<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transactions 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:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 2
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
200 NORTH WESTLAKE BOULEVARD
SUITE 202
WESTLAKE VILLAGE, CA 91362
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
------------------------
To our 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 Hyatt Westlake Plaza Hotel, 880 South Westlake
Boulevard, Westlake Village, California, on June 10, 1999, 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. The persons nominated by
the Board of Directors of the Company, Messrs. Gurevitch and Kleinberg and
Drs. Preston and Khademi, are described in the accompanying Proxy
Statement.
2. To approve an amendment of the Company's 1997 Stock Incentive Plan
(the "Plan") to increase the maximum number of shares of Common Stock that
may be issued pursuant to awards granted under the Plan from 700,000 shares
to 1,200,000 shares.
3. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
Only stockholders of record of the Common Stock of the Company at the close
of business on April 20, 1999 (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 Annual 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 of record attending
the meeting may vote in person, even though he or she has returned a Proxy. Any
stockholder whose shares are held in the name of a bank, broker or other holder
of record must obtain a proxy, executed in the stockholder's favor, from the
holder of record to be able to vote in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT H. GUREVITCH
Robert H. Gurevitch
Chairman of the Board of Directors
Westlake Village, CA 91362
May 3, 1999
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> 3
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
200 NORTH WESTLAKE BOULEVARD, SUITE 202
WESTLAKE VILLAGE, CA 913621-805-381-2700
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
INTRODUCTION
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 Hyatt Westlake Plaza Hotel, 880 South Westlake
Boulevard, Westlake Village, California, on June 10, 1999, 10:00 a.m. Los
Angeles time 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 whose shares are held in the name of a bank,
broker or other holder of record must obtain a proxy, executed in the
stockholder's favor, from the holder of record to be able to vote in person at
the Annual Meeting. A stockholder of record 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 April 20, 1999 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 April 15, 1999,
5,435,694 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 April 15, 1999, the Company had
approximately 50 stockholders of record, and is informed and believes that there
are approximately 994 beneficial holders of the Company's Common Stock.
It is anticipated that this Proxy Statement and the accompanying Proxy will
be mailed to Stockholders on or about May 3, 1999.
VOTING PROCEDURES
A stockholder is entitled to cast one vote for each share held of record on
the record date on all matters to be considered at the Annual Meeting. A
majority of the outstanding shares of Common Stock must be represented in person
or by proxy at the Annual Meeting in order to constitute a quorum for the
transaction of business. The four nominees for election as directors at the
Annual Meeting who receive the highest number of affirmative votes will be
elected. The amendment of the 1997 Stock Incentive Plan to increase the maximum
number of shares of Common Stock that may be issued pursuant to awards granted
under the 1997 Stock Incentive Plan will require the affirmative vote of a
majority of the votes entitled to be cast by holders of outstanding shares of
Common Stock that are present or represented by proxy at the Annual Meeting.
Abstentions and shares held by brokers that are prohibited from exercising
discretionary authority will be included in the number of shares present at the
Annual Meeting for the purpose of determining the presence of a quorum.
Abstentions will be counted toward the tabulation of votes cast on proposals
submitted to stockholders and will have the same effect as negative votes, while
broker non-votes will not be counted as votes cast for or against such matters.
<PAGE> 4
PROPOSAL ONE
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 will consist of four Directors, but may be increased
or decreased from time to time by resolution of the then authorized number of
Directors. The Board of Directors currently consists of four Directors.
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
postponements or adjournments thereof, the proxies will be voted for such
nominee as will 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
John A. Khademi
If elected, each nominee is expected to serve until the 2000 Annual Meeting
of the Stockholders. The affirmative votes 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.
2
<PAGE> 5
INFORMATION WITH RESPECT TO NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
nominees, Directors and executive officers of the Company as of March 31, 1999.
NOMINEES, EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
AGE AT OR
MARCH 31, APPOINTED
NAME 1999 DIRECTOR PRINCIPAL OCCUPATION
---- --------- --------- --------------------
<S> <C> <C> <C>
DIRECTORS AND NOMINEES
Robert H. Gurevitch..... 58 1996 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.
Marvin H. Kleinberg..... 71 1996 MR. KLEINBERG has been a Director of the Company
since March 1996. Mr. Kleinberg is a founding
partner of the law firm Kleinberg & Lerner, 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
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."
