<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
(FORMERLY EDUDATA CORPORATION)
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 24, 1997
------------------------
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., formerly EDUDATA CORPORATION (the
"Company"), will be held at the offices of the Company's counsel, Troop
Meisinger Steuber & Pasich, LLP, at 10940 Wilshire Boulevard, Suite 800, Los
Angeles, California, on March 24, 1997, at 10:00 a.m., Los Angeles time, for the
following purposes:
1. To elect the directors of the Company each to hold office for one
year and until respective successors are elected;
2. To approve an Amended and Restated Certificate of Incorporation to
effectuate a one-for-1.33333333 reverse stock split of the Company's issued
and outstanding Common Stock;
3. To approve the Company's 1997 Stock Incentive Plan; and
4. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
Only holders of record of the Common Stock of the Company at the close of
business on February 5, 1997 (the "Record Date") are entitled to notice of and
to vote at the Annual Meeting and adjournment(s) thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person, even though he or she has returned a Proxy.
[SIG]
Robert H. Gurevitch
Chairman of the Board of Directors
Westlake Village, CA 91362
March , 1997
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, AND SIGN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 24, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held at the offices of the Company's counsel, Troop Meisinger
Steuber & Pasich, LLP, located at 10940 Wilshire Boulevard, Suite 800, Los
Angeles, California 90024, on March 24, 1997 and any adjournment(s) or
postponement(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. Accompanying this Proxy
Statement is the Board of Directors' Proxy for the Annual Meeting, which you may
use to indicate your vote as to the proposals described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the Company
prior to the Annual Meeting, and which have not been revoked, will be voted as
indicated on the proposals described in this Proxy Statement unless otherwise
directed. A stockholder may revoke his or her Proxy at any time before it is
voted either by filing with the Secretary of the Company, at its principal
executive offices, a written notice of revocation or a duly executed Proxy
bearing a later date, or by attending the Annual Meeting and expressing a desire
to vote his or her shares in person.
The close of business on February 5, 1997 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments or postponements thereof. At the record
date, 2,985,537 shares of the Company's Common Stock, par value $.01 per share,
were outstanding. The Common Stock is the only outstanding class of securities
entitled to vote at the meeting. At the record date, the Company had
approximately 244 stockholders of record. The Company is informed and believes
that there are approximately 400 beneficial holders of the Company's Common
Stock. A stockholder is entitled to cast one vote for each share of Common Stock
held on the record date (each a "Share") on all matters to be considered at the
Annual Meeting. Abstentions and shares held by brokers that are prohibited from
exercising discretionary authority will be counted as present for the purposes
of determining if a quorum is present. With respect to the proposal to approve
the Company's 1997 Stock Incentive Plan, abstentions will have the same effect
as a no vote and broker non-votes will be disregarded.
The Company's principal executive offices are located at 200 North Westlake
Boulevard, Suite 202, Westlake Village, California 91362 and its telephone
number is (805) 381-2700. This Proxy Statement and the accompanying Proxy were
mailed to all stockholders entitled to vote at the Annual Meeting on or about
March , 1997.
ELECTION OF DIRECTORS
In accordance with the Amended and Restated Certificate of Incorporation and
the Bylaws of the Company, the Board of Directors is elected at each annual
meeting of the stockholders of the Company. The Bylaws of the Company provide
that the Board of Directors shall consist of three directors, but may be
increased or decreased from time by resolution of the then authorized number of
directors. The Board of Directors currently consists of three directors.
Effective February 5, 1997, Hiroki Umezaki and Gerald K. Kitano resigned
from the Board of Directors and neither of Mr. Umezaki and Mr. Kitano are
standing for re-election to the Board. On February 11, 1997, the remaining
directors, Robert H. Gurevitch and Marvin H. Kleinberg appointed Ronald E.
Wittman, the Company's Chief Financial Officer, as a third director to serve on
a temporary basis until the Annual Meeting at which their successors will be
elected.
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Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting or any
postponement or adjournment thereof, the proxies will be voted for such nominee
as shall be designated by the current Board of Directors to fill the vacancy.
The Company has no reason to believe that any of the nominees will be unwilling
or unable to serve if elected as a director.
BOARD RECOMMENDATION AND REQUIRED VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED BELOW
The Board of Directors proposes the election of the following nominees as
directors:
Robert H. Gurevitch
Marvin H. Kleinberg
Jack D. Preston
If elected, each nominee is expected to serve until to 1998 Annual Meeting
of the Stockholders. The affirmative vote of a plurality of the Shares present
in person or represented by proxy at the Annual Meeting and voting on the
election of the directors is required for the election of each of the above
named nominees.
INFORMATION WITH RESPECT TO NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
nominees and executive officers of the Company as of December 31, 1996.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Robert H. Gurevitch 55 Chairman of the Board of
Directors/Chief Executive
Officer/President/Secretary
Marvin H. Kleinberg 68 Director
Ronald E. Wittman 50 Chief Financial Officer/Director
Dewey Perrigo 43 Vice President of Sales
Merle Roberts 47 Vice President of Manufacturing
</TABLE>
MR. GUREVITCH has been Chairman of the Board, Chief Executive Officer and
President of the Company since March 1996, and was appointed Secretary of the
Company in February 1997. Mr. Gurevitch founded Dental Medical Diagnostic
Systems, LLC ("DMD") in October 1995 and was its Chief Executive Officer until
it was acquired by the Company. From November 1994 until February 1995, Mr.
Gurevitch served as Chief Executive Officer of Dycam, Inc., a manufacturer and
marketer of digital cameras. From 1987 until his retirement in August 1993, Mr.
Gurevitch served as Chief Executive Officer and Chairman of the Board at New
Image Industries, Inc. ("New Image"), a manufacturer and distributor of
intraoral cameras.
MR. KLEINBERG has been a director of the Company since March 1996. Mr.
Kleinberg is a founding partner of the law firm Arant, Kleinberg, Lener & Ram
LLP, and has been a member of that law firm and its various predecessors since
1980. Mr. Kleinberg has practiced in the area of intellectual property law
3
<PAGE>
since 1954. Mr. Kleinberg serves as an adjunct lecturer in Patent Law at the
Franklin Pierce Law Center and is on the advisory council of the PTC Foundation,
which publishes "IDEA."
MR. WITTMAN has been the Chief Financial Officer of the Company since
September 1996. Mr. Wittman was also elected director of the Company in February
1997 but is not seeking re-election. From September 1994 to September 1996, Mr.
Wittman was the Vice President of Finance and Administration and the Chief
Financial Officer of FMS Corporation, a manufacturer of defense related products
which declared bankruptcy in 1995. Mr. Wittman served as Corporate Controller of
Whittaker Corporation, an aerospace, defense electronics and manufacturing
corporation from May 1993 to September 1994. From 1987 to May 1993, Mr. Wittman
served as Corporate Controller at DAK Industries, a manufacturer and distributor
of consumer electronics, computers, and computer software.
MR. PERRIGO has served as the Company's Vice President of Sales since March
1996. Commencing in October 1995, he served in the same capacity at DMD. From
1988 through September 1995, Mr. Perrigo served as the Director of Sales of New
Image.
MR. ROBERTS joined the Company in February 1996 as Director of Operations.
On July 1, 1996, he was promoted to Vice President of Manufacturing. From 1988
until May 1994, Mr. Roberts served as Materials Manager for Advanced
Interventional Systems, a medical laser manufacturer. From June 1994 until
January 1996 Mr. Roberts was an independent consultant providing materials,
management and purchasing services to a variety of businesses. Mr. Roberts has
taught material management and related subjects at several Southern California
colleges and universities, and has served as a professional consultant on these
topics.
NOMINEE FOR DIRECTOR OF THE COMPANY
Jack D. Preston, D.D.S. has been The Don and Sybil Harrington Foundation
Professor of Esthetic Dentistry at the University of Southern California School
of Dentistry since 1979 where he is also the Chairman of the Department of Oral
and Maxillofacial Imaging and the Director of Informatics. Dr. Preston is also
currently a Diplomate of the American Board of Prosthodontics as well as the
Editor-in-Chief of the International Journal of Prosthodontics. Dr. Preston is
an international lecturer on various aspects of dentistry, an author of three
textbooks and numerous articles and invited chapters, and is widely considered
to be a leading expert on current and future applications of computer technology
in dentistry.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company maintained an Audit Committee consisting of Mr. Umezaki and Mr.
Kitano. The Board intends to appoint Mr. Kleinberg and Dr. Preston to serve as
independent directors on the Audit Committee. The Audit Committee reviews with
the Company's independent accountants, the scope and timing of their audit
services, any other services they are asked to perform, and the report of
independent accountants on the Company's financial statements following
completion of their audit of the Company's financial statements. In addition,
the Audit Committee makes an annual recommendation to the Board of Directors
concerning the appointment of independent accountants for the coming year.
The Board of Directors also intends to establish a Compensation Committee.
The Compensation Committee will be comprised of Messrs. Gurevitch and Kleinberg
and Dr. Preston, and shall be responsible for the review of compensation and
benefits paid to the Company's executive officers and the review of general
policy matters relating to compensation and benefits of all of the Company's
employees. Pursuant to that certain Underwriting Agreement between the Company
and M. H. Meyerson & Co., Inc., in connection with the proposed offering of the
Company's securities (the "Offering"), for a period of three years from the date
of the closing of the Offering, all compensation and other arrangements between
the Company and its executive officers, directors and affiliates must be
approved by the Compensation Committee, a majority of whose members must be
independent.
