[LETTERHEAD OF DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.]
September 30, 2000
Dear Stockholder:
The Company's Annual Meeting of Stockholders will be held on Monday, November
13, 2000 at 10:00 a.m. at the Dental/Medical Corporate Headquarters located at
6416 Variel Avenue Woodland Hills, California. I hope that you will be able to
attend in person. Following the formal business of the meeting, management will
be providing an update on our business operations, and will be available to
respond to your questions.
This year the agenda for the Annual Meeting includes the election of directors,
the approval of an amendment to the 1997 Stock Incentive Plan and any other
matters that may properly come before the meeting. YOUR VOTE IS IMPORTANT TO US.
Please sign, date and return your completed proxy card promptly so your shares
can be represented, even if you plan to attend the Annual Meeting in person. As
Chairman, I want you to know that the Board endorses each of the nominees, and I
urge you to elect the nominated Directors.
Additional copies of our Annual Report and Form 10-KSB are available upon
request by contacting Bette Smith at (800) 399-0999, extension 309.
On behalf of the Board of Directors, I want to thank each of you as stockholders
for your continued support of our endeavors.
Sincerely,
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
ROBERT H. GUREVITCH
Chairman of the Board
President and CEO
<PAGE>
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. 1)
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 Com-
mission 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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 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:
-------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
-------------------------------------------------------------------------------
[ ] Check box if any part of the fee if 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:
$125.00
-------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------------
Page 2
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
6416 VARIEL AVENUE
WOODLAND HILLS, CA 91367
-------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 13, 2000
------------
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 Dental/Medical Diagnostic Systems Corporate
Headquarter located at 6416 Variel Avenue, Woodland Hills, California, on
November 13, 2000, 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, Kleinberg, and Weinress 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 1,200,000 shares to
1,800,000 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 September 22, 2000 (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.
Robert H. Gurevitch
Chairman of the Board of Directors
Woodland Hills, CA 91367
September 30, 2000
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
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
6416 VARIEL AVENUE
WOODLAND HILLS, CA 91367
1-818-932-2300
--------------
PROXY STATEMENT
--------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 13, 2000
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, formerly EDUDATA CORPORATION (the "Company"), for use at
the Annual Meeting of Stockholders to be held at the Company's corporate
headquarter located at 6416 Variel Avenue, Woodland Hills, California, on
November 13, 2000, 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 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 September 22, 2000 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. As of
September 22, 2000, 10,438,622 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. As of August 1, 2000, the Company
had approximately 206 stockholders of record, and is informed that there are
approximately 1,400 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 September 30, 2000.
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.
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.
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 three 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.
Page 1
<PAGE>
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 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
Stephen D. Weinress
If elected, each nominee is expected to serve until the 2001 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.
Page 2
<PAGE>
INFORMATION WITH RESPECT TO DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and executive officers of the Company as of August 1, 2000.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS
YEAR
FIRST
ELECTED
AGE AT OR
AUGUST APPOINTED
NAME 1, 2000 DIRECTOR PRINCIPAL OCCUPATION
---- ------- ---------- --------------------
<S> <C> <C> <C>
DIRECTORS
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, LLC") 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 72 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."
Jack D. Preston 66 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 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.
Page 3
<PAGE>
YEAR
FIRST
ELECTED
AGE AT OR
AUGUST APPOINTED
NAME 1, 2000 DIRECTOR PRINCIPAL OCCUPATION
---- ------- ---------- --------------------
John A. Khademi 37 1999 DR. KHADEMI has been a Director of the Company since March 1999.
Dr. Khademi has served as a consultant to the Company since
December 1998. He has had his own practice, which is limited to
Endodontics, since 1994. Also since 1994, Dr. Khademi has been an
Associate Clinical Professor for the Department of Maxillofacial
Imaging, and a Co-Director of Dental Informatics, at the USC School
of Dentistry. He has a Certificate in Endodontics and a Masters in
Digital Imaging.
Stephen Weinress 60 2000 MR. WEINRESS founded L.H. Friend, Weinress, Frankson & Presson, LLC
in 1984 and currently serves as a Vice Chairman, Senior Managing
Director - Research, Analyst and Institutional Broker. He has been
in the financial services business since 1970 where he started as
an analyst with the Fisher Corporation in St. Louis, which was
later purchased by Drexel Burnham. Mr. Weinress has a Master of
Science in Foreign Service from Georgetown University and an MBA
from Washington University in St. Louis.