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
AGE AT OR
MARCH 31, APPOINTED
NAME 1999 DIRECTOR PRINCIPAL OCCUPATION
---- --------- --------- --------------------
<S> <C> <C> <C>
Jack D. Preston......... 65 1997 DR. PRESTON has been a Director of the Company
since February 1997. From February 1997 through
December 1998, he served as a consultant to the
Company. Since January 1999, he has served as the
Executive Vice President of Product Development for
the Company. Dr. Preston 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 was also
the Chairman of the Department of Oral and
Maxillofacial Imaging and the director of
Informatics. Dr. Preston resigned his position with
USC in December 1998 and was subsequently named
professor Emeritus. Dr. Preston is also currently a
Diplomat of the American Board 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.
John A. Khademi......... 36 1999 DR. KHADEMI has been a Director of the Company
since March 1999. Dr. Khademi has served as a
consultant to the Company since October 1998. Dr.
Khademi has been in full time private practice of
endodontics since 1994. Dr. Khademi is also an
Associate Clinical Professor in the Department of
Maxillofacial Imaging at the University of Southern
California. Dr. Khademi lectures internationally
about computer use and dental practices and the
latest in conventional endodontic techniques.
OTHER EXECUTIVE OFFICERS
Stephen F. Ross......... 40 MR. ROSS has been the Chief Financial Officer of
the Company since July 1998. From September 1995
until July 1998, Mr. Ross served as a Senior
Consultant for Kibel Green Inc., a company that
specializes in turnaround consulting. From April
1997 to April 1998, Mr. Ross served as a consultant
to Tag-It Pacific, Inc., a company that provides
brand identity tags to manufacturers of fashion
apparel and accessories. From 1992 through 1994,
Mr. Ross was the Chief Financial Manager for the
Taper Family Trust. Mr. Ross was a Senior Tax
Manager at Touche Ross from 1982 through 1987. He
became a Chartered Accountant in South Africa in
1982, and a Certified Public Accountant in
California in 1983.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
AGE AT OR
MARCH 31, APPOINTED
NAME 1999 DIRECTOR PRINCIPAL OCCUPATION
---- --------- --------- --------------------
<S> <C> <C> <C>
Dewey Perrigo........... 45 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, LLC. From 1988 through September 1995, Mr.
Perrigo served as the Director of Sales of New
Image.
Merle Roberts........... 49 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.
</TABLE>
The Directors hold office until the Annual Meeting of Stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected by the Board of Directors and serve at the
discretion of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee currently consists of Messrs. Gurevitch and Kleinberg and
Dr. Khademi. 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 recommends to
the Board of Directors the appointment of the Company's independent accountants.
No meetings of the Audit Committee were held during the year ended December 31,
1998.
The Compensation Committee currently consists of Messrs. Gurevitch and
Kleinberg and Dr. Preston. The Compensation Committee reviews compensation and
benefits paid to the Company's executive officers and the general policy matters
relating to compensation and benefits of all of the Company's employees. No
meetings of the Compensation Committee were held during the year ended December
31, 1998.
The Board of Directors held five meetings during fiscal 1998 and acted two
additional times by unanimous written consent. No Director attended less than
75% of all the meetings of the Board of Directors and those committees on which
he served in fiscal 1998.
DIRECTOR COMPENSATION
Effective April 1997, the Company agreed to compensate each of its
Directors who are not Officers of, or otherwise employed by, the Company
("Independent Directors") in the form of a $500 fee for their personal
attendance at formal meetings of the Board of Directors. No compensation is paid
for telephonic meetings. A total of $2,000 was paid to the Directors, as a
group, for Board meeting attendance in 1998. During 1998, Dr. Preston acted as a
consultant to the Company from time to time at the request of the Board, and was
paid $48,000 in consulting fees during the year. Effective January 1999, Dr.