4
<PAGE>
DIRECTOR COMPENSATION
The Company's directors received no cash compensation for serving as
directors in 1996. During 1996, each member of the Board of Directors was
granted a fully vested option to purchase 5,120 shares of the Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Effective April 1997, the Company plans to compensate its independent
directors in the form of a $500 fee for each attendance at a formal meeting of
the Board of Directors. In addition, the Company intends to (i) pay all expenses
paid by its directors for travel, etc. which are directly related to Company
business and are within the scope of their positions with the Company, and (ii)
grant options to each of its directors, as compensation for serving as
directors. The Company proposes to grant Dr. Preston options to purchase 30,000
shares of Common Stock. Such options would vest over a three-year period at the
rate of 10,000 shares per year from the date of grant and would be exercisable
at a price not less than eighty-five percent (85%) of the average bid price for
the two weeks prior to the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the year ended December 31, 1996 to Robert H. Gurevitch,
the principal executive officer of the Company, and each of the Company's most
highly compensated executive officers whose salary and bonus exceeded $100,000
during such year ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
NUMBER OF
YEAR ENDED ANNUAL COMPENSATION SECURITIES
DECEMBER 31, ------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION 1996 SALARY BONUS OPTIONS(1) COMPENSATION
- ------------------------------------------ --------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Robert H. Gurevitch....................... 1996 $ 152,300 -- 5,120 $ 1,400
Chairman of the Board of Directors,
Chief Executive Officer, President,
and Secretary
Dewey Perrigo............................. 1996 103,800 -- 34,133 2,700
Vice President of Sales
</TABLE>
- ------------------------
(1) Certain of the officers of the Company routinely receive other benefits from
the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during fiscal 1996, did
not exceed the lesser of $50,000 or 10% of the compensation set forth above
as to any named individual.
5
<PAGE>
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company and Mr. Gurevitch have entered into an agreement whereby Mr.
Gurevitch has agreed to serve as Chairman of the Board of Directors and Chief
Executive Officer of the Company until October 1, 1999. Mr. Gurevitch's
compensation will include salary at a minimum annual base compensation rate of
$180,000 prior to March 1, 1997 and $275,000 thereafter, plus a car allowance
and a standard benefits package. Pursuant to the terms of that agreement, Mr.
Gurevitch may not have any ownership interest, or participate in any way, in any
venture which competes with the Company for a period of three years after the
termination of that agreement; PROVIDED, HOWEVER, that the Company must pay Mr.
Gurevitch a fee of $10,000 annually for each of the three years in consideration
for this non-competition agreement.
The Company has also entered into an agreement with Mr. Perrigo pursuant to
which Mr. Perrigo has agreed to serve as the Company's Director of Sales until
October 1, 1999. Mr. Perrigo's compensation will include salary at a minimum
annual base compensation rate of $100,000 prior to March 1, 1997 and $150,000
thereafter, plus a car allowance and a standard benefits package.
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended December 31, 1996 to the executive
officers named in the Summary Compensation Table ("Named Executive Officers").
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN
OPTIONS TEN-MONTH PERIOD EXERCISE OF BASE EXPIRATION
NAME GRANTED ENDED DECEMBER 31 PRICE ($/SH) DATE
- ---------------------------------------------------- ----------- --------------------- ----------------- -----------
<S> <C> <C> <C> <C>
Robert H. Gurevitch................................. 5,120 4% $ .88 03/04/01
Dewey Perrigo....................................... 34,133 24% 2.93 03/31/06
</TABLE>
No options were exercised by the Named Executive Officers during the year
ended December 31, 1996. The following table shows the number of shares covered
by both exercisable and unexercisable employee stock options, as of December 31,
1996.
6
<PAGE>
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert H. Gurevitch....................................... 5,120 -- $ 21,760 --
Dewey Perrigo............................................. 34,133 -- 75,092 --
</TABLE>
CERTAIN TRANSACTIONS WITH MANAGEMENT
In October 1996, the Company entered into an agreement with Boston Marketing
Company, Ltd. ("Boston Marketing") pursuant to which the Company obtained
worldwide marketing rights in the dental market for the CCU processor and the
CCD chip (together, a "Teli Unit") used in the Company's TeliCam System as well
as the right to use the "TeliCam" trademark. At the time the Company entered
into this agreement, Hiroki Umezaki was an officer, director and principal
stockholder of the Company and is a substantial stockholder and the President of
Boston Marketing. At December 31, 1996, the Company owed Boston Marketing
approximately $247,500 in connection with Teli Units purchased by the Company
prior to that date. From March 3, 1996 to December 31, 1996, the Company
purchased 2,509 Teli Units at an aggregate cost of $1,881,750 from Boston
Marketing. In addition, the Company had an agreement with Mr. Umezaki pursuant
to which he was to receive a 15% commission on all sales made by the Company in
Asia, except Japan in which his commission was to be 12%. This agreement
resulted in Mr. Umezaki earning $15,000 in commissions through December 31,
1996. This agreement has been orally amended to provide that Mr. Umezaki shall
receive a 12% commission on sales made in Japan only. This oral agreement is
currently being documented with these changed terms and the Company believes
that the new agreement will be signed with the new terms as described above.
From December 1995 through February 1996, Robert H. Gurevitch, Chairman of
the Board and Chief Executive Officer of the Company, and Boston Marketing, an
affiliate of Mr. Umezaki, each loaned the Company $177,015 and $200,000,
respectively. The promissory notes evidencing such loans bear interest at 6% per
annum and were originally payable within six months. On February 26, 1996, the
Company repaid $50,000 to each of Mr. Gurevitch and Boston Marketing. No
interest has been paid on the remaining principal balance of these notes
although interest has been accrued on the Company's books. In November 1996, Mr.
Gurevitch and Boston Marketing each agreed to extend the term of their
respective notes until the earlier to occur of: (i) twenty-four months following
the closing of the Bridge Financing; (ii) at such time as the Company receives
proceeds from the sale of the Common Stock in connection with this Offering; and
(iii) the repayment of the Bridge Notes in full. A portion of the proceeds of
this Offering will be used to satisfy these obligations. In addition, on April
11, 1996, Boston Marketing loaned the Company an additional $25,000 under
similar terms ("April Loan"). The April Loan was repaid in full on August 26,
1996.
Mr. Gurevitch and Mr. Umezaki have guaranteed the performance by the Company
under the Company's leases for its Irvine and Westlake premises, and Mr.
Gurevitch has also personally guaranteed the Company's credit card processing
agreement with the Checkfree Corporation. The Company intends to attempt to
obtain releases from the recipients of each of these guarantees and it is
possible that the elimination of the availability of these guarantees may
require the Company to post collateral or incur increased expense.
The Company has adopted a policy whereby all future transactions between the
Company and its officers, directors, principal stockholders or affiliates will
be approved by a committee of the Board of Directors, a majority of the members
of which shall be independent directors, or, if required by law, a majority of
disinterested directors, and will be on terms no less favorable to the Company
than could be obtained in arm's length transactions from unaffiliated third
parties.
7
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater-than-ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it and written representations from certain reporting persons that
they have complied with the relevant filing requirements, the Company believes
that during the year ended December 31, 1996, all relevant Section 16(a) filing
requirements were complied with, provided, however, that the Company has no
information with respect to any such required filings made by Paul D. Koether
who owned 8.2% of the Company's outstanding securities as of December 31, 1996,
but was a greater-than-ten-percent stockholder during the 1996 Fiscal Year.
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<PAGE>
PROPOSAL TO EFFECTUATE A REVERSE STOCK SPLIT
The Board of Directors has declared it advisable and in the best interests
of the Corporation to effect a one-for-1.33333333 secondary reverse split (the
"Secondary Reverse Split") of the shares of Common Stock issued and outstanding
on the Effective Date (as hereinafter defined), and the shares of Common Stock
underlying outstanding options and other rights granted by the Corporation on or
prior to the Effective Date.
This Secondary Reverse Split is proposed in addition to the
one-for-2.197317574 reverse stock split which was effected in accordance with
that certain Information Statement dated November 29, 1996 which was distributed
to the stockholders (the "Primary Reverse Split"), pursuant to which an Amended
and Restated Certificate of Incorporation was filed with the Delaware Secretary
of State on January 13, 1997 (the "Primary Amended and Restated Certificate").
The Board of Directors has elected to provide for such Secondary Reverse
Split in a new Article FIFTH of a secondary Amended and Restated Certificate of
Incorporation, the form of which is attached hereto as ANNEX "A" (the "Secondary
Amended and Restated Certificate"). The Secondary Amended and Restated
Certificate contains no further changes to the Primary Amended and Restated
Certificate. Please be advised that, although stockholders have already received
a Letter of Transmittal regarding the exchange of stock certificates pursuant to
the Primary Reverse Split, the Company's transfer agent has been instructed by
the Company to await the determination of the Secondary Reverse Split by the
stockholders, and will issue new certificates upon such determination as the
Company shall direct them.
PURPOSES OF THE PROPOSED SECONDARY REVERSE SPLIT
The Board of Directors believes that the Secondary Reverse Split is in the
best interests of the Corporation and the stockholders for several reasons. On
February 28, 1997, the Corporation filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 in connection with the proposed
public offering (the "Proposed Offering") by the Corporation of up to 1,500,000
Shares of Common Stock and 1,500,000 Redeemable Common Stock Purchase Warrants.
