section 6(d) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(e) The Company may retain a firm of independent public accountants of recognized standing selected by the Board (who may be the regular accountants employed by the Company) to make any computation required by this Section 6.
(f) In the event that at any time, as a result of an adjustment made pursuant to Section 6(a), (b) or (c) of this Warrant, the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 6(a) through (h), inclusive, of this Warrant.
(g) For purposes of any computation respecting consideration received pursuant to this Section 6, the following shall apply:
A. in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith;
B. in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and
C. in the case of the issuance of securities convertible, exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection).
(h) Notwithstanding the foregoing, no adjustment shall be effected due to, or as a result of, any Permitted Issuances.
7. REGISTRATION RIGHTS. The Warrant Stock shall be entitled to the registration rights described in Article V of the Subscription Agreements.
8. OFFICER'S CERTIFICATE. Whenever the Exercise Price(s) shall be adjusted as required by the provisions of Section 6 of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price(s) and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be forwarded by certified mail to Holder as provided in Section 13
9. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock, or (2) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights, or (3) if any capital reorganization of the Company, reclassification of
the capital stock of the Company, consolidation or merger of the Company with or
into another entity, tender offer transaction for the Company's Common Stock,
sale, lease or transfer of all or substantially all of the property and assets
of the Company, or voluntary or involuntary dissolution, liquidation or winding
up of the Company shall be effected, or (4) if the Company shall file a
registration statement under the Securities Act of 1933, as amended (the "Act"),
on any form other than on Form S-4 or S-8 or any successor form, then in any
such case, the Company shall cause to be mailed by certified mail to the Holder,
at least fifteen days prior to the date specified in clauses (1), (2), (3) or
(4), as the case may be, of this Section 9 a notice containing a brief
description of the proposed action and stating the date on which (i) a record is
to be taken for the purpose of such dividend, distribution or rights, or (ii)
such reclassification, reorganization, consolidation, merger, tender offer
transaction, conveyance, lease, dissolution, liquidation or winding up is to
take place and the date, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up, or (iii) such registration
statement is to be filed with the Securities and Exchange Commission.
10. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing or surviving corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance of all or substantially all of the assets of the Company, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that (i) the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, conveyance or statutory exchange by a holder of the number of shares of Common Stock which could have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale, conveyance, or statutory exchange and (ii) the successor or acquiring entity shall expressly assume the due and punctual observance and performance of each covenant, agreement, obligation and condition of this Warrant to be performed and observed by Company and all obligations and liabilities hereunder (including but not limited to the provisions of Section 6 regarding the increase in the number of shares of Warrant Stock potentially issuable hereunder). Any such provision shall include provision for adjustments which shall be as nearly equivalent as possible to the adjustments provided for in this Warrant. The foregoing
provisions of this Section 10 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale, conveyance or statutory exchange, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issuance of Common Stock covered by the provisions of Section 6 of this Warrant. Notice of any such event shall be mailed by certified mail to the Holders of the Warrants no less than thirty (30) days prior to such event. A sale of all or substantially all of the Company's assets for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes.
11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel for the Company, or counsel for the Holder who is reasonably acceptable to the Company, is a person to whom this Warrant or Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 11 with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or
(ii) to any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition.
12. GOVERNING LAW; JURISDICTION. The corporate laws of the State of Texas shall govern all issues concerning the relative rights of the Company and its stockholders. All issues concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the principles of conflicts of law thereof. The parties hereto agree that venue in any and all actions and proceedings related to the subject matter of this Warrant shall be in the state and federal courts in and for New York, New York, which courts shall have exclusive jurisdiction for such purpose, and the parties hereto irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such action or proceeding. Service of process may be made in any manner recognized by such courts. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
13. NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered VIA facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered VIA facsimile at the facsimile telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: National Scientific Corporation Scottsdale Technology Center 14455 North Hayden Road, Suite 202 Scottsdale, AZ 85260-6497
If to the Holder: To the Address Set Forth on the cover page hereof.
14. MODIFICATION OF WARRANT. This Warrant shall not be modified, supplemented or altered in any respect, nor any provision waived, except with the consent in writing of the Holders representing not less than fifty percent (50%) of the Warrants then outstanding.
15. SOLICITATION FEE. The Company has agreed to pay a fee of 2% of the Exercise Price to the Placement Agent upon exercise of the Warrant on or before April 8, 2005.
16. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.
IN WITNESS WHEREOF, this Warrant has been duly executed as of April 8, 2004.
NATIONAL SCIENTIFIC CORPORATION
ATTEST:
[CORPORATE SEAL]
SUBSCRIPTION
The undersigned, ____________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase ___________________ shares of the Common Stock, par value $_____ per share, of ______________________ covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant.
Dated: ________________________ Signature: ___________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto ________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ___________________, attorney, to transfer said Warrant on the books of _________________________.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto ________________________ the right to purchase ____________ shares of Common Stock, par value $_____ per share of _________________________ covered by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ___________________, attorney, to transfer such part of said Warrant on the books of _________________________.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
EXHIBIT 4.2
FORM OF SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement" or "Subscription Agreement") is made as of the date indicated on the signature page of this Agreement by and between National Scientific Corporation, a Texas corporation (the "Company"), and each party who is a signatory hereto and any other Subscribers who are made a party to this Agreement pursuant to Section 1 (individually, a "Subscriber" and collectively, the "Subscribers").
RECITALS
The Company hereby offers to persons who qualify as "accredited investors" as defined in Rule 501 of Regulation D promulgated under the under the Securities Act of 1933, as amended (the "Securities Act"), 10 million units for aggregate gross proceed of $1.1 million ("Base Offering") in a private placement ("Offering") to be conducted through Casimir Capital L.P., as Placement Agent ("Casimir" or the "Placement Agent"). The Company is offering the units pursuant to Rule 506 of Regulation D promulgated under the Securities Act. The Base Offering will be conducted on a "best efforts, all or none basis," as more thoroughly described in the Confidential Offering Memorandum, dated March 15, 2004 (hereinafter, with all Exhibits and Schedules annexed thereto, and any supplements and/or amendments, the "Offering Memorandum"). Each unit (a "Unit") shall consist of (i) one (1) share of common stock, par value $0.01 per share, of the Company (the "Common Stock"), and (ii) a 5-year warrant (the "Warrant") to purchase three quarters (3/4) of a share of Common Stock. The offering price per Unit ("Purchase Price") shall be $0.11. The initial exercise price of each Warrant shall be equal to the Purchase Price.
During the Offering Period (as hereinafter defined), the Company has the option to sell up to an additional 4,545,455 Units, for additional aggregate gross proceeds of up to $500,000, thereby possibly increasing the aggregate gross proceeds of the Offering to up to $1.6 million (hereinafter such additional gross proceeds of up to $500,000, referred to as the "Over-allotment Option"). In the event the Company exercises the Over-allotment Option, it may choose to have more than one closing in connection with the Offering.
The Common Stock, Warrants and shares of Common Stock underlying the Warrants ("Warrant Shares"), including any such securities sold in connection with the Over-allotment Option, shall collectively be referred to as the "Unit Securities." The term "Offering" shall include any Units sold in connection with the Base Offering and the Over-allotment Option.
In consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Subscribers hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 PURCHASE AND SALE OF UNIT SECURITIES. Subject to the terms and conditions set forth herein, Subscriber hereby subscribes for and agrees to purchase from the Company and the Company agrees to issue and sell to each Subscriber at the Closing the number of Units set forth on the signature page hereto.
1.2 PAYMENT. Prior to the Closing, each Subscriber will deposit, by wire transfer or check of immediately available funds in accordance with the Company's wire instructions, the aggregate Purchase Price set forth beneath its
name on the signature page hereof in a segregated escrow account with an escrow agent reasonably acceptable to Casimir. The Company will deliver certificates representing the Common Stock and Warrants within 10 business days of the earlier to occur of the (a) Closing Date or (b) the Termination Date.
1.3 OFFERING PERIOD. Unless terminated earlier in the Company's sole discretion, the offering period (the "Offering Period") will expire May 14, 2004 (subject to extension at the Company's discretion for an additional 30 days without notice to investors) (the "Termination Date").
ARTICLE II
SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES
Each Subscriber represents and warrants to the Company and Casimir, severally and solely with respect to itself and its purchase hereunder and not with respect to any other Subscriber, that:
2.1 INVESTMENT PURPOSE. The Subscriber is purchasing the Unit Securities for its own account and not with a present view toward the public sale or distribution thereof; provided, however, that by making the representation herein, the Subscriber does not agree to hold any of the Unit Securities for any minimum or other specific term and reserves the right to dispose of the Unit Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.
2.2 ACCREDITED SUBSCRIBER STATUS. The Subscriber is an "accredited investor" as defined in Rule 501(a) of Regulation D. The Subscriber has delivered to the Company a Confidential Investor Questionnaire in the form annexed to the Offering Memorandum. The Subscriber hereby represents that, either by reason of the Subscriber's business or financial experience or the business or financial experience of the Subscriber's advisors, the Subscriber has the capacity to protect the Subscriber's own interests in connection with the transaction contemplated hereby and is capable of evaluating the merits and risks of an investment in the Unit Securities.
2.3 RELIANCE ON EXEMPTIONS. The Subscriber understands that the Unit Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Subscriber's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Unit Securities.
2.4 INFORMATION. (a) The Subscriber and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company, and materials relating to the offer and sale of the Unit Securities that have been requested by the Subscriber or its advisors, if any, including, without limitation, the Offering Memorandum. The Subscriber and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by Subscriber or any of its advisors or representatives modify, amend or affect the Subscriber's right to rely on the Company's representations and warranties contained in Article III below.
(b) The Subscriber acknowledges and agrees that Casimir has not supplied any information for inclusion herein other than information furnished in writing to the Company by Casimir specifically for inclusion herein relating to Casimir, that Casimir has no responsibility for the accuracy or completeness of the Offering Memorandum, and that the Subscriber has not relied upon the independent investigation or verification, if any, which may have been undertaken by Casimir.
2.5 ACKNOWLEDGEMENT OF RISK. The Subscriber acknowledges and understands that its investment in the Unit Securities involves a high degree of risk, including, without limitation, those risk factors set forth in the Company's Form 10-KSB for the fiscal year ended September 30, 2003, and that (i) the Company has experienced losses for the past 7 years, including net losses of $1,883,489, $952,564 and $210,778 for the years ended September 30, 2002 and 2003 and the quarter ended December 31, 2003, respectively, and its auditor's report for the years ended September 30, 2002 and 2003 raise doubt regarding the ability of the Company to continue as a going concern; (ii) the Company changed its focus in February 2002 to applications of electronic devices in the location services market and, accordingly, is considered a development stage company and as such, has limited operating history in its current business and has not generated significant revenues; (iii) the Company is dependent upon raising capital from investors and requires substantial funds in addition to the proceeds from the sale of Unit Securities; (iv) an investment in the Company is highly speculative, and only Subscribers who can afford the loss of their entire investment should consider investing in the Company and the Unit Securities; (v) the Subscriber may not be able to liquidate its investment; (vi) transferability of the Unit Securities is extremely limited; (vii) in the event of a disposition of the Unit Securities, the Subscriber could sustain the loss of its entire investment and (viii) the Company has not paid any dividends on its Common Stock since inception and does not anticipate the payment of dividends in the foreseeable future.
2.6 GOVERNMENTAL REVIEW. The Subscriber understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities or an investment therein.
2.7 TRANSFER OR RESALE. The Subscriber understands that:
(a) except as otherwise provided in Article V, the Unit Securities have not been and are not being registered under the Securities Act or any applicable state securities laws and, consequently, the Subscriber may have to bear the risk of owning the Unit Securities for an indefinite period of time because the Unit Securities may not be transferred unless (i) the resale of the Unit Securities is registered pursuant to an effective registration statement under the Securities Act; (ii) the Subscriber has delivered to the Company an opinion of counsel reasonably acceptable to the Company (in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Unit Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or (iii) the Unit Securities are sold or transferred pursuant to Rule 144;
(b) any sale of the Unit Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any resale of the Unit Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC promulgated thereunder; and
(c) except as set forth in Article V, neither the Company nor any other person is under any obligation to register the Unit Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. There can be no assurance that the Registration Statement provided for in Article V will ever be effective or remain effective, or that there will be any liquidity with respect to the sale of the Registrable Securities (as hereinafter defined), if and when registered. Subscriber understands that although the Company's Common Stock is traded on the OTCBB, there is currently a limited public market for such securities and the price of the Company's Common Stock has fluctuated widely in the past. Even if
the Subscriber is able to sell the Registrable Securities, there is no assurance regarding a return of or on Subscriber's investment in the Unit Securities.
2.8 LEGENDS. The Subscriber understands the certificates representing the Unit Securities will bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
2.9 AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Subscriber and represents the valid and binding obligations of the Subscriber enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and the application of general principles of equity.
2.10 ACKNOWLEDGEMENTS REGARDING CASIMIR. The Subscriber acknowledges that Casimir is acting as placement agent for the Unit Securities being offered hereby and will be compensated by the Company for acting in such capacity. The Subscriber further acknowledges that Casimir has acted solely as agent of the Company in connection with the offering of the Unit Securities by the Company, that the information and data provided to the Subscriber in connection with the transactions contemplated hereby have not been subjected to independent verification by Casimir, and that Casimir makes no representation or warranty with respect to the accuracy or completeness of such information, data or other related disclosure material. The Subscriber further acknowledges that in making its decision to enter into this Agreement and purchase the Unit Securities it has relied on its own examination of the Company and the terms of, and consequences, of holding the Unit Securities. The Subscriber further acknowledges that the provisions of this Section 2.10 are for the benefit of, and may be enforced by, Casimir.
2.11 NOT A REGISTERED REPRESENTATIVE. The Subscriber acknowledges that if he or she is a Registered Representative of an NASD member firm, he or she must give such firm the notice required by the NASD's Rules of Fair Practice, receipt of which must be acknowledged by such firm in the Confidential Investor Questionnaire.
2.12 INDEMNIFICATION. The Subscriber agrees to hold the Company and its
directors, officers, employees, controlling persons and agents (including
Casimir and its officers, directors, partners, employees, counsel, controlling
persons and agents) and their respective heirs, representatives, successors and
assigns harmless and to indemnify them against all liabilities, costs, and
expenses incurred by them as a result of, (i) any misrepresentation made by the
Subscriber contained in this Agreement (including the Confidential Investor
Questionnaire, (ii) any sale or distribution by the Subscriber in violation of
the Securities Act or any applicable state securities or "blue sky" laws or
(iii) any untrue statement of a material fact made by the Subscriber and
contained herein.
2.13 AFFILIATE INVESTMENTS. Subscriber acknowledges and understands that certain affiliates of Casimir may purchase Unit Securities in the Offering.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscribers and Casimir that:
3.1 ORGANIZATION AND QUALIFICATION. The Company is duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is duly qualified to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. The Company has no direct or indirect subsidiaries.
3.2 AUTHORIZATION; ENFORCEMENT. (a) The Company has all requisite corporate power and authority to conduct the Offering as contemplated in the Offering Memorandum and to enter into and to perform its obligations under this Agreement, the Placement Agent Agreement, Escrow Agreement, Right of First Refusal Agreement and Mergers and Acquisition Agreement (collectively, the "Transaction Documents"), to consummate the transactions contemplated hereby and thereby and to issue the Unit Securities in accordance with the terms hereof, and to issue the Placement Agent Warrants and Initiation Warrants in accordance with the Placement Agent Agreement, and to issue the shares of Common Stock underlying the Placement Agent Warrants and Initiation Warrants; (b) the execution, delivery and performance of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation the issuance of the Securities) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required; (c) Each of the Transaction Documents has been duly executed by the Company; and (d) Each of Transaction Documents constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, or moratorium or similar laws affecting the rights of creditors generally and the application of general principles of equity.
3.3 CAPITALIZATION. The authorized and issued capitalization of the Company is as set forth in the Offering Memorandum. All outstanding shares of Common Stock are, and all shares which may be issued pursuant to the Transaction Documents or otherwise will be, when issued, duly authorized, validly issued, fully paid and nonassessable and will not be subject to preemptive rights. Except as set forth on SCHEDULE 3.3, there are not issued, reserved for issuance or outstanding (a) any shares of capital stock or other voting securities of the Company, (b) any securities of the Company convertible into or exchangeable or exercisable for shares of capital stock or voting securities of the Company, (c) any warrants, calls, options or other rights to acquire from the Company, and any obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of the Company.
3.4 ISSUANCE OF SECURITIES. The shares of Common Stock of the Company purchased under this Agreement, and the shares of Common Stock issuable upon exercise of the Warrants, Placement Agent Warrants and Initiation Warrants, including such indeterminate number of shares of Common Stock as may be issued as a result of the anti-dilution provisions contained therein (collectively, the "Warrant Shares"), are duly authorized and, upon issuance in accordance with the terms of this Agreement, the Placement Agent Warrants and Initiation Warrants, as the case may be, will be validly issued, fully paid and non-assessable, free from all taxes, liens, claims, encumbrances and charges with respect to the issue thereof, will not be subject to preemptive rights or other similar rights of stockholders of the Company, and will not impose personal liability on the
holders thereof. The Company has a sufficient number of authorized but unissued
shares of Common Stock, assuming the Maximum Offering, giving effect to (i) the
exercise of the Warrants, Placement Agent Warrants and Initiation Warrants and
(ii) the conversion, exercise and/or exchange of all other securities
outstanding on the date hereof, which are convertible, exercisable or
exchangeable for shares of Common Stock. As of the First Closing Date and for as
long as the Warrants, Placement Agent Warrants and Initiation Warrants are
outstanding, the Company shall have reserved a sufficient number of Warrant
Shares to be issued upon exercise of the Warrants, Placement Agent Warrants and
Initiation Warrants.
3.5 NO CONFLICTS; NO VIOLATION.
(a) Other than as set forth in SCHEDULE 3.5, the execution, delivery
and performance of each of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Securities) will not (i)
conflict with or result in a violation of any provision of its Certificate of
Incorporation or Bylaws, (ii) violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment (including without limitation, the triggering
of any anti-dilution or right of first refusal provision), acceleration or
cancellation of, any agreement, indenture, patent, patent license, or instrument
to which the Company is a party ( any one or all being referred to as a "Company
Obligation"), or (iii) to the best of the Company's knowledge, result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, breaches, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).
(b) The Company is not in violation of its Articles of Incorporation, Bylaws or other organizational documents and is not in default (and no event has occurred which with notice or lapse of time or both could put the Company in default) under any Company Obligation to which it is a party or by which any property or assets of the Company is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect, nor is any other party in violation and/or breach of any such Company Obligation. Each such Company Obligation is the legal, valid and binding obligation of the Company enforceable in accordance with its terms.
(c) The Company is not conducting its business in violation of any law, ordinance or regulation of any governmental entity, the failure to comply with which would, individually or in the aggregate, have a Material Adverse Effect.
(d) Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws or any listing agreement with any securities exchange or automated quotation system, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency in order for it to execute, deliver or perform any of its obligations under any of the Transaction Documents in accordance with the terms hereof and thereof, or to issue and sell the Unit Securities or Securities in accordance with the terms hereof and thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.
3.6 SEC DOCUMENTS, FINANCIAL STATEMENTS. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC since September 30, 2000, pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). Each Subscriber has had access to, true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted stating a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business subsequent to December 31, 2003 and liabilities of the type not required under generally accepted accounting principles to be reflected in such financial statements. Such liabilities incurred subsequent to December 31, 2003 are not, in the aggregate, material to the financial condition or operating results of the Company.
3.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC Documents or on SCHEDULE 3.7, Since December 31, 2003, there has been no material adverse change in the assets, liabilities, business, properties, operations, financial condition, prospects or results of operations of the Company, except that the Company has continued losses from operations.
3.8 DISCLOSURE. None of the Offering Documents contains or will contain during the Offering Period any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein and therein not misleading, in light of the circumstances under which they were made.
3.9 ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or its officers or directors acting as such that could, individually or in the aggregate, have a Material Adverse Effect.
3.10 INTELLECTUAL PROPERTY. The Company owns or possesses adequate and enforceable rights to use all material patents, patent applications, trademarks, service marks, trade names, logos, corporate names, copyrights, trade secrets, processes, mask works, licenses, inventions, formulations, technology and
know-how and other intangible property used or proposed to be used in the conduct of the Company's business as currently conducted or as proposed to be conducted (the "Proprietary Rights"). The Company or the entities from whom the Company has acquired rights has taken all necessary action to protect all of the Company's Proprietary Rights. The Company has not received any notice of, and there are not any facts known to the Company which indicate the existence of (i) any infringement or misappropriation by any third party of any of the Proprietary Rights, (ii) any claim by a third party contesting the validity of any of the Proprietary Rights or (iii) any infringement, misappropriation or violation by the Company or any of its employees of any Proprietary Rights of third parties. To the best of the Company's knowledge, neither the Company nor any of its employees has infringed, misappropriated or otherwise violated any Proprietary Rights of any third parties. To the Company's knowledge, no infringement, illicit copying, misappropriation or violation of any intellectual property rights of any third party has occurred or will occur with respect to any products currently being sold by the Company or with respect to any products currently under development by the Company or with respect to the conduct of the business of the Company or as currently contemplated. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of the employee's best efforts to promote the interests of the Company or that would conflict with the business of the Company as currently conducted or as proposed to be conducted. To the Company's knowledge, neither the execution and delivery of this Agreement, nor the carrying on of the business of the Company by the employees of the Company, nor the conduct of the business of the Company, as currently conducted or as proposed to be conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.
3.11 TAX STATUS. The Company has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. To the knowledge of the Company, there are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company's tax returns is presently being audited by any taxing authority.
3.12 ENVIRONMENTAL LAWS. To the best the Company's knowledge, the Company
(i) is in compliance with all applicable foreign federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
business and (iii) is in compliance with all terms and conditions of any such
permit, license or approval where, in each of the three foregoing clauses, the
failure to so comply would have, individually or in the aggregate, a Material
Adverse Effect
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the Securities Act of the issuance of the Securities to the Subscribers. The issuance of the Securities to the Subscribers will not be integrated with any other issuance of the Company's securities (past, current or future) for purposes of the Securities Act or any applicable rules of Nasdaq.
3.14 NO BROKERS. Neither the Company nor any officer or director has taken any action which would give rise to any claim by any person or entity for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby, except for dealings with Casimir, whose commissions and fees will be paid by the Company. Similarly, neither the Company nor any officer or director has taken any action which would give rise to any claim or right of any person or entity to participate or act as agent in the Offering, or otherwise generate any fees.