Preston accepted a full-time position with the Company as Executive Vice
President of Product Development. Also during 1998, Dr. Khademi was
5
<PAGE> 8
paid $2,000 in consulting fees. In addition, the Company pays all expenses
incurred 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
grants options to each of its Directors, as compensation for serving as
Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the last three fiscal years to Robert H. Gurevitch, the
principal executive officer of the Company, to each of the Company's most highly
compensated executive officers whose salary and bonus exceeded $100,000 during
such year, and to other significant employees.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------- -------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
BONUS COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($) (2) AWARD(S) (#) ($) ($)
--------------------------- ---- --------- ----- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Gurevitch(1)............. 1998 $286,000 -- -- -- 40,000 -- --
Chairman of the Board of
Directors, 1997 250,885 -- -- -- 50,000 -- --
Chief Executive Officer,
President 1996 153,300 -- -- -- 5,120 -- --
and Secretary
Dewey Perrigo(1)................... 1998 $156,000 -- -- -- 20,000 -- --
Vice President of Sales 1997 137,308 -- -- -- 25,000 -- --
1996 103,800 -- -- -- 34,133 -- --
Stephen F. Ross (3)................ 1998 $ 51,823 -- -- -- 35,000 -- --
Chief Financial Officer
Merle Roberts...................... 1998 $ 86,539 -- -- -- 20,000 -- --
Vice President of Manufacturing 1997 89,308 -- -- -- 25,000 -- --
1996 68,962 -- -- -- 17,066 -- --
</TABLE>
- ---------------
(1) For a description of employment agreements between these executive officers
and the Company, see "Employment Agreements with Executive Officers" below
this table.
(2) 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 1998, did
not exceed the lesser of $50,000 or 10% of the compensation set forth above
as to any named individual.
(3) Mr. Ross was appointed to the position of Chief Financial Officer effective
July 28, 1998.
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
agreement provides for compensation including salary at a minimum annual base
compensation rate of $180,000 prior to March 1, 1997 and $275,000 thereafter,
and a car allowance and a standard benefits package. Pursuant to the terms of
his 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 the 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 Vice President 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
$150,000 thereafter, and a car allowance and a standard benefits package.
6
<PAGE> 9
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended December 31, 1998 to the
executive officers named in the Summary Compensation Table ("Named Executive
Officers"). The Company did not grant any stock appreciation rights in 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE OR MARKET PRICE
OPTIONS FISCAL YEAR ENDED BASE ON DATE EXPIRATION
NAME GRANTED DECEMBER 31, 1998 PRICE($/SH) OF GRANT DATE
---- ---------- ----------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Robert H. Gurevitch...... 40,000 12.39% $4.00 * 10/08/2008
Dewey Perrigo............ 20,000 6.19% $4.00 * 10/08/2008
Stephen F. Ross.......... 35,000 10.84% $4.25 * 08/04/2008
Merle Roberts............ 20,000 6.19% $4.00 * 10/08/2008
</TABLE>
- ---------------
* All options were granted at fair market value on the date of grant in
accordance with the Company's 1997 Stock Incentive Plan. Fair market value is
the average of the bid and asked price for the Common Stock on the trading day
prior to grant on the Nasdaq SmallCap Market
The following table sets forth, for those Named Executive Officers who held
stock options at fiscal year end, certain information regarding the number of
shares of Common Stock underlying stock options held at fiscal year end, and the
value of options held at fiscal year end based upon the closing market price of
the Common Stock at December 31, 1998 ($6.38 per share) on the Nasdaq SmallCap
Market. No stock options were exercised by any Named Executive Officer during
fiscal 1998.
AGGREGATED FISCAL YEAR END OPTION EXERCISES
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#)(1) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert H.
Gurevitch.......... -- -- 15,120 80,000 $35,514 $124,500
Dewey Perrigo........ -- -- 39,133 40,000 123,845 72,500
Stephen F. Ross...... -- -- -- 35,000 -- 74,375
Merle Roberts........ -- -- 22,066 40,000 65,047 72,500
</TABLE>
- ---------------
(1) No options were exercised in fiscal year 1998.
1997 STOCK INCENTIVE PLAN
The Company adopted the DENTAL/MEDICAL DIAGNOSTICS SYSTEMS, INC. 1997 Stock
Incentive Plan on February 11, 1997 (the "1997 Plan"). The 1997 Plan was
approved by the shareholders at the Annual Meeting held on March 24, 1997, and
the shareholders approved an increase of the shares issuable under the 1997 Plan
at the Annual Meeting held on July 21, 1998. The 1997 Plan provides for the
grant of stock awards to our directors, employees, officers and consultants.