The Board of Directors believes that the Secondary Reverse Split may enhance the
acceptability of the Common Stock by the financial community and the investing
public and thereby assist in the Proposed Offering. In connection with the
Proposed Offering, the Company has applied for listing on NASDAQ's SmallCap
Market. One of the requirements for inclusion on the SmallCap Market is a per
share market price of $4.00 or more. The Corporation hopes that the reduction in
the number of issued and outstanding shares of Common Stock caused by the
Secondary Reverse Split will result in an increase in the market price per share
of the Common Stock.
The Board of Directors also hopes that the Secondary Reverse Split will
result in a broader market for the Common Stock than that which already exists.
A variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing with lower priced stocks.
Some of those policies and practices pertain to the payment of broker's
commissions and to time consuming procedures that function to make the handling
of lower priced stock economically unattractive to brokers. In addition, the
structure of trading commissions also tends to have an adverse impact upon the
holders of lower priced stock because the brokerage commission on a sale of
lower priced stock generally represents a higher percentage of the sales price
than the commission on a relatively higher priced issue. The Secondary Reverse
Split may result in a price level for the Common Stock that will reduce to some
extent, the effect of the above-referenced policies and practices of brokerage
firms and diminish the adverse impact of trading commissions on the market for
the Common Stock. The expected increased price level may also encourage interest
and trading in the Common Stock and possibly promote greater liquidity for the
stockholders.
9
<PAGE>
However, there can be no assurance that any or all of these effects will
occur; including, without limitation, that the Corporation will successfully
consummate the Proposed Offering, or that such price will either exceed or
remain in excess of the current market price. The ability of the Corporation to
successfully accomplish the Proposed Offering on acceptable terms and at
acceptable pricing levels depends on a number of factors over which the
Corporation has no control including, without limitation, capital market
conditions generally, competitive conditions in the Corporation's own markets,
the ability of underwriters selected by the Corporation to successfully market
and sell the securities offered in the Proposed Offering and public acceptance
of the Corporation's securities. Further, there is no assurance that the market
for the Common Stock will be improved by the Secondary Reverse Split.
Stockholders should note that the Board of Directors cannot predict what effect
the Secondary Reverse Split will have on the market for the Common Stock.
IMPLEMENTATION OF THE SECONDARY REVERSE STOCK SPLIT
The effect of the Secondary Reverse Split upon holders of the Common Stock
or options or other rights to acquire the Common Stock will be that, effective
as of March 24, 1997 ("the Effective Date"), the shares of Common Stock that are
issued and outstanding on the Effective Date, and the shares of Common Stock
underlying outstanding options and other rights granted by the Corporation on or
prior to the Effective Date, will be automatically converted into the number of
whole shares of Common Stock equal to the number of shares of Common Stock owned
or underlying immediately prior to the Secondary Reverse Split divided by
1.33333333, adjusted, as described below, for any fractional shares; and the
stockholder's percentage ownership interest in the Corporation and proportional
voting power will remain unchanged, except for minor differences resulting from
adjustments for fractional shares. The rights and privileges of the holders of
shares of the Common Stock will be substantially unaffected by the Secondary
Reverse Split. No fractional shares will be issued pursuant to the Secondary
Reverse Split. Rather, the Company will pay in cash to the stockholders of
record the fair market value of any resulting fractions of a share, which value
shall be equal to the average of the closing price of the Company Common Stock,
as reported by NASDAQ Trading and Market Services, over the ten (10) trading day
period commencing fifteen (15) trading days and ending five (5) trading days
prior to the Effective Date.
The Secondary Reverse Split may result in some of the stockholders owning
"odd-lots" of less than 100 shares of the Common Stock. Brokerage commissions
and other costs of transactions in odd-lots are generally somewhat higher than
the costs of transactions in "round-lots" of even multiples of 100 shares.
As soon as practicable after the Effective Date, the stockholders will be
notified and required to exchange their stock certificates for new certificates
representing the shares of new Common Stock. Stockholders will be furnished with
the necessary materials and instructions for the surrender and exchange of stock
certificates at the appropriate time by the Corporation's transfer agent.
Stockholders will not be required to pay a transfer or other fee in connection
with the exchange of certificates if there is no change in the name of the
registered holder.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based upon
present federal tax laws and does not purport to be a complete discussion of
such consequences. ACCORDINGLY, STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS FOR MORE DETAILED INFORMATION REGARDING THE EFFECT OF THE REVERSE
SPLIT ON THEIR INDIVIDUAL TAX STATUS.
The exchange of shares of pre-Secondary Reverse Split Common Stock for
shares of post-Secondary Reverse Split Common Stock will not result in
recognition of gain or loss. The holding period of the shares of post-Secondary
Reverse Split Common Stock will include the stockholder's holding period for the
shares of pre-Secondary Reverse Split Common Stock exchanged therefor, provided
that the shares of pre-
10
<PAGE>
Secondary Reverse Split Common Stock were held as a capital asset. The adjusted
basis of the shares of post-Secondary Reverse Split Common Stock will be the
same as the adjusted basis of the shares of pre-Secondary Reverse Split Common
Stock exchanged therefor.
BOARD RECOMMENDATIONS AND REQUIRED VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF A
ONE-FOR-1.33333333 REVERSE SPLIT OF THE ISSUED AND OUTSTANDING SHARES OF COMMON
STOCK OF THE COMPANY.
The Board has unanimously approved the Secondary Reverse Split. The
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the Meeting is required for the approval of the
Secondary Reverse Split. With respect to the Secondary Reverse Split,
abstentions will be counted toward the tabulation of votes cast and will have
the same effect as negative votes. However, broker non-votes will not be counted
as votes cast for or against the approval of the Secondary Reverse Split.
11
<PAGE>
PROPOSAL TO APPROVE THE ADOPTION OF THE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
INTRODUCTION. The proposed DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. 1997
Stock Incentive Plan (the "1997 Plan") was adopted by the Company's Board of
Directors (the "Board") effective as of February 11, 1997, subject to the
approval of the 1997 Plan by the stockholders of the Company and qualification
of the 1997 Plan with the California Department of Corporations. The 1997 Plan
provides for the grant of stock awards to directors, employees, officers and
consultants of the Company. At February 27, 1997, approximately 50 persons were
eligible to participate in the 1997 Plan. Subject to adjustment for future stock
splits, stock dividends and other similar events, and as adjusted after the
one-for-2.197317574 reverse stock split and the proposed one-for-1.33333333
reverse stock split referenced in this Proxy Statement, 350,000 shares of the
Company's Common Stock are available for awards under the 1997 Plan. As of
February 27, 1997, no awards had been granted under the 1997 Plan.
The following sections summarize the principal features of the 1997 Plan, a
copy of which is attached as Annex "B" to this Proxy Statement. Although this
Proxy Statement contains a summary of the principal features of the 1997 Plan,
this summary is not intended to be complete and reference should be made to
Annex "B" to this Proxy Statement for the complete text of the 1997 Plan. All
capitalized terms not defined herein shall have the definitions attributed to
such terms in the 1997 Plan.
PURPOSE. The purpose of the 1997 Plan is to (i) provide a means by which
directors, officers and employees of or consultants to the Company, and any of
its present or future parent or subsidiary corporations ("Affiliates"), may be
given an opportunity to benefit from increases in value of the Common Stock
through the granting of stock awards, (ii) retain the services of persons who
are now directors, officers, employees or consultants of the Company, (iii)
secure and retain the services of new directors, officers, employees and
consultants, and (iv) provide incentives for such persons to exert maximum
efforts for the success of the Company.
ADMINISTRATION. The 1997 Plan will be administered by the Board unless and
until the Board delegates administration to a committee composed of not fewer
than two members (the "Committee"), and at least two of the members of the
Committee shall be non-employee directors of the Company. The Board shall have
power, subject to, and within the limitations of, the express provisions of the
1997 Plan to (i) select the persons to whom awards will be granted, grant the
awards, determine the terms and conditions of the awards and the number to be
issued, and determine whether an award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a Stock Bonus, a Right to Purchase Restricted Stock,
a Stock Appreciation Right, a Re-Load Option or a combination of the foregoing,
(ii) construe and interpret the 1997 Plan and (iii) exercise such powers as the
Board deems necessary to promote the best interests of the Company and which are
not in conflict with the provisions of the 1997 Plan. If administration is
delegated to a Committee, the Committee shall have the powers possessed by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the 1997 Plan.
ELIGIBILITY. The 1997 Plan provides that Incentive Stock Options and Stock
Appreciation Rights appurtenant thereto may be granted only to directors who are
employed by the Company and officers and employees of the Company. Stock Awards
other than Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted to directors, officers, employees and consultants of the
Company. No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Internal Revenue Code of 1986, as amended (the "Code"))
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its Affiliates unless the
exercise price of such Incentive Stock Option is at least one hundred ten
percent (110%) of the fair market value of the Common
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<PAGE>
Stock at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date of its grant.
OPTIONS. Each option shall be approved by the Board and be in such form and
shall contain such terms and conditions as the Board shall deem appropriate. No
option shall be exercisable after the expiration of ten years from the date it
was granted.
The exercise price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the fair market value of the Common Stock subject to
the option on the date such incentive stock option is granted. The exercise
price of each Nonstatutory Stock Option shall be not less than one hundred
percent (100%) of the fair market value of the Common Stock subject to the
option on the date such Nonstatutory Stock Option is granted. The exercise price
of Common Stock acquired pursuant to the exercise of an option shall be paid, to
the extent permitted by applicable statutes and regulations, in any form of
legal consideration that may be acceptable to the Board, including, without
limitation, different payment arrangements and/or by delivery to the Company of
other shares of Common Stock.