3.15 INSURANCE. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged.
3.16 EMPLOYMENT MATTERS. The Company is in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours except where failure to be in compliance would not have a Material Adverse Effect. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company. The Company is not aware that any officer or key employee, or that any group of officers or key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing.
3.17 INVESTMENT COMPANY STATUS. The Company is not and upon consummation of the sale of the Unit Securities will not be an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended.
3.18 SUBSIDIARIES. Except as disclosed in the SEC Documents, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, joint venture, partnership or other business entity and the Company is not a direct or indirect participant in any joint venture or partnership.
3.19 NO CONFLICT OF INTEREST; TRANSACTIONS WITH AFFILIATE. Except as set forth in the SEC Documents, The Company is not indebted, directly or indirectly, to any of its beneficial holders of five percent (5%) or more of the Company's outstanding Common Stock ("Principal Stockholders") or officers or directors or to their respective spouses or children, in any amount. None of the Company's officers, directors, Principal Stockholders or employees, or any members of their immediate families, are directly, or indirectly, indebted to the Company or, to the best of the Company's knowledge, have any direct or indirect ownership interest in any entity with which the Company is affiliated or with which the Company has a business relationship, or any entity which competes with the Company, except that officers, directors, employees and/or Principal Stockholders of the Company may own stock in (but not exceeding five percent (5%) of the outstanding capital stock of) any publicly traded company that may compete with the Company. To the best of the Company's knowledge, none of the Company's officers, directors, Principal Stockholders or employees or any
members of their immediate families are, directly or indirectly, a party to or interested in any material contract with the Company or any Subsidiary. The Company is not a guarantor or indemnitor of any indebtedness of any other person or entity.
3.20 COMPLIANCE WITH SARBANES OXLEY. To the best of its knowledge, the Company is in compliance with the Sarbanes Oxley Act of 2002.
3.21 REGISTRATION RIGHTS; SB-2 REGISTRATION STATEMENT. Except as disclosed in SCHEDULE 3.21, none of the Company's security holders have any registration rights, including any right to effect a demand or shelf-registration under the Securities Act or exercise any "piggyback" registration rights with respect to any filing under the Securities Act. The Company satisfies all requirements necessary in order to file a registration statement with the SEC on Form SB-2 under the Securities Act.
3.22 ACKNOWLEDGEMENTS REGARDING CASIMIR. The Company acknowledges that Casimir, in acting as Placement Agent for the Unit Securities offered hereby in accordance with the terms of Section 2 of the Placement Agent Agreement is relying on the representations and warranties contained in this Section 3 and that such provisions of this Section 3 are for the benefit of Casimir (in addition to the Subscribers), and may be enforced by Casimir.
ARTICLE IV
COVENANTS
4.1 COVENANTS OF THE COMPANY.
(a) FORM D; BLUE SKY LAWS. The Company will timely file a Notice of Sale of Securities on Form D with respect to the Unit Securities, as required under Regulation D. The Company will, on or before the Closing Date, take such action as it reasonably determines to be necessary to qualify the Unit Securities for sale to the Unit Subscribers under this Agreement under applicable securities (or "blue sky") laws of the states of the United States (or to obtain an exemption from such qualification).
(b) REPORTING STATUS. The Company's Common Stock is registered under
Section 12 of the Exchange Act. During the period commencing on the date of the
First Closing until the expiration of the Registration Period (as defined
below), the Company will timely file all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC under the reporting
requirements of the Exchange Act, and the Company will not terminate its status
as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
(c) EXPENSES. The Company and each Subscriber is liable for, and will pay, its own expenses incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the transactions contemplated hereby, including, without limitation, attorneys' and consultants' fees and expenses.
(d) FINANCIAL INFORMATION. The financial statements of the Company will be prepared in accordance with United States generally accepted accounting principles, consistently applied, and will fairly present in all material respects the consolidated financial position of the Company and results of its operations and cash flows as of, and for the periods covered by, such financial statements (subject, in the case of unaudited statements, to normal year-end audit adjustments).
(e) COMPLIANCE WITH LAW. As long as any Registrable Securities (as hereinafter defined) are held by a Subscriber the Company will conduct its business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business (including, without limitation, all applicable local, state and federal environmental laws and regulations), the failure to comply with which would have a Material Adverse Effect.
(f) NO INTEGRATION. The Company will not make any offers or sales of any security (other than the Unit Securities) under circumstances that would cause the offering of the Unit Securities to be integrated with any other offering of securities by the Company (i) for the purpose of any stockholder approval provision applicable to the Company or its securities or (ii) for purposes of any registration requirement under the Securities Act.
4.2 COVENANTS OF SUBSCRIBERS.
(a) SALES BY SUBSCRIBERS. Each Subscriber covenants to sell any Unit Securities sold by it in compliance with applicable prospectus delivery requirements, if any, or otherwise in compliance with the requirements for an exemption from registration under the Securities Act and the rules and regulations promulgated thereunder. No Subscriber will make any sale, transfer or other disposition of the Unit Securities in violation of federal or state securities laws.
(b) NO VOTING AGREEMENT. Each Subscriber covenants and agrees with the Company that, so long as such Subscriber holds any of the Unit Securities, such subscriber shall refrain from entering into any voting agreement with any other Subscriber or any third-party, including without limitation Casimir.
ARTICLE V
REGISTRATION RIGHTS
5.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:
(a) "AFFILIATE" shall mean, with respect to any Person (as defined below), any other Person controlling, controlled by or under direct or indirect common control with such Person (for the purposes of this definition "control," when used with respect to any specified Person, shall mean the power to direct the management and policies of such person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing).
(b) "BUSINESS DAY" shall mean a day Monday through Friday on which banks are generally open for business in New York.
(c) "HOLDERS" shall mean the Subscribers, holders of the Placement Agent Warrants, holders of the Initiation Warrants and the holders of the Common Stock issued upon the exercise of the Placement Agent Warrants and Initiation Warrants, any person holding Registrable Securities, or any person to whom the rights under Article V have been transferred in accordance with Section 5.8 hereof.
(d) "PERSON" shall mean any person, individual, corporation, limited liability company, partnership, trust or other nongovernmental entity or any governmental agency, court, authority or other body (whether foreign, federal, state, local or otherwise).
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to the registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.
(f) "REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock included in the Units; (ii) the shares of Common Stock issuable upon exercise of the Warrants included in the Units; (iii) the shares of Common Stock issuable upon exercise of the Placement Agent Warrants and the Initiation Warrants; and (iv) any shares of Common Stock issued as (or issuable upon the conversion of any warrant, right or other security which is issued as) a dividend, distribution or split, recapitalization, merger, consolidation, any reorganization of or other distribution with respect to or in replacement of the Common Stock, Warrants, Placement Warrants and/or Initiation Warrants; provided, however, that securities shall only be treated as Registrable Securities if and only for so long as they (a) have not been disposed of pursuant to a registration statement declared effective by the SEC, (b) have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale or (c) are held by a Holder or a permitted transferee pursuant to Section 5.8.
(g) "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Section 5.2 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, listing fees, escrow fees, fees and expenses of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration.
(h) "REGISTRATION PERIOD" shall have the meaning ascribed to such term in Section 5.4(a).
(i) "REGISTRATION STATEMENT" shall mean any registration statement filed with the SEC in accordance with Sections 5.2(a) and (b) herein.
(j) "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and expenses of legal counsel for any Holder, other than as provided in paragraph (g) above.
5.2 REGISTRATION RIGHTS. (a) No later than 60 days after the Final Closing Date (the "Filing Date"), the Company shall file a Registration Statement on Form SB-2 or if unavailable another appropriate registration document, covering the Registrable Securities with the SEC and use its best efforts to effect the registration, qualifications or compliances (including, without limitation, the execution of any required undertaking to file post-effective amendments, appropriate qualifications or exemptions under applicable blue sky or other state securities laws and appropriate compliance with applicable securities laws, requirements or regulations) prior to the date which is 60 days after the Filing Date ("Effective Date").
(b) From and after the Final Closing Date if the Company shall determine to proceed with the preparation and filing of a Registration Statement in connection with the proposed offer and sale of any of its securities by it or any of its security holders (other than a registration statement on Form S-4, S-8 or other limited purpose form), the Company will give written notice of its determination to all Holders. Upon receipt of a written request from any such holder within thirty (30) days after receipt of any such notice from the Company, the Company will cause all the Registrable Securities owned by such holders to be included in such Registration Statement, all to the extent requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Securities to be so registered. If any registration pursuant to this Section 5.2(b) shall be underwritten in whole or in part, the Company may require that the Registrable Securities requested for inclusion pursuant to this Section 5.2(b) be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. The obligation of the Company under this Section 5.2(b) shall be unlimited as to the number of Registration Statements to which it applies.
5.3 REGISTRATION EXPENSES. All Registration Expenses incurred in connection with any registration, qualification, exemption or compliance pursuant to Section 5.2 shall be borne by the Company. All Selling Expenses relating to the sale of securities registered by or on behalf of Holders shall be borne by such Holders pro rata on the basis of the number of securities so registered.
5.4 COMPANY OBLIGATIONS. In the case of the registration, qualification, exemption or compliance effected by the Company pursuant to this Agreement, the Company shall, upon reasonable request, inform each Holder as to the status of such registration, qualification, exemption and compliance. At its expense the Company shall:
(a) use its best efforts to keep any such registration under Sections 5.2(a) and (b), and any qualification, exemption compliance under state securities laws which the Company determines to obtain, continuously effective until the Holders have completed the distribution described in the registration statement relating thereto. The period of time during which the Company is required hereunder to keep any Registration Statement effective is referred to herein as "the Registration Period." Notwithstanding the foregoing, at the Company's election, the Company may cease to keep such registration, qualification, exemption or compliance effective with respect to any Registrable Securities, and the registration rights of a Holder shall expire, at such time as the earlier of (i) the date on which all the Holders have completed the distribution of the Registrable Securities, or (ii) the date all Registrable Securities may be sold under Rule 144 during any ninety (90) day period; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment thereto has been filed with the SEC and when the Registration Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities included therein for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of any changes in the Registration Statement or the prospectus so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in the light of the circumstances under which they were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement at the earliest possible time;
(d) furnish to each Holder, without charge, at least one copy of such Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits (including those incorporated by reference) in the form filed with the SEC;
(e) during the Registration Period, deliver to each Holder, without charge, as many copies of the prospectus included in such Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use, consistent with the provisions hereof, of the prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto. In addition, upon the reasonable request of the Holder and subject in all cases to confidentiality protections reasonably acceptable to the Company, the Company will meet with a Holder or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in the Registration Statement covering the Registrable Securities, and will otherwise cooperate with any Holder conducting an investigation for the purpose of reducing or eliminating such Holder's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters;
(f) during the Registration Period, deliver to each Holder, without charge, (i) as soon as practicable (but in the case of the annual report of the Company to its stockholders, within 120 days after the end of each fiscal year of the Company) one copy of the following documents, other than those documents available via EDGAR: (A) its annual report to its stockholders, if any (which annual report shall contain financial statements audited in accordance with generally accepted accounting principles in the United States of America by a firm of certified public accountants of recognized standing); (B) if not included in substance in its annual report to stockholders, its annual report on Form 10-KSB (or similar form); (C) each of its quarterly reports to its stockholders, and, if not included in substance in its quarterly reports to stockholders, its quarterly report on Form 10-QSB (or similar form), and (D) a copy of the full Registration Statement (the foregoing, in each case, excluding exhibits); and (ii) upon reasonable request, all exhibits excluded by the parenthetical to the immediately preceding clause (E), and all other information that is generally available to the public;
(g) prior to any public offering of Registrable Securities pursuant to any Registration Statement, register or qualify or obtain an exemption for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holders reasonably request in writing, provided that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction, and do any and all other acts or things reasonably necessary or advisable to enable the offer and sale in such jurisdictions of the Registrable Securities covered by such Registration Statement;
(h) cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to any Registration Statement free of any restrictive legends to the extent not required at such time and in such denominations and registered in such names as Holders may request at least five (5) business days prior to sales of Registrable Securities pursuant to such Registration Statement;
(i) upon the occurrence of any event contemplated by Section 5.4(b)(v) above, the Company shall prepare a post-effective amendment to the Registration Statement or a supplement to the related prospectus, or file any other required document so that, as thereafter delivered to subscribers of the Registrable Securities included therein, the prospectus will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading;
(j) in the event that a registration involves an underwritten offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriting underwriter or such offering;
(k) notify the security holders participating in such registration and the Placement Agent, promptly after it shall receive notice thereof, of the time when the Registration Statement has become effective or a supplement to any prospectus forming a part of the Registration Statement has been filed;
(l) at the request of holders of a majority of the Registrable Securities included in the Registration Statement, furnish to the underwriters on the date that the Registrable Securities are delivered to underwriters for sale in connection with a Registration Statement: (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (ii) a letter dated such date, from the independent certified accountants of the Company, in form an substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters;
(m) make available for inspection by any underwriters participating in an offering covering Registrable Securities, and the counsel, accountants or other agents retained by any such underwriter, all pertinent financial and other records, corporate documents, and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such underwriters in connection with such offering;
(n) if the Common Stock is then listed on a national securities exchange, cause the Registrable Securities to be listed on such exchange, or if reported on NASDAQ, to be reported on NASDAQ. If the Common Stock is not then listed on a national securities exchange or reported on NASDAQ, facilitate the reporting of the Registrable Securities on NASDAQ; and:
(o) provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement in which Registrable Securities are included.
5.5 INDEMNIFICATION. (a) To the extent permitted by law, the Company shall indemnify each Holder, each underwriter of the Registrable Securities and each person controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected pursuant to this Agreement, against all claims, losses, damages and liabilities (or action in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened (subject to Section 5.5(c) below), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus or offering circular, or any amendment or supplement thereof, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances in which they were made, and will reimburse each Holder, each underwriter of the Registrable Securities and each person controlling such Holder, for reasonable legal and other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action as incurred; provided that the Company will not be liable in any such case to the extent that any untrue statement or omission or allegation thereof is made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder and stated to be specifically for use in preparation of such registration statement, prospectus or offering circular; provided that the Company will not be liable in any such case where the claim, loss, damage or liability arises out of or is related to the failure of the Holder to comply with the covenants and agreements contained in this Agreement respecting sales of Registrable Securities, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement or alleged untrue statement or omission or alleged omission made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) or in the prospectus subject to completion and term sheet under Rule 434 of the Act, which together meet the requirements of Section 10(a) of the Act (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any such Holder, any such underwriter or any such controlling person, if a copy of the Final Prospectus furnished by the Company to the Holder for delivery was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act and the Final Prospectus would have cured the defect giving rise to such loss, liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter of the Registrable Securities and each person who controls the Company within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened (subject to Section 5.5(c) below), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus or offering circular, or any amendment or supplement thereof, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances in which they were made, and will reimburse the Company, such directors and officers, each underwriter of the Registrable Securities and each person controlling the Company for reasonable legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action as incurred, in each case to the extent, but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Holder and stated to be specifically for use in preparation of such registration statement, prospectus or offering circular; provided that the indemnity shall not apply to the extent that such claim, loss, damage or liability results from the fact that a current copy of the prospectus was not made available to the Holder and such current copy of the prospectus would have cured the defect giving rise to such loss, claim, damage or liability. Notwithstanding the foregoing, in no event shall a Holder be liable for any such claims, losses, damages or liabilities in excess of the proceeds received by such Holder in the offering, except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this Section 5.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such Indemnified Party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure is materially prejudicial to the Indemnifying Party in defending such claim or litigation. An Indemnifying Party shall not be liable for any settlement of an action or claim effected without its written consent (which consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section 5.5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
5.6 HOLDER OBLIGATIONS. (a) Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event requiring the preparation
of a supplement or amendment to a prospectus relating to Registrable Securities
so that, as thereafter delivered to the Holders, such prospectus shall not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, each Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement contemplated by
Section 5.2 until its receipt of copies of the supplemented or amended
prospectus from the Company and, if so directed by the Company, each Holder
shall deliver to the Company all copies, other than permanent file copies then
in such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
(b) As a condition to the inclusion of its Registrable Securities, each Holder shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing or as shall be required in connection with any registration, qualification or compliance referred to in this Article V.
(c) Each Holder agrees not to take any action with respect to any distribution deemed to be made pursuant to such Registration Statement which would constitute a violation of Regulation M under the Exchange Act or any other applicable rule, regulation or law.
5.7 COMPANY REPORTING OBLIGATIONS. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which at any time permit the sale of the Registrable Securities to the public without registration, the Company shall use its reasonable best efforts to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Act, at all times;
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable Securities, furnish to such Holder, upon any reasonable request, a written statement by the Company as to its compliance with Rule 144 under the Securities Act, and of the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as such Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Holder to sell any such securities without registration.
5.8 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities granted to the Holders by the Company under
Section 5.2 may be assigned in full by a Holder in connection with a transfer by
such Holder of its Registrable Securities. The obligations of the Company
contained in this Article V shall be binding upon any successor to the Company
and continue to be in effect with respect to any securities issued by any
successor to the Company in substitution or exchange for any Registrable
Securities.
5.9 WAIVER OR AMENDMENT. With the written consent of the Company and the Holders holding at least a majority of the Registrable Securities that are then outstanding and/or securities convertible into or exercisable for Registrable Securities, any provision of this Article V may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) or amended. Upon the effectuation of each such waiver or amendment, the Company shall promptly give written notice thereof to the Holders, if any, who have not previously received notice thereof or consented thereto in writing.
5.10 PENALTY UPON DELAY OF REGISTRATION FILING. Except to the extent any delay is solely and directly due to the failure of a Holder to reasonably cooperate in providing to the Company such information as shall be reasonably requested by the Company in writing for use in the Registration Statement contemplated by Section 5.2(a), if such Registration Statement is not filed with the SEC by the Filing Date or effective prior to the Effective Date, the Company shall immediately pay to each Holder of Registrable Securities issued in the Offering an amount in cash equal to one percent (1%) per month, or fraction thereof, of such Holder's aggregate investment until the Registration Statement is filed with the SEC or is declared effective by the SEC, as applicable. If the
Company fails to pay any liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 15% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to each Holder, accruing daily from the date such liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The liquidated damages pursuant to the terms hereof shall apply on a pro-rata basis for any portion of a month prior to the filing or effectiveness of the Registration Statement, as applicable.
5.11 CASIMIR RELIANCE. The Company acknowledges that the holders of the Placement Agent Warrants and Initiation Warrants (and the holders of the underlying shares of Common Stock) are relying on the Company's obligations in this Article V and that the provisions contained in this Article V are for the benefit of and may be enforced by such Holders.
ARTICLE VI
DEFINITIONS
6.1 "Closing" means the closing of the purchase and sale of the Unit Securities under this Agreement.
6.2 "Common Stock" means the common stock, par value $0.01 per share, of the Company.
6.3 "Company" means National Scientific Corporation.
6.4 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
6.5 "Final Closing Date" means the last Closing of the Offering in the event there is more than one Closing.
6.6 "Initiation Warrants" mean Warrants to purchase an aggregate of 500,000 shares of Common Stock issued to Casimir as an initiation fee in connection with the Offering.
6.7 "Subscribers" means the Subscribers whose names are set forth on the signature pages of this Agreement, and their transferees.
6.8 "Material Adverse Effect" means a material adverse effect on (a) the business, prospects, operations, assets or financial condition of the Company, when taken as a whole, or (b) the ability of the Company to perform its obligations pursuant to the transactions contemplated by this Agreement or under any instruments to be entered into or filed in connection herewith.
6.9 "Mergers and Acquisition Agreement" means the agreement to be delivered by the Company pursuant to Section 4(f) of the Placement Agent Agreement.
6.10 "Placement Agent Agreement" means the agreement by and between the Company and the Placement Agent with respect to the Offering.
6.11 "Placement Agent Warrants" means the Warrants issued to the Placement Agent pursuant to the Placement Agent Agreement.
6.12 "Regulation D" means Regulation D as promulgated under by the SEC under the Securities Act.
6.13 "Right of First Refusal Agreement" means the agreement to be delivered by the Company pursuant to Section 4(e) of the Placement Agent Agreement.
6.14 "Rule 144" means Rule 144 promulgated under the Securities Act, or any successor rule.
6.15 "SEC" means the United States Securities and Exchange Commission.
6.16 "SEC Documents" has the meaning set forth in Section 3.6.
6.17 "Securities" means the Unit Securities, Placement Agent Warrants, Initiation Warrants and shares of Common Stock issuable upon exercise of the Placement Agent Warrants and Initiation Warrants.
6.18 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute.
6.19 "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants, Placement Agent Warrants and Initiation Warrants.
ARTICLE VII
GOVERNING LAW; MISCELLANEOUS
7.1 GOVERNING LAW; JURISDICTION. This Agreement will be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States federal and state courts located in the State of New York with respect to any dispute arising under this Agreement or the transactions contemplated hereby or thereby.
7.2 COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be executed in two or more counterparts, all of which are considered one and the same agreement and will become effective when counterparts have been signed by each party and delivered to the other parties. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
7.3 HEADINGS. The headings of this Agreement are for convenience of reference only, are not part of this Agreement and do not affect its interpretation.
7.4 SEVERABILITY. If any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision will be deemed modified in order to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law will not affect the validity or enforceability of any other provision hereof.
7.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including all schedules and exhibits hereto) constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.
7.6 NOTICES. Any notices required or permitted to be given under the terms of this Agreement must be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized overnight delivery service) and will be effective five days after being placed in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally, or by courier (including a recognized overnight delivery service), in each case addressed to a party. The addresses for such communications are:
If to the Company: National Scientific Corporation 14455 N. Hayden Road Suite 202 Scottsdale, AZ 85620 If to a Subscriber: To the address set forth immediately below such Subscriber's name on the signature pages hereto. |
Each party will provide written notice to the other parties of any change in its address.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the benefit of the parties and their successors and assigns. The Company will not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Subscribers, and no Subscriber may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company. Notwithstanding the foregoing, a Subscriber may assign all or part of its rights and obligations hereunder to any of its "affiliates," as that term is defined under the Securities Act, without the consent of the Company so long as the affiliate is an accredited subscriber (within the meaning of Regulation D under the Securities Act) and agrees in writing to be bound by this Agreement. This provision does not limit the Subscriber's right to transfer the Securities pursuant to the terms of this Agreement or to assign the Subscriber's rights hereunder to any such transferee pursuant to the terms of this Agreement.
7.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person other than as provided in Sections 3.22 and 5.11 herein.