OTHER EXECUTIVE OFFICERS
Stephen F. Ross 41 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
1992 through 1994, Mr. Ross was the Chief Financial Manager
for the Taper Family Trust. From 1987 through 1991, Mr.
Ross was the Co-founder and Chief Financial Officer for EPI
Products, a distributor of personal care products. 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.
Dewey Perrigo 46 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.
Robert Groner 38 MR. GRONER was named Chief Operating Officer of the Company
on March 8, 2000. Immediately prior to joining the Company,
Mr. Groner served as Operations Manager at International
Extrusion Corporation, a manufacturer of extruded aluminum
products for commercial automotive and construction
applications. From September 1986 to May 1999, Mr. Groner
was employed by Fansteel Inc. as the General Manager of its
Precision Sheer Metal, Schulz Products and California Drop
Forge Divisions. Products manufactured at these locations
were used in the aerospace and medical industries. Mr.
Groner is an alumnus of the Georgia Institute of Technology
and is a member of that institution's Council of Outstanding
Young Engineering Alumni.
</TABLE>
Page 4
<PAGE>
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 Company maintained an Audit Committee consisting of Dr. Khademi and
Mr. Kleinberg; both are outside directors of the Company. Mr. Kleinberg is not
an "independent director" as defined in the Rules and Regulations of the Nasdaq
Stock Market, Inc., because he was entitled to compensation from the Company in
excess of $60,000 during the fiscal year ended December 31, 1999. This
compensation was related to legal services performed by Mr. Kleinberg on behalf
of the Company. 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. No meetings of the Audit Committee
were held during the year ended December 31, 1999. The committee met on March
14, 2000.
The Company maintained a Compensation Committee consisting 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. In connection with the offering of the Company's securities
in May of 1997 (the "Offering") the Company agreed with M. H. Myerson & Co.,
Inc. that 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. No
meetings of the Compensation Committee were held during the year ended December
31, 1999. The committee met on March 14, 2000.
The Board of Directors held five meetings during fiscal 1999. No
Director attended less than 66% of all the meetings of the Board of Directors
and those committees on which he served in fiscal 1999.
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. No payments were made to the Directors, as a group, for
Board meeting attendance in 1999. 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 to each of its Directors of options to purchase Common Stock, as
compensation for serving as Directors.
Page 5
<PAGE>
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
executive officers whose salary and bonus exceeded $100,000 during such year,
and to other significant employees.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------- ----------------------- -------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING LTIP OTHER
SALARY BONUS COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (2) AWARD(S) (#) ($) ($)
--------------------------- ---- ------- ----- ---------- ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Gurevitch(1).... 1999 $300,789 -- -- -- 50,000 -- --
Chairman of the Board of 1998 286,000 -- -- -- 40,000 -- --
Directors, Chief 1997 250,885 -- -- -- 50,000 -- --
Executive Officer,
President and Secretary
Dr. Jack P. Preston (3)... 1999 $197,950 25,000
Director
Executive Vice President
Dewey Perrigo(1).......... 1999 $162,120 -- -- -- 15,000 -- --
Vice President of Sales 1998 156,000 -- -- -- 20,000 -- --
1997 137,308 -- -- -- 25,000 -- --
Stephen F. Ross(4) 1999 $149,520 -- -- -- 30,000 -- --
Chief Financial Officer 1998 $ 51,823 35,000
<FN>
(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 1999,
did not exceed the lesser of $50,000 or 10% of the compensation set forth
above as to any named individual.
(3) Dr. Preston was appointed to the position of Executive Vice President
effective January 4, 1999.
(4) Mr. Ross was appointed Chief Financial Officer in July 1998. Effective
January 1, 2000, Mr. Ross' annual salary has been increased to $190,000.
</FN>
</TABLE>
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 September 30, 2003. Mr. Gurevitch's
employment agreement provides for compensation including salary at a minimum
annual base compensation rate of $298,000, adjusted pursuant to the Consumer
Price Index annually starting July of 2000, a car allowance and life insurance
policy payable to Mr. Gurevitch's estate 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 $100,000
annually for each of the three years in consideration for this non-competition
agreement.