An Incentive Stock Option shall only be transferable by will or by the laws
of descent and distribution, and shall be exercisable during the lifetime of the
person to whom the Incentive Stock Option is granted only by such person, or in
the case of such person's disability by such person's legal representative or
guardian. A Nonstatutory Stock Option shall only be transferable by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order (a "QDRO"), and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or any transferee
pursuant to a QDRO.
The Board, in its sole discretion, shall determine the vesting schedule
associated with any options. However, in the case of an option for which an
exemption from the qualification requirements of the California Corporate
Securities Law of 1968, as amended (the "CCSL") is unavailable, the vesting
provisions must provide for vesting of at least twenty percent (20%) per year of
the total number of shares subject to the option from the date the option was
granted; PROVIDED, HOWEVER, that options granted to directors, officers or
consultants of the Company may vest at a rate of less than twenty percent (20%)
per year.
In the event an optionee's Continuous Status as a director, officer,
employee or consultant terminates (other than upon the optionee's death or
Disability) (a "Termination"), the optionee may exercise his or her option (to
the extent that the optionee is entitled to exercise it at the date of
Termination), but only within such period of time as is determined by the Board,
which period shall not be longer than ninety days from the date of Termination
for an Incentive Stock Option, nor less than thirty days from the date of
Termination for an option for which an exemption from the qualification
requirements of the CCSL is unavailable; PROVIDED, HOWEVER, that if an optionee
is terminated for cause, as defined by the Board, the option may provide for an
exercise period shorter than thirty days, or may provide for expiration
concurrent with such Termination. If an optionee's Continuous Status as a
director, officer, employee or consultant terminates as a result of the
optionee's permanent disability, the optionee may exercise his or her option,
but only within six months from the date of such Termination (or such longer
period, not exceeding twelve months for Incentive Stock Options, as specified in
the option), and only to the extent that the optionee was entitled to exercise
the option at the date of such Termination (but in no event later than the
expiration of the term of such option as set forth in the option). In the event
of the death of an optionee, the option may be exercised at any time within six
months following the date of death (or such longer period not exceeding twelve
months, for Incentive Stock Options, as specified in the option), but in no
event later than the expiration of the term of such option as set forth in the
option, by the optionee's estate or by a person who acquired the right to
exercise the option by bequest or inheritance, but only to the extent the
optionee was entitled to exercise the option at the date of death.
Options granted under the 1997 Plan may include a provision whereby the
optionee may elect at any time while a director, officer, employee or consultant
to exercise the option as to any part or all of the
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<PAGE>
shares subject to the option prior to the full vesting of the option. Any
unvested shares so purchased shall be subject to a right to repurchase in favor
of the Company upon Termination of the optionee.
The Board may include as part of any option a provision entitling the
optionee to a further option (a "ReLoad Option") in the event the optionee
exercises the option, in whole or in part, by surrendering other shares of
Common Stock. Any such Re-Load Option may be an Incentive Stock Option or a
Nonqualified Stock Option, as the Board may designate at the time of the grant
of the original option; PROVIDED, HOWEVER, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in the 1997 Plan. There shall be no ReLoad Options on a Re-Load
Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under the 1997 Plan and shall be subject to such other terms
and conditions as the Board may determine which are not inconsistent with the
express provisions of the 1997 Plan regarding the terms of the options.
STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. The 1997 Plan also
provides for the grant of stock bonuses and purchases of restricted stock. Stock
Bonuses are grants of Common Stock to participants in the 1997 Plan and do not
involve the payment of a purchase price. The award of a right to purchase
restricted stock entitles a participant in the 1997 Plan to acquire shares of
Common Stock which are subject to certain voting limitations and restrictions at
a price which is lower than the fair market value of the Common Stock on the
date of the grant of such award. Each stock bonus or restricted stock purchase
agreement shall be approved by the Board and be in such form and shall contain
such terms and conditions as the Board shall deem appropriate.
The purchase price under each restricted stock purchase agreement shall be
such amount as the Board shall determine and designate in such agreement. The
purchase price of shares of Common Stock for which an exemption from the
qualification requirements of the CCSL is unavailable shall be not less than
one-hundred percent (100%) of the fair market value of the Common Stock at the
date of the grant or the sale; provided, if such shares of Common Stock are
granted or sold to a person who owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates, the purchase price shall be at least one hundred
ten percent (110%) of the fair market value of the Common Stock at the date of
grant or sale.
Rights under a stock bonus or restricted stock purchase agreement shall only
be assignable by any participant under the 1997 Plan by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the rights are granted only by such person. The person to whom
such rights are granted may, by delivering written notice to the Company,
designate a third party who, in the event of the death of such person, shall
thereafter be entitled to exercise the rights held by such person under the
stock bonus or restricted stock purchase agreement.
The purchase price of Common Stock acquired pursuant to a restricted stock
purchase agreement shall be paid in any form of legal consideration that may be
acceptable to the Board in its discretion. The Board may also award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
Shares of Common Stock sold or awarded under the 1997 Plan may be subject to
a right to repurchase in favor of the Company upon Termination of the person to
whom such shares have been sold or awarded at a repurchase price equal to the
original purchase price (or such higher price as the Board may determine to be
appropriate). The Board shall provide that such rights to repurchase lapse with
respect to such purchased shares pursuant to a schedule determined by the Board;
PROVIDED, HOWEVER, that for any stock bonus or restricted stock purchase right
for which an exemption from the qualification requirements of the CCSL is
unavailable, the Company's right to repurchase at the original purchase price
shall lapse at a minimum rate of twenty percent (20%) per year over five years
from the date the stock bonus or restricted stock purchase right was granted and
such right shall terminate to the extent not exercised within ninety days
following Termination of the stockholder/purchaser.
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<PAGE>
STOCK APPRECIATION RIGHTS. The Board shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights to
employees, directors or consultants of the Company or its Affiliates under the
1997 Plan. Each such right shall entitle the holder to a distribution based on
the appreciation in the fair market value per share of a designated amount of
Common Stock.
Three types of Stock Appreciation Rights shall be available for issuance
under the 1997 Plan: Tandem Rights, Concurrent Rights and Independent Rights.
Tandem Rights will be granted appurtenant to an option and will require the
holder to elect between the exercise of such option for shares of Common Stock
and the surrender, in whole or in part, of such option for an appreciation
distribution, payable in cash, in an amount equal to (1) the aggregate fair
market value (on the date of option surrender) of the number of vested shares of
Common Stock under the option (or portion thereof) being surrendered on such
date, less (2) the aggregate exercise price of such vested shares of Common
Stock. Concurrent Rights will be granted appurtenant to an option and may apply
to all or any portion of the shares of Common Stock subject to such option and
will be automatically exercised at the same time such option is exercised with
respect to the particular shares of Common Stock to which the Concurrent Right
pertains. The appreciation distribution, payable in cash, to which the holder of
such Concurrent Rights shall be entitled upon exercise of the related option
shall be an amount equal to (1) the aggregate fair market value (on the date of
option exercise) of the number of vested shares of Common Stock under the option
(or portion thereof) being exercised on such date and with respect to which such
Concurrent Rights apply, less (2) the aggregate exercise price paid for such
vested shares of Common Stock. Independent Rights shall be granted independently
of any option and will entitle the holder upon exercise thereof to an
appreciation distribution payable in cash in an amount equal to (1) the
aggregate fair market value (on the date of the exercise of the Independent
Right) of a number of shares of Common Stock equal to the number of vested share
equivalents with respect to which the holder is exercising the Independent Right
on such date, less (2) the aggregate fair market value (on the date of the grant
of the Independent Right) of such number of shares of Common Stock.
ADJUSTMENTS. With the consent of the affected holders, the Board shall have
the authority to reprice outstanding options and stock appreciation rights and
to cancel outstanding options and stock appreciation rights and grant new option
and/or stock appreciation rights in lieu thereof.
The 1997 Plan contains a provision which provides that equitable
adjustments, as determined by the Board, shall be made in the awards and in the
maximum number of options and rights that may be granted to any eligible person
in the event of any change in the number of issued shares of Common Stock or
other securities then subject to the 1997 Plan which results from any stock
split, stock dividend, recapitalization, merger, consolidation, combination of
shares, exchange of shares or other similar corporate change or other
transaction not involving the receipt of consideration by the Company. Upon the
occurrence of certain changes in control events involving the Company, the Board
shall have the authority to terminate the awards outstanding under the 1997 Plan
or provide for the grant of a substitute security.
AMENDMENTS. The Board may amend or terminate the 1997 Plan at any time and
in any manner. However, unless it relates to adjustments upon changes in the
Common Stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve months before or after the adoption of
the amendment, where the amendment will (i) increase the number of shares of
Common Stock reserved for Stock Awards under the 1997 Plan; (ii) modify the
requirements as to eligibility for participation in the 1997 Plan to the extent
such modification requires shareholder approval in order for the 1997 Plan to
satisfy the requirements of Section 422 of the Code; or (iii) modify the 1997
Plan in any other way if such modification requires shareholder approval in
order for the 1997 Plan to satisfy the requirements of Section 422 of the Code
or to comply with the requirements of Rule 16b-3 under the Securities Exchange
Act of 1934.
Additionally, no recipient of any award may, without his or her consent, be
deprived of any of his or her rights thereunder or with respect thereto as a
result thereto as a result of any such amendment.
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<PAGE>
PLAN DURATION. The Board may suspend or terminate the 1997 Plan at any
time. Unless sooner terminated, the 1997 Plan shall terminate on March 21, 2007.