7.9 FURTHER ASSURANCES. Each party will do and perform, or cause to be done and performed, all such further acts and things, and will execute and deliver all other agreements, certificates, instruments and documents, as another party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
7.10 NO STRICT CONSTRUCTION. The language used in this Agreement is deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
7.11 EQUITABLE RELIEF. The Company recognizes that, if it fails to perform or discharge any of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to the Subscribers and other beneficiaries hereof. The Company therefore agrees that the Subscribers and other beneficiaries hereof are entitled to seek temporary and permanent injunctive relief in any such case.
CONFIDENTIAL INVESTOR QUESTIONNAIRE
In connection with the purchase of Units of National Scientific Corporation, pursuant to the terms of the Confidential Offering Memorandum dated March 15, 2004, as it may be supplemented from time-to-time, the Subscriber represents and warrants that he, she or it comes within one category marked below, and that for any category marked, he, she or it has truthfully set forth, where applicable, the factual basis or reason the Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish any additional information that the Company deems necessary in order to verify the answers set forth below.
A. INDIVIDUAL INVESTORS: (Please INITIAL one or more of the following five statements)
1. _____ I certify that I am an accredited investor because I have had individual income (exclusive of any income earned by my spouse) of more than $200,000 in each of the most recent two years and I reasonably expect to have an individual income in excess of $200,000 for the current year.
2. _____ I certify that I am an accredited investor because I have had joint income with my spouse in excess of $300,000 in each of the most recent two years and reasonably expect to have joint income with my spouse in excess of $300,000 for the current year.
3. _____ I certify that I am an accredited investor because I have an individual net worth, or my spouse and I have a joint net worth, in excess of $1,000,000.
4. _____ I am a director or executive officer of National Scientific Corporation.
5. _____ I have individual net worth or my spouse and I have joint net worth of over $ 5,000,000.
B. PARTNERSHIPS, CORPORATIONS, TRUSTS OR OTHER ENTITIES: (Please INITIAL one of the following seven statements). The undersigned hereby certifies that it is an accredited investor because it is:
1. _____ an employee benefit plan whose total assets exceed $5,000,000;
2. _____ an employee benefit plan whose investments decisions are made by a plan fiduciary which is either a bank, savings and loan association or an insurance company (as defined in Section 3(a) of the Securities Act) or an investment adviser registered as such under the Investment Advisers Act of 1940;
3. _____ a self-directed employee benefit plan, including an Individual Retirement Account, with investment decisions made solely by persons that are accredited investors;
4. _____ an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, not formed for the specific purpose of acquiring the Units, with total assets in excess of $5,000,000;
5. _____ a corporation, partnership, limited liability company, limited liability partnership, other entity or similar business trust, not formed for the specific purpose of acquiring the Units, with total assets excess of $5,000,000;
6. _____ a trust, not formed for the specific purpose of acquiring the Units, with total assets exceed $5,000,000, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Units; or
7. _____ an entity (including a revocable grantor trust but other than a conventional trust) in which each of the equity owners qualifies as an accredited investor under items A(1), (2) or (3) or item B(1) above.
NASD AFFILIATION
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
If Subscriber is a Registered Representative with an NASD member firm, have the following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
By: ______________________________
Authorized Officer
Date: ____________________________
SIGNATURE
THE UNDERSIGNED IS INFORMED OF THE SIGNIFICANCE TO THE COMPANY AND CASIMIR OF THE FOREGOING REPRESENTATIONS AND ANSWERS CONTAINED IN THE CONFIDENTIAL SUBSCRIBER QUESTIONNAIRE AND SUCH ANSWERS HAVE BEEN PROVIDED UNDER THE ASSUMPTION THAT THE COMPANY AND CASIMIR WILL RELY ON THEM.
IF AN INDIVIDUAL:
IF AN ENTITY (I.E., PARTNERSHIP, CORPORATION OR TRUST):
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
NUMBER OF UNITS __________ X $0.11 = $____________ (THE "PURCHASE PRICE")
------------------------------------ ------------------------------------- Signature Signature (if purchasing jointly) ------------------------------------ ------------------------------------- Name Typed or Printed Name Typed or Printed ------------------------------------ ------------------------------------- Entity Name Entity Name ------------------------------------ ------------------------------------- Address Address ------------------------------------ ------------------------------------- City, State and Zip Code City, State and Zip Code ------------------------------------ ------------------------------------- Telephone-Business Telephone-Business ------------------------------------ ------------------------------------- Telephone-Residence Telephone-Residence ------------------------------------ ------------------------------------- Facsimile-Business Facsimile-Business ------------------------------------ ------------------------------------- Facsimile-Residence Facsimile-Residence ------------------------------------ ------------------------------------- Tax ID # or Social Security # Tax ID # or Social Security # Name in which securities should be issued: ------------------------------------- |
INVESTORS: YOU MUST COMPLETE THE CONFIDENTIAL INVESTOR QUESTIONNAIRE.
Dated: _____________, 2004
This Subscription Agreement is agreed to and accepted as of ____________________, 2004.
NATIONAL SCIENTIFIC CORPORATION
THIS PAGE LEFT INTENTIONALLY BLANK
SCHEDULES TO SUBSCRIPTION AGREEMENT
SCHEDULE 3.3: Capitalization Reservations
The Capital Structure of the Company is described in the Company's Form 10-KSB for the year ended September 30, 2003, NSC'S Annual Proxy Report on Form 14A dated January 30, 2004, and Form 10-QSB for the three months ended December 31, 2003, filed February 13, 2004, which should be read in conjunction with this Schedule.
The tables below provide unaudited summary descriptions of total shares issued and outstanding, and of the options and warrants outstanding and of any other shares reservations as OF MARCH 15, 2004.
1.) As of March 15, 2004, Preferred stock, par value $0.10; 4,000,000 shares authorized, and no shares issued or outstanding 2.) As of March 15, 2004, Common stock, par value $0.01; 120,000,000 |
shares authorized, and 73,814,465 shares issued and outstanding.
3.) Options Outstanding at March 15, 2004 (total plan authorized shares up to 7,000,000, of which as of March 15, 2004, the board has reserved a total of 4,000,000 shares).
Weighted Weighted Number Average Average of Exercise Fair Shares Price Value -------------------------------- Options Outstanding, September 30, 2003 3,329,757 $ 0.90 $ 0.06 Granted 170,000 0.15 0.10 Exercised -- Canceled 250,000 0.015 0.11 -------------------------------- Options Outstanding, March 15, 2004 3,249,757 $ 0.92 $ 0.08 ================================ |
4.) Warrants Outstanding at March 15, 2004
Number of Exercise Expiration Shares Price Date -------------------------------- Outstanding at September 30, 2003 7,412,201 Exercised -- Expired -- New issues 275,000 $ 0.50 6/06 275,000 $ 0.75 6/06 640,000 $ 0.13 1/07 500,000 $ 0.10 3/11 -------------------------------- Outstanding at March 15, 2004 9,102,201 ================================ |
5.) Other Share Reservations as of March 15, 2004
The Company has issued a Convertible Note for $160,000 in January 2004 to a Private Investment Fund, as described in the Company's Form 10-KSB report for the period ending September 30, 2003. This Note has a feature that allows the holder of the Note to covert the Note into the Company's restricted common stock at approximately a 10% discount from the then-current market price of the Company's common stock during the life of the Note. As such, the Company has reserved approximately 1,200,000 shares in the case of this Note holder executing these rights. However, since the Company plans to pay off this Note in full with the proceeds from the First Closing of this Offering, and since the Company believes it unlikely these rights will be executed prior to this Note's full pay-off at that point, the Company fully expects that the shares reserved for this Convertible Note will not longer be reserved after the First Closing of this Offering.
Additionally, the Company has reserved approximately 1,000,000 shares of its common stock to address unknown issues, including antidilution provisions and other provisions associated with the Convertible Note from this Private Investment Fund.
SCHEDULE 3.5: Conflicts, Violations and Related Matters
Other than as listed herein below, as of March 15, 2004, the Transaction
Documents issued by the Company will not (i) conflict with or result in a
violation of any provision of its Articles of Incorporation or Bylaws, (ii)
violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment (including without limitation, the triggering of any anti-dilution or
right of first refusal provision), acceleration or cancellation of, any
agreement, indenture, patent, patent license, or instrument to which the Company
is a party ( any one or all being referred to as a "Company Obligation"), or
(iii) to the best of the Company's knowledge, result in a violation of any law,
rule, regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, breaches, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect):
1. The issuance of common stock and warrants at less than 13 cents per share may trigger the antidilution provisions of 640,000 warrants Private Investment Fund as described in the Company's Form 10-KSB report for the period ending September 30, 2003, and as described in Schedule 3.20. The cumulative effect of the triggering of these provisions, should they be so triggered, is expected to be equal to or less than the issuance of approximately an additional 100,000 shares of Common Stock to this Private Investment Fund, should this fund choose to execute these warrants, for a total of approximately 740,000 shares of common stock.
2. The issuance of common stock and warrants under this Offering may trigger the First Right of Refusal provisions a Private Investment Fund's investment in the Company in January 2004, as described in the Company's Form 10-KSB report for the period ending September 30, 2003. The Private Investment Fund has agreed to waive these rights as relates to this Offering.
SCHEDULE 3.7: Recent Material Adverse Changes
Other than as listed herein below, of as March 15, 2004, and since February 13, 2004, date of the Company's most recent period 10-QSB filing with the SEC, there has been no material adverse change in the assets, liabilities, business, properties, operations, financial condition, prospects or results of operations of the Company, except that the Company has continued losses from operations.
Recent Material Adverse Changes: None.
SCHEDULE 3.21: Registration Rights of Current Company Security holders
Other than as listed herein below, none of the Company's security holders have any special registration rights, including any rights to effect a demand or shelf-registration under the Securities Act or exercise any "piggyback" registration rights with respect to any filing under the Securities Act.
RIGHT HOLDER: Private Investment Fund
SECURITY HELD: Warrants to purchase 640,000 shares of NSC restricted common
stock at prices ranging from $0.13 to $0.15. These warrants expire in
January 2007.
SUMMARY OF RIGHTS HELD: Piggyback registration rights, weighted
average-based antidilution provision.
SPECIAL ISSUES WITH FUTURE RIGHTS: This investor also holds a Note from the
Company, due in July of 2004, for $160,000. In the event that the Company
does not pay this Note on time, which the Company intends to do, this
investor will be granted an additional 640,000 warrants to purchase NSC
restricted Common Stock at prices ranging from $0.13 to $0.15. These new
warrants expire in January 2007. Additionally, this investor will be
granted some demand registration rights for all warrants held in the event
that the this Note is not paid by due date.
EXHIBIT 4.3
Form of Warrant Placement Agent to Purchase
W-___ Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON THE LAST DAY OF THE EXERCISE PERIOD, AS DEFINED IN THE WARRANT
COMMON STOCK PURCHASE WARRANT
OF
NATIONAL SCIENTIFIC CORPORATION
This is to certify that, FOR VALUE RECEIVED, ________________ with an address at ______________________________ (and or its assign(s) and/or transferee(s)) (hereinafter, each a "Holder" and collectively the "Holders"), is entitled to purchase, subject to the provisions of this Warrant, from National Scientific Corporation, a Texas corporation (the "Company"), at an initial exercise price equal to $.10 per share__________________(________) fully paid and non-assessable shares of Common Stock, par value $.01 per share ("Common Stock"). The shares of Common Stock deliverable upon such exercise, and as adjusted from time-to-time as provided in this Warrant, are hereinafter sometimes referred to as "Warrant Stock," and the exercise price for the purchase of a share of Common Stock pursuant to this Warrant in effect at any time and as adjusted from time-to-time is hereinafter sometimes referred to as the "Exercise Price." The aggregate purchase price payable for the Warrant Stock purchasable hereunder is referred to as the "Aggregate Purchase Price." The Aggregate Purchase Price is not subject to adjustment. In the event of an adjustment to the Exercise Price, as provided in Section 6 herein, the number of shares of Warrant Stock deliverable upon exercise of this Warrant shall be adjusted by dividing the Aggregate Purchase Price by the Exercise Price in effect immediately after such adjustment.
This warrant and additional warrants of like tenor, including warrants issued in exchange and/or substitution thereof (collectively, the "Warrants") were originally issued to Casimir Capital L.P. and its designees in connection with Casimir Capital L.P. ("Placement Agent" or "Casimir") acting as placement agent with respect to a private placement of securities of the Company pursuant to the terms of a Confidential Term Sheet dated March 15, 2004 and as further provided in a Placement Agent Agreement between the Company and Casimir dated March 15, 2004.
1. DEFINITIONS. The following terms have the meanings set forth below:
"Current Market Value" of a share of Warrant Stock as of a particular date (the "Determination Date") shall mean:
a. If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ National Market, the current market value shall be the last reported sale price of the Common Stock on such exchange or market on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or market; or
b. If the Common Stock is not so listed or admitted to unlisted trading privileges, but is traded on the NASDAQ SmallCap Market, the current market value shall be the average of the closing bid and asked prices for such day on such market and if the Common Stock is not so traded, the current market value shall be the mean of the last reported bid-and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or
c. If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.
"Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities, including but not limited to options, warrants or purchase, subscription or other rights, which are convertible into, exchangeable or exercisable for, or represent the right to receive, with or without payment of additional consideration in cash or property, shares of Common Stock (or other Convertible Securities), either immediately or upon the occurrence of a specified date or a specified event.
"Exercise Period" shall mean the period commencing on the date hereof and ending at 5 p.m., eastern time on the day preceding the seventh anniversary of the date hereof.
"Permitted Issuances" shall mean (i) Common Stock issuable or issued
to employees, consultants or directors of the Company pursuant to a stock plan
or other compensation arrangement approved by the Board of Directors of the
Company, but in no event, more than Eight Million shares in the aggregate, and
(ii) Common Stock issued or issuable upon conversion of the Warrants or any
other securities exercisable or exchangeable for, or convertible into shares of
Common Stock outstanding as of March 15, 2004.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole or in part at any time or from time to time commencing on the date hereof and until April 8, 2011 (the "Exercise Period"), provided, however, that if either such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of
Warrant Stock specified in such form. As soon as practicable after each such exercise of this Warrant, but not later than seven days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate or certificates for the shares of Warrant Stock issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares of Warrant Stock purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder.
(b) In lieu of the payment method set forth in Section (a) above, at any time during the Exercise Period, the Holder may, at its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), without the payment by the Holder of any additional consideration into the number of shares of Warrant Stock determined in accordance with this Section (b), by surrendering this Warrant at the principal office of the Company or at the office of its stock transfer agent, accompanied by a notice stating such Holder's intent to effect such exchange, the number of shares of Warrant Stock to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the shares issuable upon such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder within seven days following the Exchange Date. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of shares of Warrant Stock (rounded to the next highest integer) equal to (i) the number of shares of Warrant Stock specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of shares of Warrant Stock equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price by (B) the Current Market Value of a share of Common Stock. Current Market Value shall have the meaning set forth in Section (1) above, except that for purposes hereof, the date of exercise, as used in such Section (1), shall mean the Exchange Date.
3. RESERVATION OF SHARES/FRACTIONAL SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. If the Company hereafter lists its Common Stock on any national securities exchange, the Nasdaq National Market or the Nasdaq SmallCap Market, it shall use its best efforts to keep the Warrant Stock authorized for listing on such exchange upon notice of issuance. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share, called for upon exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the Current Market Value of a share of Warrant Stock.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant (and all rights hereunder) is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder or any assignee and/or transferee thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee and/or transferee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. In addition, no provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of Company, whether such liability is asserted by Company or by creditors of Company.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows and the Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 6 at the time of such event:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If, at any time or from time to time after the date of this Warrant, the Company shall (i) pay a dividend or make a distribution to any holder of its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Exercise Price shall be adjusted to be equal to a fraction, the numerator of which shall be the Aggregate Purchase Price and the denominator of which shall be the number of shares of Common Stock or other capital stock of the Company that the Holder would have owned immediately following such action had such Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this Subsection (a) shall become effective immediately after the record date in the case of a dividend or distribution, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification, and shall result in a corresponding adjustment to the number of shares of Warrant Stock issuable upon exercise of this Warrant.
(b) CERTAIN OTHER DISTRIBUTIONS AND ADJUSTMENTS. If, at any time or from time to time after the date of this Warrant, the Company shall issue or distribute to any holder of shares of Common Stock evidence of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a subdivision, combination or reclassification, or dividend or distribution payable in shares of Common Stock, referred to in Subsection (a), and also excluding cash dividends or cash distributions paid out of net profits legally available therefor in the full amount thereof (any such non-excluded event being herein called a "Special Dividend")), the Exercise Price shall be adjusted by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then Current Market Value in effect on the record date of such issuance or distribution less the fair market value (as determined in accordance with paragraph B. of this Section 6 (g)) of the evidence of indebtedness, cash, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock and the denominator of which shall be the then Current Market Value in effect on the record date of such issuance or distribution. An adjustment made pursuant to this Subsection (b) shall become effective immediately after the record date of any such Special Dividend and shall result in a corresponding adjustment to the number of shares of Warrant Stock issuable upon exercise of this Warrant.
(c) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND CONVERTIBLE SECURITIES.
(i) If at any time the Company shall issue or sell any shares of Common Stock or Convertible Securities (whether directly or by assumption in a merger in which Company is the surviving corporation), in exchange for consideration in an amount per share of Common Stock ( determined by dividing (i) the total amount, if any, received or receivable by the Company in consideration of the issuance or sale of such securities plus the total consideration, if any, payable to the Company upon exercise, conversion or exchange thereof ("Total Consideration") by (ii) the number of additional shares of Common Stock issued, sold or issuable upon the exercise, conversion or exchange of such securities) that is less than the Exercise Price (excluding Permitted Issuances), then (A) the Exercise Price shall be adjusted so that it shall equal the price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance or sale (calculated on a fully diluted basis as if all securities exercisable, convertible or exchangeable for Common Stock have been so exercised, converted or exchanged) plus the number of shares of Common Stock which the aggregate offering price would purchase based upon the Exercise Price and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance or sale
(calculated on a fully diluted basis as if all securities exercisable, convertible or exchangeable for Common Stock have been so exercised, converted or exchanged) plus the maximum number of additional shares of Common Stock issued, sold or issuable in connection with such offering or transaction, and (B) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the Exercise Price in effect immediately prior to such issue or sale by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale and dividing the product thereof by the Exercise Price resulting from the adjustment made pursuant to clause (A) above.
(ii) The provisions of paragraph (i) of this Section 6(c) shall not apply to any issuance of shares of Common Stock for which an adjustment is provided under Section 6(a) or 6(b). No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of this Section 6(c) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities.
(d) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Section 6(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided, further, however that adjustments shall be required and made in accordance with the provisions of this Section 6 not later than such time as may be required in order to preserve the tax-free nature of a distribution to the Holder of this Warrant or Common Stock issuable upon the exercise hereof. All calculations under this Section 6(d) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(e) The Company may retain a firm of independent public accountants of recognized standing selected by the Board (who may be the regular accountants employed by the Company) to make any computation required by this Section 6.
(f) In the event that at any time, as a result of an adjustment made pursuant to Section 6(a), (b) or (c) of this Warrant, the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 6(a) through (h), inclusive, of this Warrant.
(g) For purposes of any computation respecting consideration received pursuant to this Section 6, the following shall apply:
A. in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith;
B. in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and
C. in the case of the issuance of securities convertible, exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection).
(h) Notwithstanding the foregoing, no adjustment shall be effected due to, or as a result of, any Permitted Issuances.
7. REGISTRATION RIGHTS. The Warrant Stock shall be entitled to the registration rights described in Article V of the Subscription Agreements entered into between the Company and the several subscribers as further described in Section 5 of the Placement Agent Agreement.
8. OFFICER'S CERTIFICATE. Whenever the Exercise Price(s) shall be adjusted as required by the provisions of Section 6 of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price(s) and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be forwarded by certified mail to Holder as provided in Section 13
9. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock, or (2) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights, or (3) if any capital reorganization of the Company, reclassification of
the capital stock of the Company, consolidation or merger of the Company with or
into another entity, tender offer transaction for the Company's Common Stock,
sale, lease or transfer of all or substantially all of the property and assets
of the Company, or voluntary or involuntary dissolution, liquidation or winding
up of the Company shall be effected, or (4) if the Company shall file a
registration statement under the Securities Act of 1933, as amended (the "Act"),
on any form other than on Form S-4 or S-8 or any successor form, then in any
such case, the Company shall cause to be mailed by certified mail to the Holder,
at least fifteen days prior to the date specified in clauses (1), (2), (3) or
(4), as the case may be, of this Section 9 a notice containing a brief
description of the proposed action and stating the date on which (i) a record is
to be taken for the purpose of such dividend, distribution or rights, or (ii)
such reclassification, reorganization, consolidation, merger, tender offer
transaction, conveyance, lease, dissolution, liquidation or winding up is to
take place and the date, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, or (iii) such registration statement is to be filed with the Securities and Exchange Commission.
10. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing or surviving corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance of all or substantially all of the assets of the Company, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that (i) the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, conveyance or statutory exchange by a holder of the number of shares of Common Stock which could have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale, conveyance, or statutory exchange and (ii) the successor or acquiring entity shall expressly assume the due and punctual observance and performance of each covenant, agreement, obligation and condition of this Warrant to be performed and observed by Company and all obligations and liabilities hereunder (including but not limited to the provisions of Section 6 regarding the increase in the number of shares of Warrant Stock potentially issuable hereunder). Any such provision shall include provision for adjustments which shall be as nearly equivalent as possible to the adjustments provided for in this Warrant. The foregoing provisions of this Section 10 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale, conveyance or statutory exchange, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issuance of Common Stock covered by the provisions of Section 6 of this Warrant. Notice of any such event shall be mailed by certified mail to the Holders of the Warrants no less than thirty (30) days prior to such event. A sale of all or substantially all of the Company's assets for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes.
11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel for the Company, or counsel for the Holder who is reasonably acceptable to the Company, is a person to whom this Warrant or Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 11 with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or
(ii) to any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition.
12. GOVERNING LAW; JURISDICTION. The corporate laws of the State of Texas shall govern all issues concerning the relative rights of the Company and its stockholders. All issues concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the principles of conflicts of law thereof. The parties hereto agree that venue in any and all actions and proceedings related to the subject matter of this Warrant shall be in the state and federal courts in and for New York, New York, which courts shall have exclusive jurisdiction for such purpose, and the parties hereto irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such action or proceeding. Service of process may be made in any manner recognized by such courts. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
13. NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered VIA facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered VIA facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: National Scientific Corporation Scottsdale Technology Center 14455 North Hayden Road, Suite 202 Scottsdale, AZ 85260-6497
If to the Holder: To the Address Set Forth on the cover page hereof.