Subject to adjustment for stock splits, stock dividends and other similar
events, 700,000 shares of the Common Stock have been reserved for awards under
the 1997 Plan and options to purchase 645,900 shares of Common Stock have been
granted. The maximum number of shares of Common Stock with respect to which
awards may be granted under the 1997 Plan is 700,000 shares.
The Plan is administered by the Board of Directors or another committee of
two or more non-employee directors appointed by the Board of Directors, each of
whom shall be an "outside director" for purposes of 162(m) of the Internal
Revenue Code of 1986, as amended. The committee has the authority, subject to,
and within the limitation of, the express provisions of the 1997 Plan to select
the persons to whom awards will be granted, and to determine the terms and
conditions of the awards.
7
<PAGE> 10
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 10% 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 with the SEC. 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, 1998, all relevant
Section 16(a) filing requirements were complied with, provided that: (1) with
respect to Jack Preston, a director of the Company, no Form 4 was filed with
respect to 1,000 shares of Common Stock purchased on August 20, 1998 at $4.50
per share; and (2) with respect to Merle Roberts, Vice President of
Manufacturing of the Company, no Form 4 was filed to report the acquisition of
1,300 shares of Common Stock purchased on July 27, 1998 at $4.13 per share and
10,000 of the Company's Redeemable Common Stock Purchase Warrants on July 6,
1998 at $1.75 per Warrant and 10,000 of the Company's Redeemable Common Stock
Purchase Warrants on July 27, 1998 at $1.63 per Warrant. All of the above shares
of Common Stock and Redeemable Common Stock Purchase Warrants were purchased by
Dr. Preston and Mr. Roberts in open market transactions. The appropriate Forms 5
disclosing the aforementioned transactions involving Dr. Preston and Mr. Roberts
were filed on February 16, 1999. Forms 5 for the following transactions were
filed untimely on April 23, 1999: (i) with respect to Robert Gurevitch, Chief
Executive Officer of the Company, the grant of options on October 9, 1998 to
purchase 40,000 shares of Common Stock at an exercise price of $4.00 per share;
(2) with respect to Merle Roberts, Vice President of Manufacturing of the
Company, the grant of options on October 9, 1998 to purchase 20,000 shares of
Common Stock at an exercise price of $4.00 per share; and (3) with respect to
Dewey Perrigo, Vice President of Sales of the Company, the grant of options on
October 9, 1998 to purchase 20,000 shares of Common Stock at an exercise price
of $4.00 per share. The Company has received no other information with respect
to any required filings by its executive officers, Directors, and/or any
greater-than-ten-percent stockholders of any class of its securities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 27, 1997, the Company loaned approximately $126,000 to Dewey
Perrigo, an officer of the Company, and Andrea Niemiec-Perrigo, an employee of
the Company, for the purposes of buying a home. The Promissory Notes evidencing
such loan bear interest at prime plus .25% (8.0%) at December 31, 1998 and are
due and payable on May 27, 1999. On August 19, 1998, a principal payment of
$56,000 and an interest payment of $6,152 were made leaving a loan balance of
$70,000.
On March 2, 1998, the Board of Directors of the Company entered into an
agreement (the "Debt Placement Agreement") with accredited investors and
institutional purchasers for the private placement (the "Debt Placement") of its
12% Senior Subordinated Notes due 1999 (the "Notes") and 450,000 warrants (the
"Warrants"). The Debt Placement was consummated on March 19, 1998. J. Steven
Emerson purchased $1,000,000 aggregate principal amount of the Company's Notes
and 100,000 Common Stock purchase Warrants in the Debt Placement. Prior to the
Debt Placement, J. Steven Emerson was the beneficial owner (determined in
accordance with Rule 13d-3 of the Exchange Act) of approximately 4.94% of the
Company's Common Stock. After giving effect to the Debt Placement, J. Steven
Emerson will be the beneficial owner, (as determined in accordance with Rule
13d-3 of the Exchange Act) of approximately 6.7% of the Company's Common Stock.
The Company has adopted a policy whereby all 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 will 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.