No Stock Awards may be granted under the 1997 Plan while the 1997 Plan is
suspended or after it is terminated. Rights and obligations under any Stock
Award granted while the 1997 Plan is in effect shall not be altered or impaired
by suspension or termination of the 1997 Plan, except with the written consent
of the person to whom the Stock Award was granted.
FEDERAL INCOME TAX TREATMENT. The following general discussion of federal
income tax consequences is only a summary of principal considerations based upon
the tax laws and regulations of the United States existing as of the date
hereof, all of which may be subject to modification or change at any time, in
some cases retroactively. This discussion is also qualified by certain
exceptions and the particular circumstances of individual optionees, which may
substantially alter or modify the consequences herein discussed. Optionees, in
addition, may be subject to state and estate or other taxation.
The 1997 Plan does not constitute a qualified retirement plan under Section
401(a) of the Code (which generally covers trusts forming part of a stock bonus,
pension or profit-sharing plan funded by the employer and/or employee
contributions which are designed to provide retirement benefits to participants
under certain circumstances) and is not subject to the Employee Retirement
Income Security Act of 1974 (the pension reform law which regulates most types
of privately funded pension, profit-sharing and other employee benefit plans).
INCENTIVE STOCK OPTIONS ("ISOS "). With respect to ISOs granted under the
1997 Plan, an optionee generally will not recognize any income upon the grant or
the exercise of the option. Upon a subsequent disposition of the stock, the
optionee will generally recognize long-term capital gain or loss equal to the
difference between the amount paid for the stock and the amount realized on its
disposition, provided that the stock is not disposed of for at least two years
from the date the option is granted and for at least one year from the date the
stock is transferred to the optionee.
If the stock received pursuant to the exercise of an ISO is disposed of
prior to the aforementioned two-year or one-year periods (a "disqualifying
disposition"), the optionee will generally recognize ordinary, compensation
income upon the making of such disqualifying disposition, in an amount equal to
the lesser of (i) the fair market value of the option shares on the exercise
date, minus the exercise price, and (ii) the amount realized on the disposition,
minus the exercise price. Any amount realized upon disposition in excess of the
fair market value of the shares on the date of exercise will generally be
treated as long-term or short-term capital gain, depending upon whether the
shares have been held for more than one year.
If an optionee exercises an ISO, in whole or in part, with previously
acquired stock of the Company, the exchange will not affect the ISO treatment of
the exercise. Upon such exchange, and except as otherwise described herein, no
gain or loss is recognized by the optionee upon delivering previously acquired
stock to the Company, and the shares of stock received by the optionee, equal in
number to the previously acquired shares of stock exchanged therefor, will have
the same tax basis and holding period for long-term capital gain purposes as
such previously acquired stock. (The optionee will not, however, be able to
utilize the prior holding period for the purpose of satisfying the ISO statutory
holding period requirements.) Shares of stock received by an optionee in excess
of the number of such previously acquired shares of stock will have a tax basis
of zero and a holding period which commences as of the date of exercise. If the
exercise of an ISO is effected using stock previously acquired through the
exercise of an ISO, the exchange of such previously acquired shares of stock
will be considered a disposition of such stock for the purpose of determining
whether a disqualified disposition has occurred.
When the optionee exercises an ISO granted under the 1997 Plan, the
difference between the exercise price paid and the then fair market value of the
stock will constitute an "item of adjustment" which may subject the optionee to
the alternative minimum tax ("AMT") imposed by Section 55 of the Code. However,
if a disqualifying disposition occurs in the year in which the option is
exercised, the maximum amount that will be included as AMT income is the gain
realized on the disposition of the stock. If there is
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<PAGE>
a disqualifying disposition in a year other than the year of exercise, the
income on the disposition will not be considered income for AMT purposes. In
addition, the basis of the stock for determining gain or loss for AMT purposes
will be the exercise price for the stock, increased by the amount that the AMT
income was increased due to the earlier exercise of the ISO.
The Company will generally not be entitled to any federal income tax
deduction with respect to ISOs granted or exercised under the 1997 Plan.
However, if the optionee makes a "disqualifying disposition," then the Company
generally will be entitled to a deduction in the year of such disqualifying
disposition in an amount equal to the income includable by the optionee with
respect to the transaction.
Nonqualified Stock Options. An optionee who is granted an option or similar
right to acquire Common Stock under the 1997 Plan that does not qualify for ISO
treatment (a "nonqualified stock option") will not realize any income upon the
grant of such option, but generally will realize ordinary income when the
nonqualified stock option is exercised. The amount of income to be recognized by
the optionee is equal to the difference between the amount paid for the stock
and the fair market value of the stock received. The ordinary income received
will constitute compensation for which tax withholding may be required.
If, however, a profitable sale of the stock subject to a nonqualified stock
option under the 1997 Plan could subject the optionee to suit under Section
16(b) of the Securities Exchange Act of 1934, then such optionee will generally
recognize ordinary income on the date when such optionee is no longer subject to
such liability (or, if earlier, six months from the transfer of the stock to the
optionee) in an amount equal to the fair market value of the shares on such date
less the exercise price. However, the optionee may elect within thirty days of
the date of exercise to recognize ordinary income as of the date of exercise.
Shares received pursuant to the exercise of a nonqualified stock option
granted under the 1997 Plan will have a tax basis equal to their fair market
value on the exercise date or other relevant date on which ordinary income is
recognized, and the holding period for the shares received generally will begin
on the date of exercise or other relevant date. Upon the subsequent sale of such
shares, the optionee will generally recognize long-term or short-term capital
gain or loss, depending upon whether the shares have been held for more than one
year (and provided that the shares constitute capital assets in the hands of the
selling stockholder), in an amount equal to the difference between the selling
price and the stockholder's tax basis in the shares sold.
If an optionee exercises a nonqualified stock option, in whole or in part,
with previously acquired stock of the Company, the optionee will recognize
ordinary income in the amount by which the fair market value of the stock
received by the optionee exceeds the exercise price. The optionee will not
recognize gain or loss upon delivering such previously acquired stock to the
Company. Shares of stock received by an optionee, equal in number to the
previously acquired shares of stock exchanged therefor, will have the same tax
basis and holding period as such previously acquired stock. Shares of stock
received by an optionee in excess of the number of such previously acquired
shares of stock will have a tax basis equal to the fair market value of such
additional shares of stock as of the date ordinary income is received, and the
holding period for such additional shares of stock will commence as of the date
of exercise or such other relevant date.
With respect to the grant and exercise of nonqualified stock options under
the 1997 Plan, the Company generally will be entitled to a federal income tax
deduction in its tax year within which the optionee recognizes income (that is,
the taxable year of the Company in which or with which the optionee's taxable
year of income recognition ends) equal to the amount of income recognized by the
optionee.
RESTRICTED STOCK. Awards to eligible persons under the 1997 Plan may
include bonuses or other grants of shares that are subject to restrictions or
vesting schedules. The recipient generally will not be taxed until the
restrictions on such shares expire or are removed, at which time he or she will
recognize ordinary income, and the Company will be entitled to a deduction, in
an amount equal to the excess of the fair
17
<PAGE>
market value of the shares at that time over the purchase price. However, the
optionee may elect within thirty days of the date of receipt of the restricted
shares to recognize ordinary income as of the date of receipt, and the Company
will be entitled to a deduction, on the date of the optionee's receipt of the
restricted shares, equal to the excess of the fair market value of the shares on
that date over the purchase price.
MISCELLANEOUS AWARDS. Awards may be granted under the 1997 Plan that do not
fall clearly into the categories described above. The federal income tax
treatment of these awards will depend upon their specific terms.
WITHHOLDING. Generally, the Company will make arrangements for withholding
applicable taxes with respect to ordinary income recognized by an employee in
connection with awards made under the 1997 Plan. Special rules will apply in
cases where the recipient of an award pays the exercise or purchase price of the
award or applicable withholding tax obligations by delivering previously owned
shares or by reducing the number of shares otherwise issuable pursuant to the
award. Such delivery of shares will in certain circumstances result in the
recognition of income with respect to such shares.
BOARD RECOMMENDATION AND REQUIRED VOTE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
THE APPROVAL OF THE DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. 1997 STOCK INCENTIVE
PLAN.
The Board has unanimously approved the adoption of the 1997 Plan. The
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the Meeting is required for the approval of the
adoption of the 1997 Plan. With respect to the vote on the 1997 Plan,
abstentions will be counted toward the tabulation of votes cast and will have
the same effect as negative votes. However, broker non-votes will not be counted
as votes cast for or against approval of the 1997 Plan.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of February 14, 1997 certain information
relating to the ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
the Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's Named Executive Officers, and (iv) all of the Company's executive
officers and directors as a group. Except as may be indicated in the footnotes
to the table and subject to applicable community property laws, each of such
persons has the sole voting and investment power with respect to the shares
owned. Unless otherwise indicated, the address for each of the principal
stockholders is c/o Dental/Medical Diagnostic Systems, Inc., 200 N. Westlake
Boulevard, Suite 202, Westlake Village, California 91362.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING
- --------------------------------------------------------------------------- ----------------- ---------- ----------
<S> <C> <C> <C>
Robert H. Gurevitch(2)..................................................... 875,500 29.3% 19.5%
Marvin H. Kleinberg(2)..................................................... 5,120 -- --
Dewey Perrigo(3)........................................................... 119,464 4.0% 2.7%
Richard M. Bliss........................................................... 223,910 7.5% 5.0%
Paul D. Koether ........................................................... 244,958 8.2% 5.5%
211 Pennbrook Rd.
Fox Hill, NJ 07931
G. Tyler Runnels(4) ....................................................... 200,699 6.7% 4.5%
T.R. Winston & Co., Inc.