14. MODIFICATION OF WARRANT. This Warrant shall not be modified, supplemented or altered in any respect, nor any provision waived, except with the consent in writing of the Holders representing not less than fifty percent (50%) of the Warrants then outstanding.
15. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.
IN WITNESS WHEREOF, this Warrant has been duly executed as of April 8, 2004.
NATIONAL SCIENTIFIC CORPORATION
ATTEST:
[CORPORATE SEAL]
SUBSCRIPTION (CASH)
The undersigned, ____________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase ___________________ shares of the Common Stock, par value $_____ per share, of ______________________ covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant.
Dated: ________________________ Signature: ___________________________
CASHLESS EXERCISE
The undersigned, ____________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to exchange its Warrant for ___________________ shares of the Common Stock, par value $_____ per share, of ______________________ pursuant to the Cashless Exercise provisions of the Warrant.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto ________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ___________________, attorney, to transfer said Warrant on the books of _________________________.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto ________________________ the right to purchase ____________ shares of Common Stock, par value $_____ per share of _________________________ covered by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ___________________, attorney, to transfer such part of said Warrant on the books of _________________________.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
EXHIBIT 4.4
Form of Initiation Warrant to Purchase
W-___ Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON THE LAST DAY OF THE EXERCISE PERIOD, AS DEFINED IN THE WARRANT
COMMON STOCK PURCHASE WARRANT
OF
NATIONAL SCIENTIFIC CORPORATION
This is to certify that, FOR VALUE RECEIVED, ________________ with an address at ______________________________ (and or its assign(s) and/or transferee(s)) (hereinafter, each a "Holder" and collectively the "Holders"), is entitled to purchase, subject to the provisions of this Warrant, from National Scientific Corporation, a Texas corporation (the "Company"), at an initial exercise price equal to $.10 per share__________________(________) fully paid and non-assessable shares of Common Stock, par value $.01 per share ("Common Stock"). The shares of Common Stock deliverable upon such exercise, and as adjusted from time-to-time as provided in this Warrant, are hereinafter sometimes referred to as "Warrant Stock," and the exercise price for the purchase of a share of Common Stock pursuant to this Warrant in effect at any time and as adjusted from time-to-time is hereinafter sometimes referred to as the "Exercise Price." The aggregate purchase price payable for the Warrant Stock purchasable hereunder is referred to as the "Aggregate Purchase Price." The Aggregate Purchase Price is not subject to adjustment. In the event of an adjustment to the Exercise Price, as provided in Section 6 herein, the number of shares of Warrant Stock deliverable upon exercise of this Warrant shall be adjusted by dividing the Aggregate Purchase Price by the Exercise Price in effect immediately after such adjustment.
This warrant and additional warrants of like tenor, including warrants issued in exchange and/or substitution thereof (collectively, the "Warrants") were originally issued in connection with a the execution of a Letter of Intent between the Company and Casimir Capital L.P., dated February 9, 2004, ("Letter") with respect to a proposed offering of securities by the Company ("Offering").
1. DEFINITIONS. The following terms have the meanings set forth below:
"Current Market Value" of a share of Warrant Stock as of a particular date (the "Determination Date") shall mean:
a. If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ National Market, the current market value shall be the last reported sale price of the Common Stock on such exchange or market on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or market; or
b. If the Common Stock is not so listed or admitted to unlisted trading privileges, but is traded on the NASDAQ SmallCap Market, the current market value shall be the average of the closing bid and asked prices for such day on such market and if the Common Stock is not so traded, the current market value shall be the mean of the last reported bid-and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or
c. If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.
"Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities, including but not limited to options, warrants or purchase, subscription or other rights, which are convertible into, exchangeable or exercisable for, or represent the right to receive, with or without payment of additional consideration in cash or property, shares of Common Stock (or other Convertible Securities), either immediately or upon the occurrence of a specified date or a specified event.
"Exercise Period" shall mean the period commencing on the date hereof and ending at 5 p.m., eastern time on the day preceding the seventh anniversary of the date hereof.
"Permitted Issuances" shall mean (i) Common Stock issuable or issued
to employees, consultants or directors of the Company pursuant to a stock plan
or other compensation arrangement approved by the Board of Directors of the
Company, but in no event, more than Eight Million shares in the aggregate, and
(ii) Common Stock issued or issuable upon conversion of the Warrants or any
other securities exercisable or exchangeable for, or convertible into shares of
Common Stock outstanding as of February 9, 2004.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole or in part at any time or from time to time commencing on the date hereof and until February 9, 2011 (the "Exercise Period"), provided, however, that if either such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and surrender hereof to
the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Warrant Stock specified in such form. As soon as practicable after each such exercise of this Warrant, but not later than seven days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate or certificates for the shares of Warrant Stock issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares of Warrant Stock purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder.
(b) In lieu of the payment method set forth in Section (a) above, at any time during the Exercise Period, the Holder may, at its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), without the payment by the Holder of any additional consideration into the number of shares of Warrant Stock determined in accordance with this Section (b), by surrendering this Warrant at the principal office of the Company or at the office of its stock transfer agent, accompanied by a notice stating such Holder's intent to effect such exchange, the number of shares of Warrant Stock to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the shares issuable upon such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder within seven days following the Exchange Date. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of shares of Warrant Stock (rounded to the next highest integer) equal to (i) the number of shares of Warrant Stock specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of shares of Warrant Stock equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price by (B) the Current Market Value of a share of Common Stock. Current Market Value shall have the meaning set forth in Section (1) above, except that for purposes hereof, the date of exercise, as used in such Section (1), shall mean the Exchange Date.
3. RESERVATION OF SHARES/FRACTIONAL SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. If the Company hereafter lists its Common Stock on any national securities exchange, the Nasdaq National Market or the Nasdaq SmallCap Market, it shall use its best efforts to keep the Warrant Stock authorized for listing on such exchange upon notice of issuance. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a
share, called for upon exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Value of a share of Warrant Stock.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant (and all rights hereunder) is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder or any assignee and/or transferee thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee and/or transferee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. In addition, no provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of Company, whether such liability is asserted by Company or by creditors of Company.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows and the Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 6 at the time of such event:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If, at any time or from time to time after the date of this Warrant, the Company shall (i) pay a dividend or make a distribution to any holder of its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Exercise Price shall be adjusted to be equal to a fraction, the numerator of which shall be the Aggregate Purchase Price and the
denominator of which shall be the number of shares of Common Stock or other capital stock of the Company that the Holder would have owned immediately following such action had such Warrant been exercised immediately prior thereto. An adjustment made pursuant to this Subsection (a) shall become effective immediately after the record date in the case of a dividend or distribution, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification, and shall result in a corresponding adjustment to the number of shares of Warrant Stock issuable upon exercise of this Warrant.
(b) CERTAIN OTHER DISTRIBUTIONS AND ADJUSTMENTS. If, at any time or from time to time after the date of this Warrant, the Company shall issue or distribute to any holder of shares of Common Stock evidence of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a subdivision, combination or reclassification, or dividend or distribution payable in shares of Common Stock, referred to in Subsection (a), and also excluding cash dividends or cash distributions paid out of net profits legally available therefor in the full amount thereof (any such non-excluded event being herein called a "Special Dividend")), the Exercise Price shall be adjusted by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then Current Market Value in effect on the record date of such issuance or distribution less the fair market value (as determined in accordance with paragraph B. of this Section 6 (g)) of the evidence of indebtedness, cash, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock and the denominator of which shall be the then Current Market Value in effect on the record date of such issuance or distribution. An adjustment made pursuant to this Subsection (b) shall become effective immediately after the record date of any such Special Dividend and shall result in a corresponding adjustment to the number of shares of Warrant Stock issuable upon exercise of this Warrant.
(c) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND CONVERTIBLE SECURITIES.
(i) If at any time the Company shall issue or sell any shares of Common Stock or Convertible Securities (whether directly or by assumption in a merger in which Company is the surviving corporation), in exchange for consideration in an amount per share of Common Stock (determined by dividing (i) the total amount, if any, received or receivable by the Company in consideration of the issuance or sale of such securities plus the total consideration, if any, payable to the Company upon exercise, conversion or exchange thereof ("Total Consideration") by (ii) the number of additional shares of Common Stock issued, sold or issuable upon the exercise, conversion or exchange of such securities) that is less than the Exercise Price (excluding Permitted Issuances), then (A) the Exercise Price shall be adjusted so that it shall equal the price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance or sale (calculated on a fully diluted basis as if all securities exercisable, convertible or exchangeable for Common Stock have been so exercised, converted or exchanged) plus the number of shares of Common Stock which the aggregate offering price would purchase based upon the Exercise Price and the denominator of which shall be the number of
shares of Common Stock outstanding on the date of issuance or sale (calculated on a fully diluted basis as if all securities exercisable, convertible or exchangeable for Common Stock have been so exercised, converted or exchanged) plus the maximum number of additional shares of Common Stock issued, sold or issuable in connection with such offering or transaction, and (B) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the Exercise Price in effect immediately prior to such issue or sale by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale and dividing the product thereof by the Exercise Price resulting from the adjustment made pursuant to clause (A) above.
(ii) The provisions of paragraph (i) of this Section 6(c) shall not apply to any issuance of shares of Common Stock for which an adjustment is provided under Section 6(a) or 6(b). No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of this Section 6(c) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities.
(d) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Section 6(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided, further, however that adjustments shall be required and made in accordance with the provisions of this Section 6 not later than such time as may be required in order to preserve the tax-free nature of a distribution to the Holder of this Warrant or Common Stock issuable upon the exercise hereof. All calculations under this Section 6(d) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(e) The Company may retain a firm of independent public accountants of recognized standing selected by the Board (who may be the regular accountants employed by the Company) to make any computation required by this Section 6.
(f) In the event that at any time, as a result of an adjustment made pursuant to Section 6(a), (b) or (c) of this Warrant, the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 6(a) through (h), inclusive, of this Warrant.
(g) For purposes of any computation respecting consideration received pursuant to this Section 6, the following shall apply:
A. in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith;
B. in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and
C. in the case of the issuance of securities convertible, exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection).
(h) Notwithstanding the foregoing, no adjustment shall be effected due to, or as a result of, any Permitted Issuances.
7. REGISTRATION RIGHTS. The Warrant Stock shall be entitled to the registration rights described in Section 8 of the Letter and subsequent to the first closing, in Section 5(b) the Placement Agent Agreement to be entered into by Casimir L.P. and the Company.
8. OFFICER'S CERTIFICATE. Whenever the Exercise Price(s) shall be adjusted as required by the provisions of Section 6 of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price(s) and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be forwarded by certified mail to Holder as provided in Section 13
9. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock, or (2) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights, or (3) if any capital reorganization of the Company, reclassification of
the capital stock of the Company, consolidation or merger of the Company with or
into another entity, tender offer transaction for the Company's Common Stock,
sale, lease or transfer of all or substantially all of the property and assets
of the Company, or voluntary or involuntary dissolution, liquidation or winding
up of the Company shall be effected, or (4) if the Company shall file a
registration statement under the Securities Act of 1933, as amended (the "Act"),
on any form other than on Form S-4 or S-8 or any successor form, then in any
such case, the Company shall cause to be mailed by certified mail to the Holder,
at least fifteen days prior to the date specified in clauses (1), (2), (3) or
(4), as the case may be, of this Section 9 a notice containing a brief
description of the proposed action and stating the date on which (i) a record is
to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, tender offer transaction, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, or (iii) such registration statement is to be filed with the Securities and Exchange Commission.
10. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing or surviving corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance of all or substantially all of the assets of the Company, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that (i) the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, conveyance or statutory exchange by a holder of the number of shares of Common Stock which could have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale, conveyance, or statutory exchange and (ii) the successor or acquiring entity shall expressly assume the due and punctual observance and performance of each covenant, agreement, obligation and condition of this Warrant to be performed and observed by Company and all obligations and liabilities hereunder (including but not limited to the provisions of Section 6 regarding the increase in the number of shares of Warrant Stock potentially issuable hereunder). Any such provision shall include provision for adjustments which shall be as nearly equivalent as possible to the adjustments provided for in this Warrant. The foregoing provisions of this Section 10 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale, conveyance or statutory exchange, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issuance of Common Stock covered by the provisions of Section 6 of this Warrant. Notice of any such event shall be mailed by certified mail to the Holders of the Warrants no less than thirty (30) days prior to such event. A sale of all or substantially all of the Company's assets for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes.
11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel for the Company, or counsel for the Holder who is reasonably acceptable to the Company, is a
person to whom this Warrant or Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 11 with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or
(ii) To any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition.
(iii) Notwithstanding (i) and (ii) above, The Company approves the transfer of this Warrant to affiliates of the Holders.
(iv) The registration rights contained in Section 7 of this Warrant may be assigned in full by a Holder in connection with the transfer of this Warrant or any other Warrant stock.
12. GOVERNING LAW; JURISDICTION. The corporate laws of the State of Texas shall govern all issues concerning the relative rights of the Company and its stockholders. All issues concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the principles of conflicts of law thereof. The parties hereto agree that venue in any and all actions and proceedings related to the subject matter of this Warrant shall be in the state and federal courts in and for New York, New York, which courts shall have exclusive jurisdiction for such purpose, and the parties hereto irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such action or proceeding. Service of process may be made in any manner recognized by such courts. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
13. NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered VIA facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered VIA facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: National Scientific Corporation Scottsdale Technology Center 14455 North Hayden Road, Suite 202 Scottsdale, AZ 85260-6497
If to the Holder: To the Address Set Forth on the cover page hereof.
14. MODIFICATION OF WARRANT. This Warrant shall not be modified, supplemented or altered in any respect, nor any provision waived, except with the consent in writing of the Holders representing not less than fifty percent (50%) of the Warrants then outstanding.
15. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.
IN WITNESS WHEREOF, this Warrant has been duly executed as of February 9, 2004.
NATIONAL SCIENTIFIC CORPORATION
ATTEST:
[CORPORATE SEAL]
SUBSCRIPTION (CASH)
The undersigned, ____________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase ___________________ shares of the Common Stock, par value $_____ per share, of ______________________ covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant.
Dated: ________________________ Signature: ___________________________
CASHLESS EXERCISE
The undersigned, ____________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to exchange its Warrant for ___________________ shares of the Common Stock, par value $_____ per share, of ______________________ pursuant to the Cashless Exercise provisions of the Warrant.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto ________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ___________________, attorney, to transfer said Warrant on the books of _________________________.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto ________________________ the right to purchase ____________ shares of Common Stock, par value $_____ per share of _________________________ covered by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ___________________, attorney, to transfer such part of said Warrant on the books of _________________________.
Dated: ________________________ Signature: ___________________________
Address: ___________________________
EXHIBIT 4.5
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NATIONAL SCIENTIFIC CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 640,000 shares of Common Stock of National Scientific Corporation (subject to adjustment as provided herein)
FORM OF COMMON STOCK PURCHASE WARRANT
No. 2004-JAN-001 Issue Date: January 6, 2004
NATIONAL SCIENTIFIC CORPORATION, a corporation organized under the laws of the State of Texas (the "Company"), hereby certifies that, for value received, STRATEGIC WORKING CAPITAL FUND, LP, 55 Harristown Road, Glen Rock, NJ 07452, telecopier: (201) 701-0260 (the "Holder"), or its assigns, is entitled, subject to the terms set forth below, to purchase from the Company from and after the Issue Date and at any time or from time to time before 5:00 p.m., New York time, through three (3) years after such date (the "Expiration Date"), up to 640,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $.01 par value per share, of the Company at a per share purchase price of $.13 for years 1 and 2, and $.15 for year 3. The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the "Purchase Price". The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The Company may reduce the Purchase Price without the consent of the Holder. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain subscription agreement (the "Subscription Agreement"), dated at or about January ___, 2004, between the Company and the Holder.
As used herein the following terms, unless the context otherwise requires, have the following respective meanings:
(a) The term "Company" shall include National Scientific Corporation and any corporation which shall succeed or assume the obligations of National Scientific Corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.01
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the Issue Date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the Holder hereof by delivery of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the "Subscription Form") duly executed by such Holder and surrender of the original Warrant within seven (7) days of exercise, to the Company at its principal office or at the office of its Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole shares of Common Stock designated by the Holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may request, the whole number of shares of Common Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date;
(b) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., but is traded in the over-the-counter market, then the average of the closing bid and ask prices reported for the last business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree, or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided; or
(d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of the Warrant, upon the request of the Holder hereof acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within five (5) days thereafter ("Delivery Date"), the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share of Common Stock, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") having its principal office in New York, NY, as trustee for the Holder of the Warrants.
3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the Other Securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any Other Securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the Holder of the Warrants be delivered to the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. If the Company, during the Outstanding Period (as defined in the Subscription Agreement), shall issue any shares of Common Stock except for the Excepted Issuances (as defined in the Subscription Agreement) prior to the complete exercise of this Warrant for a consideration less than the Purchase Price that would be in effect at the time of such issue, then, and thereafter successively upon each such issue, the Purchase Price shall be reduced as follows: (i) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Purchase Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any, received by the Company upon such issue of additional shares of Common Stock; and (ii) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. The resulting quotient shall be the adjusted Purchase Price. For purposes of this adjustment, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Purchase Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. The reduction of the Purchase Price described in this Section 3.4 is in addition to the other rights of the Holder described in the Subscription Agreement.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL STATEMENTS. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles the Holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") with respect to any or all of the shares of Common Stock. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, the Company at its expense, but with payment by the Transferor of any applicable transfer taxes, will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in the Subscription Agreement. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, or in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 10 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the principal market or exchange upon which the Common Stock is listed for trading on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this Warrant on an exercise date in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this limitation is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon sixty-one (61) days prior notice from the Holder to the Company. The Holder may allocate which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 9.99% amount described above and which shall be allocated to the excess above 9.99%.
11. WARRANT AGENT. The Company may, by written notice to the Holder of the Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.
13. NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company to: National Scientific
Corporation, 14455 N. Hayden, Suite 202, Scottsdale, AZ 85260-6947, telecopier
number: (480) 483-8893 948-8324, with a copy by telecopier only to: Susan Regan,
Esq., 14455 N. Hayden, Suite 202, Scottsdale, AZ 85260-6947, telecopier: (480)
483-8893, and (ii) if to the Holder, to the address and telecopier number listed
on the first paragraph of this Warrant, with a copy by telecopier only to:
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of New York. Any dispute relating to this Warrant shall be adjudicated in New York County in the State of New York. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.
NATIONAL SCIENTIFIC CORPORATION
Title:
Witness:
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: NATIONAL SCIENTIFIC CORPORATION.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, __________ shares of Common Stock of National Scientific Corporation and herewith makes payment of $_______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to ________________________________ whose address is ____________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act.
Dated: ___________________
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of NATIONAL SCIENTIFIC CORPORATION to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of NATIONAL SCIENTIFIC CORPORATION with full power of substitution in the premises.
------------------------- ---------------------------- ------------------------- TRANSFEREES PERCENTAGE TRANSFERRED NUMBER TRANSFERRED ------------------------- ---------------------------- ------------------------- ------------------------- ---------------------------- ------------------------- ------------------------- ---------------------------- ------------------------- ------------------------- ---------------------------- ------------------------- |
Signed in the presence of:
EXHIBIT 5.1
June 23, 2004
National Scientific Corporation
14455 North Hayden Road
Suite 202
Scottsdale, Arizona 85260
Re: National Scientific Corporation Registration Statement on Form SB-2
Gentlemen:
We have acted as special counsel to National Scientific Corporation, Texas corporation (the "Company") in connection with the preparation and filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act") on a registration statement on Form SB-2 (the "Registration Statement"). The Registration Statement relates to the registration of 10,334,266 shares of the Company's common stock (the "Shares") to be sold by the Selling Securityholders identified in the Registration Statement and the registration for resale of 10,669,197 shares (the "Warrant Shares") of common stock underlying warrants (the "Warrants") issued to the Selling Securityholders.
In our capacity as counsel to the Company and for purposes of providing the
opinion specified in this letter, we have examined the Registration Statement,
the Articles of Incorporation as amended and the Bylaws each as currently in
effect, certain resolutions of the Board of Directors of the Company and such
other documents and certificates of public officials and certificates of
officers of the Company as we have deemed relevant and necessary as a basis for
the opinions hereinafter expressed. For these purposes, we have relied upon
information provided by (i) public officials, (ii) officers of the Company, and
(iii) other persons as to certain factual matters, and we have made no
independent investigation thereof. We have assumed (i) the genuineness of all
signatures, (ii) the authenticity of all documents submitted to us as originals,
(iii) the conformity to the original documents of all documents submitted to us
as certified or photostatic copies, and (iv) the authenticity of the originals
of the latter documents.
1. Based upon the foregoing it is our opinion that the Shares have been duly authorized and are validly issued, fully paid and nonassessable.
2. The Warrant Shares have been duly authorized and, when issued against payment of the requisite exercise price, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement.
Sincerely,
David M. Dobbs, P.C.
/s/ David M. Dobbs ---------------------------- By: David M. Dobbs, President |
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered between National Scientific Corporation and Graham Clark, effective the date it has been fully executed by both parties. "NSC," "Employer," or "Company" as used in this Agreement means National Scientific Corporation and/or its subsidiaries or affiliate corporations located in the United States or elsewhere. "Employee" or "Clark" as used in this Agreement means Graham Clark.
For good and valuable consideration, including the covenants set forth herein, the parties agree as follows:
1. DISPLACEMENT OF EXISTING CONTRACTS: This Agreement supersedes and entirely revokes, abrogates, and displaces any and all existing independent contractor agreements and other agreements between the parties hereto, if any.
2. POSITION AND DUTIES OF EMPLOYEE: Effective January 1, 2003, Clark is retained by NSC in the position of Vice President of Technology Application and Sales, and Director and Board Secretary. Clark will perform such duties as are assigned by senior management consistent with that position and will devote his full knowledge, skills, attention, and efforts to the business of the Company.
3. PERIOD OF EMPLOYMENT: The term of this Agreement ("Period of Employment") will be one (1) year, commencing January 1, 2003, unless sooner terminated according to the provisions set forth herein. This Agreement will be self-renewing for subsequent one-year Periods of Employment unless one of the parties notifies the other in writing at least thirty days before the end of the then-current Period of Employment of his/its intent not to renew.