8
<PAGE> 11
PROPOSAL TWO
PROPOSAL TO AMEND THE 1997 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors has approved an amendment (the "Amendment") to the
1997 Stock Incentive Plan to increase the number of shares of Common Stock
available for issuance under the 1997 Plan from 700,000 shares to 1,200,000
shares. The Amendment is being submitted to the Shareholders for approval.
The Board of Directors approved the Amendment to ensure that a sufficient
number of shares are available for issuance under the 1997 Plan. At March 25,
1999, options to purchase 645,900 shares are outstanding under the 1997 Plan.
Based upon the closing price of the Company's Common Stock on the Nasdaq
SmallCap Market on March 25, 1999 of $7.3125 per share, the market value of the
shares of Common Stock underlying the option grants was $4,723,144. At March 25,
1999, 54,100 shares remained available for grants of awards under the 1997 Plan.
The Board of Directors believes that the ability to grant stock-based awards is
important to the future success of the Company. The grant of stock options and
other stock-based awards can motivate high levels of performance and provide an
effective means of recognizing employee contributions to the success of the
Company. In addition, stock-based compensation can be valuable in recruiting and
retaining key personnel who are in great demand as well as rewarding and
providing incentives to its current employees. The increase in the number of
shares available for awards under the 1997 Plan will enable the Company to
continue to realize the benefits of granting stock-based compensation.
A total of 1,200,000 shares of the Company's Common Stock will be
authorized for issuance under the 1997 Plan assuming approval of this proposal
by the shareholders. Any shares of Common Stock which are subject to an award
but are not used because the terms and conditions of the award are not met may
again be used for awards under the 1997 Plan.
At April 15, 1999, the closing price of the Common Stock on the Nasdaq
SmallCap Market was $8.31 per share.
SUMMARY OF THE 1997 STOCK INCENTIVE 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 is and will continue to 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 will be non-employee Directors of the Company. The
Board is empowered, 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 will 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. 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
9
<PAGE> 12
granted to Directors, officers, employees and consultants of the Company. No
person will 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 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 must be approved by the Board and be in such form and
will contain such terms and conditions as the Board will deem appropriate. No
option will be exercisable after the expiration of ten years from the date it
was granted.
The exercise price of each Incentive Stock Option may not be 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 must not be less than one hundred
percent (100%) of the fair market value of the Common Stock subject to the
option on the date each such Nonstatutory Stock Option is granted. The exercise
price of Common Stock acquired pursuant to the exercise of an option will 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, determines 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.
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 shares subject to the option
prior to the full vesting of the option. Any unvested shares so purchased will
be subject to a right to repurchase in favor of thc 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 will be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in the 1997 Plan. There will be no ReLoad Options on a Re-Load Option.
Any such Re-Load Option will be subject to the availability of sufficient shares
under the 1997 Plan and will be subject to such other terms and conditions as
the Board may determine which are consistent 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
10
<PAGE> 13
on the date of the grant of such award. Each stock bonus or restricted stock
purchase agreement will be approved by the Board and be in such form and will
contain such terms and conditions as the Board deems appropriate.
The purchase price under each restricted stock purchase agreement will be
determined by the Board and designated in such agreement. The purchase price of
shares of Common Stock for which an exemption from the qualification
requirements of the CCSL is unavailable will 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 will 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 will only
be assignable by any participant under the 1997 Plan by will or by the laws of
descent and distribution, and will 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, will
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 will 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 will 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
will 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 will terminate to the extent not exercised within ninety days
following Termination of the stockholder/purchaser.
Stock Appreciation Rights. The Board has 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 entitles 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 are 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
11
<PAGE> 14
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 has 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, will 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
has 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 of any such amendment.
Plan Duration. The Board may suspend or terminate the 1997 Plan at any
time. Unless sooner terminated, the 1997 Plan terminates 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 will 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
12
<PAGE> 15
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 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.
13
<PAGE> 16
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 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.
REQUIRED VOTE
The approval of this amendment requires the affirmative vote of the holders
of a majority of the shares of Common Stock entitled to vote thereon present in
person or by Proxy at the Meeting. With respect to the vote on the amendment to
the 1997 Stock Incentive 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 amendment of the 1997
Stock Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN.