Page 6
<PAGE>
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended December 31, 1999 to the
executive officers named in the Summary Compensation Table ("Named Executive
Officers"). The Company did not grant any stock appreciation rights in 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE MARKET PRICE
OPTIONS FISCAL YEAR ENDED OR BASE ON DATE EXPIRATION
NAME GRANTED DECEMBER 31, 1999 PRICE ($/SH) OF GRANT (1) DATE
---- ---------- ----------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Robert H. Gurevitch...... 50,000 12.22% $ 2.00 * 11/10/2009
Dr. Jack Preston......... 25,000 6.11% $ 2.00 * 11/10/2009
Dewey Perrigo............ 15,000 3.67% $ 2.00 * 11/10/2009
Stephen F. Ross.......... 30,000 7.33% $ 2.00 * 11/10/2009
----------
<FN>
* Unless otherwise indicated, 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.
</FN>
</TABLE>
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, 1999 on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
AGGREGATED FISCAL YEAR END OPTION EXERCISES
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE DECEMBER 31, 1999 AT DECEMBER 31, 1999
EXERCISE REALIZED -------------------------- --------------------------
NAME (#)(1) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Gurevitch.. -- -- 33,120 112,000 $14,400 $140,625
Dr. Jack Preston..... -- -- 23,760 72,400 -- 70,313
Dewey Perrigo........ -- -- 48,133 46,000 -- 42,313
Stephen F. Ross...... -- -- 7,000 58,000 -- 84,375
----------
<FN>
(1) No options were exercised in fiscal year 1999.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. Mr. Umezaki is no longer an affiliate or a
Director of the Company. At December 31, 1999, the Company owed no moneys to
Boston Marketing in connection with Teli Units purchased by the Company prior to
that date. During the year ended December 31, 1999, the Company purchased 2,263
Teli Units at an aggregate cost of $1,577,149 from Boston Marketing.
The Company also has an agreement with Mr. Umezaki pursuant to which he
receives a 15% commission on all sales made by the Company in Asia, except Japan
in which his commission is 12%. Mr. Umezaki earned $402,479 in commissions for
the year ended December 31, 1999.
Page 7
<PAGE>
On April 7, 2000, Boston Marketing filed suit in Los Angeles Superior
Court alleging breach of contract and seeking unspecified damages. The lawsuit
makes numerous claims including the allegation that we failed to make the
minimum purchases for calendar year 1999 and 2000, and that the BMC Distribution
Agreement has been terminated as a result. Boston Marketing has refused to
accept subsequently placed orders. The lawsuit also claims that we failed to pay
certain commissions to Boston Marketing. The Company is still investigating the
allegations and intends to defend the action vigorously and believes that it has
meritorious defenses to the suit. However, the Company is not able to estimate
the extent of liability, if any, that it faces as a result of this suit.
Management believes that, if necessary, other CCD chips, CCU processors and
frame grabbers could be obtained from third-party suppliers on comparable terms,
although a disruption in supplies of components could extend for several months,
which could materially adversely affect the Company's operating results. In
addition, if the Company were forced to seek supplies of CCD chips, CCU
processors and frame grabbers not manufactured by Teli, the Company may not be
able to market the units incorporating those CCD chips, CCU processors and frame
grabbers under the "TeliCam" trademark which could materially adversely affect
the Company's operating results.
Mr. Gurevitch and Mr. Umezaki have guaranteed the performance by the
Company of its obligations under the Company's leases for its Irvine and
Westlake premises. 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.
On May 27, 1997, the Company loaned approximately $126,000 to Dewey
Perrigo, an officer of the Company, and Andrea Niemiec-Perrigo, who was then an
employee but who is no longer employed by 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, 1999 and are due and payable on November 30,
2002. 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.
Marvin Kleinberg is a patent and trademark attorney. Upon the request
of management, he provides legal services to the Company. During 1999, Mr.
Kleinberg billed the Company $65,500 for legal services rendered during the
year.
Stephen Weinress, nominee to the Board of Directors, is an executive
officer of L.H. Friend, Weinress, Frankson & Presson, LLC, an investment bank
which has performed services for the Company during calendar year 2000.
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.
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, 1999, all relevant
Section 16(a) filing requirements were complied with, other than: (1) with
respect to Robert Gurevitch, Chief Executive Officer of the Company, a Form 5
was filed late, on April 26, 2000 to report the annual changes in beneficial
ownership for the fiscal year ended December 31, 1999; (2) with respect to Dr.