4. COMPENSATION: For his services under this Agreement, Clark will:
a. receive an annual gross salary of One Hundred Twenty Thousand Dollars ($120,000.00), payable monthly. Adjustments to annual
salary are to be determined by senior management and/or the Board of Directors. Adjustments to annual salary must be in writing. The cash portion of this salary may be deferred as described in Exhibit A to this Agreement, titled "Salary Deferral Agreement."
b. be entitled to participate in benefits programs offered employees of NSC in his benefits classification.
c. be entitled to four (4) weeks of paid vacation per year.
d. be eligible for future cash and stock incentives the Company may, in its sole discretion, decide to offer him, including the Stock Retainage Plan ("Stock Retainage Plan Agreement") as shown in Exhibit B.
e. be assisted with payment of legal fees and with other appropriate actions associated with securing "Green Card" US immigration status.
5. EXPENSES: NSC will reimburse Clark for all reasonable business expenses incurred and documented in compliance with Company policy and procedure.
6. EXTERNAL COVENANTS AND RESTRICTIONS: Clark certifies that he has notified NSC and provided NSC a copy of any and all restrictive covenants and similar obligations he may have undertaken by reason of a prior employment or other relationship. Clark agrees not to undertake, during his employment by NSC, any external obligation that could restrict his ability to perform his duties under this Agreement.
7. OWNERSHIP OF WORK PRODUCT: Clark acknowledges and agrees that the nature of his services to NSC and its clients/customers may have involved and continue to involve development and/or improvement of technology, systems, processes, procedures, computer-software programs, other programs, and related documentation.
a. Clark agrees that all new or improved technology, systems, processes, procedures, computer-software programs, other programs, related documentation and intellectual property that Clark has or has had any part in developing or improving THAT RELATE DIRECTLY TO ACTIVE AREAS OF NSC BUSINESS INTEREST will be and remain the sole and exclusive property of NSC and that Clark will acquire no right, title, or interest therein. Clark further agrees to execute any and all documents necessary for NSC to secure and protect its interest in any such technology, systems, processes, procedures, computer-software programs, other programs, related documentation and intellectual property, including but not limited to documents related to non-disclosure, patents, licenses, or copyrights, whether of any state, federal, or foreign government. . Clark agrees that, upon termination of his employment for any reason whatsoever, he will surrender and deliver to NSC all such information and materials
b. Clark further acknowledges and expressly agrees that all files, records, lists, books, literature, correspondence, documents, services, products and data of any type whatsoever related to or used in the conduct of the business of NSC, its customers/clients, or prospective customers/clients will remain the property of NSC. Clark agrees that, upon termination of his employment for any reason whatsoever, he will surrender and deliver to NSC all such information and materials.
c. The parties agree that this section survives the termination of this Agreement for a period of two (2) years from the date of such termination.
8. CONFIDENTIAL INFORMATION: Clark acknowledges that, in the course of his existing contract with NSC and this employment, he will generate work products, has acquired and will be acquiring, using, and adding to confidential information of a special and unique nature and value. Clark acknowledges and understands that NSC is in a highly competitive business and that its success depends in significant part on maintaining a competitive advantage. Clark acknowledges and understands that NSC maintains and uses work product and confidential information to gain and maintain such a competitive advantage.
a. For the purposes of this Agreement, "confidential Information" is that which is not routinely disclosed by the management or Board of Directors of NSC in response to inquiries and is not readily obtainable elsewhere without expenditure of significant time, effort, or expense. "Confidential information" includes but is not limited to information related to the business, operations, assets, systems, plans, work products, contracts, procedures, processes, intellectual property, documentation, computer programs, or software products of NSC and/or its customers or clients and any information about the development or improvement of any technology by NSC and/or its customers or clients. Information obtained by Clark in the course of his previous work with NSC or his employment under this Agreement is confidential information unless it can reasonably be presumed to be in the public domain.
b. Clark agrees that he will not, during or after his employment, disclose any confidential information to any person(s) without the express written permission of NSC.
c. Clark acknowledges and agrees that any disclosure of confidential information by him will constitute a material breach of this Agreement and cause for termination of this Agreement and will give rise to such other legal remedies as NSC may elect to pursue.
d. The parties agree that this section survives the termination of this Agreement.
9. AGREEMENT NOT TO COMPETE: Clark acknowledges that, in addition to confidential information which he generates or to which he has or had access and will have access during the course of his employment, he will be given the opportunity to develop and maintain close personal rapport and good relations on behalf of NSC with other employees of NSC and with existing and future customers
and prospective customers of NSC. Clark agrees that during the Period of Employment and any extension thereof and for a period of one (1) year after termination of this Agreement, he will not, directly or indirectly, as owner, partner, principal, shareholder, director, officer, agent, or in any other capacity:
a. solicit, divert, or accept business from any current or prospective customer or client of NSC with whom Clark had contact in his capacity as an employee or contractor of NSC during the one-year period before termination of this Agreement or
b. employ or solicit for employment any employee of NSC with whom Clark worked during the one-year period before termination of this Agreement.
c. For purposes of this Agreement, a "prospective" customer or client is one that, during the one-year period before termination of this Agreement, received a proposal from NSC or whose business was demonstrably solicited by NSC.
d. The parties agree that this section survives the termination of this Agreement by one (1) year from such termination, unless such termination is via section 10.c below, in which case this section will survive thirty (30) days from such termination via section 10.c below.
10. TERMINATION OF EMPLOYMENT: This Agreement will terminate as provided in Section 3 unless sooner terminated pursuant to any of the following events.
a. This Agreement will terminate upon mutual written agreement of NSC and Clark, in accordance with the terms of that mutual agreement.
b. This Agreement will terminate upon the sale of all or substantially all of the assets or outstanding capital stock of NSC or any other material change in control of the Company. In the event of such termination, NSC will pay Clark an amount equivalent to fifty percent (50%) of his then-current annual gross salary.
c. This Agreement will terminate upon the liquidation, dissolution or bankruptcy of NSC. In the event of such termination, however, NSC will pay Clark an amount equivalent to twenty-five percent (25%) of his then-current annual gross salary.
d. This Agreement will terminate on the date of Clark's death.
e. Clark may terminate this Agreement without cause upon thirty (30) days written notice to NSC. In the event of such termination, Clark will be entitled only to compensation earned on or before the final date of employment.
f. NSC may terminate this Agreement without cause upon written notice to Clark. In the event of such termination, however, NSC will pay Clark a lump sum payment equivalent twenty-five percent (25%) of his then-current annual gross salary.
g. Notwithstanding any other provision hereof, NSC may terminate this Agreement and Clark's employment for cause upon written notice to Clark, specifying the cause for termination. "Cause for termination" is defined as any of the following: neglect of duties, insubordination, failure to comply with lawful instructions, fraud, theft, habitual drunkenness or substance abuse, unethical business conduct, conviction of a felony, any act or failure to act that would constitute a felony if prosecuted pursuant to applicable criminal statutes, any material breach of this Agreement, any willful or repeated violation of material company policy; failure to comply with applicable federal or state statute or regulations in trading Company stock. In the event of termination for cause, Clark will be entitled only to compensation earned on or before the final date of employment.
11. SCOPE AND MODIFICATION OF AGREEMENT: The parties agree that this Agreement contains the entire agreement between the parties concerning Clark's employment by NSC, except for any existing Stock Option Agreements between NSC
and Clark, which remain in force. All previous and contemporaneous statements and representations by either party are of no effect and are expressly superseded and replaced by this Agreement. Neither party has relied on any statement or representation by the other party or any representative of the other party that is not expressly stated in this Agreement. Changes or amendments to this Agreement are of no effect unless in writing signed by both parties.
12. SEVERABILITY: The provisions herein entitled Position and Duties of Employee, Compensation, Expenses, Termination of Employment, and Prohibition of Assignment are not severable. The ruling of any court or arbitrator of competent jurisdiction that any severable provision is void, voidable, or otherwise unenforceable shall have no effect on the validity and enforceability of any other provision.
13. PROHIBITION OF ASSIGNMENT: This Agreement is personal to Clark and neither party can assign his/its performance obligations hereunder to any third party. Notwithstanding that, the rights of the parties under this Agreement inure to the benefit of their respective successors, heirs, and assigns.
14. CHOICE OF LAW: This Agreement is to be construed and interpreted in accordance with the laws of Arizona, except as those laws may be preempted by federal law. No action involving this Agreement may be brought except as provided in Sections 17 and 18 below, and no court action challenging the enforceability of Section 17 may be brought except in the United States District Court for the District of Arizona.
15. WAIVER: Waiver by either party of any breach under this Agreement shall not operate as a waiver of any subsequent breach of the same or any other provision of this Agreement.
16. NOTICES: Any notice required under this Agreement shall be sufficient if given in writing and sent by registered mail to the below address of the party to be noticed.
National Scientific Corporation Graham Clark 14455 N. Hayden Rd Road 15449 N. Cabrillo Drive Suite 202 Fountain Hills, AZ. 85268 Scottsdale, Arizona 85260 |
17. ARBITRATION OF CLAIMS AND DISPUTES: Except as otherwise expressly
provided in this Agreement, any civil claim (except workers' compensation and
unemployment compensation claims) which arises out of or relates in any way to
this Agreement, to the parties' existing contract, or to the employment
relationship between the parties shall be settled by exclusive, binding, and
final arbitration in Phoenix, Arizona, in accordance with the following terms
and procedures. This includes but is not limited to claims arising under the
common law of contract, tort, or crimes and claims arising under any federal,
state, county, or municipal constitution, charter, statute, rule, or regulation.
THE PARTIES EXPRESSLY AGREE TO FOREGO ANY RIGHT TO TRIAL BY A JUDGE AND/OR JURY
IN FAVOR OF FINAL, BINDING, AND EXCLUSIVE ARBITRATION.
a. The party with a civil claim must notify the other party in writing by registered mail within the times set forth by statute for filing a civil claim of the type asserted of its desire to have the claim resolved by arbitration.
b. Upon notice of a timely civil claim, the parties will agree upon an arbitrator or, if unable to agree, will request a list from the American Arbitration Association or some other mutually-agreed-upon provider of arbitrators from which list the parties will alternate strikes until only one name remains. That last remaining name will be the arbitrator. If that person is unavailable, the name last struck will be the arbitrator, and so forth until an arbitrator is secured.
c. The arbitrator shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement or to make awards beyond those provided for by the statute or other theory of action under which the claim arises. Both parties must submit for arbitration at this time or permanently forego any and all existing claims against the other party arising from this Agreement, the existing contract between the parties, or the employment relationship between them.
d Any party to the arbitration may be represented by counsel. Each party shall bear his/its own attorney's fees. The party producing a witness is responsible for paying that witness' fees and expenses. The arbitrator's fees and expenses, including required travel and per diem costs, and the cost of any evidence or proof produced at the arbitrator's direction are apportionable and shall be borne as determined by the arbitrator. All decisions of the arbitrator made in accordance with this policy shall be final and conclusively binding upon the parties. The parties agree that the arbitrator's award may be entered as a judgment by any court of competent jurisdiction.
e. Issues of procedure, arbitrability, appeal, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. sections 1-16.
f. The parties agree that this section survives the termination of this Agreement.
18. RIGHT TO INJUNCTIVE RELIEF: Notwithstanding the parties' agreement to
arbitrate any and all civil claims that may arise from this Agreement, their
existing contract, or the employment relationship between them, Clark
acknowledges and agrees that any breach or threatened breach of Section 8 or
Section 9 will cause NSC irreparable harm and entitle NSC to such injunctive
relief as may be necessary to prevent such a breach by Clark and/or any person
acting for or with him. This right to injunctive relief is in addition to and
without limitation of any other rights, remedies, or damages available to NSC
under this Agreement or at law or in equity. Clark shall reimburse NSC its costs
and reasonable attorney's fees incurred in obtaining such injunctive relief.
19. DAMAGES FOR BREACH: NSC's liability to Clark for wrongful termination of this Agreement or any other breach thereof shall not exceed the amount of actual damages proven and, in any case, shall not exceed the amount of compensation and expenses Clark did not receive and would have received had he completed the then-current Period of Employment.
20. INDEPENDENT LEGAL COUNSEL: Each of the parties agrees that he/it has read and understands the terms of this Agreement and that he/it has had ample
opportunity to seek the counsel of his/its own attorney before executing this Agreement.
21. EXECUTION IN COUNTERPARTS: This Agreement may be executed in counterparts with the same effect as if the parties had signed the same document. The counterparts shall be construed together and shall constitute one Agreement.
National Scientific Corporation Graham Clark By: /s/ Michael A. Grollman By: /s/ Graham L. Clark ------------------------------- ------------------------------- Its: CEO Date: 1/1/2003 ------------------------------- ------------------------------- Date: 1/1/2003 ------------------------------- |
EXHIBIT A: SALARY DEFERAL AGREEMENT
THIS SALARY DEFFERAL AGREEMENT (hereinafter referred to as this "Deferral Agreement") made effective as of the 1st day of September 2002, is entered into by and between NATIONAL SCIENTIFIC CORPORATION, a Texas corporation ("NSC" or "Company") based in Scottsdale, AZ, and Graham Clark, whose principal residence is Fountain Hills, AZ ("Employee"). The aforementioned persons and entities are sometimes collectively referred to herein as the "parties" or "Parties" and individually as a "party."
RECITALS
WHEREAS, NSC is the current employer of the Employee; and
WHEREAS, NSC has paid the employee a gross salary each month for the last 12 months of approximately $10,000 in cash and other liquid forms, including stock option agreements; and
WHEREAS, NSC and the Employee have agreed that the Employee is willing to defer on a temporary basis a future portion of salary to assist the Company during a period of Company financial hardship;
NOW, THEREFORE, in consideration of the agreement by the parties and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged and confessed, the parties hereby agree as follows:
1. Each of the foregoing recitals is incorporated in this Deferral Agreement as a material term and condition.
2. The Employee agrees that for the one monthly payroll cycles during the month of September 2002 that the Company can defer the gross salary payment made to the Employee of $10,000, resulting in a total deferred amount ("Deferred Amount") for the month of $10,000.
3. The Company agrees and acknowledges that the Deferred Amount remains due and payable, with an annual interest rate of the Wells Fargo published prime rate plus 2% calculated from the date of the scheduled monthly payroll to the Employee by the Company, and that the Employee has the right to demand payment of the Differed Amount plus accrued interest at any time, and that the Company, if commercially reasonable and able, will make such a payment to the Employee immediately at the point of such demand.
4. The parties agree that NSC must seek the on-going written affirmation of the Employee to the terms of this Deferral Agreement each month by the 1st calendar day of that month, or this Agreement will terminate automatically. The Deferral Agreement will also terminate upon 30 days written notice by either party.
5. The Deferred Amount may change on a month by month basis, as documented in this Agreement.
6. The Employee has agreed to exchange $10,000 of this total deferred amount in Exchange for one "B Unit" under the Company's November 2002 Private Placement Offering Memorandum, when and if that Private Placement Offering is available.
7. The term of this Salary Deferral Agreement is from September 30, 2002 to December 31, 2003.
IN WITNESS WHEREOF, the Parties have executed this Deferral Agreement in Scottsdale, Arizona, on the date set forth beside their respective names.
NATIONAL SCIENTIFIC CORPORATION
By: /s/ Michael A. Grollman ------------------------- Its: CEO ------------------------- Date: September 1, 2002 ------------------------- |
EMPLOYEE
By: /s/ Graham L. Clark ------------------------- Its: President ------------------------- Date: September 1, 2002 ------------------------- |
EMPLOYEE AFFIRMATION OF SALARY DEFERRAL
By signing below each month, Employee affirms agrees to continue the salary deferral as described on the attached SALARY DEFFERAL AGREEMENT:
Month Deferred Amount Approval -------------------- --------------- ------------------- Sept-02 10,000 Oct-02 10,000 Nov-02 10,000 Dec-02 3,000 Jan-03 3,000 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 |
Dec-03
EXHBIT B: STOCK RETAINAGE PLAN AGREEMENT
THIS STOCK RETAINAGE PLAN AGREEMENT (hereinafter referred to as this "Stock Plan Agreement") made effective as of the 30th day of September 2002, is entered into by and between NATIONAL SCIENTIFIC CORPORATION, a Texas corporation ("NSC" or "Company") based in Scottsdale, AZ, and Graham Clark, whose principal residence is Fountain Hills, AZ ("Employee"). The aforementioned persons and entities are sometimes collectively referred to herein as the "parties" or "Parties" and individually as a "party."
RECITALS
WHEREAS, NSC is the current employer of the Employee; and
WHEREAS, NSC and the Employee have agreed that the Employee is willing to defer on a temporary basis a future portion of salary to assist the Company during a period of Company financial hardship as shown in Exhibit A, Salary Deferral Agreement;
WHEREAS, NSC's common stock ("Common Stock") has a market value at this month of September 2002 of approximately 7 cents per share, and this same Common Stock, restricted under SEC rule 144, would be expected to have a lower market value, were it salable on an open market;
WHEREAS, NSC's total revenues in calendar year 2002 through September 30, 2002 were less than $3,000;
WHEREAS, NSC and the Employee have agreed that the Employee is willing to provide best efforts to ensure the Company succeeds in growing its sales over the next fiscal year and beyond;
NOW, THEREFORE, in consideration of the agreement by the parties and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged and confessed, the parties hereby agree as follows:
1. Each of the foregoing recitals is incorporated in this Stock Plan Agreement as a material term and condition.
2. The Company agrees today to grant the Employee 500,000 shares of its Common Stock, restricted under SEC rule 144, provided that the Company revenues in calendar year 2003 surpass $200,000, a large increase over calendar year 2002, and also provided that the Employee remain continuously in the employment of NSC throughout this 2003 period. Should this not occur, this stock grant will be forfeited by the Employee, and such stock promptly returned to NSC.
3. The Company agrees to grant the Employee an additional 500,000 shares of its Common Stock, restricted under SEC rule 144, provided that the Company revenues in calendar year 2003 surpass $1,000,000, a large increase over calendar year 2002, and also provided that the Employee remain continuously in the employment of NSC throughout this 2003 period. Should this not occur, this stock grant will be forfeited by the Employee, and such stock promptly returned to NSC.
4. Such stock grants will be issued by NSC at the earliest reasonable date.
5. If Common Stock granted under this Agreement should be promptly returned to the Company, and is not promptly returned, the Company may take steps to cancel or otherwise nullify the grant of such shares of Common Stock as should be promptly returned, with the Employee bearing all costs incurred through this process.
6. The term of this Stock Plan Retainage Agreement is from September 30, 2002 to December 31, 2003.
IN WITNESS WHEREOF, the Parties have executed this Stock Plan Retainage Agreement in Scottsdale, Arizona, on the date set forth beside their respective names.
NATIONAL SCIENTIFIC CORPORATION
By: /s/ Michael A. Grollman ------------------------- Its: CEO ------------------------- Date: September 30, 2002 ------------------------- |
EMPLOYEE
By: /s/ Graham L. Clark ------------------------- Its: President ------------------------- Date: September 30, 2002 ------------------------- |
2003-4 STOCK RETAINAGE PLAN AGREEMENT
AMENDMENT
THIS STOCK RETAINAGE PLAN AGREEMENT (hereinafter referred to as this "Stock Plan Agreement") made effective as of the 30th day of September 2003, is entered into by and between NATIONAL SCIENTIFIC CORPORATION, a Texas corporation ("NSC" or "Company") based in Scottsdale, AZ, and Graham Clark, whose principal residence is Fountain Hills, AZ ("Employee"). The aforementioned persons and entities are sometimes collectively referred to herein as the "parties" or "Parties" and individually as a "party."
RECITALS
WHEREAS, NSC is the current employer of the Employee; and
WHEREAS, NSC and the Employee have agreed that the Employee is willing to defer on a temporary basis a future portion of salary to assist the Company during a period of Company financial hardship as shown in Exhibit A, Salary Deferral Agreement;
WHEREAS, NSC's common stock ("Common Stock") has a market value at this month of September 2003 of approximately .13 cents per share, and this same Common Stock, restricted under SEC rule 144, would be expected to have a lower market value, were it salable on an open market;
WHEREAS, NSC's total revenues in calendar year 2003 through September 30, 2003 were less than $100,000;
WHEREAS, NSC and the Employee have agreed that the Employee is willing to provide best efforts to ensure the Company succeeds in growing its sales over the next fiscal year and beyond;
NOW, THEREFORE, in consideration of the agreement by the parties and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged and confessed, the parties hereby agree as follows:
1. Each of the foregoing recitals is incorporated in this Stock Plan Agreement as a material term and condition.
2. The Company agrees today to grant the Employee 500,000 shares of its Common Stock, restricted under SEC rule 144, provided that the Company revenues in calendar year 2004 surpass $500,000, a large increase over calendar year 2003, and also provided that the Employee remain continuously in the employment of NSC throughout this 2004 period. Should this not occur, this stock grant will be forfeited by the Employee, and such stock promptly returned to NSC.
3. The Company agrees to grant the Employee an additional 500,000 shares of its Common Stock, restricted under SEC rule 144, provided that the Company revenues in calendar year 2003 surpass $1,500,000, a large increase over calendar year 2003, and also provided that the Employee remain continuously in the employment of NSC throughout this 2004 period. Should this not occur, this stock grant will be forfeited by the Employee, and such stock promptly returned to NSC.
4. Such stock grants will be issued by NSC at the earliest reasonable date.
5. If Common Stock granted under this Agreement should be promptly returned to the Company, and is not promptly returned, the Company may take steps to cancel or otherwise nullify the grant of such shares of Common Stock as should be promptly returned, with the Employee bearing all costs incurred through this process.
6. The term of this Stock Plan Retainage Agreement is from September 30, 2003 to December 31, 2004.
IN WITNESS WHEREOF, the Parties have executed this Stock Plan Retainage Agreement in Scottsdale, Arizona, on the date set forth beside their respective names.
NATIONAL SCIENTIFIC CORPORATION
By: /s/ Michael A. Grollman ------------------------- Its: CEO ------------------------- Date: September 30, 2003 ------------------------- |
EMPLOYEE
By: /s/ Graham L. Clark ------------------------- Its: President ------------------------- Date: September 30, 2003 ------------------------- |
EXHIBIT 10.3
NSC CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is entered into as of August 1, 2001, by and between National Scientific Corporation, a Texas Corporation (the "Company"), and Dr. El-Badawy El-Sharawy (the "Consultant").
RECITALS
1. Consultant has expertise in the area of the Company's business and is willing to provide consulting services to the Company.
2. The Company is willing to engage Consultant as an independent contractor, and not as an employee, on the terms and conditions set forth herein.