14
<PAGE> 17
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 1999 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>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1) PERCENTAGE(1)
---- --------------------- -------------
<S> <C> <C>
Robert H. Gurevitch(2)........................ 895,498 16.4%
Marvin H. Kleinberg(3)........................ 12,750 *
Dewey Perrigo(4).............................. 125,464 2.3%
Jack D. Preston(5)............................ 32,280 *
Merle Roberts(6).............................. 47,066 *
Stephen F. Ross(7)............................ 4,500 *
John A. Khademi............................... -- *
J. Steven Emerson(8).......................... 470,100 8.4%
1056 Ilona Avenue, Los Angeles, CA 90064
All Officers and Directors as a Group (7
Persons)(9)................................. 1,117,558 20.1%
</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 15,120 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of April 23,
1999.
(3) Includes 8,750 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of April 23,
1999.
(4) Includes 39,133 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of April 23,
1999.
(5) Includes 21,780 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of April 23,
1999.
(6) Includes 22,066 shares of Common Stock underlying options, and 20,000 shares
of Common Stock underlying warrants, which were exercisable on or which will
become exercisable within 60 days of April 23, 1999.
(7) Includes 4,500 shares of Common Stock underlying warrants which were
exercisable on or which will become exercisable within 60 days of April 23,
1999.
(8) Includes 100,000 shares of Common Stock underlying Common Stock purchase
Warrants issued in a debt placement and 78,000 shares of Common Stock
underlying an aggregate of 78,000 of the Company's Redeemable Common Stock
Purchase Warrants which were exercisable on or which will become exercisable
within 60 days of April 23, 1999.
(9) Includes 106,849 shares of Common Stock underlying options, and 24,500
shares of Common Stock underlying warrants, which were exercisable on or
which will become exercisable within 60 days of April 23, 1999.
15
<PAGE> 18
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the next Annual
Meeting of Stockholders, for inclusion in the Company's Proxy Statement and
Proxy form relating to such Annual Meeting, must submit that proposal to the
Company at its principal executive offices by December 31, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers, LLP, independent public accountants, were selected
by the Board of Directors to serve as independent public accountants of the
Company for the year ended December 31, 1998 and have been selected by the Board
of Directors to serve as independent auditors for the fiscal year ending
December 31, 1999. Representatives of PricewaterhouseCoopers, LLP are expected
to be present at the Annual Meeting, and will be afforded the opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions from stockholders.
SOLICITATION OF PROXIES
It is expected that the solicitation of proxies will be primarily by mail.
The cost of solicitation by management will be borne by the Company. The Company
will reimburse brokerage firms and other persons representing beneficial owners
of shares for their reasonable disbursements in forwarding solicitation material
to such beneficial owners. Proxies may also be solicited by certain of the
Company's directors and officers, without additional compensation, personally or
by mail, telephone, telegram or otherwise for the purpose of soliciting such
proxies.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1998, WILL BE
MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO STEPHEN
ROSS, CHIEF FINANCIAL OFFICER, DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., 200 N.
WESTLAKE BLVD., SUITE 202, WESTLAKE VILLAGE, CALIFORNIA 91362.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ STEPHEN ROSS
Stephen Ross
Chief Financial Officer
Westlake Village, California
April 23, 1999
16
<PAGE> 19
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
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 judgment.
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 AND TO AMEND THE 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)
<PAGE> 20
[X] Please mark your votes as in this example
The Board of Directors recommends a WITH vote on Proposal ONE, and a FOR vote on
Proposal Two.
1. ELECTION OF DIRECTOR, as provided in the Company's Proxy Statement.
[ ] WITH [ ] WITHOUT THE AUTHORITY TO VOTE FOR THE NOMINEES LISTED BELOW
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR A NOMINEE, LINE THROUGH, OR OTHERWISE
STRIKE OUT THE NAME BELOW.)
Robert H. Gurevitch Marvin H. Kleinberg Jack D. Preston John A. Khademi
2. APPROVAL OF AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN TO INCREASE THE
MAXIMUM AGGREGATE NUMBER OF SHARES AVAILABLE FOR STOCK AWARDS FROM 700,000 TO
1,200,000.
[ ] 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
----------------------------------
Date
Note: Please sign, date and return
promptly in the enclosed envelope
which requires no postage if
mailed in the United States.
