UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[ ]Preliminary Proxy Statement
[ ]Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ]Definitive Proxy Statement
[ ]Definitive Additional Materials
[X]Soliciting Material Pursuant to Section 240.14a-11(c)or
Section 240.14a-12
SCIENTIFIC INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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November 1, 2002
Dear Fellow Stockholder:
You are cordially invited to attend your Company's Annual
Meeting of Stockholders to be held on Monday, November 18, 2002 at
10:30 a.m. at the Princeton Club, 15 West 43rd Street, New York,
New York 10036. At this meeting, stockholders will be asked to
elect two experienced and qualified Class C Directors - Joseph G.
Cremonese and Roger B. Knowles to hold office for three years, to
consider and act upon proposals to approve the 2002 Stock Option
Plan and ratify the appointment of the Company's independent auditors
and to consider a stockholder proposal. Your management cordially
invites our stockholders to attend and looks forward to greeting
those stockholders able to do so. At the meeting, the Board of
Directors will also report on the Company's affairs and a discussion
period will be provided for questions and comments. Your vote is
important! Please sign, date and mail promptly your enclosed WHITE proxy.
IMPORTANT
You should know that on October 17, 2002, Lowell Kleiman, who
was recently replaced as your Company's CEO, notified us that he
intends to commence a costly and hostile proxy contest in opposition
to your Board of Directors and to solicit proxies in pursuit of his
own personal agenda. On October 30, 2002, the Company also learned
that he intends to solicit proxies in opposition to the proposal to
approve the 2002 Stock Option Plan and that he intends to submit a
proposal to limit the Board of Directors' authority to grant options
to independent directors. You may have received a letter full of
distortions and innuendoes from Mr. Kleiman and you can expect to be
approached by him, or his agents, to get you to sign a proxy. We call
this matter to your attention at this time to caution you against
inadvertently signing a Kleiman blue proxy.
It's Time For a Change
After careful and thoughtful consideration, your Board of
Directors, at the end of August, decided that it was time for a change
of leadership and concluded that it would not be in the best interests
of your Company to renew Lowell Kleiman's contract as an employee. In
order to move away from past management practices and allow the new
Chief Executive Officer, Helena R. Santos, freedom to go forward and
lead the implementation of the strategies and realization of the goals
of Scientific Industries without impediment from Mr. Kleiman, your
Board chose not to nominate Mr. Kleiman for reelection as a Class C
Director.
While this decision to remove Mr. Kleiman was difficult, your Board
is convinced that its action was in the best interests of the Company
and all of its stockholders. Your Board is committed to maximizing
value for all stockholders and believes strongly that your Company
can best be revitalized under our qualified, experienced new Chief
Executive Officer, Ms. Santos, with the assistance and supervision
of the Board and its new Chairman, Joseph I. Kesselman.
We believe this letter demonstrates that Mr. Kleiman is
attempting and will attempt to get your vote through a campaign
of half-truths, innuendoes and distortions. Do not be misled.
Your Board believes that Mr. Kleiman's record managing your Company
is all too painfully clear. There is no substitute for the facts.
Look at the Facts
You will note that in Mr. Kleiman's October 22nd letter to
shareholders there is not one word about any accomplishment during
his 27 year tenure as President. That is because in a period of
almost three decades while tens of thousands of entrepreneurs have
led small ventures to meaningful success, he has managed an
enterprise where his own compensation and perks are more than twice
the Company's cumulative income during the same period. He speaks
of "new products" but conveniently fails to tell you that while the
minutes of the Board meetings for many years have been sprinkled
with recognition of the need for new products, the Company attempted
to develop only a few major products, none of which has accounted
for significant revenues and as a result, the Company's
Vortex-Genie(r) 2 Mixer, which was developed under his father's
leadership over 30 years ago is still responsible for 92% of the
Company's revenues. Compare his statements with the facts:
Mr. Kleiman's Recent Statements: FACT:
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1. "... striving to responsibly 1. The fact is that after 27 years
increase value for all stockholders." of Mr. Kleiman's leadership, your
Company's net worth, when adjusted
for inflation, has actually
DECREASED. Adjusted for inflation,
the Company's net worth would have
been $2,448,000 compared to its
actual net worth of $1,914,000 in
2002. Is this a record of
increasing value?