AGREEMENT
In consideration of the foregoing and of the mutual promises set forth herein, and intending to be legally bound, the parties hereto agree as follows:
1. ENGAGEMENT.
a. The Company hereby engages Consultant to render, as an independent contractor, the consulting services described in Exhibit A hereto and such other services as may be agreed to in writing by the Company and Consultant from time to time.
b. Consultant hereby accepts the engagement to provide consulting services to the Company on the terms and conditions set forth herein.
2. TERM. This Agreement will commence on the date first written above, and unless modified by the mutual written agreement of the parties, shall continue until the satisfactory completion of the services set forth in Exhibit A, or for a period of two (2) years from the date of this Agreement, whichever is shorter. Company may terminate this Agreement upon 30 days written notice to Consultant.
3. COMPENSATION.
a. In consideration of the services to be performed by Consultant, the Company agrees to pay Consultant in the manner and at the rates set forth in Exhibit A.
b. Out of pocket expenses incurred by Consultant that are authorized in advance by the Company's Project Manager as describe din Exhibit A, and incurred and documented in accordance with the Company's published polices regarding out-of-pocket expenses, shall be reimbursed by Company to Consultant, as further defined in Exhibit A.
4. CONSULTANT'S BUSINESS ACTIVITIES.
a. Consultant shall devote such time, attention and energy to the business and affairs of the Company as requested by the Company, and in any event no less than the average amount of contact time specified in Exhibit A hereto.
NSC CONSULTING AGREEMENT: Page 1
b. Consultant shall keep and periodically provide to the Company a log describing the contract hours by Consultant, as defined in Exhibit A.
c. Consultant shall provide first right of refusal to the Company for any Invention or proposal to create an Invention that relates directly to the work defined in Exhibit A.
d. Consultant will be free to take any written proposal which the Consultant has presented to the Company that the Company has rejected or otherwise not acted upon for a period of 6 months after date of receipt, so long as this proposal does not contain information that would be defined as Confidential to the Company prior to the delivery of the proposal. "Acted" in this section only shall mean, "requested service related to the proposal, and paid for such service."
5. CONFIDENTIAL INFORMATION AND ASSIGNMENTS. Consultant is simultaneously executing a Confidential Information and Invention Assignment Agreement for Consultants in the form of Exhibit B (the "Confidential Information and Invention Assignment Agreement"). The obligations under the Confidential Information and Invention Assignment Agreement shall survive termination of this Agreement for any reason for a period of 5 years.
6. INTERFERENCE WITH THE COMPANY'S BUSINESS.
a. Notwithstanding any other provision of this Agreement, for a period of one year after termination of this Agreement, Consultant shall not employ, solicit for employment, or advise or recommend to any other person that such other person employ or solicit for employment, any person employed or under contract (whether as a consultant, employee or otherwise) by or to the Company during the period of such person's association with the Company and one year thereafter.
b. Notwithstanding any other provision of this Agreement, and to the fullest extent permitted by law, for a period of one year after termination of this Agreement, Consultant shall not directly solicit any clients or customers of the Company without first notifying the Company in writing. The Company has the right to request that the Consultant not pursue a given project with a given client or customers of the Company is such an action would he directly harmful or damaging to current active Company interests with that client or customer. The Consultant may not unreasonably refuse this request, and the Company shall not make such a request unless the potential for damage to the Company is clear and significant.
7. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants (i) that Consultant has no known obligations, legal or otherwise, inconsistent with the terms of this Agreement or with Consultant's undertaking this relationship with the Company, (ii) that the performance of the services called for by this Agreement do not and will not knowingly violate any applicable law, rule or regulation or any proprietary or other right of any third party, (iii) that Consultant will not use in the performance of his responsibilities under this Agreement any confidential information or trade secrets of any other person or entity and (iv) that Consultant has not entered into or will enter into any agreement in conflict with this Agreement.
8. ATTORNEY'S FEES. Should either party hereto, or any heir, personal representative, successor or assign of either party hereto, resort to litigation to enforce this Agreement, the party or parties prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to recover its or their reasonable attorneys' fees and costs in such litigation from the party or parties against whom enforcement was sought.
9. ENTIRE AGREEMENT. This Agreement, contains the entire understanding and agreement between the parties hereto with respect to its subject
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matter and supersedes any prior or contemporaneous written or oral agreements, representations or warranties between them respecting the subject matter hereof.
10. AMENDMENT. This Agreement may be amended only by a writing signed by Consultant and by a representative of the Company duly authorized.
11. SEVERABILITY. If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.
12. NONWAIVER. No failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by an executive officer of the Company or other person duly authorized by the Company.
13. AGREEMENT TO PERFORM NECESSARY ACTS. Consultant agrees to perform any further acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement.
14. ASSIGNMENT. This Agreement may not be assigned by Consultant without the Company's prior written consent. This Agreement may be assigned by the Company in connection with a merger or sale of all or substantially all of its assets, and in other instances with the Consultant's consent which consent shall not be unreasonably withheld or delayed.
15. COMPLIANCE WITH LAW. In connection with his services rendered hereunder, Consultant agrees to abide by all federal, state, and local laws, ordinances and regulations.
16. INDEPENDENT CONTRACTOR. The relationship between Consultant and the Company is that of independent contractor under a "work for hire" arrangement. All work product developed by Consultant shall be deemed owned and assigned to Company. This Agreement is not authority for Consultant to act for the Company as its agent or make commitments for the Company unless authorized explicitly in writing by the Company to make such a specific commitment. Consultant will not be eligible for any employee benefits, nor will the company make deductions from fees to the consultant for taxes, insurance, bonds or the like. Consultant retains the discretion in performing the tasks assigned, within the scope of work specified.
17. TAXES. Consultant agrees to pay all appropriate local, state and federal taxes.
18. GOVERNING LAW. This Agreement shall be construed in accordance with, and all actions arising hereunder shall be governed by, the laws of the State of Arizona.
NSC CONSULTING AGREEMENT: Page 3
Agreed to this date, 8/1/2001, in Phoenix, Arizona.
National Scientific Corporation Dr. El-Badawy El-Sharawy
By: /s/ Michael A. Grollman By: /s/ Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Name: Michael A. Grollman Name: Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Title: CEO Title: Consultant ------------------------------ ------------------------------ |
NSC CONSULTING AGREEMENT: Page 4
Exhibit A
1. DESCRIPTION OF SERVICES TO BE RENDERED
FIRST AREA: The Consultant shall provide consulting expertise in the area of electronic device and system design, manufacture, and testing, including resonators, inductors, transformers, HBT's, Distributed Amplifiers, memory designs including TMOS SRAM cell design. The deliverables for this area of work will vary on a month-to-month basis, and will be assigned by a designated project manager from the Company. This project manager will initially be Graham Clark, although the Company may change this assignment at any time by giving 7 days notice. Deliverables requested will be produced in a timely way with good quality, and include but are not limited to new designs, patent support materials, diagrams, test results, device prototypes, studies, and direct telephone or contact consulting hours. In addition to other deliverables, the Consultant will provide a monthly time report showing his activities, which upon approval by the project manager will form the basis calculation of compensation.
SECOND AREA: The Company specifically requests support in securing a patent on a mask device to be used in optimizing projection equipment. This device is the same device the parties have had under discussion for a number of years. The deliverables for this effort are a completed patent application, and those other documents as may be required to support the licensing of this patent to third parties.
2. MONTHLY COMPENSATION
For the First Area listed above, the Company will pay a $125 per contact hour of approved and documented work. The Company will pay each month of minimum retainer of $2000 per month in cash and $1000 per month in Stock Options (as defined below under "Stock Compensation"). The Consultant will receive this no less than this minimum retainer payment per month, even if the Consultant has not reported sufficient hours to generate that retainer when calculated on a hourly basis. However, the Consultant will only be paid the retainer upon submission and approval of his time report each month for contact hours.
Although the actual hours worked by the Consultant are expected to vary from month to month, the Company expects the Consultant on the average to deliver the Minimum Time To Be Expended as defined in (3) below. This amount may be increased or decreased by the Company based on as the Consultant's ability to deliver work or hours to the Company, or based on the current financial or business requirement of the Company.
For the Second Area listed above, the Company will pay the an additional 10% of net-of-company's-cost license fees generated and collected by this patent for the Company, up to a maximum payment of $2,000,000.
For purposes of this Agreement, "net-of-company's-cost license fees" shall mean the revenue derived by the Company from the sale of the technology product using the IP, less the cost of goods sold to have the product manufactured (if the Company manufactures it), and less the cost paid to other licensed holders whose products are used in the manufacture of the product, and less direct costs associated with achieving, supporting and maintaining the patent or intellectual property, including associated legal costs and any testing or development expenses associated with developing and proving the specific invention in question. Specifically excluded from "net-of-company's-cost license fees" calculation are such items as Company overhead, staff salaries, rent, utilities, and other general costs of operating the business that are not directly tied to the commercial exploitation of a specific license.
NSC CONSULTING AGREEMENT: Page 5
3. MINIMUM TIME TO BE EXPENDED
The Company expects an average 3 contact hours per week of time from the Consultant during the academic year, 5 contact average hours per week from the Consultant during the summer. The Consultant with also provide an unspecified number of non-contact Consulting hours on an as-needed basis.
4. PAYMENT TERMS
Payment to the Consultant will be net 7 business days or sooner from receipt by the accounting department of an approved time report.
NSC CONSULTING AGREEMENT: Page 6
5. SPECIAL BONUS COMPENSATION
After the filing and upon the award and issue of any new patents for which the Consultant has been the primary inventor and which have been filed according to the Company's standard approved procedures for filing, other than for the Mask Patent whose compensation is described separately under Compensation, the Company will pay the Consultant a bonus based on the mutually agreed value of the patent to the Company. This value agreement will fall into the following categories:
------------------------ ---------------------- --------------------- ---------------------- ---------------------- Class A Class B Class C Class D ------------------------ ---------------------- --------------------- ---------------------- ---------------------- Description This patent is This patent is This patent is This patent is expected to have expected to have expected to have expected to have major and dramatic significant effects significant effects some effects on the effects on the on the technology on the technology technology technology marketplace, and to marketplace, and to marketplace, and to marketplace, and to generate revenues generate revenues to generate revenues to generate revenues to to the Company in the Company in its the Company in its the Company in its its first 5 years first 5 years from first 5 years from first 5 years from from date of issue date of issue of date of issue of date of issue of of more than more than $10,000,000 more than $2,000,000 more than $25,000,000 $100,000,000 ------------------------ ---------------------- --------------------- ---------------------- ---------------------- Cash Portion of Bonus $50,000 $25,000 $5,000 $1000 ------------------------ ---------------------- --------------------- ---------------------- ---------------------- Stock Option $200,000 $100,000 $50,000 $10,000 Portion of Bonus ------------------------ ---------------------- --------------------- ---------------------- ---------------------- % of company's 8% 4% 1% 0% net-of-cost license fees generated and collected by this patent for the Company ------------------------ ---------------------- --------------------- ---------------------- ---------------------- |
In no case will be total special bonus paid for any one patent exceed $5,000,000. In the event that the Company and the Consultant cannot reasonably agree on the Class of a given patent, the Company's estimate will be used until the actual market impact and revenues can be measured over an extended period of time, at which point the Consultant may request a change in bonus Class, which the Company shall not unreasonably withhold. If a patent is awarded which is less in impact and revenue than the Class D above, no bonus will be paid.
6. STOCK COMPENSATION
For purposes of this agreement, for Compensation to be provided in Stock Options, the Company will take the average closing price of NSCT common stock for the last 5 trading days before the end of a period, and this will be called the current share price of NSC stock. The Company will issue stock options at 75% of the value of this figure, with a one-year vesting period, which starts on the date of issue. In order to compute the number of options to be granted at this discount, the "Stock Option Dollars" shown in the table will be multiplied by 4. By way of example of not of limitation, to pay $1000 in stock option compensation if the NSCT share price is $1.00, the Company will issue 4000 options at $0.75 each.
Although stock option compensation will be earned monthly, all options contracts will be issued calculated quarterly for value accumulated during the previous 3 months, and will begin their vesting period on that date.
NSC CONSULTING AGREEMENT: Page 7
7. TRAVEL EXPENSES
When Consultant is requested in writing to travel exclusively on Company business, the Consultant will be reimbursed for his reasonable travel expenses as per the then-current Standard Company Expense Reimbursement Policy, a copy of which is maintained on the Company's primary internal web server for easy reference. Any hours spent traveling shall be billed to the Company at 1/2 of the normal hourly rate. When the Consultant is traveling for any purpose other than on exclusive Company business, no reimbursement will normally be provided for any travel expenses or travel time. Exceptions to this require a written approval by the project manager, and approved in writing by the CFO of National Scientific.
NSC CONSULTING AGREEMENT: Page 8
Exhibit B
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT FOR CONSULTANT
This CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT (the "Agreement") is made between National Scientific Corporation, a Texas Corporation (the "Company") and the undersigned consultant.
In consideration of my relationship with the Company (which for purposes of this Agreement shall be deemed to include any subsidiaries or Affiliates of the Company), the receipt of confidential information while associated with the Company, and other good and valuable consideration, I, the undersigned individual, agree that:
1. TERM OF AGREEMENT. This Agreement shall continue in full force and effect for the duration of my relationship with the Company and shall continue thereafter until terminated through a written instrument signed by both parties.
2. CONFIDENTIALITY.
(a) DEFINITIONS. "Proprietary Information" is all information and any idea whatever form, tangible or intangible, pertaining in any manner to the business of the Company, or any of its Affiliates, or its employees, clients, consultants, or business associates, which was produced by any employee or consultant of the Company in the course of his or her employment or consulting relationship or otherwise produced or acquired by or on behalf of the Company. All Proprietary Information not generally known outside of the Company's organization, shall be deemed "Confidential Information." By example and without limiting the foregoing definition, Proprietary and Confidential Information shall include, but not be limited to:
(1) formulas, research and development techniques, processes, trade secrets, computer programs, software, electronic codes, mask works, inventions, innovations, patents, patent applications, discoveries, improvements, data, know-how, formats, test results, and research projects;
(2) information about costs, profits, markets, sales, contracts and lists of customers, and distributors;
(3) business, marketing, and strategic plans;
(4) forecasts, unpublished financial information, budgets, projections, and customer identities, characteristics and agreements; and
(5) employee personnel files and compensation information.
Confidential Information is to be broadly defined, and includes all information that has or could have commercial value or other utility in the business in which the Company is engaged or contemplates engaging, and all information of which the unauthorized disclosure could be detrimental to the interests of the Company, whether or not such information is identified as Confidential Information by the Company.
(b) EXISTENCE OF CONFIDENTIAL INFORMATION. The Company owns and has developed and compiled, and will develop and compile, certain trade secrets, proprietary techniques and other Confidential Information which have great value to its
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business. This Confidential Information includes not only information disclosed by the Company to me, but also information developed or learned by me during the course of my relationship with the Company.
(c) PROTECTION OF CONFIDENTIAL INFORMATION. I will not use, make available, sell, disclose or otherwise communicate to any third party, other than in my assigned duties and for the benefit of the Company, any of the Company's Confidential Information, either during or after my relationship with the Company. In the event I desire to publish the results of my work for the Company through literature or speeches, I will submit such literature or speeches to the President of the Company at least 10 days before dissemination of such information for a determination of whether such disclosure may alter trade secret status, may be prejudicial to the interests of the Company, or may constitute an invasion of its privacy. I agree not to publish, disclose or otherwise disseminate such information without prior written approval of the President of the Company. I acknowledge that I am aware that the unauthorized disclosure of Confidential Information of the Company may be highly prejudicial to its interests, an invasion of privacy, and an improper disclosure of trade secrets.
(d) DELIVERY OF CONFIDENTIAL INFORMATION. Upon request or when my relationship with the Company terminates, I will immediately deliver to the Company all copies of any and all materials and writings received from, created for, or belonging to the Company including, but not limited to, those which relate to or contain Confidential Information.
(e) LOCATION AND REPRODUCTION. I shall maintain at my workplace only such Confidential Information as I have a current "need to know." I shall return to the appropriate person or location or otherwise properly dispose of Confidential Information once that need to know no longer exists. I shall not make copies of or otherwise reproduce Confidential Information unless there is a legitimate business need of the Company for reproduction.
(f) PRIOR ACTIONS AND KNOWLEDGE. I represent and warrant that from the time of my first contact with the Company I held in strict confidence all Confidential Information and have not disclosed any Confidential Information, directly or indirectly, to anyone outside the Company, or used, copied, published, or summarized any Confidential information, except to the extent otherwise permitted in this Agreement.
(g) THIRD-PARTY INFORMATION. I acknowledge that the Company has received and in the future will receive from third parties their confidential information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree that I will at all times hold all such confidential information in the strictest confidence and not to disclose or use it, except as necessary to perform my obligations hereunder and as is consistent with the Company's agreement with such third parties.
(h) THIRD PARTIES. I represent that my relationship with the Company does not and will not breach any agreements with or duties to a former employer or any other third party. I will not disclose to the Company or use on its behalf any confidential information belonging to others and I will not bring onto the premises of the Company any confidential information belonging to any such party unless consented to in writing by such party.
(i) Consultant will be free to take any written proposal which the Consultant has presented to the Company that the Company has rejected or otherwise not acted upon for a period of 6 months after date of receipt, so long as this proposal does not contain information that would be defined as Confidential to the Company prior to the delivery of the proposal. "Acted" in this section only shall mean, "requested service related to the proposal, and paid for such service."
3. PROPRIETARY RIGHTS, INVENTIONS AND NEW IDEAS.
(a) DEFINITION. The term "Subject Ideas or Inventions" includes any and all ideas, processes, trademarks, service marks, inventions, designs, technologies, computer hardware or software, original works of authorship, formulas, discoveries, patents, copyrights, copyrightable works products, marketing and business ideas, and all improvements, know-how, data, rights, and claims related
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to the foregoing that, whether or not patentable, which are conceived, developed or created which; (1) relate directly to the Company's program of research or development as defined in Exhibit A; (2) result from any work performed by me for the Company; (3) involve the use of the Company's equipment, supplies, facilities or trade secrets; (4) result from or are suggested by any work done by the Company or at the Company's request, or any projects specifically assigned to me; or (5) result from my access to any of the Company's memoranda, notes, records, drawings, sketches, models, maps, customer lists, research results, data, formulae, specifications, inventions, processes, equipment or other materials (collectively, "Company Materials").
(b) COMPANY OWNERSHIP. All right, title and interest in and to all Subject Ideas and Inventions, including but not limited to all registrable and patent rights which may subsist therein, shall be held and owned solely by the Company, and where applicable, all Subject Ideas and Inventions shall be considered works made for hire. I shall mark all Subject Ideas and Inventions with the Company's copyright or other proprietary notice as directed by the Company and shall take all actions deemed necessary by the Company to protect the Company's rights therein. In the event that the Subject Ideas and Inventions shall be deemed not to constitute works made for hire, or in the event that I should otherwise, by operation of law, be deemed to retain any rights (whether moral rights or otherwise) to any Subject Ideas and Inventions, I agree to assign to the Company, without further consideration, my entire right, title and interest in and to each and every such Subject Idea and Invention.
(c) DISCLOSURE. I agree to disclose promptly to the Company full details of any and all Subject Ideas and Inventions.
(d) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Subject Ideas and Inventions and their development made by me (solely or jointly with others) during the term of my relationship with the Company. These records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. These records will be available to and remain the sole property of the Company at all times.
(e) DETERMINATION OF SUBJECT IDEAS AND INVENTIONS. I further agree that all information and records pertaining to any idea, process, trademark, service mark, invention, technology, computer hardware or software, original work of authorship, design, formula, discovery, patent, copyright, product, and all improvements, know-how, rights, and claims related to the foregoing ("Intellectual Property"), that I do not believe to be a Subject Idea or Invention, but that is conceived, developed, or reduced to practice by the Company (alone by me or with others) during my relationship with the Company and for one (1) year thereafter, shall be disclosed promptly by me to the Company. The Company shall examine such information to determine if in fact the Intellectual Property is a Subject Idea or Invention subject to this Agreement.
(f) ACCESS. Because of the difficulty of establishing when any Subject Ideas or Inventions are first conceived by me, or whether it results from my access to Confidential Information or Company Materials, I agree that any Subject Idea and Invention shall, among other circumstances, be deemed to have resulted from my access to Company Materials if: (1) it grew out of or resulted from my work with the Company or is related to the business of the Company as defined in Exhibit A, and (2) it is made, used, sold, exploited or reduced to practice, or an application for patent, trademark, copyright or other proprietary protection is filed thereon, by me or with my significant aid, within one year after termination of my relationship with the Company.
(g) ASSISTANCE. I further agree to assist the Company in every proper way (but at the Company's expense) to obtain and from time to time enforce patents, copyrights or other rights or registrations on said Subject Ideas and Inventions in any and all countries, and to that end will execute all documents necessary:
(1) to apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and
(2) to defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for revocation of such letters patent, copyright or other analogous protection; and
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(3) to cooperate with the Company (but at the Company's expense) in any enforcement or infringement proceeding on such letters patent, copyright or other analogous protection.
(h) AUTHORIZATION TO COMPANY. In the event the Company is unable, after reasonable effort, to secure my signature on any patent, copyright or other analogous protection relating to a Subject Idea and Invention, whether because of my physical or mental incapacity or for any other reason whatsoever, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and on my behalf and stead to execute and file any such application, applications or other documents and to do all other lawfully permitted acts to further the prosecution, issuance, and enforcement of letters patent, copyright or other analogous rights or protections thereon with the same legal force and effect as if executed by me. My obligation to assist the Company in obtaining and enforcing patents and copyrights for Subject Ideas and Inventions in any and all countries shall continue beyond the termination of my relationship with the Company, but the Company shall compensate me at a reasonable rate after such termination for time actually spent by me at the Company's request on such assistance.
(i) ACKNOWLEDGEMENT. I acknowledge that there are no currently existing ideas, processes, inventions, discoveries, marketing or business ideas or improvements for the subject area of this Agreement as defined in Exhibit A which I desire to exclude from the operation of this Agreement. To the best of my knowledge, there is no other contract to assign inventions, trademarks, copyrights, ideas, processes, discoveries or other intellectual property that is now in existence between me and any other person (including any business or governmental entity).
(j) NO USE OF NAME. I shall not at any time use the Company's name or any the Company trademark(s) or trade name(s) in any advertising or publicity without the prior written consent of the Company.
4. COMPETITIVE ACTIVITY.
(a) ACKNOWLEDGMENT. I acknowledge that the pursuit of the activities forbidden by Section 4(b) below would necessarily involve the use, disclosure or misappropriation of Confidential Information.