1999 Avenue of the Stars, Suite 1950
Los Angeles, California 90067
All Officers and Directors as a Group (5 Persons)(5)....................... 1,017,150 34.1% 22.7%
</TABLE>
- ------------------------
* Less than one percent.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. Pursuant to the rules of the Securities and Exchange
Commission, shares of Common Stock which an individual or group has a right
to acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be beneficially
owned and outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
(2) Includes 5,120 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
(3) Includes 34,133 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
(4) Includes 40,959 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
(5) Includes 61,439 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of February
14, 1997.
19
<PAGE>
PROPOSALS OF STOCKHOLDERS
A proper proposal submitted by a stockholders for presentation at the
Company's 1998 Annual Meeting and received at the Company's executive offices no
later than November , 1997, will be included in the Company's Proxy Statement
and form of Proxy relating to the 1998 Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand LLP, independent accountants, were selected by the Board
to serve as independent auditors of the Company for this fiscal year ended
December 31, 1996 and for the fiscal year ended December 31, 1997.
Representatives of Coopers & Lybrand LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they desire to
do so and will respond to appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors is not aware of any matter to be acted upon at the
Annual Meeting other than described in this Proxy Statement. Unless otherwise
directed, all shares represented by the persons named in the accompanying proxy
will be voted in favor of the proposals described in this Proxy Statement. If
any other matter properly comes before the meeting, however, the proxy holders
will vote thereon in accordance with their best judgment.
EXPENSES
The entire cost of soliciting proxies will be borne by the Company.
Solicitation may be made by mail, telephone, telegraph, and personal contact by
officers and other employees of the Company, who will not receive additional
compensation for such services. The Company will request brokerage houses,
nominees, custodians, fiduciaries and other like parties to forward soliciting
material to the beneficial owners of the Company's Common Stock held of record
by them and will reimburse such persons for their reasonable charges and
expenses in connection therewith.
ON BEHALF OF THE BOARD OF DIRECTORS
________________________________________
Robert H. Gurevitch
Chief Executive Officer
Dated: March , 1997
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ANNEX "A"
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
A DELAWARE CORPORATION
Robert H. Gurevitch and Ronald E. Wittman each certify that:
1. Robert H. Gurevitch is the duly elected and acting Chairman of the
Board, Chief Executive Officer, President, and Secretary, and Ronald E. Wittman
is the duly elected and acting Chief Financial Officer, of the corporation named
above.
2. The Certificate of Incorporation of the corporation, filed with the
Secretary of State of the State of Delaware, on February 23, 1983, and as
previously amended on July 22, 1987, and further amended and restated on January
13, 1997, shall be further amended and restated to read in full as follows:
FIRST: The name of this corporation is DENTAL/MEDICAL DIAGNOSTIC SYSTEMS,
INC. (the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 to the
Delaware Code (the "GCL").
FOURTH: (a) The total number of shares which the Corporation shall have
authority to issue is 20,000,000 shares of common stock, par value $0.01 per
share (the "Common Stock") and 1,000,000 shares of Preferred Stock, par value
$0.01 per share (the "Preferred Stock").
(b) The holders of the issued and outstanding shares of Common Stock
shall be entitled to one vote per share of Common Stock held by them on all
matters voted upon by stockholders of the Corporation, including, but not
limited to, the election of directors.
(c) The Preferred Stock may be divided into such number of series as the
Board of Directors of this Corporation may determine. The Board of Directors
of this Corporation is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to and imposed upon the
Preferred Stock or any series thereof with respect to any wholly unissued
class or series of Preferred Stock, and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of
Preferred Stock. The Board of Directors of this Corporation, within the
limits and restrictions stated in any resolution or resolutions of the Board
of Directors of this Corporation originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of any
series subsequent to the issue of that series.
FIFTH: Effective March 24, 1997, every 1.33333333 issued and outstanding
shares of Common Stock are reconstituted and converted into one (1) share of
Common Stock and every issued and outstanding option or other right to purchase
1.33333333 shares of Common Stock is reconstituted and converted into an option
or other right to purchase one (1) share of Common Stock.
SIXTH: Election of directors at an annual or special meeting of
stockholders need not be by written ballot unless the Bylaws of the Corporation
shall otherwise provide.
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SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of the Corporation.
EIGHTH: (a) The Corporation shall indemnify to the fullest extent
authorized or permitted by law (as now or hereafter in effect) any person made,
or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or enterprise, in any
capacity. Nothing contained herein shall affect any rights to indemnification to
which employees other than directors and officers may be entitled by law. No
amendment or repeal of this Section (a) of Article EIGHTH shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
(b) No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director. Notwithstanding the
foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL, or (iv) for any transaction from
which such director derived an improper personal benefit. No amendment to or
repeal of this Section (b) of Article EIGHTH shall apply to or have any
effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
(c) In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify against such liability
under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as
enter into contracts providing indemnification to the fullest extent
authorized or permitted by law and including as part thereof provisions
with respect to any or all of the foregoing to ensure the payment of such
amounts as may become necessary to effect indemnification as provided
therein, or elsewhere.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its Stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or Stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the Stockholders or class of Stockholders of this Corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on
22
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all the creditors or class of creditors, and/or on all the Stockholders or class
of Stockholders, of this Corporation, as the case may be, and also in this
Corporation.
3. The foregoing Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of the Corporation in accordance with
Section 245 of the GCL.
4. The foregoing Amended and Restated Certificate of Incorporation has been
duly approved, pursuant to resolutions of the Board of Directors of the
Corporation, and by a majority vote of the holders of the shares of Common Stock
outstanding.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation this day of March 1997.
By: __________________________________
Robert H. Gurevitch
President and Secretary
By: __________________________________
Ronald E. Wittman
Chief Financial Officer
23
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ANNEX "B"
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSES.
(a) The purpose of the 1997 Stock Incentive Plan (the "Plan") is to provide
a means by which Employees or Directors of or Consultants to DENTAL/MEDICAL
DIAGNOSTIC SYSTEMS, INC. (the "Company"), and its Affiliates, may be given an
opportunity to benefit from increases in value of the Common Stock of the
Company through the granting of Stock Awards.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company, to
secure and retain the services of new Employees, Directors and Consultants, and
to provide incentives for such persons to exert maximum efforts for the success
of the Company.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to Section 3(c), be
either (1) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (2) Stock Bonuses or Rights to
Purchase Restricted Stock granted pursuant to Section 7 hereof, or (3) Stock
Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant and a separate certificate or certificates will be issued for
shares purchased upon exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "CCSL" means the California Corporate Securities Law of 1968, as
amended.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in accordance with
Section 3(c) of the Plan.
(f) "Common Stock" means the common stock, par value $.01 per share, of the
Company.
(g) "Company" means DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., a Delaware
corporation.
(h) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
(i) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render bona fide consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(j) "Continuous Status as an Employee, Director or Consultant" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
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DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
2. DEFINITIONS. (CONTINUED)
shall be considered interrupted in the case of: (1) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; PROVIDED, HOWEVER, that for purposes of Incentive Stock Options
and Stock Appreciation Rights appurtenant thereto, any such leave may not exceed
ninety days, unless reemployment upon the expiration of such leave is guaranteed
by contract (including certain Company policies) or statute; (2) transfers
between locations of the Company or between the Company, Affiliates or its
successor; or (3) a change in the status of the relationship from Employee to
Director or Consultant, from Director to Employee or Consultant, or from
Consultant to Employee or Director.
(k) "Director" means a member of the Board.
(l) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on the
Nasdaq National Market) or is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a share
of Common Stock shall be the mean between the bid and asked prices for the
Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source
as the Board deems reliable;
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(p) "Incentive Stock Option" means an Option intended by the Board at the
time of grant to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated thereunder.
(q) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted under subsection 8(b)(iii) of the Plan.
(r) "Non-Employee Director" means a director (1) who is not currently an
officer of the Company or any of its Affiliates or otherwise currently employed
by the Company or any of its Affiliates; (2) does not receive compensation,
either directly or indirectly from the Company or any of its Affiliates for
services rendered as a consultant or in any capacity other than as a director,
except for an amount that does not exceed the dollar amount for which disclosure
would be required pursuant to Item 404(a) of Regulation S-K; (3) does not
possess an interest in any other transaction for which disclosure would be
required
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DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
2. DEFINITIONS. (CONTINUED)
pursuant to Item 404(a) of Regulation S-K; or (4) is not engaged in a business
relationship for which disclosure would be required pursuant to Item 404(b) of
Regulation S-K.
(s) "Nonstatutory Stock Option" means an Option not intended by the Board at
the time of grant to qualify as an Incentive Stock Option.
(t) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(w) "Plan" means this 1997 Stock Incentive Plan.
(x) "Rule 16b-3" means Rule 16b-3 under the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(y) "Regulation S-K" means Regulation S-K of the Securities and Exchange
Commission.
(z) "Right to Purchase Restricted Stock" means an award of an entitlement to
purchase shares of Common Stock under the Plan which are subject to certain
voting limitations and restrictions at a price which is lower than the fair
market value of the Common Stock on the date of grant.
(aa) "Securities Act" means the Securities Act of 1933.
(bb) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(cc) "Stock Award" means any right granted under the Plan, including any
Option, any Stock Bonus, any Right to Purchase Restricted Stock and any Stock
Appreciation Right.