2. "... have dedicated my entire
career to helping the Company grow..." 2. The fact is during those same 27
years, the market capitalization of
your Company has DECREASED, after
giving effect to inflation, from
$1,600,000 in 1975 to $1,300,000
in 2002, (using the average of the
low and high bid prices during the
last quarter of such fiscal years)
which is less than the Company's
book value. Is this a record of
growth to be proud of?
3. "My goal has always been to 3. The fact is that as previously
strategically expand the Company's mentioned, 92% of the Company's sales
product base with a long-term outlook are still derived from one single
towards creating value for all of the product, the Company's principal
Company's stockholders." product. In addition, during the 27
years of Mr. Kleiman's leadership,
despite the Board's urgings, he
also failed to consummate any
mergers or acquisitions - not a
single transaction, despite
having the benefit of the
outstanding international
reputation of the Vortex-Genie 2
Mixer. In fact, since 1998,
your Company has incurred over
$385,000 in costs for mergers and
acquisition advice, which includes
investment banker and attorney
fees, including $75,000 to an
investment banker under a financial
advisory agreement which he
executed without prior
knowledge or approval of the
Board of Directors. Is that a
record of product expansion?
4. "I sense that current management... 4. The fact is that since 1975,
is instead using your Company as a Mr. Kleiman has received $2.5 million
means of satisfying their self-serving in compensation (more than the
financial ends." Company's current net worth), in
addition to the use of a company car,
disability insurance policies paid
by the Company for his benefit and
70,000 shares through exercise of
stock options (including 60,000 at
a price of $.35 per share), which
along with shares he inherited
and shares issued to him as stock
dividends account for approximately
90% of his holdings. In addition,
one of the life insurance policies
owned by Mr. Kleiman provides
him with a cash surrender value
of nearly $50,000, at no cost
to him, with the Company to be
reimbursed for its $19,000 of
paid premiums only upon
the realization of the policy
proceeds. Whose self-serving
financial ends does Mr. Kleiman
really want to serve?
A word about good faith. Mr. Kleiman says he "has a sense" that the Board
is motivated by self interest, as witness the proposed stock option plan.
He knows full well that the entire Board agreed at the Board meeting at
which the 2002 Plan was adopted that none of those options would be
issued to existing directors. Instead of pointing out that as an omission
in the draft of the minutes of that meeting circulated to directors for
their respective comments, he seizes on the omission to make utterly false
accusations. If the question is of good faith and interests of the
Company, he should tell you why he urged both Ms. Santos and Mr. Robert
P. Nichols, who is in charge of engineering and development, to resign
in the event of the termination of his employment which resignations
would cause the Company and its shares to be adversely effected and
thereby he presumably hoped to force the Board to rehire him.
In his preliminary proxy material he accused the other Directors of the
Company in engaging in "questionable practices" during the last six years.
Although unidentified, there soon follows the irresponsible innuendo that
stockholders confront a situation which resembles "the recent spate of
corporate scandals."
This is unconscionable. The Board never rejected a material proposal by
Mr. Kleiman, or made a proposal (except as to his compensation) to which
he objected, except in late 2000 when unbeknown to the Board, he
negotiated and signed the engagement letter referred to above with an
investment banker, and engaged new counsel to represent the Company,
contrary to the Board's understanding of what he was authorized to do
and in direct contradiction of all prior practice. Needless to say,
related fees and costs totaled over $100,000 and bore no fruit.
Mr. Kleiman's opposition to the approval of the 2002 Plan and his
proposal to have the Board adopt a policy requiring the grant of
stock options to independent directors to be subject to the approval
of stockholders is unreasonable, possibly motivated by vindictiveness.
The current four independent directors are not eligible to receive any
options which may be granted under the 2002 Plan, a position he knew
was expressed by the Board at the meeting adopting the Plan.