(b) PROHIBITED ACTIVITY. To prevent the above-described disclosure, misappropriation and breach, I agree that during my relationship and for a period of one (1) year thereafter, without the Company's express written consent, I shall not, directly or indirectly, (i) employ, solicit for employment, or recommend for employment any person employed by the Company (or any Affiliate); and (ii) engage in any present or contemplated business activity that is or may be competitive with the Company (or any Affiliate) in any state where the Company conducts its business, unless I can prove that any action taken in contravention of this subsection (ii) was done without the use in any way of Confidential Information.
5. REPRESENTATIONS AND WARRANTIES. I represent and warrant (i) that I have no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with my undertaking a relationship with the Company; (ii) that the performance of the services called for by this Agreement do not and will not violate any applicable law, rule or regulation or any proprietary or other right of any third party; (iii) that I will not use in the performance of my responsibilities for the Company any confidential information or trade secrets of any other person or entity; and (iv) that I have not entered into or will enter into any agreement (whether oral or written) in conflict with this Agreement.
6. TERMINATION OBLIGATIONS.
(a) Upon the termination of my relationship with the Company or promptly upon the Company's request, I shall surrender to the Company all equipment, tangible Proprietary Information, documents, books, notebooks, records, reports, notes, memoranda, drawings, sketches, models, maps, contracts, lists, computer disks (and other computer-generated files and data), any other data and records of any kind, and copies thereof (collectively, "Company Records"), created on any medium and furnished to, obtained by, or prepared by myself in the course of or incident to my relationship with the Company, that are in my possession or under my control.
NSC CONSULTING AGREEMENT: Page 12
(b) My representations, warranties, and obligations contained in this Agreement shall survive the termination of my relationship with the Company.
(c) Following any termination of my relationship with the Company, I will fully cooperate with the Company in all matters relating to my continuing obligations under this Agreement.
(d) I hereby grant consent to notification by the Company to any of my future employers or companies I consult with about my rights and obligations under this Agreement.
(e) Upon termination of my relationship with the Company, I will execute a Certificate acknowledging compliance with this Agreement in the form reasonably requested by the Company.
8. MODIFICATION. No modification of this Agreement shall be valid unless made in writing and signed by both parties.
9. BINDING EFFECT. This Agreement shall be binding upon me, my heirs, executors, assigns and administrators and is for the benefit of the Company and its successors and assigns.
10. GOVERNING LAW. This Agreement shall be construed in accordance with, and all actions arising under or in connection therewith shall be governed by, the internal laws of the State of Arizona (without reference to conflict of law principles).
11. INTEGRATION. This Agreement sets forth the parties' mutual rights and obligations with respect to proprietary information, prohibited competition, and intellectual property. It is intended to be the final, complete, and exclusive statement of the terms of the parties' agreements regarding these subjects. This Agreement supersedes all other prior and contemporaneous agreements and statements on these subjects, and it may not be contradicted by evidence of any prior or contemporaneous statements or agreements. To the extent that the practices, policies, or procedures of the Company, now or in the future, apply to myself and are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control unless changed in writing by the Company.
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties hereto with respect to its subject matter and supersedes any prior or contemporaneous written or oral agreements, representations or warranties between them respecting the subject matter hereof.
13. CONSTRUCTION. This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. By way of example and not limitation, this Agreement shall not be construed against the party responsible for any language in this Agreement. The headings of the paragraphs hereof are inserted for convenience only, and do not constitute part of and shall not be used to interpret this Agreement.
14. SEVERABILITY. If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.
15. NONWAIVER. The failure of either the Company or me, whether purposeful or otherwise, to exercise in any instance any right, power or privilege under this Agreement or under law shall not constitute a waiver of any other right, power or privilege, nor of the same right, power or privilege in any other instance. Any waiver by the Company or by me must be in writing and signed by either myself, if I am seeking to waive any of my rights under this Agreement, or by an officer of the Company (other than me) or some other person duly authorized by the Company.
16. NOTICES. Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law shall be sufficient if it is in
NSC CONSULTING AGREEMENT: Page 13
writing, and if and when it is hand delivered or sent by regular mail, with postage prepaid, to my residence (as noted in the Company's records), or to the Company's principal office, as the case may be.
17. AGREEMENT TO PERFORM NECESSARY ACTS. I agree to perform any further acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement.
18. ASSIGNMENT. This Agreement may not be assigned without the Company's prior written consent.
19. COMPLIANCE WITH LAW. In connection with his services rendered hereunder, Consultant agrees to abide by all federal, state, and local laws, ordinances and regulations.
Agreed to this date, August 1, 2001, in Phoenix, Arizona,
National Scientific Corporation Dr. El-Badawy El-Sharawy
By: /s/ Michael A. Grollman By: /s/ Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Name: Michael A. Grollman Name: Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Title: CEO Title: Consultant ------------------------------ ------------------------------ |
NSC CONSULTING AGREEMENT: Page 14
Exhibit C
LIST OF COMPANIES THAT THE CONSULTANT HAS NOTIFIED THE COMPANY IN WRITING THAT
HE PLANS TO PURSUE FOR BUSINESS DISTINCT AND SEPARATE FROM THE COMPANY'S
BUSINESS
Motorola - modeling
Transtec - materials
Protek - measurements & filters
Northup Grumman - ferrite work
AIM Atomic Technologies - nuclear waste management
AIM Aerospace - engines
AIM Super Lattice - materials
Intel - packaging
Conexant - packaging
NSC CONSULTING AGREEMENT: Page 15
NSC CONSULTING AGREEMENT CHANGE ORDER
This Consulting Agreement Change Order ("Change Order") is entered into as of August 1, 2002, by and between National Scientific Corporation, a Texas Corporation (the "Company"), and Dr. El-Badawy El-Sharawy (the "Consultant"). This Change Order modifies the Agreement between these same parties entitled "NSC Consulting Agreement" dated August 1, 2001.
The parties intend to leave all elements of the previous contract in force, except as follows:
CHANGE AREA #1: MINIMUM HOURS / MONTH REMOVED FROM AGREEMENT
Replace the first two paragraphs under "Compensation" entitled "Monthly Compensation with 1 paragraph shown below, and to strike the section entitled "Minimum Time to be Expended" from that same section "Compensation."
MONTHLY COMPENSATION
FOR THE FIRST AREA LISTED ABOVE, THE COMPANY WILL PAY A $125 PER CONTACT HOUR OF APPROVED AND DOCUMENTED WORK. THE COMPANY WILL BE FOR THESE SERVICES USING 50% CASH AND 50% STOCK OPTIONS (AS DEFINED BELOW UNDER "STOCK COMPENSATION"). THE CONSULTANT WILL NOT RECEIVE A MINIMUM RETAINER PER MONTH, AND MUST BE PRE-APPROVED IN WRITING TO WORK HOURS PRIOR TO WORKING ANY HOURS. THE CONSULTANT WILL ONLY BE PAID FOR DOCUMENTED HOURS WORKED, AND ONLY THEN UPON SUBMISSION AND APPROVAL OF HIS TIME REPORT EACH MONTH.
CHANGE AREA #2: BACKPAY COMPENSATION FOR 2002
The parties are that the Consultant was paid in full as per this Agreement for services rendered through December 2001. The parties also agree that payments from January 20002 to July 2002 were not made in accordance with the original Agreement. In exchange for a full release of obligation from the Consultant for any missing payments under this Agreement from it origin up to and including July 2002, NSC will pay the Consultant 150,000 options in NSC common stock at a strike price of 7 cents each.
Agreed to this date, 8/1/2002, in Scottsdale, Arizona,
National Scientific Corporation Dr. El-Badawy El-Sharawy
By: /s/ Michael A. Grollman By: /s/ Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Name: Michael A. Grollman Name: Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Title: President Title: Consultant ------------------------------ ------------------------------ |
NSC CONSULTING AGREEMENT: Page 16
NSC CONSULTING AGREEMENT
AMENDMENT: July 31, 2003
This is an amendment ("Amendment") to the Consulting Agreement (the "Agreement") entered into as of August 1, 2001, by and between National Scientific Corporation, a Texas Corporation (the "Company") with offices at 14455 N. Hayden Rd Ste 202, Scottsdale, AZ, 85260, and Dr. El-Badawy El-Sharawy (the "Consultant") located at 15832 S. 22nd St., Phoenix, AZ. 85048. The terms of the Agreement, including the change order dated 8/1/2002 previously accepted by the parties, are incorporated into the Amendment by reference.
TERMS
By mutual agreement of the parties today, Section 2 of the original Agreement, Term, is herby modified so that the Agreement will continue in force for an additional period of time. The revised termination date of the Agreement shall now be December 31, 2005.
Agreed to this date, 7/31/2003, in Scottsdale, Arizona,
National Scientific Corporation Dr. El-Badawy El-Sharawy
By: /s/ Michael A. Grollman By: /s/ Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Name: Michael A. Grollman Name: Dr. El-Badawy El-Sharawy ------------------------------ ------------------------------ Title: CEO ------------------------------ |
NSC CONSULTING AGREEMENT: Page 17
EXHIBIT 10.5
FORM OF STOCK RETAINAGE PLAN AGREEMENT
THIS STOCK RETAINAGE PLAN AGREEMENT (hereinafter referred to as this "Stock Plan Agreement") made this ________ day of _______________, 2004, is entered into by and between NATIONAL SCIENTIFIC CORPORATION, a Texas Corporation ("NSC") based is Scottsdale, Az., and _______________________, whose principal residence is ______________________. The aforementioned persons and entities are sometimes collectively referred to herein as the "parties" or "Parties" and individually as a "party".
RECITALS
WHEREAS, ____________________ is an employee of NSC; and
WHEREAS, NSC compensates employees for services to the Company; and
WHEREAS, NSC's common stock ("Common Stock") has a market value at this month of _______________, 2004 of approximately ______cents per share, and this same Common Stock restricted under SEC rule 144 would be expected to have a lower market value were it saleable on an open market; and
WHEREAS, NSC's total revenues in calendar year 2003 through ______(month) were less than $__________; and
WHEREAS NSC and the employee have agreed that the employee is willing to provide best efforts to guide the company towards growth and success over the next fiscal year and beyond;
NOW THEREFORE, in consideration of the agreement by the parties and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged and confessed, the parties hereby agree as follows:
1. Each of the foregoing recitals is incorporated in this Stock Plan
Agreement as a material term and condition.
2. The company agrees today to grant the employee __________ shares of
its Common Stock restricted under SEC rule 144, provided that the
Company revenues in Calendar Year 2004 surpass $200,000, a large
increase over Calendar Year 2003, and also provided that the employee
remain continuously employed with NSC throughout ____________. Should
this not occur, this stock grant will be forfeited by the employee,
and such stock promptly returned to NSC.
3. The Company agrees to grant the employee an additional _____ shares of
its common stock, restricted under SEC rule 144, provided that the
Company revenues in Calendar Year 2004 surpass $1,000,000, a large
increase over Calendar Year 2003, and also provided that the employee
remain continuously employed with NSC throughout the 2004 period.
Should this not occur, this stock grant will be forfeited by the
employee, and such stock promptly returned to NSC.
4. Such stock grants will be issued by NSC at the earliest reasonable
date.
5. If Common Stock granted under this Agreement should be promptly
returned to the Company, and is not promptly returned, the Company may
take steps to cancel or otherwise nullify the grant of such shares of
Common Stock as should be promptly returned, with the employee bearing
all the costs incurred through this process.
6. The term of this Stock Retainage Plan Agreement is from ___________,
2004 to ______________________.
IN WITNESS WHEREOF, THE Parties have executed this Stock Plan Agreement in Scottsdale, Arizona, on the date set forth beside their respective names.
NATIONAL SCIENTIFIC CORPORATION EMPLOYEE
By: _________________________________ ____________________________ Title: _________________________________ ____________________________ Date: _________________________________ ____________________________ |
EXHIBIT 10.7
DISTRIBUTION AND MARKETING AGREEMENT
THIS AGREEMENT made this 16th day of December, 2002.
BETWEEN:
FUTURECOM GLOBAL, INC.,
a Nevada corporation having an office at 15690 N. 83rd Way,
Suite B, Scottsdale, AZ 85260
(hereinafter referred to as "FCG")
OF THE FIRST PART
AND:
NATIONAL SCIENTIFIC CORPORATION
a Texas corporation having offices at 1455 North Hayden Road Suite 202, Scottsdale, AZ 85260-6947
(hereinafter referred to as "NSC")
OF THE SECOND PART
WHEREAS NSC is a developer of tracking and location equipment, and related products, based upon locator technology that is a merger of cell phone and global positioning systems technology; and
WHEREAS FCG is, among others, engaged in the distribution and marketing of communication equipment and other technology-based products; and
WHEREAS FCG is desirous of entering into a formal agreement with NSC for the distribution and marketing of NSC tracking and location equipment in certain international and regional markets; and
WHEREAS NSC is agreeable to appointing FCG as its Distributor and Marketing Agent in accordance with the terms and conditions herein; and
WHEREAS the Parties of the First and Second Part hereto wish to enter into this Agreement to set forth the terms and conditions of the distribution and marketing appointment.
NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:
1. DISTRIBUTION AND MARKETING RIGHTS
(i) NSC hereby grants to FCG for One (1) year from the date hereof the renewable rights to sell within the Territory the products and equipment manufactured by NCS described in Schedule "A" attached hereto and forming a part hereof (hereinafter collectively referred to as the "Products"), which Schedule shall stipulate whether or not the distribution rights granted hereunder are on an exclusive basis.
(ii) FCG may describe itself as an authorized distributor of the Products but shall not characterize itself or enter into any transaction as an agent of, except as permitted herein, or in the name of, NSC.
2. THE TERRITORY
(i) FCG is hereby appointed as the distributor for the territory (herein referred to as the "Territory") described in Schedule "B", which is attached hereto and forms a part hereof.
(ii) In the event the Products and/or Territory are expanded, reduced, or revised in any manner, Schedule "B" shall be modified accordingly without the requirement for a new Distribution and Marketing Agreement unless the Parties hereto determine otherwise.
3. LABELING RIGHTS
FCG or its customers shall not be entitled to market any Products covered herein under any private label brand name utilized by FCG or its customers from time to time without prior written consent from NSC. However, FCG is authorized to add labeling with "Distributed by FCG" type identification.
4. TERMS AND PRICES FOR THE PRODUCTS
(i) NSC shall supply FCG with the Products on the terms and at the prices set forth in Schedule "C" which is attached hereto and forms a part hereof. For greater certainty, the prices set forth in Schedule "B" are current prices quoted as of the date of the Agreement, and may be revised by NSC from time to time with 45-day advance written notice of
change provided to FCG. Any and all written, issued, and acknowledged Purchase Orders for Products from customers of FCG received by FCG prior to, or before the end of, the 45-day change notification period will be honored at the existing price(s) before the intended change.
(ii) FCG shall be entitled to re-sell the Products at whatever price(s) it deems fit into any sales channels available.
5. TRAINING AND PRODUCT SUPPORT
(i) At the request of FCG from time to time, NSC shall provide, without charge, adequate training of FCG's employees or agents, in the proper use of the Products.
(ii) NSC shall furnish and provide to FCG during the term of this Agreement, without charge, periodic follow-up assistance and instruction that FCG deems necessary or appropriate.
(iii) The Parties hereto agree that the Products may be marketed at trade shows to be agreed upon. Actual trade show costs shall be shared by the Parties hereto, according to a formula to be determined at a later date, but prior to each applicable show. Any and all customer and/or sales prospects generated at, or as a result of participation in, a trade show, will be immediately turned over to FCG for all follow-up effort, as long as the lead is for application within the Territory, and will not be acted upon by NSC or any NSC third party.
(iv) For those Products sold under the NSC, or NSC created, name, NSC shall provide and furnish to FCG without significant cost, reasonable quantities of advertising and user information, primarily in electronic form, as required to assist FCG in selling the Products. In addition, a reasonable quantity of marketing sample products to support testing or new product evaluation will be provided to FCG as soon as final production products are available to NSC.
6. DELIVERY
(i) NSC shall deliver the Products F.O.B. in Scottsdale, AZ to FCG, or to a place designated by FCG, in accordance with the ongoing delivery schedules to be set forth in specific FCG Purchase Orders issued to NSC from time-to-time.
(ii) FCG shall have the right of pre-delivery inspection of the Products to be shipped, which right shall extend to any duly authorized agent of FCG.
7. PRODUCT IMAGE
Otherthan in the matter of pricing, neither Party shall do, or permit anything to be done, to prejudice the market image of the Products.
8. COMMERCIALLY REASONABLE EFFORTS
(i) NSC agrees to utilize Commercially Reasonable efforts to supply FCG with the Products as provided in this contract. Furthermore, NSC agrees to coordinate its production and manufacturing to facilitate the orderly manufacture and shipping of the Products as hereinafter-set forth in greater detail.
(ii) FCG shall use its Commercially Reasonable efforts to promote the sale of the Products within the Territory and to provide timely quantity forecasts to NSC on a regular basis for the duration of this Agreement.
9. FCC AND OTHER APPROVALS
NSC shall be responsible for securing, on a timely basis, and for payment of any and all costs pertaining to, FCC, UL, and all other necessary regulatory approvals within the Territory.
10. RESTRAINT OF COMPETITION
NSC agrees that it will not sell, or assist any third party in sales, any competing Products within the Territory to any of FCG's pre-existing customers or actively solicited potential customers during the term of this agreement.
11. ORDERS
In order to ensure the prompt delivery of the Products to customers, and to facilitate the orderly scheduling of production and shipments, NCS agrees to submit to FCG its production capabilities on a quarterly basis. FCG agrees to submit to NSC its orders for product as far as possible in advance of desired delivery. NSC will then provide FCG a specific schedule of production to meet FCG's commitment. FCG agrees to accept all of NSC's products ordered by FCG. NSC will not ship the Products to FCG except upon FCG's orders. All orders are subject to approval and acceptance by FCG at its corporate head office in Scottsdale, Arizona.
FCG also agrees to provide NSC with quarterly estimates and forecasts of FCG's prospective requirements of the Products in order to facilitate NSC's production planning, but such estimates are not to be treated by NSC in any way as firm purchase orders from FCG.
12. WARRANTIES AND DEFECTIVE PRODUCTS
NSC warrants that the products it provides to FCG will perform in accordance with the published specifications in the documentation provided by NSC and will achieve the functionality described therein. NSC's obligation under this warranty will be to promptly bring any non-complying products into compliance with NSC's published specifications, or to promptly replace the products, or grant a full refund of the actual net price paid for any such defective products, all of which will be performed at no cost or obligation to FCG. This warranty will commence on the date of receipt of each product by the end-user and shall continue for a period of one (1) year thereafter. The warranty provided in this provision is in lieu of all other warranties, express or implied, including, but not limited to, the warranties of merchantability and fitness for a particular purpose, warranties through course of dealing or usage of trade or any other implied warranties.
NSC also warrants and represents that it has the right to sell the Products, and that the Products sold hereunder shall be free of all liens, encumbrances and charges of whatsoever nature or cause. Furthermore, the Products will not infringe upon any intellectual property or design/development rights.
13. CUSTOMER COMPLAINTS
FCG will receive, investigate, and handle all complaints received from customers with a view toward protecting the good will of the Parties hereto in the sales of the Products. Recognizing the importance of customer good will, FCG will make every reasonable effort to satisfy owners of the Products as provided for herein, and in pursuance thereof, establish regular contact either by correspondence or personal interview with such owners or purchasers. All warranty complaints received by FCG, which cannot be readily remedied by FCG when FCG applies commercially reasonable efforts to do so, shall be promptly reported to NSC who will then undertake to remedy such complaints, and FCG will be relieved of primary responsibility in that regard.
14. NON-AGENCY
It is expressly agreed to by the Parties hereto that the relationship created in this Agreement between FCG and NSC is not that of a principal and agent and under no circumstances shall this Agreement be intended to constitute a partnership between any of the Parties.
15. USE OF TRADE NAMES
NSC agrees that in marketing the Products, FCG may use NSC's current trade names and may add FCG's distribution authorization data to existing Product packages and/or labeling.
16. ASSIGNMENT OF CONTRACT
This Agreement may be assigned by one party without the prior written consent of the other party to any entity legally controlled by the first party. Any assignment to other entities shall be subject to the prior written consent of the second party, which consent shall not be unreasonably withheld.
17. TERMINATION
(i) The Parties hereto may terminate this Agreement by mutual consent at any time, but with the provision that all open orders will be satisfied by the Parties, as required.
(ii) Subject to clause 18 herein, either Party may terminate any renewal hereof prior to the applicable termination date upon three (3) months written notice to the other.
(iii) Each of the Parties hereto shall have the right to terminate this Agreement upon the occurrence of any of the following events, such termination to be effective immediately upon the receipt or deemed receipt by the other Party of notice to that effect and the expiry of any applicable period for remedy of the default:
(a) if a Party is in default of any of the materials terms or condition of this Agreement and fails to remedy such default within 60 days of written notice thereof from the other Party;
(b) if the other Party becomes bankrupt or insolvent, makes an assignment for the benefit of its creditors or attempts to avail itself of any applicable statute relating to insolvent debtors;
(c) if the other Party winds-up, dissolves, liquidates or takes steps to do so or otherwise ceases to function as a going concern or is prevented from reasonably performing its duties hereunder; or
(d) if a receiver or other custodian (interim or permanent) of any of the assets of the other Party is appointed by private instrument or by court order or if any execution or other similar process of any court becomes enforceable against the other Party or its assets or if distress is made against the other Party's assets or any part thereof.
18. TERM
(i) This Agreement shall be effective for one (1) year from the date hereof. FCG shall have the first right of renewal for two (2) additional one (1) year terms. FCG shall notify NSC of FCG's intention to renew two (2) months prior to the expiration date of this agreement, or any renewal thereof, as the case may be.
(ii) In the event no notice to terminate has been given by any Party prior to the termination date of any renewals referred to in clause 18(i) above in accordance with this Agreement, then in such event this Agreement or renewal thereof shall automatically be renewed, mutates mutandi, for a further one (1) year term.
19. RIGHT OF FIRST REFUSAL
The Parties agree that FCG shall have the right of first refusal on the distribution within the Territory of any Products that are essentially upgrades, major modifications, or replacements to the Products covered by this distribution agreement. All other new product offerings from NSC will be discussed with FCG regarding the possibilities of FCG distribution prior to distribution decisions with other parties.
20. CONFIDENTIAL INFORMATION
The Parties hereto ratify and confirm the terms and conditions of any and all agreements entered into between them pertaining to the maintaining and disclosure of confidential information.
21. SEPARABILITY
If any provision of this Agreement is invalid, unenforceable, or not enforced, this Agreement shall be considered divisible as to such provisions without affecting the validity of the balance of this Agreement.