(dd) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(ee) "Stock Bonus" means a grant of Common Stock under the Plan which does
not involve the payment of a purchase price to the Company by the recipient
thereof.
(ff) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted under subsection 8(b)(i) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in Section 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a Stock Bonus, a Right to Purchase Restricted
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<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
3. ADMINISTRATION. (CONTINUED)
Stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical),
including, without limitation, the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; whether a person shall
be permitted to receive stock upon exercise of an Independent Stock
Appreciation Right; and the number of shares with respect to which Stock
Awards shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement and, subject to Section 14 hereof, otherwise amend the Plan in a
manner and to the extent it shall deem necessary.
(iii) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company and which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two members (the "Committee"), and at least two of
the members of the Committee shall be Non-Employee Directors. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in the Common Stock, the number of shares of Common Stock that may be
issued pursuant to Stock Awards under the Plan shall not exceed in the aggregate
350,000 shares. If any Stock Award or option granted under the terms of the Plan
shall for any reason expire or otherwise terminate without having been exercised
in full, the Common Stock not purchased shall again become available for
issuance under the Plan. Shares subject to Stock Appreciation Rights exercised
in accordance with Section 8 of the Plan and Shares withheld by the Company to
satisfy a federal, state and/or local tax withholding obligation of a
participant relating to the exercise of a Stock Award shall not be available for
subsequent issuance under the Plan.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date of its grant.
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6. OPTION PROVISIONS.
Each Option shall be approved by the Board and be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The
provisions of separate options need not be identical, but each Option shall
include (through incorporation of provisions hereof by reference in the Option
or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten years
from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock option shall be not
less than one hundred percent (100%) of the Fair Market Value of the Common
Stock subject to the Option on the date the Option is granted. The exercise
price of each Nonstatutory Stock Option shall be not less than one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, the
exercise price of an Option for which an exemption from the qualification
requirements of the CCSL is unavailable, and which is granted to a person who
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any of its Affiliates, shall
be at least one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant.
(c) CONSIDERATION. The exercise price of Common Stock acquired pursuant to
the exercise of an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (1) in cash at the time the Option is
exercised, or (2) at the discretion of the Board, either at the time of the
grant or exercise of the Option, (A) by delivery to the Company of other shares
of Common Stock, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
shares of Common Stock) with the person to whom the Option is granted or to whom
the Option is transferred pursuant to Section 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be payable at the minimum rate of interest necessary
to avoid the imputation of interest, under the applicable provisions of the Code
and Treasury Regulations.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person, or in the case of such person's disability by
such person's legal representative or guardian. A Nonstatutory Stock Option
shall not be transferable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order satisfying the
requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder (a "QDRO"), and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a QDRO.
(e) VESTING. The total number of shares of Common Stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option may provide that from time to time during each
of such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary; however, in the case of an Option for which an
exemption from the qualification requirements of the CCSL is unavailable, the
vesting provisions must provide for vesting of at least twenty percent (20%) per
year of the total number of shares subject to the Option from the date the
Option was granted; PROVIDED, HOWEVER, that Options granted to Officers,
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6. OPTION PROVISIONS. (CONTINUED)
Directors or Consultants of the Company may vest at a rate of less than twenty
percent (20%) per year. During the remainder of the term of the Option (if its
term extends beyond the end of the installment periods), the option may be
exercised from time to time with respect to any shares then remaining subject to
the Option. The provisions of this Section 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or any
person to whom an Option is transferred pursuant to Section 6(d), as a condition
of exercising any such Option, (1) to give written assurances satisfactory to
the Company as to the Optionee's knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters, and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the option; and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the Common Stock subject to the Option for
such person's own account and not with any present intention of selling or
otherwise distributing the Common Stock. These requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (x) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act, or (y) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability) (a "Termination"), the Optionee may exercise his or her Option (to
the extent that the Optionee is entitled to exercise it at the date of
Termination), but only within such period of time as is determined by the Board,
which period shall not be longer than ninety days from the date of Termination
for an Incentive Stock Option nor less than thirty days from the date of
Termination for an Option for which an exemption from the qualification
requirements of the CCSL is unavailable; PROVIDED, HOWEVER, that if an Optionee
is terminated for cause, as defined by the Board, the Option may provide for an
exercise period shorter than thirty days, or may provide for expiration
concurrent with such Termination. In no event shall an Option be exercised later
than the expiration of the term of such Option as set forth in the Option. If,
at the date of Termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after Termination, the Optionee does not exercise
his or her Option within the time specified in the Option, the Option shall
terminate, and the shares covered by such Option, to the extent unexercised,
shall revert to the Plan.
(h) DISABILITY OF OPTIONEE. If an Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within six
months from the date of such Termination (or such longer period, not exceeding
twelve months for Incentive Stock Options, as specified in the Option), and only
to the extent that the Optionee was entitled to exercise the Option at the date
of such Termination (but in no event later than the expiration of the term of
such Option as set forth in the Option). If, at the date of Termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after Termination, the Optionee does not exercise his or her Option within the
time specified therein, the Option shall terminate, and the shares covered by
such Option, to the extent unexercised, shall revert to the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee, the Option
may be exercised at any time within six months following the date of death (or
such longer period not exceeding twelve months, for Incentive Stock Options, as
specified in the Option), but in no event later than the expiration of the term
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6. OPTION PROVISIONS. (CONTINUED)
of such Option as set forth in the Option, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the shares covered by such Option, to the extent
unexercised, shall revert to the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a right to repurchase in favor of the Company upon
Termination of the Optionee, at a repurchase price equal to the exercise price
of the Option, payable in cash or cancellation of purchase money indebtedness
for the shares; PROVIDED, HOWEVER, that for any Option for which an exemption
from the qualification requirements of the CCSL is unavailable, the Company's
right to repurchase at the exercise price of the Option shall lapse at a minimum
rate of twenty percent (20%) per year over five years from the date the Option
was granted and such right shall terminate to the extent not exercised within
ninety days following Termination of the Optionee.
(k) WITHHOLDING. To the extent provided by the terms of an Option, the
Optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such Option by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of Common Stock.
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option a provision
entitling the Optionee to a further Option (a "Re-Load Option") in the event the
Optionee exercises the Option, in whole or in part, by surrendering other shares
of Common Stock in accordance with this Plan and the terms and conditions of the
Option. Any such Re-Load Option (1) shall be for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (2) shall have an expiration date which is the same as the expiration
date of the Option the exercise of which gave rise to such Re-Load Option; and
(3) in the case of a Re-Load Option which is an Incentive Stock Option or an
Option for which an exemption from the qualification requirements of the CCSL is
unavailable, and which is granted to a 10% shareholder (as described in Section
5(c)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the Common Stock subject to the Re-Load
Option on the date of exercise of the original Option and, with respect to
Incentive Stock Options, shall have a term which is no longer than five years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonqualified
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on exercisability of Incentive Stock Options
described in Section 12(d) of the Plan and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under Section 4(a) and shall
be subject to such other terms and conditions as the Board may determine which
are not inconsistent with the express provisions of the Plan regarding the terms
of the Options.
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7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be approved by
the Board and be in such form and shall contain such terms and conditions as the
Board shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions, as appropriate:
(a) PURCHASE PRICE. The purchase price under each stock purchase agreement
shall be such amount as the Board shall determine and designate in such
agreement. Additionally, the Board may determine that eligible participants in
the Plan may be awarded stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit. Notwithstanding the foregoing, the purchase price of shares of Common
Stock for which an exemption from the qualification requirements of the CCSL is
unavailable shall be not less than one-hundred percent (100%) of the Fair Market
Value of the Common Stock at the date of the grant or the sale; provided, if
such shares of Common Stock are granted or sold to a person who owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates, the purchase price
shall be at least one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or sale.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be assignable by any participant under the Plan, either
voluntarily or by operation of law, except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the person to whom
the rights are granted only by such person. The person to whom such rights are
granted may, be delivering written notice to the Company, in a form satisfactory
to the Company, designate a third party who, in the event of the death of such
person, shall thereafter be entitled to exercise the rights held by such person
under the stock bonus or restricted stock purchase agreement.
(c) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
a stock purchase agreement shall be paid either: (1) in cash at the time of
purchase; (2) at the discretion of the Board, according to a deferred payment or
other arrangement with the person to whom the Common Stock is sold; or (3) in
any other form of legal consideration that may be acceptable to the Board in its
discretion. Notwithstanding the foregoing, the Board may award stock pursuant to
a stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.
(d) VESTING. Shares of Common Stock sold or awarded under the Plan may, but
need not, be subject a right to repurchase in favor of the Company upon
Termination of the person to whom such shares have been sold or awarded at a
repurchase price equal to the original purchase price (or such higher price as
the Board may determine to be appropriate) payable in cash or cancellation of
purchase money indebtedness. The Board shall provided that such rights to
repurchase lapse with respect to such purchased shares (or that such purchased
shares vest) pursuant to a schedule determined by the Board; PROVIDED, HOWEVER,
that for any stock bonus or restricted stock purchase right for which an
exemption from the qualification requirements of the CCSL is unavailable, the
Company's right to repurchase at the original purchase price shall lapse (or the
purchased shares shall vest) at a minimum rate of twenty percent (20%) per year
over five years from the date the stock bonus or restricted stock purchase right
was granted and such right shall terminate to the extent not exercised within
ninety days following Termination of the purchaser.