Furthermore, (i) he voted on October 28, 2002, two days prior to the
filing of his preliminary proxy material with the Securities and
xchange Commission to make the options to purchase 7,000 shares of
Common Stock to two key employees which were granted by the Board at
his request to be subject to the adoption of the 2002 Plan and (ii)
during a recent Board meeting advised that he favored a grant of
options to Mr. Cremonese.
He also fails to mention that of the 300,000 shares subject to the
1992 Plan, he received options to purchase 80,000 shares (26.7%)
of which options to purchase 70,000 shares were exercised,
including 60,000 at $.35 per share. Compare his high salary for
the last five fiscal years of $160,000 per annum plus perquisites
with the annual fees ranging from $2,200 to $5,000 during the same
period received by each independent director who received in annual
installments over a period of almost nine years options to purchase
an aggregate of 32,000 shares under the 1992 Plan to augment his fees.
The fact is that after 27 years of Mr. Kleiman's so-called leadership
the time had come for a change and your Board of Directors recognized
and acted upon such need. The Board has lost confidence in Mr.
Kleiman's performance and his forthrightness with the Board and is
united in its confidence that both Ms. Santos and Mr. Nichols, our
highly qualified Executive Vice President, will provide the
experience and leadership necessary to implement the Board's
strategy to enhance stockholder value. Ms. Santos and Mr.
Nichols have through their many years of service to the Company
gained the detailed knowledge and understanding of the Company's
historical operations and financial condition, giving them the
confidence and experience necessary to direct your Company.
Rest assured your Board will act vigorously to protect your
best interests.
Why is Mr. Kleiman Running?
It would be difficult to believe that Mr. Kleiman is a candidate
because he wishes to make a contribution to the Board. That, one
would believe, is the last thing he wants to do. In his mind, we
are sure, Scientific Industries, founded by his father, is his company,
and he hopes, if he can win this year and two of his candidates could
prevail at next year's annual meeting, that he can take the Company back.
To justify that ambition, he has not cited one achievement during the 27
years of his tenure, but has relied on a scandalous attack on Board
members to whom he offered one new vision after another, and as a
result supported him all these years. Two years ago, on the expiration
of his then contract, the Board offered him a one year extension. He
insisted he needed two years to make a noticeable improvement in our
prospects and the Board granted it to him. This year, with little
accomplished, he came to the Board demanding a new three year contract
and a further salary increase, as well as a renewal of his golden
parachute. The time for a change has come and the Board recognized
it and acted on it. Mr. Kleiman's candidacy is one more effort to turn
the clock back.
The Board of Directors appreciates and encourages stockholder
participation in the Company's affairs. Whether or not you plan
to attend the meeting, it is important that your shares be represented.
Accordingly, we urge you to sign, date and mail the enclosed white
proxy in the envelope provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
/s/Joseph I. Kesselman, Director (Chairman)
______________________
Joseph I. Kesselman
/s/Arthur M. Borden, Director
___________________
Arthur M. Borden
/s/Roger B. Knowles, Director
___________________
Roger B. Knowles
/s/James S. Segasture, Director
_____________________
James S. Segasture
IMPORTANT
1. TIME IS SHORT AND YOUR PROMPT ACTION IS NECESSARY! BE SURE
TO SIGN, DATE AND MAIL YOUR WHITE CARD. WE URGE YOU NOT TO SIGN
ANY CARD SENT TO YOU BY MR. KLEIMAN. REMEMBER, EACH PROPERLY
EXECUTED CARD YOU SUBMIT REVOKES ALL PRIOR CARDS.
2. If any of your shares are held in the name of a bank, broker or
other nominee, please contact the party responsible for your account
and direct him/her to vote on the WHITE proxy card for each of your
accounts. You should also return your WHITE proxy card by mail.
3. If you have any questions, or need assistance in voting your
shares, please contact:
Mr. Greg Tartaglia
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, NY 10005
Collect: 212-269-5550 or
Toll Free: 1-800-758-5378