22. FORCE MAJURE
Neither Party hereto shall be liable for failure to perform its respective part of this Agreement if such failure is due to fire, flood, strikes, or other industrial disturbances, inevitable accident, war, riot, insurrections, or other causes beyond the control of the Parties.
23. ENTIRE AGREEMENT
(i) This Agreement constitutes the entire Agreement between the Parties pertaining to the subject matter contained in it and supercedes all prior and contemporaneous agreements, representations, and understandings of the Parties. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties to this Agreement. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.
(ii) There are no representations, constitutions, terms or collateral contracts affecting the transaction contemplated in the Agreement except as expressly set forth herein.
24. NOTICES
All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the second (2nd) day after pickup by a courier service, if delivered to the Party to whom notice is to be given, by such courier service.
25. HEADINGS
The capitalized headings in this Agreement are only for convenience of reference and do not form part of or affect the interpretation of this Agreement.
26. TIME OF ESSENCE
Time is of the essence of this Agreement.
27. GOVERNING LAW AND ARBITRATION
This contract and the Agreement of the Parties shall be governed and construed according to the laws of the State of Arizona.
All disputes, controversies or claims arising out of or in connection with this Agreement which cannot be settled by mutual agreement shall be finally settled by arbitration. Arbitration shall be held in Scottsdale, AZ and shall be conducted in accordance with the rules of the International
Chamber of Commerce then in force and effect. Arbitration shall be by three
(3) arbitrators, one chosen by FCG, one chosen by NSC, and the third chosen
by both parties; or, if the selection of a third arbitrator cannot be made
within thirty (30) days after the appointment of the first two arbitrators,
then such third arbitrator shall be chosen by the International Chamber of
Commerce Court of Arbitration. Demand for arbitration shall be served upon
the Party to whom the demand is made. Judgment upon the award rendered may
be entered in any court having jurisdiction, or application may be made to
such court for enforcement as the case may be.
28. FURTHER ASSURANCES
The Parties hereto covenant and agree each with the other that they shall and will, from time to time and at all times hereinafter, execute such further assurances and do all such further acts as may be reasonably required to give effect to the intent of the Parties hereto.
29. ENUREMENT
The Agreement shall enure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns.
30. LIMITATION OF LIABILITY
Neither Party will be liable for any indirect, incidental, special, or consequential damages, including, but not limited to, loss of profits, data, time, or use incurred by either Party, or any third party, even if informed of their possibility, except for liability relating to a breach of the confidentiality and intellectual property provisions of this Agreement, and for claims of bodily injury for which the other Party is legally liable, in no event will cumulative liability exceed the total amount that has been paid under this Agreement for the Products and any services provided. This provision represents each Party's entire liability and exclusive remedy.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the date above written.
FUTURECOM GLOBAL, INC.
Per: /s/ Ronald R. Kelly ------------------------------------- Name: Ronald R. Kelly ------------------------------------- Title: CEO and President ------------------------------------- |
NATIONAL SCIENTIFIC CORPORATION
Per: /s/ Michael A. Grollman ------------------------------------- Name: Michael A. Grollman ------------------------------------- Title: CEO and President ------------------------------------- |
SCHEDULE A: PRODUCTS
1. NSC Followit Transponders and related accessories
2. NSC StarPilot Location Servers and related accessories
3. NSC KidCall Children's Security System and related accessories
NOTE: NO PRODUCTS COVERED BY THIS AGREEMENT ARE TO BE DISTRIBUTED BY FCG FOR NSC ON AN EXCLUSIVE BASIS.
AS AMENDED AND APPROVED: DATE: DEC 16, 2002 FUTURECOM GLOBAL, INC. NATIONAL SCIENTIFIC CORPORATION By: /s/ Ron Kelly By: /s/ Michael Grollman --------------------------------- --------------------------------- |
SCHEDULE B: TERRITORY
The General Non-Exclusive Territory shall be comprised of customers within North and South America and Europe for all products other than Followit, which is initially limited to North America only.
For Accounts listed below as assigned accounts ("Assigned Accounts") NSC will not compete with FCG, nor will it knowingly support or assist in any third party potential competition, to FCG.
FCG agrees to assign active representation and appropriate sales representation and appropriate sales representation to all accounts and to endeavor to sell the products covered in this Agreement, with face-to-face account contact on at least, a quarterly basis, and to produce orders from active accounts within 3 quarters of initial contact.
Target markets and major accounts within that geography will include, but are not limited to, retail and other vertical market applications as defined within this Schedule B. Customer identification to be defined within this Schedule B as update from time to time by FCG (and accepted by NSC) as circumstances warrant.
AS AMENDED AND APPROVED: DATE: DEC 16, 2002 FUTURECOM GLOBAL, INC. NATIONAL SCIENTIFIC CORPORATION By: /s/ Ron Kelly By: /s/ Michael Grollman --------------------------------- --------------------------------- |
SCHEDULE C: PRICING & PAYMENT TERMS
The specific unit pricing, any other applicable pricing data, in addition to the payment terms for Product purchased by FCG under this Distribution Agreement will be defined, as appropriate, at a later date, within this Schedule C.
AS AMENDED AND APPROVED: DATE: DEC 16, 2002 FUTURECOM GLOBAL, INC. NATIONAL SCIENTIFIC CORPORATION By: /s/ Ron Kelly By: /s/ Michael Grollman --------------------------------- --------------------------------- |
Exhibit 10.8
March 10, 2003
Mr. Michael Grollman
President
National Scientific Corporation
14455 North Hayden Rd
Suite 202
Scottsdale, AZ
85260
Dear Michael:
Verify Systems is pleased to work with National Scientific Corporation on iVerified for schools hardware products. The proposed solutions you have presented are a direct reflection on the expertise and professionalism National Scientific Corporation brings to Verify Systems. We are extremely fortunate to partner with an organization such as yours. We look forward to many successful transactions in the years ahead.
As we have discussed, the secondary data transmission is still a formidable piece missing. While we continue to work towards a common goal it is important to begin manufacture of units. The following is the general terms and conditions we have discussed and I hope meets your satisfaction.
Proposed General Terms and Conditions:
For product delivery between March 15, 2003 and June 30, 2004
o Terms are net 30 date of shipment for shipments under $10,000 in a
given month
o For larger shipments, terms are 50% at point of shipment, 50% net 30,
unless otherwise agreed to on an order-by-order basis
o Firm confirmed requirement for April and May are expected to be
approximately 20 total units for pilot purposes, with technical
details and unit breakdown of these 20 units to be agreed on or around
March 30.
o Basic preliminary specifications as defined in NSC Proposal of
February 2003, but specifications and associated unit pricing are
expected to evolve during project.
o Pricing below is per the 150 unit order level, even though most of the
categories or shipments do not equal that amount, NSC will extend that
volume discount based on the Blanket PO. If volume quickly ramps
beyond the 150 level, future orders will be at the more aggressive
discounts shown in the proposal.
o All orders are shipped F.O.B Scottsdale in 8 weeks upon receipt of
release from blanket PO. Blanket PO includes only estimated quantities
and specifications - amounts of each type can be changed (re-balanced)
as end customer needs become more clear, keeping overall total number
of dollars in the PO reasonably stable over the long term of the
order.
54 Hazard Avenue, Suite 329 Enfield, CT 06082 TEL 866.VERIFYU
Unit Part no. Unit Function Est. Units Price Total ================================================================================ NSC-VER-001 Bus 100 $941 $ 94,100 -------------------------------------------------------------------------------- NSC-VER-002 Depot 75 $637 $ 47,775 -------------------------------------------------------------------------------- NSC-VER-003 Classroom 150 $467 $ 70,050 -------------------------------------------------------------------------------- NSC-VER-004 Perimeter 40 $457 $ 18,280 -------------------------------------------------------------------------------- NSC-VER-005 Mobile Reader 5 $550 $ 2,750 -------------------------------------------------------------------------------- NSC-VER-006 Mobile Dock 5 $550 $ 2,750 -------------------------------------------------------------------------------- NSC-VER-007 Concentrator 30 $520 $ 15,600 -------------------------------------------------------------------------------- Total $251,305 ================================================================================ |
An overview of the iVerified for school system:
iVerified for Schools is a student locating system that allows school administrators and parents to instantly locate their student(s) while on a bus or within the school. For parents, it gives them peace of mind and a degree of control to know that their child is safe and where they should be. For schools, it provides for the security and automation of attendance that is forefront in their minds. Schools can instantly determine the location of any bus in their fleet and which students are onboard. The system logs where and when a student embarked and disembarked the bus. Schools can instantly learn who is in school and who is absent, as well as precisely where any given student is located within the school. Our system can even tie into a school's access control system giving only authorized students access the school's property.
We had five goals while designing the iVerified for Schools system:
o Allow parents and school administrators to track the location of their
students
o Make the system as non-invasive and as passive as possible
o Improve school security
o Automate time and attendance
o Operate system at a low cost
On behalf of everyone at Verify Systems I want to thank you and your staff at National Scientific Corporation for being an integral partner in bringing iVerified to market.
Respectfully,
/s/ Mark A. O'Neill Mark A. O'Neill President Verify Systems March 10, 2003 |
cc: Graham Clark
Anthony Grosso
Steven Mercadante
54 Hazard Avenue, Suite 329 Enfield, CT 06082 TEL 866.VERIFYU
EXHIBIT 10.9
NATIONAL SCIENTIFIC CORPORATION
14455 NORTH HAYDEN RD. SUITE 202
SCOTTSDALE, ARIZONA 85260-6947
April 23, 2004
Mr. Anthony Grosso
President, CIS Services, LLC
251 Quail Run Road
Suffield, CT. 06078
Re: Letter of Understanding
Dear Anthony;
This letter of understanding is a follow-up to our e-mails and telephone conversations in which we mapped out a near term plan between yourself, CIS Services LLC dba Verify Systems and NSC. The conversations and e-mails have indicated that our mutual intent was NSC would undertake certain actions for the purpose of advancing our sales in the school bus and student tracking market; and you and Verify Systems would undertake complimentary actions serving the same intended purpose. This letter is intended to confirm this relationship in the form of a binding agreement ("Agreement") between Anthony Grosso (Grosso) as an individual and as owner of CIS Services, LLC (CIS) dba Verify Systems, and National Scientific Corporation (NSC) as a Texas Corporation. This letter replaces all previous negotiations and discussions, and contains the complete understanding for the current and future relationship between CIS, Grosso and NSC. Together these individuals and entities are known the parties ("Parties") to this Agreement, and the effective date of this Agreement is the date of this letter.
National Scientific Corporation agrees to use commercially reasonable efforts to: 1) spend at least four months from the date of this letter attempting to convert (where all Parties deem it practical) PCG, Nextel, and other Verify Systems School Bus leads into pilot programs for NSC and Verify to work on in the future; and 2) further develop NSC IBUS hardware platform to better fit customer requirements; and 3) develop IBUS to PCG software interface, if PCG is ready to use it for Medicaid reimbursement and related markets; and 4) develop IBUS to Nextel software interface, if Nextel is ready to use it in any areas, for general school and related markets; and 5) fund the NSC qualified execution pilots that may come up during the four month period with "blue boxes," and other materials and staff; and 6) pay a $6,000 one-time consulting fee to Anthony Grosso.
Additionally, NSC agrees to pay Grosso a finder's fee ("Finder's Fee") equal to 10% of any net revenues related to school bus or student tracking Verify System software sales derived directly during the first year of this Agreement. . The Finder's Fee is limited to application software sales (or application software licensing revenues) NSC receives from its direct use of its license for Verify Systems application software (see below). This fee does not apply to other hardware or software products NSC may develop related to school bus or child tracking, only to Verify Systems application software as it exists today. The Finder's Fee will be payable within 30 days of the receipt by NSC of the customer funds.
Mr. Grosso's and the associated Verify Systems Corporation, assets, and
subsidiaries part of the plan includes the following: Grosso will: 1) keep full
legal control of Verify Systems legal entity or entities, including all assets,
title to the Intellectual Property, title to the Software, methods and practices
and customer records, which are currently held free and clear in an entity
called CIS Services, LLC, other than for any modifications to Verify Systems
application software that may be made in the future by NSC, which NSC would own;
and 2) keep Verify Systems entity in physical existence in the marketplace
including maintaining the website, name and image, timely returning phone calls
and emails from customers and partners for at least 6 months from the date of
this letter; and 3) give NSC full and unrestricted legal access and support for
all existing Verify Systems accounts and leads to pursue in any way NSC sees
fit, including PCG and Nextel and any other accounts NSC or Mr. Grosso deem
worthy of pursuing at the time; and 4) execute a three year exclusive supplier
agreement between NSC and Verify Systems ("Exclusive Supplier Agreement") and
any successor firms (where Verify Systems key people and assets are involved in
the same school market space) to purchase all its bus and related tracking
hardware systems from NSC; and 5) grant to NSC an unlimited perpetual source
code level license including unlimited distribution rights to all existing
Verify Systems software, brands, logos, and marketing materials; which shall be
exclusive rights in any accounts NSC invests in direct sales call activity with,
where NSC's only payment obligation for this application software shall bee the
Finder's Fee; and 6) NSC has the right at any time during the next three years
to purchase full and exclusive title to the Verify application software for
$50,000; and 7) full and unlimited access to former Verify Systems personnel to
help implement it as needed for customers and pilots and projects (NSC to pay
these people directly as needed, including Dan Raboin and Anthony Grosso); and
8) deliver electronics copies of all such materials in a useable form to NSC;
and 9) direct all relevant new bus system leads to NSC, whereby Grosso would
earn a Finders Fee for Verify Systems application software sales (see above).
The following other elements are important to this Agreement, and accepted by all parties to the Agreement:
1. The parties agree to keep all confidential information as confidential
for two years from the date of this letter, and will execute a
standard NSC NDA agreement to fully commemorate this matter
("Confidentiality Agreement").
2. The term of this Agreement is three years from the date of this letter
3. This Agreement is governed by the laws of and the courts in the State
of Arizona.
If you find the foregoing represents our understanding, kindly sign and return this to us, whereupon this letter along with all its counterparts will become a binding agreement between us.
Very Truly Yours,
/s/ Michael Grollman Michael Grollman NSC Accepted by: Anthony Grosso for himself and CIS Services LLC /s/ Michael Grollman /s/ Anthony Grosso ---------------------------- ---------------------------- Title: Title: CEO CEO ---------------------------- ---------------------------- DATE: 5/11/2004 DATE: 5/14/04 ---------------------- ---------------------- |
EXHIBIT 10.10
LETTER OF INTENT
Date: February 20, 2003
John O. Williams, CEO
Bike & Cycle Trak USA, Inc.
2116 2nd Avenue South
Minneapolis Minnesota, USA
Dear Mr. Williams:
This letter is intended to set forth a letter of intent by NSC Corporation ("NSC"), an Arizona corporation, and Bike & Cycle Trak USA, Inc ("BCT"), a Delaware corporation.
1. OVERALL STRUCTURE. Our mutual goal is to design, manufacture, and sell a product to enhance the safety of users of power sports equipment. Our initial belief as to the overall structure and purpose of the project is set forth in the attached Term Sheet, which would need to be properly documented in definitive agreements before having effect.
2. NEGOTIATIONS. We agree to negotiate to determine if the joint venture will be appropriate for the parties, provided, however, that either party may terminate negotiations at any time for any reason. Both parties agree to not negotiate or enter into or continue discussions with any other person or company or solicit or encourage, directly or indirectly, or furnish information to any other person or company, with respect to a similar business arrangement for the power sports industry sector, during the ninety (90) days following the date this letter is accepted by you.
3. CONFIDENTIALITY OF NEGOTIATIONS. The parties shall use best efforts to
maintain at all times as confidential information the fact that you or we have
executed this letter, the terms of this letter and the existence and content of
any negotiations between us except that both parties may (i) inform advisors,
counsel, and employees with a need to know as each party deems necessary, and
(ii) make appropriate disclosures if required by applicable securities laws, and
(iii) issue press releases regarding substance of the negotiations if they have
been pre-approved by both parties.
4. GOVERNING LAW. This letter shall be governed by the substantive laws of the State of Arizona.
5. ENTIRETY. This letter constitutes the entire understanding and agreement between the parties hereto and their affiliates with respect to its subject matter and supersedes all prior or contemporaneous agreements, representations, warranties and understandings of such parties (whether oral or written). No promise, inducement, representation or agreement, other than as expressly set forth herein, has been made to or by the parties hereto. This letter and its exhibit hereto may be amended only by written agreement, signed by the parties
Letter of Intent, Page 1 of 4
to be bound by the amendment. Parol evidence and extrinsic evidence shall be inadmissible to show agreement by and between such parties to any term or condition contrary to or in addition to the terms and conditions contained in this letter and its exhibit.
6. CONSTRUCTION. This letter shall be construed according to its fair meaning and not strictly for or against either party. This letter does not, and is not intended to, impose any binding obligations on the parties, except as provided in Section 2 and 3 above.
If the terms and conditions of this letter are acceptable, please sign and return to us a copy of this letter so that we can move forward with our discussions.
Very truly yours,
/s/ Michael A. Grollman ------------------------------- National Scientific Corporation By: Michael A. Grollman Title: President and CEO |
Accepted and Agreed:
/s/ John O. Williams ------------------------------- Bike & Cycle Trak USA, Inc. By: John O. Williams Title: CEO |
Letter of Intent, Page 2 of 4
TERM SHEET
This term sheet summarizes the principal terms with respect to the project, whose stakeholders will be NSC Corporation ("NSC") and Bike & Cycle Trak, Inc ("BCT"). This term sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation of the parties. No legally binding obligations on the parties will be created, implied, or inferred until appropriate documents in final form are executed regarding the subject matter of this term sheet and containing all other essential terms of an agreed upon transaction and delivered by all parties. Without limiting the generality of the foregoing, it is the parties' intent that, until that event, no agreement binding on the parties shall exist and there shall be no obligations whatsoever based on such things as parol evidence, extended negotiations, "handshakes," oral understandings, or courses of conduct (including reliance and changes of position). Efforts by either party to complete due diligence, negotiate, obtain financing or prepare a contract shall not be considered as evidence of intent by either party to be bound by this term sheet or otherwise. The performance by either party prior to execution of a formal contract of any of the obligations which may be included in a contract between the parties when negotiations are completed shall not be considered as evidence of intent by either party to be bound by this term sheet.
The parties are discussing a transaction on the following terms:
GENERAL: This is a joint effort to co-develop an electronic product, but is not a partnership or a joint venture.
PURPOSES: The product to be developed is planned to be a GPS enabled tracking device to enhance safety for riders of motorcycles, snow machines, and other power sports equipment.
BUSINESS PLAN: The parties would agree prior to the start of the project on a Business Plan for the first two (2) years of operation of the project.
OWNERSHIP OF INTELLECTUAL PROPERTY: The parties would plan to agree prior to the start of the project on an ownership plan for any intellectual property that may result from the project. It is expected that some intellectual property will be owned separately both the parties, and some may be owned jointly.
ELECTRONICS BUDGET: The cost project budget is estimated to be $150,000 to produce the electronics and internal software systems for the first prototype, which the parties would like to share in approximately equal basis. NSC intends to perform the majority of this work and incur the majority of this cost directly, although BCT plans to assist directly with some of the sensor design. BCT will plan to make cash contribution of roughly $75,000 towards its share of these costs directly to NSC, in phased payments including an initial payment to be determined at a later time.
CASING: BCT plans to design and prototype the enclosure and mounting for this product.
MARKETING, SALES, AND DISTRIBUTION: BCT plans to take a leadership role in sale and distribution of the product, especially in the Midwest, as well as in establishing call center support for the product.
Letter of Intent, Page 3 of 4
MANUFACTURING: NSC plans to take a leadership role in manufacture of the product.
PRODUCT COST AND REVENUE SHARING: The parties intend to sell the product for a profit, and share the resulting revenues and margin from this effort, based roughly on their respective contributions of cost and effort to the development, manufacture, marketing, and sales effort associated with the project, which are today uncertain.
STOCK SWAP: Sometime shortly after the completion of the prototype, NSC plans to exchange approximately $30,000 of its SEC 144 Restricted Common Stock for approximately 3% of the outstanding shares of BCT. NSC stock shall be valued at the average closing price of its stock during the 30 calendar day period before this transaciton is consummated.
FOLLOW-ON AGREEMENT STRUCTURE: The parties plan to draft a master project agreement ("Master Project Agreement") that will broadly define the binding elements of this project. The parties then plan to draft separate agreements in the areas of joint development ("Joint Development Agreement"), intellectual property ("Intellectual Property Agreement"), product manufacturing ("Product Manufacturing Agreement") and product distribution and marketing ("Distribution and Marketing Agreement"). These agreements are likely not to be executed all at once, but rather executed in approximately the sequence listed in this paragraph, as the project advances through development and into its production and sales phases.
NEGOTIATIONS SCHEDULE: The parties hope to complete the Master Project Agreement before the end of February, and the other agreements within 2-3 months of the Master Project Agreement, if not sooner.
PROJECT SCHEDULE: This development phase of this project is expected to last approximately six months. The overall development and sales processes is expected to last approximately 2 years, with extensions likely after that point.
DUE DILIGENCE: Both parties will promptly begin and diligently pursue an investigation of the legal, business, environmental and financial condition of the proposed project. Each party will extend its full cooperation to the other party and its lawyers, accountants and other representatives in connection with such investigation. Each party, its lawyers, accountants and other representatives shall have full access to the other party's books and records, facilities, accountants and key employees for the purpose of conducting such investigation. The consummation of the transactions contemplated by this letter shall be conditional upon both parties complete satisfaction with such purchase investigation.
Letter of Intent, Page 4 of 4
EXHIBIT 10.11
2116 SECOND AVENUE SOUTH 030310-01
MINNEAPOLIS, MINNESOTA 55404 ----------------------------
Date: March 7, 2003
TELEPHONE: 651-646-6886 ----------------------------
FAX: 612-874-9793 Authorized by: JOW --------------------------------------------------- ---------------------------- Issued to: National Scientific Corporation Ship via: n/a ---------------------------- Ship to attn.: n/a --------------------------------------------------- ---------------------------- Telephone Number: (480) 948-8324 Ship by (date): n/a --------------------------------------------------- ---------------------------- Description Price --------------------------------------------------- ---------------------------- Design & Engineering Services $ 75,000.00 trakFORCE product, agreements pending --------------------------------------------------- ---------------------------- |
Signed: /s/ John O. Williams --------------------- President Date: March 7, 2003 -------------------------------------------------------------------------------- |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated December 4, 2003, which is included in this Form SB-2 Registration statement.
/s/ Michael Hurley Hurley & Company Granada Hills, California June 23, 2004 |