Jack Preston, Executive Vice President of the Company, a Form 5 was filed late,
on April 26, 2000 to report the annual changes in beneficial ownership for the
fiscal year ended December 31, 1999; (3) with respect to Dr. John Khademi,
Director of the Company, a Form 5 was filed late, on April 26, 2000 to report
the annual changes in beneficial ownership for the fiscal year ended December
31, 1999; (4) with respect to Marvin Kleinberg, Director of the Company, a Form
5 was filed late, on April 26, 2000 to report the annual changes in beneficial
ownership for the fiscal year ended December 31, 1999 (5) with respect to Dewey
Perrigo, Vice President of Sales of the Company, a Form 4 was filed late, on
June 1, 2000 to report the indirect purchase of 5,100 common shares on November
4, 1999 for purchase price of $2.33 per share; (6) with respect to Dewey
Perrigo, Vice President of Sales of
Page 8
<PAGE>
the Company, a Form 5 was filed late, on June 1, 2000 to report the annual
changes in beneficial ownership for the fiscal year ended December 31, 1999; (7)
with respect to Stephen F. Ross, Chief Financial Officer of the Company, a Form
5 was filed late, on May 10, 2000 to report the annual changes in beneficial
ownership for the fiscal year ended December 31, 1999; (8) with respect to Dr.
Jack Preston, Executive Vice President of the Company, a Form 4 was filed late,
on January 13, 2000, to report the purchase of 2,000 common shares on November
3, 1999 for purchase price of $2.846 per share; (9) with respect to Dr. John
Khademi, Director of the Company, a Form 4 was filed late, on January 13, 2000,
to report the purchase of 5,000 common shares on November 9, 1999 for purchase
price of $2.625 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.
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 (the "1997 Plan") to increase the number of shares
of Common Stock available for issuance under the Stock Plan from 1,200,000
shares to 1,800,000 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. As
of August 1, 2000, options to purchase 1,159,110 shares are outstanding under
the 1997 Plan. Based upon the closing price of the Company's Common Stock on the
Nasdaq SmallCap Market on August 1, 2000 of $0.9375 per share, the market value
of the shares of Common Stock underlying the option grants was $1,086,666. At
August 1, 2000, 40,890 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 1,800,000 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.
SUMMARY OF THE STOCK PLAN
THE FOLLOWING SUMMARY DESCRIPTION OF THE 1997 PLAN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE 1997 PLAN, WHICH IS AVAILABLE
WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN OR ORAL REQUEST AND WILL BE SENT BY
FIRST CLASS MAIL OR OTHER REASONABLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF
RECEIPT OF ANY SUCH REQUEST. REQUESTS SHOULD BE MADE TO THE ATTENTION OF STEPHEN
F. ROSS, CHIEF FINANCIAL OFFICER, DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., 6416
VARIEL AVENUE, WOODLAND HILLS, CA 91367 AT 1-800-399-0999.
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
Page 9
<PAGE>
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
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 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 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.
Page 10
<PAGE>
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 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 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.
Page 11
<PAGE>
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 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.
Page 12
<PAGE>
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.
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.
Page 13
<PAGE>
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 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 is required to permit this amendment. 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.
Page 14
<PAGE>
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 2000 certain information
relating to the ownership of each series of the Company's equity securities by
(i) each person known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of the class of equity security, (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., 6416 Variel Avenue, Woodland Hills, California 91367.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE
TITLE OF CLASS NAME OWNED(1) (1)
-------------- ---- ------------ ----------
<S> <C> <C> <C>
Common Stock Robert H. Gurevitch(2).............................. 786,358 7.5%
Common Stock Marvin H. Kleinberg(3).............................. 16,457 *
Common Stock Dewey Perrigo(4).................................... 139,564 1.6%
Common Stock Jack D. Preston(5).................................. 36,260 *
Common Stock Stephen F. Ross(6).................................. 11,500 *
Common Stock John A. Khademi (7) ................................ 21,390 *
Common Stock Stephen D. Weinress (8)............................. 479,760 *
Common Stock Robert Groner....................................... --
Common Stock AMRO International, S.A.(9)......................... 1,002,068 9.3%
Grossmuensterplatz 6, Zurich,
CH 8022 Switzerland
Common Stock Esquire Trade & Finance, Inc.(10)................... 837,764 7.9%
P.O. Box 2154, Baar,
CH 6342 Switzerland
Common Stock Austinvest Anstalt Balzers(11)...................... 782,503 7.4%
Landstrasse 938, 9494 Furstenturns,
Balzers, Liechtenstein
Common Stock All Officers and Directors as a Group
(7 Persons)(12)..................................... 899,169 10.0%
<FN>
----------
* 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 33,120 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of
September 30, 2000.