8. STOCK APPRECIATION RIGHTS.
(a) The Board shall have full power and authority, exercisable in its sole
discretion, to grant Stock Appreciation Rights to Employees or Directors of, or
Consultants to, the Company or its Affiliates under
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<PAGE>
8. STOCK APPRECIATION RIGHTS. (CONTINUED)
the Plan. Each such right shall entitle the holder to a distribution based on
the appreciation in the Fair Market Value per share of a designated amount of
Common Stock.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan, Tandem Rights, Concurrent Rights and Independent
Rights, and the terms and conditions applicable to each shall be as follows:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Rights will be granted
appurtenant to an Option and will require the holder to elect between the
exercise of such Option for shares of Common Stock and the surrender, in
whole or in part, of such Option for an appreciation distribution payable in
cash in an amount equal to (A) the aggregate Fair Market Value (on the date
of Option surrender) of the number of vested shares of Common Stock under
the Option (or portion thereof) being surrendered on such date, less (B) the
aggregate exercise price of such vested shares of Common Stock. Tandem
Rights may be tied to either Incentive Stock Options or Nonstatutory Stock
Options. Each such right shall, except as specifically set forth below, be
subject to the same terms and conditions applicable to the particular Option
to which it pertains.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of Common Stock subject to such Option and will be automatically
exercised at the same time such Option is exercised with respect to the
particular shares of Common Stock to which the Concurrent Right pertains.
The appreciation distribution, payable in cash, to which the holder of such
Concurrent Rights shall be entitled upon exercise of the related Option
shall be an amount equal to (A) the aggregate Fair Market Value (on the date
of Option exercise) of the number of vested shares of Common Stock under the
Option (or portion thereof) being exercised on such date and with respect to
which such Concurrent Rights apply, less (B) the aggregate exercise price
paid for such vested shares of Common Stock. Concurrent Rights may be tied
to any or all of the shares of Common Stock under any Incentive Stock Option
or Nonstatutory Stock Option. A Concurrent Right shall, except as
specifically set forth below, be subject to the same terms and conditions
applicable to the particular Option grant to which it pertains.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights shall
be granted independently of any Option and will entitle the holder upon
exercise thereof to an appreciation distribution payable in cash in an
amount equal to (A) the aggregate Fair Market Value (on the date of the
exercise of the Independent Right) of a number of shares of Common Stock
equal to the number of vested share equivalents with respect to which the
holder is exercising the Independent Right on such date, less (B) the
aggregate Fair Market Value (on the date of the grant of the Independent
Right) of such number of shares of Common Stock. Independent Rights shall,
except as specifically set forth below, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section
6. They shall be denominated in share equivalents.
(iv) TERMS APPLICABLE TO STOCK APPRECIATION RIGHTS GENERALLY.
(A) To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with
the provisions of the instrument evidencing such right.
(B) If a Stock Appreciation Right is granted to an individual who is
at the time subject to Section 16(b) of the Exchange Act, the instrument
of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall
qualify for the safe-harbor exemption from short-swing profit liability
provided by Rule 16b-3 promulgated under the Exchange Act (or any
successor role or regulation).
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<PAGE>
8. STOCK APPRECIATION RIGHTS. (CONTINUED)
(C) No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the
exercise of Stock Appreciation Rights.
9. CANCELLATION AND REGRANT OF OPTIONS.
The Board shall have the authority to effect, at any time and from time to
time, with the consent of the affected holders of Options and/or Stock
Appreciation Rights, (a) the repricing of any outstanding Options and/or any
Stock Appreciation Rights under the Plan and/or (b) the cancellation of any
outstanding Options and/or any Stock Appreciation Rights under the Plan and the
grant in substitution therefor of new Options and/or Stock Appreciation Rights
under the Plan covering the same or different numbers of shares of Common Stock,
but having an exercise price per share not less than one-hundred percent (100%)
of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in
the case of an Incentive Stock Option or, in the case of an Incentive Stock
Option granted to a 10% shareholder as described in Section 5(c), not less than
one hundred ten percent (110%) of the Fair Market Value) per share of Common
Stock on the new grant date. Notwithstanding the forgoing, the Board may grant
an Option and/or Stock Appreciation Right with an exercise price lower than that
set forth above if such Option and/or Stock Appreciation Right is granted as
part of a transaction to which Section 424(a) of the Code applies.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of Common Stock required to satisfy such Stock
Awards up to the number of shares of Common Stock authorized under the Plan.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
effect any Stock Award, and to issue and sell shares of Common Stock under the
Stock Awards; PROVIDED, HOWEVER, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell stock under
such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under Section 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
33
<PAGE>
12. MISCELLANEOUS. (CONTINUED)
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee,
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee, with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company shall deliver to the holders of Stock Awards, not later than
one hundred twenty days after the close of each of the Company's fiscal years, a
balance sheet and an income statement. This Section shall not apply when the
issuance of Stock Awards is limited to key employees whose duties in connection
with the Company assure them access to equivalent information.
13. ADJUSTMENTS UPON CHANGES IN THE COMMON STOCK.
(a) Subject to the provisions of Section 13(b), if any change is made in the
Common Stock subject to the Plan, or subject to any Stock Award, without receipt
of consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company) the Plan will be appropriately adjusted
in the class(es) and maximum number of shares subject to the Plan pursuant to
Section 4(a) and the maximum number of shares subject to Options and Stock
Appreciation Rights pursuant to Section 5(d), and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a "transaction of not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of substantially
all of the assets of the Company; (2) a merger or consolidation in which the
Company is not the surviving corporation; or (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then, at the sole discretion of the Board and to the extent permitted
by applicable law, such Stock Awards shall (i) terminate upon such event and may
be exercised prior thereto to the extent such Stock Awards are then exercisable
or (ii) continue in full force and effect and, if applicable, the surviving
corporation or an Affiliate of such surviving corporation shall assume any Stock
Awards outstanding under the Plan and/or shall substitute similar Stock Awards
for those outstanding under the Plan.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in the Common Stock, no amendment shall be effective unless approved by the
shareholders of the Company within twelve months before or after the adoption of
the amendment, where the amendment will:
34
<PAGE>
14. AMENDMENT OF THE PLAN AND STOCK AWARDS. (CONTINUED)
(i) Increase the number of shares of Common Stock reserved for Stock
Awards under the Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan to the extent such modification requires shareholder approval in
order for the Plan to satisfy the requirements of Section 422 of the
Code; or
(iii) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.
Rights and obligations under any Stock Award granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan
unless (1) the Company requests the consent of the person to whom the
Stock Award was granted and (2) such person consents thereto in writing.
(b) The Board at any time, and from time to time, may amend the terms of any
one or more Stock Award; PROVIDED, HOWEVER, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (1) the
Company requests the consent of the person to whom the Stock Award was granted
and (2) such person consents thereto in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on February 1, 2007. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the written consent of the person to whom the Stock Award was
granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercisable unless and until the Plan has
been approved by the shareholders of the Company (and such approval by the
shareholders must be obtained within twelve months of the Plan being adopted by
the Board), and, for Stock Awards for which an exemption from the qualification
requirements of the CCSL is unavailable, an appropriate permit has been issued
by the Commissioner of Corporations of the State of California.
35
<PAGE>
/X/ Please mark your
votes as in this
example.
WITHHOLD AUTHORITY TO
VOTE FOR THE NOMINEES
WITH LISTED BELOW
1.Election of / / / /
Directors
Robert H. Gurevitch, Marvin H. Kleinberge, Jack D. Preston
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR A NOMINEE, LINE THROUGH, OR
OTHERWISE STRIKE OUT THE NAME BELOW.)
2.APPROVAL OF A ONE-FOR-1.33333333 REVERSE STOCK SPLIT, as provided in the
DMD Proxy Statement:
FOR AGAINST ABSTAIN
/ / / / / /
3.APPROVAL OF THE DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. 1997 STOCK
INCENTIVE PLAN, as provided in the DMD Proxy Statement:
FOR AGAINST ABSTAIN
/ / / / / /
IMPORTANT: Please sign name exactly as it appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or authorizing
officer. If a partnership, please sign in partnership name by authorized
person.
SIGNATURE(S)_________________________________________ DATE__________________
Note: Please sign, date and return promptly in the enclosed envelope which
requires no postage if mailed in the United States.
<PAGE>
PROXY THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PROXY
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS, MARCH 24, 1997
The undersigned hereby appoints Robert H. Gurevitch as proxy with the
power to appoint his substitute and hereby authorizes him to represent and to
vote, as designated below, all shares of common stock of Dental/Medical
Diagnostic Systems, Inc. ("DMD") held on record by the undersigned on
February 5, 1997 at the Annual Meeting of Shareholders to be held on
March 24, 1997 or any adjournment thereof.
The undersigned hereby revokes any other proxy to vote at such Meeting,
and hereby ratifies and confirms all that said proxy may lawfully do by
virtue hereof. With respect to such other business that may properly come
before the meeting and any adjournments thereof, said proxy is authorized to
vote in accordance with its best judgement.
This Proxy will be voted in accordance with the instructions as set
forth above. THIS PROXY WILL BE CREATED AS A GRANT OF AUTHORITY TO VOTE FOR
THE ELECTION OF THE DIRECTORS NAMED ABOVE, FOR THE APPROVAL OF A
ONE-FOR-1.33333333 REVERSE STOCK SPLIT, FOR THE APPROVAL OF THE
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. 1997 STOCK INCENTIVE PLAN AND AS SAID
PROXY SHALL DEEM ADVISABLE ON SUCH OTHER BUSINESS AS MAY COME BEFORE THE
MEETING, UNLESS OTHERWISE DIRECTED.
(Continued and to be signed on other side)
(Please do not fold this card)