(3) Includes 12,457 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of
September 30, 2000.
(4) Includes 48,133 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of
September 30, 2000.
(5) Includes 23,760 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of
September 30, 2000.
Page 15
<PAGE>
(6) Includes 7,000 shares of Common Stock underlying options, and 4,500
shares of Common Stock underlying warrants, which were exercisable on or
which will become exercisable within 60 days of September 30, 2000.
(7) Includes 13,890 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of
September 30, 2000.
(8) Includes 30,030 warrants to purchase shares of common stock at $2.22
per share and 339,640 warrants to purchase common stock at $l.67 per
share owned by L.H. Friend, Weinress, Frankson & Presson, LLC, of which
Mr. Weinress is a Vice-Chairman.
(9) Includes 688,068 shares of Common Stock and 314,000 shares of Common
Stock underlying warrants, which were exercisable on or which will become
exercisable within 60 days of September 30, 2000.
(10) Includes 724,764 shares of Common Stock and 113,000 shares of Common
Stock underlying warrants, which were exercisable on or which will become
exercisable within 60 days of September 30, 2000.
(11) Includes 669,503 shares of Common Stock and 113,000 shares of Common
Stock underlying warrants, which were exercisable on or which will become
exercisable within 60 days of September 30, 2000.
(12) Includes 138,360 shares of Common Stock underlying options, and 4,500
shares of Common Stock underlying warrants, which were exercisable on or
which will become exercisable within 60 days of September 30, 2000.
</FN>
</TABLE>
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, 2000.
Page 16
<PAGE>
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, 1999 and have been selected by the
Board of Directors to serve as independent auditors for the fiscal year ending
December 31, 2000. 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
materials 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, AS AMENDED ON FORM 10-KSB AND FORM
10-KSB/A, WHICH HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE YEAR ENDED DECEMBER 31, 1999, WILL BE MADE AVAILABLE TO STOCKHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO STEPHEN ROSS, CHIEF FINANCIAL OFFICER,
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., 6416 VARIEL AVENUE, WOODLAND HILLS,
CALIFORNIA 91367.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Steven Ross
Stephen Ross
Chief Financial Officer
Woodland Hills, California
September 29, 2000
Page 17
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned, a Stockholder of DENTAL/MEDICAL DIAGNOSTIC SYSTEMS,
INC., a Delaware corporation (the "Company"), hereby nominates, constitutes and
appoints Robert H. Gurevitch and Stephen F. Ross, and each of them, the proxies
of the undersigned, each with full power of substitution, to attend, vote and
act for the undersigned at the Annual Meeting of Stockholders of the Company, to
be held on November 13, 2000, and any postponements or adjournments thereof, and
in connection therewith, to vote and represent all of the shares of the Company
which the undersigned would be entitled to vote, as follows:
A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
Proposal 1. To elect the Board of Directors' five nominees as directors.
Robert H. Gurevitch Marvin H. Kleinberg Jack D. Preston
John A. Khademi Stephen Weinress
[_] FOR ALL NOMINEES LISTED ABOVE (except as marked to the contrary
below)
[_] ABSTAIN
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space below:)
---------------------------------------------------------------------
The undersigned hereby confer(s) upon the proxies and each of them
discretionary authority with respect to the election of directors in
the event that any of the above nominees is unable or unwilling to
serve.
Proposal 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 1,200,000 shares to
1,800,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters not
known at the time of the solicitation hereof, said proxies are authorized to
vote in accordance with their best judgment.
Page 1
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
ABOVE OR, TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A
GRANT OF AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED
AT THE ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated September 30, 2000, relating to
the Annual Meeting.
Dated:___________________________, 2000
Signature:_____________________________
Signature:_____________________________
Signature(s) of Stockholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond exactly with the
name(s) of the Stockholder(s) appearing on the Share
Certificate. If stock is jointly, all joint owners should
sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If
signer is a corporation, please sign the full corporation
name, and give title of signing officer.
[_] Please indicate by checking this box if you anticipate attending
the Annual Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
Page 2
